QUALCOMM, Inc.
Ticker: QCOM
Sector: Technology
Industry: Telecommunications Equipment
Employees: 11,200
Analyst Recommendation I. Screening
Buy Results of Screener
Stock screener provided by MSN was used to identify
Quantity: 50 shares potential investment options for the Mizzou Investment
Stop-Loss: $27.00 Fund. The screener returned a list of 25 companies.
Take Profits: $50.00 After a brief overview of possible candidates, Qualcomm
was selected for further research for its strong historical
performance, unique technology and a growth potential
Pricing
Closing Price: $36.47 (11/03/06)
rarely seen in a large cap company.
52-Week High: $ 50.01 (05/04/06)
52-Week Low: $ 32.76 (09/10/06) Screener Parameters
The following parameters were used in the screener.
Market Data
Market Cap: 60 billion
Diluted EPS: $1.44
Industry: All
P/E: 25.40 S&P 500 Index Membership: Yes
Dividends: $0.48 Market Cap: Large Cap
Div. Yield: 1.32%
Payout Ratio: 28.00% Dividend Yield: as high as possible
Profitability & Effectiveness
Price/Earnings Ratio: as low as possible
ROA: 17.84% Revenue Growth Year vs. Year: as high as possible
ROE: 20.14% Net Profit Margin: as high as possible
Gross Margin: 71.00% Debt/Equity Ratio: as low as possible
Net Profit Margin: 32.82%
Financial Condition
A company meeting these criteria will be a valuable
Debt/Equity: 0 addition to the Mizzou Investment Fund and it will be
Current Ratio: 5.0 consistent with the fund’s overall objectives.
Quick Ratio: 4.8
II. The Firm and its Market
Company Profile
Qualcomm Incorporated designs, manufactures and markets
digital wireless telecommunications products and services
based on its code division multiple access (CDMA)
technology and other technologies. The Company is
organized into the following four business units:
Zaza Tugushi
ztgw3@mizzou.edu Qualcomm CDMA Technologies
develops and supplies integrated circuits and system
software for wireless voice and data communications, multimedia functions and global
positioning
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Qualcomm Technology Licensing
grants licenses to use portions of the intellectual property portfolio, which includes
certain patent rights essential to and/or useful in the manufacturing and sale of CDMA
products
Qualcomm Wireless & Internet
generates revenue primarily through mobile communication products and services,
software and software development
2005 Revenues
Qualcomm Strategic Initiatives
makes investments to promote the 11%
1%
worldwide adoption of CDMA
products and services
The contribution to 2005 revenues of each
29%
business units is displayed in the following 59%
chart. CDMA Technologies
Technology Licensing
Qualcomm markets its products through Wireless & Internet
direct sales force, partnerships, and Strategic Initiative
distributors in the United States, Europe,
the Middle East, Argentina, Brazil, Canada, China, Japan, South Korea, and Mexico. The
Company was incorporated in 1985 and is based in San Diego, California.
Market Position and Competition
The market position of Qualcomm has been very strong. The Company started as a wireless tech
firm that developed a superior digital wireless process called CDMA (Code Division Multiple
Access). CDMA technology has become the leading standard in the United States. The rival
technology used to carry voice signal across the network is TDMA, better known as GSM, and is
a dominant technology in terms of current use worldwide.
The main difference between the two technologies is how the voice data is carried across the
network. GSM divides the frequency band into multiple channels and stacks them together into
a single stream (hence the term “narrow” band). CDMA allows multiple calls to overlay on top
of each other with each call assigned a distinct “sequence code” to keep the signal distinct. As a
result, CDMA allows greater frequency reuse, increasing battery life, improved rate of dropped
calls and far greater security than GSM. That is one of the reasons that WCDMA technology,
which is based on CDMA, is a basis for every 3G network built around the globe.
Qualcomm’s main competitors according to Yahoo Finance are Nokia, Texas Instruments and
Samsung, a private company. However, this list of competitors does not include all rivals such
as Broadcom and provides limited information on the nature of competition between these
companies. For example, Nokia, the largest cell phone manufacturer, is not involved in making
CDMA chips and pays license fees to Qualcomm for selling cell phones with CDMA chips.
Texan Industries are a chip manufacturer and that’s the reason for their listing in the following
table. Samsung, a manufacturer of cell phones and cell phone chips, is contracted to make
CDMA chips for Qualcomm.
Having said that, Qualcomm dominates most of its competitors. Although, Texas Instruments
outperforms Qualcomm on EPS figure, the Company beats all of these competitors’ profitability
ratios and margins. Importantly, Qualcomm is a 60 billion large cap firm that has an outstanding
2
net profit margin by utilizing only 11,200 employees worldwide. It may seem that Qualcomm
may be somewhat overvalued based on its P/E ratio. But the ratio is slightly above the industry
average and is sign of Qualcomm’s growth. In addition, valuation models do not support the
notion that Qualcomm is overvalued. Finally, the comparison to the industry is difficult because
many firms in the industry are small distorting the overall averages.
Direct Comp[etitors QCOM NOK Samsung TXN Industry
Market Cap: 60.24B 77.55B N/A 43.88B 165.58M
Employ-ees: 11,200 58,874 1,280,001 35,207 256
Qtrly Rev Growth (yoy): 43.70% 20.20% N/A 12.60% 15.90%
Revenue (ttm): 7.09B 50.80B 78.99B1 15.17B 88.03M
Gross Margin (ttm): 71.71% 32.98% N/A 49.85% 37.73%
EBITDA (ttm): 3.28B 7.68B N/A 5.08B 5.27M
Oper Margins (ttm): 38.11% 13.22% N/A 23.79% 2.56%
Net Income (ttm): 2.39B 5.20B 7.49B1 2.74B 434.33K
EPS (ttm): 1.401 1.26 N/A 2.714 0.04
P/E (ttm): 26.03 15.35 N/A 10.9 22.34
PEG (5 yr expected): 1.01 1.58 N/A 0.99 1.38
P/S (ttm): 8.47 1.54 N/A 2.91 1.5
III. Economic and Industry Environment
According to the Value Line survey, Telecommunications Equipment Industry is thriving. Large
telephone and cable companies continue to expand their local and long-distance calling and high-
speed Internet networks. Wireless carriers are engaged in fierce competition to develop 3rd
generation (3G) networks and increase their coverage areas. Telecommunication equipment
providers along with telecommunication equipment manufacturers will reap significant benefits
from continuous expansion of the entire telecommunications industry.
Many telecommunications firms are characterized with volatile stock prices. As a result of this
volatility, Value Line expects some companies within the industry to offer above-average returns
over 3 to 5 years. According
Telecommunication Value Line Estimates
to its estimates sales will
Equipment 2005 2006 2007 2009-11
grow 60% by the end of 2007
but operating and profit Sales (in millions) 149,800 219,250 240,400 300,100
margins will remain almost Operating Margin 19.5% 17.8% 18.7% 19.9%
Net Profit Margin 12.8% 11.3% 11.9% 12.9%
unchanged relative to those
Return on Shr. Equity 19.5% 19.5% 21.5% 23.0%
in 2005.
Performance of Telecommunications Equipment industry is closely tied to the performance of
the economy. The industry lagged behind the total U.S. market index following the recession but
by the beginning of 2004 the
telecommunications industry
caught up and mostly has
performed in line with the
overall economy.
Qualcomm’s performance
during the past 5 years has
been volatile. The Company
lagged behind the
telecommunications industry
recovery until 2004 and then
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significantly outperformed both the broad U.S. market and its peers. Recently, Qualcomm’s
stock price dropped from its May high due to concerns about legal disputes between the
company and Broadcom Corporation, an informal inquiry of EU regarding licensing practices
and expiration of licensing agreement with Nokia.
Despite the poor stock performance in the last several months (the figures of YTD, 12 Months
and 2 Years is caused
by sharp stock price Performance Telecommunications DJ U.S. Total
QUALCOMM
drop in the past 6 During Past: Equipment Market Index
months), the long- 3 Months 3.29% 16.41% 6.51%
term performance is 6 Months -29.53% -7.44% 3.35%
still impressive. Year-to-Date -15.34% 9.79% 9.06%
12 Months -17.15% 8.28% 11.80%
2 Years -8.53% 16.20% 21.56%
5 Years 36.29% 26.66% 31.67%
IV. Valuation
First step in valuation of Qualcomm was to calculate appropriate discount rate. The discount rate
was calculating using CAMP formula.
Discount Rate = Risk-free Rate + Beta (Market Return – Risk-free Rate)
Beta = 1.6345 (obtained by using LINEST function comparing weekly returns of S&P 500 and QCOM)
Market Return = 8.75% (obtained from the Investment Fund Management Asset Detail file)
Market Risk Premium = 8.75% - 4.715% = 4.035%
10-Year T-Bond Rate = 4.715% (11/03/06)
Discount Rate = 4.175% + 1.6345 x 4.035% = 10.7702%
The discount rate seems reasonable given the stock price volatility and an overall riskiness of the
telecommunications equipment industry.
Valuation model for Qualcomm has to be at least 2-stage growth since the company is in growth
stage. The technology underlining its business model is expanding and becoming increasingly
popular around the globe.
a) Owners’ Earning Discount Model
As seen during the semester, the Owner Earnings model tends to overestimate the intrinsic value
of the stock. Therefore the 1st and the 2nd stage selected growth rates were as conservative as
possible. The 1st stage growth rate of 10.77% is the same as the discount rate and is much lower
than historical growth rates. The 2nd stage growth rate of 2% will be easily beaten by the
Company unless the entire industry suffers a major setback.
The model estimates an intrinsic value of Qualcomm to be $ 58.34 per share. The current price
is about 37% below the calculated intrinsic value. The details of the model are provided in the
Exhibit A.
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b) Two-Stage Dividend Discount Model (Damodaran)
The second valuation model was used to evaluate the accuracy of the Owner Earnings model
taking into considerations additional factors. First was assign weights to various growth rates
estimates.
Historical Growth Rate: 30% 24.06% (Earnings per Share growth – 5 years)
Outside Prediction of Growth: 30% 17.00% (Earnings growth – Value Line)
Fundamental Prediction of Growth: 40% 14.81% (Net Income, Equity, Tax Rate)
Selected inputs and estimates of the model were very conservative. More weight was given to
fundamental growth rates over historical and prediction rates since growth estimates are not
accurate and change constantly. The high growth stage of 5 years was another attempt to
produce conservative projections. The 2nd stage growth rate was changed to 8% to bring the
growth rate closer to the growth rates entered into the model.
Once again the model produced the value of $43.55 per share, higher than the current market
price of Qualcomm stock. The details of the model are provided in the Exhibit B.
V. Financial Analysis
The analysis of financial statements covers a 6-year period. Qualcomm has a very strong Income
Statement, Balance Sheet and Statement of Cash Flows. All of its margins are very impressive
and none of the future risks are related to its financials. Operating, profit and financial health
ratios are well above the industry averages and above those predicted by Value Line for the
telecommunications equipment industry in the next 5 years.
Exhibit C: Balance Sheet. The balance sheet looks very strong and over the past 6 years even
improved somewhat. Liabilities are tightly controlled and decreased from 15% in 2001 to 12%
in 2006. The most significant change on this statement is the decrease in current assets and an
increase in long-term assets. This was caused by shift from investing in short-term marketable
securities to longer-term marketable securities. Cash has also decreased 11% of total assets
compared to 17% in the previous year due to increased capital expenditures. Still, the Company
carries no debt and an increase in total assets comes from operations.
Exhibit D: Income Statement. License and Royalty revenues contributed 37% of total sales in
2006 compared to only 29% in 2001. Cost of Sales decreased to 29% of total sales from 39% in
2001. Net Profit Margin decreased slightly from the previous year from 38% to 33%.
Exhibit E: Cash Flows. Although net change in Cash has been negative $463 million, it should
not be any of concern. The negative net cash in 2006 is a result of increased financing activities.
Cash flows from operating activities has been steadily increasing and jumped from $1,051
million in 2001 to $3,253 million at the end of 2006 – a 200% increase.
VI. Other Considerations
Management Quality
Paul Jacobs, son of the founder of Qualcomm, recently became a new CEO of the Company
replacing 73-year old Irwin Jacobs. Experts expect the new CEO to exercise little bit more
diplomacy in dealing with competitors and regulatory entities. The shift may be expected since
Qualcomm is no longer an underdog of telecommunications equipment industry and its lavish
revenues from licensing fees attract a lot scrutiny from regulators.
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Although management compensation at Qualcomm may not be the most modest in the corporate
world, it is moderate relative to the size and the past performance of the company. Qualcomm
also grants options to selected employees, directors and consultants to the Company.
Officer Title Salary Bonus Long-term
Dr. Irwin Jacobs Chairman of the Board, Founder $984,000 $500,000 $ 274,000
Dr. Paul Jacobs CEO, Director $650,000 $500,000 $ 155,000
Steven Altman President $604,000 $450,000 $ 151,000
William Keitel CFO $483,000 $350,000 $ 117,000
Jeffrey Jacobs President Global Development na na na
Risks
The recent poor performance of Qualcomm stock is related to several litigations brought by
various entities. The investors are concerned about the outcome of these events and
subsequently pushed the stock price close to the 52-week low. The 3 most significant events that
will have the biggest impact on Qualcomm in the future are described in the following
paragraphs.
Lawsuits brought by Broadcom accusing Qualcomm of patent infringement have been
dominating the recent headlines. Qualcomm answered by the counter lawsuits. In the latest turn
of the events, Qualcomm won an injunction against Broadcom. The federal judge enjoined
“Broadcom Corp. (BRCM) from further solicitation, use or dissemination of Qualcomm's
confidential Wideband Code Division Multiple Access, or WCDMA, trade secrets. The
injunction stays in effect until the trial date in October 2007.
Probe in the European markets into its licensing practices strongly supported by Nokia and other
major cell phone makers is Qualcomm’s another concern. This probe is informal and
investigative in nature at this time. The purpose of this inquiry is to test the claims of
competitors that Qualcomm is engaged in the “unfair” licensing practices.
Possibility that Nokia may not renew its licensing agreement with Qualcomm is another near
term threat. Nokia, a handset maker and an important Qualcomm client, may walk away from
business during the fourth quarter of 2007. The license contract expires on April 9, 2007 and
Nokia may not renew its license agreement. As a result, Qualcomm's results could suffer by 4 to
6 cents in diluted earnings per share. This possibility is unlikely. If Nokia refuses to pay the
licensing fees, then it will have to concentrate only on GSM networks and stay away from
growing CDMA and WCDMA markets. The more likely outcome should be some type of a
compromise.
VI. Analyst Recommendation
The investment recommendation for Qualcomm is BUY. Qualcomm has strong financials, solid
business model and an outstanding technology that is being adopted throughout the world.
Recent lawsuits brought against the Company should be closely monitored but at this time
should not be a cause for panic but rather as an excellent opportunity to buy shares at a discount.
In addition, the telecommunications equipment industry is growing and Qualcomm is one of the
companies with a strong potential to deliver above-the-average returns.
I recommend buying 50 shares of Qualcomm. Given the current price of $36.47, the total
investment will account for roughly 2.5% of our total portfolio value. Telecommunications
industry is growing and the fund should allocate more resources in this industry.
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Recommended stop-loss is $27.00. It is roughly 25% below the current price. Although, price
volatility is expected when holding stocks for a long term, more than 25% decline in value is not
acceptable. On the upside, many analysts predict price target price of $50 per share. This price
is almost in the middle of the two values produced by the evaluation models. However, it is
important to notice that if price appreciation accelerates sharply due to favorable court ruling or
other similar events, the model inputs should be re-evaluated until making a final decision.
Sources
The Value Line
BusinessWeek.com
PC Today
CNNMoney.com
Disclaimer: This analysis does not necessarily reflect the beliefs of the University of Missouri-
Columbia or the College of Business. The insights and opinions are of the students of Investment
Funds Management and should not be used in personal investment decisions. The University of
Missouri and the author of this analysis take no responsibility for the validity of the valuation
and analysis.
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Exhibit A: Warren Buffett Way Owners' Earnings Discount Model
assuming discount rate (k) of 10.77% (derived from CAPM)
Owner Earnings in 2006:
Net Income $ 2,470,000,000
Depreciation $ 1,084,000,000
Capital Expenditures $ 685,000,000
Owner Earnings $ 4,239,000,000
Year
2006 2007 2008 2009 2010
Prior Year Owner Earnings $ 4,239,000,000 $ 4,695,540,300 $ 5,201,249,990 $ 5,761,424,614 $ 6,381,930,045
First Stage Growth Rate (add) 10.77% 10.77% 10.77% 10.77% 10.77%
Owner Earnings $ 4,695,540,300 $ 5,201,249,990 $ 5,761,424,614 $ 6,381,930,045 $ 7,069,263,911
Discounted Value per annum $ 4,695,540,300 $ 4,695,531,822 $ 4,695,523,344 $ 4,695,514,866 $ 4,695,506,388
2011 2012 2013 2014 2015
$ 7,069,263,911 $ 7,830,623,634 $ 8,673,981,800 $ 9,608,169,640 $ 10,642,969,510
10.77% 10.77% 10.77% 10.77% 10.77%
$ 7,830,623,634 $ 8,673,981,800 $ 9,608,169,640 $ 10,642,969,510 $ 11,789,217,326
$ 4,695,497,910 $ 4,695,489,432 $ 4,695,480,954 $ 4,695,472,477 $ 4,695,463,999
Sum of PVof owner earnings: $46,955,021,493
Residual Value
Owner Earnings in year 10 $11,789,217,326
Second Stage Growth Rate (g) (add) 2.00%
Owner Earnings in year 11 $12,025,001,672
Capitalization rate (k-g) 8.77%
Value at end of year 10 $137,112,057,564
Present Value of Residual $49,299,923,982
Intrinsic Value of Company $96,254,945,475
Shares outstanding assuming dilution 1,650,000,000
Intrinsic Value per share $58.34
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Exhibit B: Two-Stage Dividend Discount Model
Inputs to the model
Current Earnings per share = $ 1.44 (in currency)
Current Dividends per share = $ 0.48 (in currency)
Enter length of extraordinary growth period = 5 (in years)
Do you want to enter cost of equity directly? No (Yes or No)
If yes, enter the cost of equity = 10.7702% (in percent)
If no, enter the inputs to the cost of equity
Beta of the stock = 1.6345
Riskfree rate= 4.715% (in percent)
Risk Premium= 4.035% (in percent)
Do you want to use the historical growth rate? Yes (Yes or No)
If yes, enter EPS from five years ago = $ 0.49 (in currency)
Do you have an outside estimate of growth ? Yes (Yes or No)
If yes, enter the estimated growth: 17.00% (in percent)
Do you want to calculate the growth rate from fundamentals? Yes (Yes or No)
If yes, enter the following inputs:
Net Income Currently = $2,470.00 Last year (in currency)
Book Value of Equity = $13,406.00 $ 11,119.00 (in currency)
Tax Rate on Income= 22.00% (in percent)
The following will be the inputs to the fundamental growth formulation:
ROE = 22.21% (in percent)
Retention = 66.67% (in percent)
Do you want to change any of these inputs for the high growth period? No (Yes or No)
If yes, specify the values for these inputs (Please enter all variables)
ROE = 22.21% (in percent)
Retention = 66.67% (in percent)
Do you want to change any of these inputs for the stable growth period? No (Yes or No)
If yes, specify the values for these inputs
ROE = 22.21% (in percent)
Specify weights to be assigned to each of these growth rates:
Historical Growth Rate = 30.00% (in percent)
Outside Prediction of Growth = 30.00% (in percent)
Fundamental Estimate of Growth = 40.00% (in percent)
Enter growth rate in stable growth period? 8.00% (in percent)
Stable payout ratio from fundamentals is = 63.99% (in percent)
Do you want to change this payout ratio? No (Yes or No)
If yes, enter the stable payout ratio= (in percent)
Will the beta to change in the stable period? No (Yes or No)
If yes, enter the beta for stable period =
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Output from the program
Cost of Equity = 11.31%
Current Earnings per share= $1.44
Growth Rate in Earnings per share
Growth Rate Weight
Historical Growth = 24.06% 30.00%
Outside Estimates = 17.00% 30.00%
Fundamental Growth = 14.81% 40.00%
Weighted Average 18.24%
Payout Ratio for high growth phase= 33.33%
The dividends for the high growth phase are shown below (upto 10 years)
1 2 3 4 5
Dividends $ 0.57 $ 0.67 $ 0.79 $ 0.94 $ 1.11
Growth Rate in Stable Phase = 8.00%
Payout Ratio in Stable Phase = 63.99%
Cost of Equity in Stable Phase = 11.31%
Price at the end of growth phase = $ 69.48
Present Value of dividends in high growth phase = $ 2.89
Present Value of Terminal Price = $ 40.66
Value of the stock = $ 43.55
Estimating the value of growth
Value of assets in place = $ 4.24
Value of stable growth = $ 11.42
Value of extraordinary growth = $ 27.89
Value of the stock = $ 43.55
Growth Rate Extraordinary Growth period Value
: First phase Growth 0 $ 14.40
8.24% $ 12.69 1 $ 16.78
9.24% $ 13.98 2 $ 19.31
10.24% $ 15.32 3 $ 22.00
11.24% $ 16.71 4 $ 24.86
12.24% $ 18.14 5 $ 27.89
13.24% $ 19.63 6 $ 31.11
14.24% $ 21.17 7 $ 34.53
15.24% $ 22.77 8 $ 38.17
16.24% $ 24.42 9 $ 42.03
17.24% $ 26.12 10 $ 46.14
18.24% $ 27.89
19.24% $ 29.72
20.24% $ 31.60
21.24% $ 33.55
22.24% $ 35.57
23.24% $ 37.65
24.24% $ 39.80
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Exhibit D: Common-Size Income Statement (in '000)
9/24/2006 9/25/2005 9/30/2004 9/30/2003 9/30/2002 9/30/2001
Revenue
License & Royalty Fees 2,750,000 37% 1,929,000 34% 1,366,000 28% 985,000 26% 835,000 29% 771,930 29%
Equipment/Service 4,776,000 63% 3,744,000 66% 3,514,000 72% 2,862,000 74% 2,080,000 71% 1,907,856 71%
Total Revenue 7,526,000 100% 5,673,000 100% 4,880,000 100% 3,847,000 100% 2,915,000 100% 2,679,786 100%
Operating Expense
Research and Development 1,538,000 20% 1,011,000 18% 720,000 15% 523,000 14% 452,000 16% 414,760 15%
Selling and Marketing 1,116,000 15% 631,000 11% 568,000 12% 471,000 12% 401,000 14% 367,155 14%
Cost of Sales 2,182,000 29% 1,645,000 29% 1,484,000 30% 1,268,000 33% 954,000 33% 1,035,103 39%
Asset Impairment - - - - - - 34,000 1% - - 518,026 19%
Other - - - - (26,000) -1% (30,000) -1% 9,000 0% 50,825 2%
Amortization of Intangibles - - - - 5,000 0% 8,000 - - - - -
Amort. of Goodwill - - - - - - - - 259,000 9% 255,230 10%
Total Operating Expense 4,836,000 64% 3,287,000 58% 2,751,000 56% 2,274,000 59% 2,075,000 71% 2,641,099 99%
Operating Income 2,690,000 36% 2,386,000 42% 2,129,000 44% 1,573,000 41% 840,000 29% 38,687 1%
Interest Income 416,000 6% 256,000 5% 175,000 4% 158,000 4% 128,000 4% - -
Interest Expense (4,000) 0% (3,000) 0% (2,000) 0% (2,000) 0% (1,000) 0% (10,235) 0%
Minority Interest - - - - - - - - (1,000) 0% (167,001) -6%
Equity in Joint Ventures (29,000) 0% (28,000) 0% (72,000) -1% (113,000) -3% (57,000) -2% - -
Investment Income 83,000 1% 198,000 3% 83,000 2% (51,000) -1% (287,000) -10% (317,091) -12%
Net Income Before Taxes 3,156,000 42% 2,809,000 50% 2,313,000 47% 1,565,000 41% 622,000 21% (455,640) -17%
Provision for Income Taxes 686,000 9% 666,000 12% 588,000 12% 536,000 14% 97,000 3% 104,501 4%
Net Income After Taxes 2,470,000 33% 2,143,000 38% 1,725,000 35% 1,029,000 27% 525,000 18% (560,141) -21%
Discontinued Operation - - - - (10,000) 0% (280,000) -7% (160,000) -5% - -
Discontinued Operation Tax - - - - 5,000 0% 78,000 2% (5,000) 0% - -
Accounting Change - - - - - - - - - - (17,937) -1%
Net Income 2,470,000 33% 2,143,000 38% 1,720,000 35% 827,000 21% 360,000 12% (578,078) -22%
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Exhibit C: Common-Size Balance Sheet (in '000)
9/24/2006 9/25/2005 9/30/2004 9/30/2003 9/30/2002 9/30/2001
Cash/Equivalents 1,607,000 11% 2,070,000 17% 1,214,000 11% 2,045,094 23% 1,406,704 22% 1,388,602 24%
Marketable Securities 4,114,000 27% 4,478,000 36% 4,768,000 44% 2,516,003 29% 1,411,178 22% 894,577 16%
Accounts Rcvbl. 700,000 5% 544,000 4% 581,000 5% 483,793 5% 536,950 8% 517,557 9%
Finance Rcvbls. 30,000 0% - - - - 5,795 0% 388,396 6% 10,345 0%
Raw Materials 13,000 0% 23,000 0% 20,000 0% - - - - - -
Work-In-Process 207,000 1% 6,000 0% 3,000 0% - - - - - -
Finished Goods 235,000 2% 148,000 1% 131,000 1% - - - - - -
Deferred Tax 143,000 1% 343,000 3% 409,000 4% 611,536 7% 122 0% - -
Other - - 179,000 1% 101,000 1% 176,192 2% 109,322 2% 147,814 3%
Inventories - - - - - - 110,351 1% 88,094 1% 95,863 2%
Total Current Assets 7,049,000 46% 7,791,000 62% 7,227,000 67% 5,948,764 67% 3,940,766 61% 3,054,758 54%
Land 76,000 0% 65,000 1% 47,000 0% 47,214 1% 41,668 1% 38,093 1%
Bldgs./Improv. 853,000 6% 614,000 5% 413,000 4% 338,424 4% 294,186 5% 280,851 5%
Computer Equip. 659,000 4% 520,000 4% 430,000 4% 378,983 4% 348,208 5% 283,293 5%
Mach./Equipment 764,000 5% 544,000 4% 413,000 4% 449,181 5% 442,098 7% 176,300 3%
Furn./Off. Eqpt. 43,000 0% 33,000 0% 24,000 0% 22,152 0% 29,841 0% 16,393 0%
Property under Capital Lease 0% 2,000 0% - - - - - - - -
Lshld. Improv. 171,000 1% 107,000 1% 54,000 0% 42,750 0% 53,769 1% 44,990 1%
Depreciation -1,084,000 -7% -863,000 -7% -706,000 -7% -656,439 -7% -523,487 -8% -408,524 -7%
Marketable Secs. 4,228,000 28% 2,133,000 17% 1,653,000 15% 810,654 9% 381,630 6% 297,333 5%
Goodwill 1,230,000 8% 571,000 5% 356,000 3% 346,464 4% 344,803 5% 585,046 10%
Deferred Tax 512,000 3% 444,000 4% 493,000 5% 406,746 5% 7,493 0% - -
Other 707,000 5% 518,000 4% 416,000 4% 377,270 4% 425,725 7% 381,589 7%
Investments - - - - - - 128,651 1% 276,414 4% 245,220 4%
Finance Rcvbls. - - - - - - 181,622 2% 442,934 7% 674,391 12%
Total Assets 15,208,000 100% 12,479,000 100% 10,820,000 100% 8,822,436 100% 6,506,048 100% 5,669,733 100%
Accounts Payable 420,000 3% 376,000 3% 286,000 3% 195,065 2% 209,418 3% 106,433 2%
Payroll/Benefits 273,000 2% 196,000 2% 194,000 2% 141,000 2% 126,005 2% 117,795 2%
Other Liab. 532,000 3% 335,000 3% 242,000 2% 195,241 2% 136,726 2% 112,300 2%
Unearned Revenue 197,000 1% 163,000 1% 172,000 2% 174,271 2% 183,482 3% 184,461 3%
Cur.Port.LT Debt - - - - - - 102,625 1% 19,355 0% - -
Total Current Liabilities 1,422,000 9% 1,070,000 9% 894,000 8% 808,202 9% 674,986 10% 520,989 9%
Long Term Debt - - - - - - 123,302 1% 94,288 1% 235 0%
Total Long Term Debt - - - - - - 123,302 1% 94,288 1% 235 0%
LT Unearned Rev. 141,000 1% 146,000 1% 170,000 2% 236,732 3% 259,995 4% 295,005 5%
Other Liabs. 239,000 2% 144,000 1% 92,000 1% 55,578 1% 40,283 1% 35,202 1%
Minority Int. - - - - - - 50 0% 44,540 1% 5,887 0%
Total Liabilities 1,802,000 12% 1,360,000 11% 1,156,000 11% 1,223,864 14% 1,114,092 17% 857,318 15%
Common Stock - - - - - - 81 0% 79 0% 76 0%
Paid in Capital 7,242,000 48% 6,753,000 54% 6,940,000 64% 6,324,971 72% 4,918,202 76% 4,791,559 85%
Retained Erngs. 6,100,000 40% 4,328,000 35% 2,709,000 25% 1,297,289 15% 604,624 9% 244,947 4%
Other Comp. 64,000 0% 38,000 0% 15,000 0% -23,769 0% -130,949 -2% -224,167 -4%
Total Equity 13,406,000 88% 11,119,000 89% 9,664,000 89% 7,598,572 86% 5,391,956 83% 4,812,415 85%
Total Liabilities &
Shareholders' Equity 15,208,000 100% 12,479,000 100% 10,820,000 100% 8,822,436 100% 6,506,048 100% 5,669,733 100%
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Exhibit E: Statement of Cash Flows (in '000)
9/26/2006 9/25/2005 9/30/2004 9/30/2003 9/30/2002 9/30/2001
Net Income 2,470,000 2,143,000 1,725,000 1,029,000 525,000 (578,078)
Depreciation 272,000 200,000 163,000 146,000 349,000 319,811
Impair./Noncash - - - 34,000 - 746,330
Realized Gains on Market. Securities (136,000) (179,000) (88,000) (80,000) (2,000) (69,687)
Derivative Invest. 29,000 (33,000) (7,000) 3,000 58,000 242,849
Market/Other Invest. 24,000 14,000 12,000 128,000 231,000 198,398
Equity in J.V. 29,000 28,000 72,000 113,000 57,000 185,060
Deferred Taxes 514,000 498,000 419,000 411,000 8,000 29,948
Other (28,000) - 35,000 13,000 (4,000) (31,068)
Gain on Sale of Trading Securities - - - 2,000 (2,000) -
Accounts Receivable (133,000) 35,000 (93,000) 53,000 (1,000) 69,541
Inventories (71,000) (23,000) (50,000) (23,000) 18,000 (40,735)
Other Assets 15,000 (74,000) 51,000 (12,000) (9,000) 19,762
Accounts Pybl. 51,000 57,000 151,000 (24,000) 47,000 (13,838)
Payroll/Bene./Other 96,000 49,000 148,000 43,000 25,000 (67,440)
Unearned Revenue 29,000 (29,000) (57,000) (12,000) (37,000) 18,858
Discontinued Operation Cash - - (13,000) (89,000) (300,000)
Minority Interest - - - - - 3,769
Accounting Change - - - - - 17,937
Cash from Operating Activities 3,253,000 2,686,000 2,468,000 1,735,000 963,000 1,051,417
Capital Expenditures (685,000) (576,000) (332,000) (202,000) (127,000) (114,191)
Purch. of AFS Sec. (12,517,000) (8,055,000) (8,372,000) (4,484,000) (1,754,000) (1,182,698)
Investments Purchase 130,000 (184,000) (355,000) (189,000) (301,870)
Investments Maturity 10,853,000 10,000 401,000 257,000 257,000 973,879
Sale AFS Sec's. - 8,072,000 5,026,000 3,183,000 1,050,000 977,285
Issue Finc. Rcvbl. - (1,000) (150,000) (141,000) (498,196)
Collect Finc. Rcvbl. - 2,000 196,000 813,000 8,000 139,052
Note Rcvbl. Issued - - (37,000) (28,000) (4,000) (225,747)
Note Rcvbl. Collect. - - 38,000 4,000 16,000 15,581
Investment (407,000) (249,000) (70,000) (37,000) (199,000) (246,538)
Other, Net 3,000 20,000 9,000 7,000 10,000 11,139
Purch. of License - - - - - (83,774)
Sale of Other Invest - - - - - 26,730
Cash from Investing Activities (2,623,000) (776,000) (3,326,000) (992,000) (1,073,000) (509,348)
Common Stock 692,000 386,000 330,000 191,000 119,000 132,690
Repurchase Common (1,500,000) (953,000) (166,000) (6,000)
Put Option 11,000 37,000 5,000 7,000 - -
Dividend (698,000) (524,000) (308,000) (135,000) - -
Other - - - - - 1,014
Issue LTD/Capital Leases - - - - - 501
Pay LT Debt - - - - - (620)
Minority Interest - - - - - -
Cash from Financing Activities (1,092,000) (1,054,000) 27,000 (103,000) 113,000 133,585
Foreign Exchange Effects (1,000) (2,000) 15,000 (3,923)
Net Change in Cash (463,000) 856,000 (831,000) 638,000 18,000 671,731
Net Cash - Beginning Balance 2,070,000 1,214,000 2,045,000 1,407,000 1,389,000 716,871
Net Cash - Ending Balance 1,607,000 2,070,000 1,214,000 2,045,000 1,407,000 1,388,602
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