SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 24, 2000
QUALCOMM INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-19528 95-3685934
(Commission File No.) (IRS Employer Identification No.)
5775 MOREHOUSE DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (858) 587-1121
ITEM 5. OTHER EVENTS.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES RELATING TO THE PROPOSED SEPARATION AND SPIN-OFF OF
QUALCOMM'S INTEGRATED CIRCUIT AND SYSTEM SOFTWARE SOLUTIONS BUSINESS,
INCLUDING THE IMPACT OF THE PROPOSED SEPARATION AND SPIN-OFF ON QUALCOMM'S
AND THE NEW COMPANY'S RESULTS OF OPERATIONS, THE FINANCIAL ACCOUNTING
CONSEQUENCES OF THE PROPOSED TRANSACTION, THE IMPACT OF THE PROPOSED SPIN-OFF
ON QUALCOMM'S STOCK PRICE AND ITS RELATIONSHIPS WITH CUSTOMERS AND EMPLOYEES,
THE TAX CONSEQUENCES OF THE TRANSACTION TO QUALCOMM AND ITS STOCKHOLDERS, AND
CHANGES IN BUSINESS CLIMATE OR MARKET CONDITIONS OR OTHER FACTORS WHICH COULD
MAKE THE PROPOSED SEPARATION OR SPIN-OFF UNADVISABLE. THIS REPORT ALSO
CONTAINS FORWARD-LOOKING STATEMENTS SUBJECT TO THE RISK THAT THE RATE OF
GROWTH OF THE CDMA SUBSCRIBER POPULATION WILL DECLINE, RISKS ASSOCIATED WITH
STRATEGIC INVESTMENTS AND BUSINESS RELATIONSHIPS, DEVELOPMENTS IN CURRENT OR
FUTURE LITIGATION AND THE TIMING AND RECEIPT OF LICENSE FEES AND ROYALTIES,
AS WELL AS OTHER RISKS INCLUDING THOSE DETAILED FROM TIME TO TIME IN
QUALCOMM'S SEC REPORTS, INCLUDING ITS REPORT ON FORM 10-K FOR THE YEAR ENDED
SEPTEMBER 26, 1999 AND ITS MOST RECENTLY FILED FORM 10-Q.
QUALCOMM Incorporated ("QUALCOMM" or the "Company") is planning to
spin-off its integrated circuit and system software solutions business. The
separation will create two separate companies and is designed to speed the
worldwide growth and development of CDMA wireless voice and data markets. These
companies will focus on critical drivers of growth for the wireless industry.
The new company will focus on developing and delivering innovative wireless
communications integrated circuits and system software solutions for the world's
leading handset and infrastructure manufacturers. QUALCOMM will focus on
developing and supporting the growth of CDMA technology and driving the
convergence of wireless data applications and Internet access, with the goal of
increasing royalties. In addition, QUALCOMM will further develop its other
existing businesses, including QUALCOMM Wireless Systems (OmniTRACS and
Globalstar) and QUALCOMM Digital Media (Government Systems, Digital Cinema and
Eudora).
Following the separation, the new company will be the leading
developer worldwide of CDMA integrated circuits and system software solutions
for wireless voice and data products. According to Dataquest's most recent
analysis, the new company will be the largest fabless semiconductor company
in the world. The new company is temporarily called QUALCOMM Spinco, Inc.
("Spinco"), and will change its name in due course.
As contemplated, QUALCOMM's integrated circuit and system software
solutions business would be transferred to Spinco and shares of Spinco would
be distributed to QUALCOMM stockholders in the form of a tax-free dividend.
QUALCOMM expects the spin-off to be completed by August 2001. The proposed
separation of the integrated circuit and system software solutions business
and the spin-off are each subject to final approval by the Company's Board of
Directors, a favorable ruling from the IRS regarding the tax-free nature of
the transaction and favorable market conditions.
INDUSTRY DEPLOYMENT OF CDMA FOR SECOND AND THIRD GENERATION WIRELESS SYSTEMS.
Since first proposing CDMA technology to the wireless industry in
1989, QUALCOMM has been widely recognized as the pioneer of CDMA technology
for wireless applications. Many in the industry now agree that CDMA
technology is the wireless air interface of choice for the future growth of
wireless communications and plan to adopt CDMA for third generation networks.
2
In just over five years, over 65 million subscribers covering 35
countries have adopted CDMA technology. Second generation cdmaOne networks
have been widely deployed around the world, including South Korea, the United
States, Japan and throughout Latin America. Third generation cdma2000 1X
networks are planned to enter commercial service in South Korea in 2000 and
in Japan, the United States and elsewhere in 2001. In addition, cdma2000 1xEV
(HDR) trials are planned in South Korea and Japan in 2000. NTT DoCoMo has
announced that an initial version of WCDMA will be deployed in some areas of
Japan in 2001.
QUALCOMM'S PIONEERING ROLE IN THE DEVELOPMENT AND DEPLOYMENT OF CDMA.
Since shortly after its formation in 1985, QUALCOMM has allocated
substantial resources to developing, patenting and commercializing the use of
CDMA technology in wireless communications applications. QUALCOMM's intellectual
property portfolio has been widely recognized as being necessary for cdmaOne,
cdma2000, 1xEV, 1Xplus, 1Xtreme and WCDMA.
QUALCOMM has entered into royalty-bearing license agreements for
CDMA wireless applications with more than 80 major telecommunications
manufacturers, including Ericsson, Fujitsu, Hitachi, Hyundai, Intel, LGIC,
Lucent, Motorola, NEC, Nokia, Nortel, Philips, Samsung, Siemens and Sony. In
addition to license fees, QUALCOMM receives on-going royalties from its
licensees as they sell CDMA products provided that at least one claim of one
of QUALCOMM's licensed patents is being utilized. Moreover, approximately 15
of QUALCOMM's license agreements cover WCDMA applications and require
manufacturers to pay on-going royalties to QUALCOMM in connection with their
sales of WCDMA products, with royalty rates equivalent to the royalties that
are payable by them for cdmaOne and cdma2000 applications. The manufacturers
that have licensed some or all of QUALCOMM's essential patents for WCDMA
applications include: Ericsson, Hitachi, LGIC, Lucent, Matsushita, Motorola,
Nortel, Philips, Samsung, Sony, Sanyo and Toshiba. QUALCOMM expects increased
total licensing and royalty revenues as third generation CDMA standards are
deployed.
QUALCOMM'S INTELLECTUAL PROPERTY ARRANGEMENTS WITH SPINCO
To give Spinco the ability to negotiate cross-licenses, gain
reasonable access to third party intellectual property and defend itself as
may be necessary, QUALCOMM will assign to Spinco a portion of its patents and
patent applications that are essential and/or useful to implement existing
and proposed CDMA standards. Following the spin-off, QUALCOMM's intellectual
property portfolio will consist of more than 1,000 U.S. patents and patent
applications, substantially all of which are essential to or useful in CDMA
wireless applications and some of which have applicability in other wireless
applications (such as position location technology). Because of the terms of
QUALCOMM's license agreements and due to the overall breadth and coverage of
its intellectual property portfolio, QUALCOMM believes that assignment of
patents and patent applications to Spinco will not compromise QUALCOMM's
existing or future licensing business, including the royalties payable to the
Company. In addition to filing for patent protection in the United States,
QUALCOMM has and will continue to actively file for patent protection around
the world and has received CDMA patents with broad coverage throughout most
of world, including China, Japan, Korea, Europe, Brazil, North America and
elsewhere.
QUALCOMM's research and development team has a strong and proven track
record of innovation in wireless technologies. QUALCOMM intends to use its
substantial engineering
3
resources and expertise to develop new technologies, applications and
services and make them available to licensees to help grow the wireless
market and generate new or expanded licensing opportunities. In addition to
continuing to develop its own intellectual property portfolio, QUALCOMM will
have the right each year to select and receive ownership of a portion of
Spinco's patent applications. As a result of this relationship with Spinco
and QUALCOMM's own research and development efforts, QUALCOMM expects to be
able to extend the term of its royalty-bearing licenses and create new
licensing opportunities.
BENEFITS TO QUALCOMM OF THE SPIN-OFF.
QUALCOMM expects to realize benefits from its complete separation from
Spinco, including the following:
- - REDUCED NEED FOR CROSS-LICENSES. Since QUALCOMM will no
longer be supplying CDMA integrated circuits, it will have
little or no need for third party cross-licenses. Accordingly,
QUALCOMM expects that it will be able to continue to license
its substantial intellectual property portfolio and continue
to collect royalty and license fee revenue in the future.
- - ELIMINATION OF POTENTIAL CONFLICTS WITH THE COMPANY'S
CUSTOMERS. Many of QUALCOMM's licensees currently also
purchase integrated circuit and system software solutions from
QUALCOMM, which from time to time has caused a conflict
between its licensing and integrated circuit and system
software solutions business. QUALCOMM expects that the
separation of Spinco from QUALCOMM may reduce these
conflicting interests.
- - GREATER STRATEGIC FOCUS. QUALCOMM's licensing business
benefits equally from the advancement and commercial
implementation of any of the proposed third generation
CDMA-based standards. QUALCOMM expects that following the
spin-off, it will have a sharper focus on enhancing the
competitive position of its business and a greater ability
to collaborate with manufacturers and carriers to develop,
implement and deploy the latest implementations of CDMA
technology for a variety of potential applications.
- - BETTER INCENTIVES FOR EMPLOYEES. QUALCOMM expects that the
motivation of its employees and the focus of its senior
management team will be strengthened by incentive compensation
programs tied to the market performance of its common stock.
The separation will enable QUALCOMM to offer its employees
compensation directly linked to the performance of QUALCOMM's
common stock, which QUALCOMM believes will enhance its ability
to attract and retain qualified personnel.
QUALCOMM'S MANAGEMENT AND BUSINESS FOLLOWING THE SPIN-OFF.
QUALCOMM expects that its executive team after the spin-off will be
Dr. Irwin Jacobs, Chairman and CEO; Dr. Paul Jacobs, President; Tony
Thornley, Chief Operating Officer and Chief Financial Officer; and Steve
Altman, Executive Vice President. Dr. Irwin Jacobs will also be Chairman of
the Board of Directors of the spin-off company. Although Dr. Irwin Jacobs
will provide
4
strategic and corporate governance to both companies, he will devote the
majority of his time to QUALCOMM as Chairman and CEO.
Following the spin-off, QUALCOMM intends to (a) actively drive the
rapid deployment of CDMA-based systems and technologies and the growing
demand for high speed, high capacity, wireless data and Internet access
enabled by CDMA technology to grow its royalty stream, (b) continue to
broadly grant royalty-bearing licenses under its technology and patents for
CDMA and other wireless applications, (c) build upon its industry leading
position in data applications and services for the transportation industry,
(d) expand its long-term position as a profitable operator of mobile data
services and (e) create new businesses, such as the Digital Cinema system
currently under development.
DRIVING THE DEMAND OF CDMA TECHNOLOGY FOR WIRELESS VOICE AND DATA.
Following the spin-off, QUALCOMM will retain significant engineering
resources, including engineers with substantial expertise in CDMA technology.
Using these resources, QUALCOMM expects to develop new CDMA-based technology,
participate in the formation of new wireless communications standards and
assist in deployments of working networks around the world. QUALCOMM believes
that by making its engineering resources available to manufacturers and
carriers, it can accelerate the deployment of all forms of CDMA and increase
its licensing and royalty revenues.
With the continued convergence of wireless communications and
Internet access, QUALCOMM expects to see wireless usage and handset sales
continue their rapid growth as a multitude of new value-added services and
new devices with enhanced functionality and features are supplied to the
market. In addition to offering superior voice quality, QUALCOMM believes
that CDMA carriers will offer superior data services at a significantly lower
cost than other non-CDMA carriers because of, among other things, the
increased capacity, higher data rate and inherent security advantages offered
by CDMA as compared to other technologies. The more quickly that carriers
adopt and deploy CDMA, whether it is cdmaOne, cdma2000 or WCDMA, and increase
their market share over non-CDMA carriers, the more favorable the impact to
QUALCOMM's royalty revenue and other activities.
Capitalizing upon its industry insight into wireless technologies
and trends, its experienced management team and its established industry
relationships, QUALCOMM intends to use the cash flow generated from its
royalty business to create, acquire or make strategic investments in new
businesses that are focused on increasing wireless usage and providing new
services, products or technology that will accelerate the demand for CDMA's
high quality voice and high speed, high capacity wireless data. QUALCOMM
intends not only that these new businesses be independently successful, but
also that they generate increased royalty revenue and licensing opportunities
through the general expansion of the CDMA market.
Examples of existing or possible future investments in businesses
that are focused on the wireless market and which are intended to accelerate
the growth of the CDMA, include:
STRATEGIC INVESTMENTS IN CARRIERS TO FURTHER DRIVE THE USAGE AND
ADOPTION OF CDMA. To help support CDMA carriers, as well as promote the use of
its technology, QUALCOMM has made and may continue to make equity investments in
CDMA carriers that it believes have economic and time to market advantages. For
example, QUALCOMM has equity positions in Korea
5
Telecom Freetel (nationwide Korean PCS carrier), Leap Wireless International,
Inc. and Vesper (a Brazilian carrier).
STRATEGIC INVESTMENTS IN MANUFACTURERS TO DRIVE NEW APPLICATIONS OR
MARKETS FOR CDMA. QUALCOMM has made and may continue to make equity
investments in licensed device manufacturers to support the design and
introduction of new products that offer unique capabilities or open new
markets for CDMA technology. For example, QUALCOMM has equity positions in
Handspring (PDA products) and an option to acquire equity in a digital
wireless camera products company. Additionally, QUALCOMM may also make
strategic investments in selected manufacturers or start-up companies that
QUALCOMM believes possess unique capabilities or technology.
JOINT VENTURES WITH STRATEGIC PARTNERS. QUALCOMM has entered into
joint ventures with strategic partners that are designed to increase wireless
usage and dependence on wireless devices. For example, Wireless Knowledge, a
joint venture with Microsoft, was formed to provide secure, reliable wireless
access to business-critical information by connecting corporate resources to
any wireless device. QUALCOMM expects to continue to form such strategic
alliances in the future.
INVESTMENTS IN VENTURE FUNDS OR INCUBATORS. QUALCOMM has made and
may continue to make investments in venture funds, incubators or other
entities that have the requisite expertise, resources and networking
capabilities to identify and create (or assist others in creating) products,
software or technologies focused on the wireless market. For example,
QUALCOMM has equity positions in Ignition and IdeaEdge.
CDMA EQUIPMENT FINANCING. To facilitate the marketing and sale of
CDMA equipment by licensed manufacturers, QUALCOMM has provided, and may
continue to provide, equipment financing either directly to CDMA carriers or
to licensed manufacturers on commercially reasonable terms. By providing such
financing, QUALCOMM expects not only to receive a reasonable return on its
investment, but also to ensure the deployment of CDMA networks, which in turn
results in increased royalty revenue as the networks are deployed and built
out. QUALCOMM has provided equipment financing to Ericsson on a shared basis
with respect to their sale of CDMA infrastructure in Brazil, Mexico and
elsewhere.
FURTHER DEVELOP EXISTING BUSINESSES.
Following the spin-off, QUALCOMM will continue to develop other
business opportunities that exist within the Company.
QWBS. QWBS operates a global wireless data business focused on the
logistics industry, and has over 350,000 OmniTRACS units in operation. This
business maintains a 24-hour, 7-day a week service center with a redundant
back-up center. QWBS, which has been profitable since the early 1990s, provides
a complete mobile interactive information management system that includes
two-way mobile communications, satellite tracking and fleet management software.
The emerging Omni Express business extends this expertise into terrestrial data
markets, building a network of interconnections to wireless data networks that
have been deployed both domestically and internationally.
6
EUDORA. QUALCOMM's multi-platform Eudora e-mail software products
have millions of users worldwide. QUALCOMM supports its Eudora products with
an experienced application, server, and user interface development team.
Approximately 800,000 users have migrated to a recently introduced
advertising-supported version of Eudora in the first six months following its
release. QUALCOMM also has developed proprietary XML-based content-serving
technology that caches content into the Eudora client software. The Company
also has introduced the Eudora Internet Suite, containing both a browser and
e-mail client for the Palm OS.
GOVERNMENT SYSTEMS. QUALCOMM's Government Systems business provides
wireless development and analysis expertise to U.S. Government agencies. This
business maintains a team of software experts that support client-server
developments with potential commercial applications.
DIGITAL CINEMA. The Company's Digital Cinema business is developing
a system for the electronic delivery of motion pictures to theatres around
the world. The information assurance architecture, including compression and
security technologies, developed by the Digital Cinema group can translate to
other types of digital content. The relationships QUALCOMM has developed
provide direct access to content creators and distributors. In June 2000, the
Company entered into a joint venture with Technicolor that will use
QUALCOMM's Digital Cinema technology.
WIRELESS SYSTEMS. The Company's Wireless Systems division designs,
manufacturers, markets and deploys infrastructure and handset products for
use in CDMA wireless satellite networks.
See Item 7 of this Report for certain unaudited pro forma condensed
consolidated financial information of QUALCOMM which takes into account the
proposed spin-off.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION.
(1) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF QUALCOMM INCORPORATED.
The following unaudited pro forma condensed consolidated
financial information is being filed herewith:
Page:
Unaudited Pro Forma Condensed Consolidated Balance
Sheet at June 25, 2000 9
Unaudited Pro Forma Condensed Consolidated Statement
of Income for the Nine Months Ended June 25, 2000 10
Unaudited Pro Forma Condensed Consolidated Statement
of Income for the Fiscal Year Ended September 30, 1999 11
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information 12
7
(c) EXHIBITS.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information has been prepared to give retroactive effect to the distribution
of our wholly owned subsidiary, QUALCOMM Spinco, Inc. (Spinco) to our
stockholders. The financial information is based on our unaudited historical
condensed consolidated financial statements as of June 25, 2000 and for the
nine month period then ended and on our audited historical consolidated
financial statements for the fiscal year ended September 30, 1999. The pro
forma condensed consolidated statements of income for the nine months ended
June 25, 2000 and the fiscal year ended September 30, 1999 give effect to the
distribution and the transactions described below as if they occurred as of
October 1, 1998. The related adjustments are described in the accompanying
notes.
The unaudited pro forma condensed consolidated financial information
is based upon available information and certain assumptions set forth in the
notes to the unaudited pro forma condensed consolidated financial
information, which have been made solely for purposes of developing such pro
forma financial information. The distribution of Spinco common stock to our
stockholders may not occur. The unaudited pro forma condensed consolidated
financial information does not purport to represent what our results of
operations or financial condition would actually have been had the
distribution of our investment in Spinco to our stockholders and the
transactions described below occurred as of October 1, 1998 or to project our
results of operations or financial condition for any future period or date.
In May 1999, we sold certain assets related to our terrestrial-based
CDMA wireless infrastructure business. In connection with the sale, we
recorded $251 million in charges during fiscal 1999. We received
consideration of $98 million in cash on the closing date. Total consideration
will be adjusted based on a final determination of net assets, which has not
yet occurred.
In February 2000, we sold certain assets related to our
terrestrial-based CDMA wireless consumer products business, including our
phone inventory, manufacturing equipment and customer commitments. In
connection with the sale, we recorded $83 million in charges during fiscal
2000. We received total consideration of $242 million in cash.
In March 2000, we acquired all of the outstanding capital stock of
SnapTrack, Inc. (SnapTrack), a developer of wireless position location
technology, in a transaction accounted for as a purchase. The purchase price
was approximately $1 billion, representing the value of the 5.8 million
QUALCOMM shares issued to effect the purchase, the value of vested and
unvested options and warrants exchanged at the closing date and estimated
transaction costs of $2 million. The preliminary allocation of purchase
price, based on the estimated fair values of the acquired assets and assumed
liabilities, reflected acquired goodwill of $948 million, purchased
in-process technology of $60 million and other intangible assets of $34
million. Tangible assets acquired and liabilities assumed were not material
to our financial statements. We expect to finalize the purchase price
allocation within one year and do not anticipate material adjustments to the
preliminary purchase price allocation. We will allocate to Spinco $629
million in goodwill, $60 million in purchased in-process technology and $19
million in other intangible assets related to SnapTrack's workforce, customer
base and completed technology. We will retain $319 million in goodwill and
$15 million in other intangible assets related to specific SnapTrack patents
that will not be transferred to Spinco. Goodwill and other intangible assets
resulting from the SnapTrack acquisition are amortized on a straight-line
basis over their estimated useful lives of four years. Purchased in-process
technology was expensed upon acquisition.
8
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 25, 2000
(in thousands, except per share data)
QUALCOMM DISTRIBUTION
AS REPORTED OF SPINCO PRO FORMA
----------------- ------------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 712,709 $ (12,550)(a) $ 700,159
Marketable securities 849,882 - 849,882
Accounts receivable, net 672,649 (218,295)(a) 454,354
Finance receivables 54,167 - 54,167
Inventories, net 73,949 (35,888)(a) 38,061
Other current assets 253,087 (23,050)(a) 230,037
----------------- ------------------- -------------
Total current assets 2,616,443 (289,783) 2,326,660
Property, plant and equipment, net 437,631 (38,003)(a) 399,628
Marketable securities 705,771 - 705,771
Finance receivables, net 784,066 - 784,066
Goodwill, net 883,197 (587,014)(a) 296,183
Deferred income taxes 515,855 - 515,855
Other assets 428,632 (21,764)(a) 406,868
----------------- ------------------- -------------
Total assets $ 6,371,595 $ (936,564) $ 5,435,031
================= =================== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 432,697 $ (67,622)(a) $ 365,075
Unearned revenue 83,919 (19,751)(a) 64,168
----------------- ------------------- -------------
Total current liabilities 516,616 (87,373) 429,243
Other liabilities 35,082 (10,811)(a) 24,271
----------------- ------------------- -------------
Total liabilities 551,698 (98,184) 453,514
----------------- ------------------- -------------
Minority interest in consolidated subsidiaries 46,354 - 46,354
----------------- ------------------- -------------
Stockholders' equity:
Preferred stock, $0.0001 par value - - -
Common stock, $0.0001 par value 74 - 74
Paid-in capital 5,080,375 (105,965)(a) 4,974,410
Retained earnings 732,415 (732,415)(a) -
Accumulated other comprehensive loss (39,321) - (39,321)
----------------- ------------------- -------------
Total stockholders' equity 5,773,543 (838,380) 4,935,163
----------------- ------------------- -------------
Total liabilities and stockholders' equity $ 6,371,595 $ (936,564) $ 5,435,031
================= =================== =============
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.
9
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED JUNE 25, 2000
(in thousands, except per share data)
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------------
SALE OF ACQUISITION
CONSUMER OF
QUALCOMM PRODUCTS SNAPTRACK DISTRIBUTION OF
AS REPORTED BUSINESS INC. SUBTOTAL SPINCO PRO FORMA
----------- ----------- ----------- ----------- ------------- -----------
Revenues $2,561,335 $ (435,364) (b) $ 339 (c) $2,126,310 $ (965,053) (f) $1,161,257
----------- ----------- ----------- ----------- ------------- -----------
Operating expenses:
Cost of revenues 1,274,096 (431,783) (b) 23 (c) 842,336 (410,753) (f) 431,583
Research and
development 254,490 (30,108) (b) 5,387 (c) 229,769 (150,727) (f) 79,042
Selling, general and
administrative 275,870 (62,854) (b) 5,890 (c) 218,906 (53,903) (f) 165,003
Amortization of
goodwill and other
acquisition-related
intangible assets 84,114 - 102,336 (c) 186,450 (122,553) (f) 63,897
Purchased in-process
technology 60,030 - (60,030)(c) - - -
Other 63,589 (63,589) (b) - - - -
----------- ----------- ----------- ----------- ------------- -----------
Total operating expenses 2,012,189 (588,334) 53,606 1,477,461 (737,936) 739,525
----------- ----------- ----------- ----------- ------------- -----------
Operating income 549,146 152,970 (53,267) 648,849 (227,117) 421,732
Interest expense (4,494) 2,722 (b) (42)(c) (1,814) 42 (f) (1,772)
Investment income, net 434,444 2,952 (b) 94 (c) 437,490 (94) (f) 437,396
Distributions on Trust
Convertible Preferred
Securities of
subsidiary trust (13,039) - - (13,039) - (13,039)
Other (3,265) - - (3,265) - (3,265)
----------- ----------- ----------- ----------- ------------- -----------
Income before income taxes 962,792 158,644 (53,215) 1,068,221 (227,169) 841,052
Income tax expense (431,256) (73,167) 4,364 (500,059) 139,889 (360,170)(k)
----------- ---------- ---------- ---------- ------------- -----------
Net income $ 531,536 85,477 (48,851) 568,162 (87,280) $ 480,882
=========== ========== ========== ========== ============= ===========
Net earnings per common
share:
Basic $ 0.75 $ 0.68
=========== ===========
Diluted $ 0.67 $ 0.61
=========== ===========
Shares used in per share
calculations:
Basic 707,713 711,009
=========== ===========
Diluted 799,241 803,587
=========== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.
10
QUALCOMM INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
QUALCOMM AS CHANGES IN DISTRIBUTION OF
REPORTED THE BUSINESS(g) SUBTOTAL SPINCO PRO FORMA
----------- ------------- ------------ ----------------- -----------------
Revenues $ 3,937,299 $(1,462,047) $ 2,475,252 $ (1,148,337)(f) $ 1,326,915
----------- ------------ ------------ ----------------- -----------------
Operating expenses:
Cost of revenues 2,485,072 (1,308,722) 1,176,350 (479,534)(f) 696,816
Research and development 381,139 (159,332) 221,807 (134,849)(f) 86,958
Selling, general and administrative 425,118 (191,954) 233,164 (56,698)(f) 176,466
Amortization of goodwill and other
acquisition-related intangible assets 823 245,605 246,428 (162,142)(f) 84,286
Other 240,007 (197,884) 42,123 - 42,123
----------- ------------ ------------ ----------------- -----------------
Total operating expenses 3,532,159 (1,612,287) 1,919,872 (833,223) 1,086,649
----------- ------------ ------------ ----------------- -----------------
Operating income 405,140 150,240 555,380 (315,114) 240,266
Interest expense (14,698) 2,840 (11,858) 255 (f) (11,603)
Investment income, net 24,576 12,195 36,771 (404)(f) 36,367
Distributions on Trust Convertible Preferred
Securities of subsidiary trust (39,297) - (39,297) - (39,297)
Other (69,035) 52,531 (16,504) - (16,504)
----------- ------------ ------------ ----------------- -----------------
Income before income taxes 306,686 217,806 524,492 (315,263) 209,229
Income tax expense (105,807) (193,756) (299,563) 190,962 (108,601)(l)
----------- ------------ ------------ ----------------- -----------------
Net income $ 200,879 24,050 $ 224,929 (124,301) $ 100,628
=========== ============ ============ ================= =================
Net earnings per common share:
Basic $ 0.34 $ 0.17
=========== =================
Diluted $ 0.31 $ 0.15
=========== =================
Shares used in per share calculations:
Basic 594,714 600,506
=========== =================
Diluted 649,889 657,079
=========== =================
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION.
11
QUALCOMM INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
(in thousands)
(a) Reflects the distribution to our stockholders of Spinco common stock
in the form of a dividend.
(b) Reflects the results of operations of the terrestrial-based CDMA
wireless consumer products business sold during fiscal 2000 and charges
of $83 million related to the sale as if the sale occurred as of
October 1, 1998. Of the $83 million, $19 million related to the
write-off of inventory, which was recorded in cost of revenues. The
remaining $64 million was recorded in other operating expense and was
comprised of the following:
Write off of fixed assets $ 40
Employee compensation 12
Other 12
----
$ 64
====
(c) The acquisition of SnapTrack Inc. is comprised of the following
separate pro forma adjustments for the nine months ended June 25, 2000:
Nine Months Ended June 25, 2000
---------------------------------------------
SnapTrack Inc. Pro Forma
Historical (d) Adjustments (e) Total
-------------- ------------ ---------
Revenues $ 339 $ - $ 339
Operating expenses:
Cost of revenues 23 - 23
Research and development 5,387 - 5,387
Selling, general and administrative 5,890 - 5,890
Amortization of goodwill and other
acquisition-related intangible assets - 102,336 102,336
Purchased in-process technology - (60,030) (60,030)
Other - - -
-------- --------- ---------
Total operating expenses 11,300 42,306 53,606
-------- --------- ---------
Operating income (10,961) (42,306) (53,267)
Interest expense (42) - (42)
Investment income, net 94 - 94
Distributions on Trust Convertible
Preferred Securities of subsidiary trust - - -
Other - - -
-------- --------- ---------
Income before income taxes (10,909) (42,306) (53,215)
Income tax expense - 4,364 4,364
-------- --------- ---------
Net income $(10,909) $ (37,942) $ (48,851)
======== ========= =========
(d) Reflects the results of operations of SnapTrack Inc. as if we acquired
SnapTrack as of October 1, 1998.
(e) Reflects amortization of goodwill and other acquisition-related
intangible assets as if we acquired SnapTrack as of October 1, 1998 and
the elimination of the non-recurring $60 million charge for purchased
in-process technology.
(f) Reflects the pro forma results of operations of Spinco as if our
distribution of Spinco common stock to our stockholders occurred as of
October 1, 1998.
12
(g) The following table identifies the changes in QUALCOMM's business
during fiscal year 1999.
CHANGES IN THE BUSINESS
-------------------------------------------------------------------------
SALE OF ACQUISITION
SALE OF CONSUMER OF OTHER
INFRASTRUCTURE PRODUCTS SNAPTRACK NONRECURRING
BUSINESS BUSINESS INC. ITEMS TOTAL
--------------- -------------- ------------ ------------ ------------
Revenues $ (96,626)(h) $(1,365,486)(b) $ 65(i) $ (1,462,047)
--------------- -------------- ------------ ------------ ------------
Operating expenses:
Cost of revenues (121,499)(h) (1,187,293)(b) 70(i) - (1,308,722)
Research and development (80,693)(h) (85,642)(b) 7,003(i) - (159,332)
Selling, general and administrative (57,863)(h) (140,655)(b) 6,564(i) - (191,954)
Amortization of goodwill and other
acquisition- related intangible assets - - 245,605(i) - 245,605
Other (183,325)(h) - - (14,559)(j) (197,884)
--------------- -------------- ------------ ------------ ------------
Total operating expenses (443,380) (1,413,590) 259,242 (14,559) (1,612,287)
--------------- -------------- ------------ ------------ ------------
Operating income 346,754 48,104 (259,177) 14,559 150,240
Interest expense - 3,095 (b) (255)(i) - 2,840
Investment income, net - 11,791 (b) 404 (i) - 12,195
Distributions on Trust Convertible Preferred
Securities of subsidiary trust - - - - -
Other 52,531 (h) - - - 52,531
--------------- -------------- ------------ ------------ ------------
Income before income taxes 399,285 62,990 (259,028) 14,559 217,806
Income tax expense (168,105) (25,196) 5,369 (5,824) (193,756)
--------------- -------------- ------------ ------------ ------------
Net income $ 231,180 $ 37,794 $(253,659) $ 8,735 $ 24,050
=============== ============== ============ ============ ============
(h) Reflects the results of operations of our terrestrial-based CDMA wireless
infrastructure business sold during fiscal 1999 and a charge of $251
million related to the sale as if the sale occurred as of October 1,
1998. The $251 million charge is comprised of the following:
Cost of revenues:
Contract exit costs $ 16
-----
Operating expenses:
Employee compensation 74
Difference between carrying
value of net assets sold and
consideration received 66
Write down of infrastructure assets
not sold to net realizable value 43
-----
183
-----
Non-operating expenses:
Payments under financial
guarantees 37
Write off of other
non-operating assets 15
-----
52
-----
$ 251
=====
13
(i) The acquisition of SnapTrack Inc. is comprised of the following
separate pro forma adjustments for fiscal 1999:
Year Ended September 30, 1999
---------------------------------------------
SnapTrack Inc. Pro Forma
Historical (d) Adjustments (e) Total
-------------- ------------ ---------
Revenues $ 65 $ - $ 65
Operating expenses:
Cost of revenues 70 - 70
Research and development 7,003 - 7,003
Selling, general and administrative 6,564 - 6,564
Amortization of goodwill and other
acquisition-related intangible assets - 245,605 245,605
Purchased in-process technology - - -
Other - - -
-------- --------- ---------
Total operating expenses 13,637 245,605 259,242
-------- --------- ---------
Operating income (13,572) (245,605) (259,177)
Interest expense (255) - (255)
Investment income, net 404 - 404
Distributions on Trust Convertible
Preferred Securities of subsidiary trust - - -
Other - - -
-------- --------- ---------
Income before income taxes (13,423) (245,605) (259,028)
Income tax expense - 5,369 5,369
-------- --------- ---------
Net income $(13,423) $(240,236) $(253,659)
======== ========= =========
(j) Reflects a $15 million restructuring charge recorded in fiscal 1999.
(k) The pro forma income tax rate excluding the impact of non-deductible
goodwill for the period is estimated to be 40%.
(l) The pro forma income tax rate excluding the impact of non-deductible
goodwill for the period is estimated to be 37%.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUALCOMM INCORPORATED
Dated: July 24, 2000 By: /s/ Anthony S. Thornley
-----------------------------------
Anthony S. Thornley
Executive Vice President and
Chief Financial Officer