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): September 23, 1998 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.) 6455 LUSK BOULEVARD SAN DIEGO, CALIFORNIA 92121 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (619) 587-1121 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On September 23, 1998, QUALCOMM Incorporated ("QUALCOMM" or the "Company") completed the spin-off and distribution (the "Distribution") to its stockholders of shares of Leap Wireless International, Inc., a Delaware corporation ("Leap"). As part of the Distribution, effective immediately after the close of market trading on September 23, 1998, record holders of QUALCOMM common stock on September 11, 1998 received a dividend of one share of common stock of Leap for every four shares of common stock of QUALCOMM held by them as of that date. Regular public trading of Leap shares under the ticker symbol "LWIN" began on September 24, 1998, at which time QUALCOMM common stock traded ex-dividend. In connection with the Distribution, QUALCOMM transferred to Leap QUALCOMM's joint venture and equity interests in the following domestic and international emerging terrestrial-based wireless telecommunications operating companies: Pegaso Telecomunicaciones, S.A. de C.V. (Mexico), Metrosvyaz Limited (Russia) and Orrengrove Investments Limited (Russia), ChileSat Telefonia Personal, S.A. (Chile), Chase Telecommunications, Inc. (United States), OzPhone Pty. Ltd. (Australia), and certain other development-stage businesses. QUALCOMM and Leap have also agreed that, if certain events occur within eighteen months after the Distribution, QUALCOMM will transfer to Leap certain assets and liabilities related to Telesystems of Ukraine, a wireless telecommunications company in Ukraine. In connection with the Distribution, QUALCOMM also transferred to Leap $10.0 million cash and certain indebtedness of the operating companies owed to QUALCOMM in the amount of approximately $113.0 million, approximately $30.8 million of which is indebtedness under certain convertible notes, as well as certain miscellaneous assets. QUALCOMM has also made a substantial funding commitment to Leap in the form of a $265.0 million secured credit facility. The aggregate net tangible book value of the assets transferred by QUALCOMM to Leap in connection with the Distribution was $260.5 million. Leap has agreed to assume certain of QUALCOMM's other obligations to manage operations of and finance costs relating to ongoing build-outs of the wireless telecommunications systems being deployed by such operating companies, including approximately $73.8 million of anticipated funding obligations to certain of the operating companies, other than equipment financing obligations, as well as certain miscellaneous liabilities. There can be no assurance that Leap will fulfill or perform such obligations sufficiently or at all. QUALCOMM will continue to be a supplier of CDMA equipment and is expected to provide significant vendor financing to Leap's wireless telecommunications businesses and ventures. As a result of the Distribution, QUALCOMM and Leap will operate as independent publicly traded companies, with no common officers or directors. In connection with the Distribution, however, Leap issued to QUALCOMM a warrant to purchase 5,500,000 shares of Leap common stock at a purchase price equal to the average of the last sales price per share of the Leap common stock on the Nasdaq National Market for each of the five consecutive trading days beginning with and including the date of the Distribution, or $6.10625 per share. In addition, QUALCOMM and Leap will continue to have a relationship as a result of the following agreements that they entered into in connection with the Distribution: 2 SEPARATION AND DISTRIBUTION AGREEMENT. Pursuant to the Separation and Distribution Agreement, QUALCOMM agreed to transfer to Leap the assets described above, and Leap agreed to assume the obligations described above. QUALCOMM and Leap also agreed that, if certain events occur within eighteen months after the Distribution, QUALCOMM will transfer to Leap certain assets and liabilities related to Telesystems of Ukraine. Leap also agreed in the Separation and Distribution Agreement that, until January 1, 2004, it will deploy, subject to certain specified limited exceptions, only wireless terrestrial systems using technology and systems known as cdmaOne. In addition, Leap agreed that, until January 1, 2004, it will, subject to certain specified limited exceptions, invest only in companies using cdmaOne systems, in connection with terrestrial wireless activities. Pursuant to the Separation and Distribution Agreement and subject to certain exceptions, QUALCOMM will have a non-exclusive, royalty-free license to any patent rights developed by Leap or any of Leap's affiliates. In addition, pursuant to the Separation and Distribution Agreement, Leap will grant to QUALCOMM a right of first refusal for a period of three years with respect to proposed transfers by Leap of its interests in joint ventures and equity interests, subject to pre-existing rights of other investors. Leap also agreed to take an active role in the management of companies with which it has joint venture or equity interests, consistent with its own business needs and applicable laws, contractual arrangements and other requirements. Finally, the agreement includes provisions prohibiting each party from soliciting the employees of the other for three years. CREDIT FACILITY. Leap entered into a secured credit facility with QUALCOMM. The credit facility consists of two sub-facilities. The first sub-facility enables Leap to borrow up to $35.2 million from QUALCOMM, subject to the terms thereof. The proceeds from this sub-facility may be used by Leap solely to meet the normal working capital and operating expenses of Leap, including salaries and overhead, but excluding, among other things, strategic capital investments in wireless operators, substantial acquisitions of capital equipment, and/or the acquisition of telecommunications licenses. The other sub-facility enables Leap to borrow up to $229.8 million from QUALCOMM, subject to the terms thereof. The proceeds from this second sub-facility may be used by Leap solely to make certain identified portfolio investments. Amounts borrowed under the Credit Facility will be due and payable approximately eight years following the Distribution Date. QUALCOMM will have a first priority security interest in, subject to some exceptions, substantially all of the assets of Leap for so long as any amounts are outstanding under the Credit Facility. Amounts borrowed under the Credit Facility will bear interest at a variable rate equal to LIBOR plus 5.25% per annum. Interest will be payable quarterly beginning September 30, 2001; and prior to such time, accrued interest shall be added to the principal amount outstanding. MASTER AGREEMENT REGARDING EQUIPMENT PROCUREMENT. The Master Agreement Regarding Equipment Procurement sets forth certain obligations of Leap and QUALCOMM with respect to the purchase and sale of certain terrestrial-based cdmaOne infrastructure and subscriber equipment. INTERIM SERVICES AGREEMENT. The Interim Services Agreement governs the provision by QUALCOMM to Leap, on an interim basis, of certain services (which may include voice telecommunications and data transmission, 3 accounting, financial management, tax, payroll, stockholder and public relations, legal, human resources administration, procurement, real estate management and other administrative functions), each as mutually agreed to and on the terms set forth therein. Leap has agreed to pay QUALCOMM the hourly rate of the QUALCOMM employees performing such services, plus associated general and administrative overhead (which shall be deemed to equal an additional 150% of the hourly rate of the employees) and all out-of-pocket costs and expenses. These interim services are not expected to extend beyond one year following the date of the Distribution. EMPLOYEE BENEFITS AGREEMENT. Pursuant to the Employee Benefits Agreement, Leap assumed and agreed to pay, perform, fulfill and discharge certain liabilities to, or relating to, former employees of QUALCOMM or its affiliates who are now employed by Leap. In addition, Leap was obligated to grant (in connection with the Distribution) options to purchase shares of Leap common stock to certain holders of options to purchase shares of QUALCOMM Common Stock. TAX AGREEMENT. The Tax Agreement generally will require QUALCOMM to pay, and indemnify Leap against, all United States federal, state, local and foreign taxes relating to the businesses conducted by QUALCOMM or its subsidiaries for any taxable period, other than the following taxes which will be paid by Leap and against which Leap will indemnify QUALCOMM: (i) all United States federal, state, local and foreign taxes relating to Leap and its U.S. subsidiaries for periods after the Distribution; (ii) all United States federal, state, local and foreign taxes relating to Leap's non-U.S. subsidiaries or any predecessor or successor thereof for all periods before and after the Distribution (other than with respect to certain restructuring transactions incident to the Distribution); and (iii) all United States federal, state, local and foreign taxes arising out of certain actions taken by, or in respect of, Leap or any of its subsidiaries that cause adverse tax consequences to QUALCOMM, Leap or their respective subsidiaries with respect to the Distribution or the transactions related thereto; provided, however, that under certain limited circumstances Leap's indemnification obligation described in this subparagraph (iii) may be reduced. CONVERSION AGREEMENT. Pursuant to the Conversion Agreement, Leap agreed to issue shares of Leap common stock to holders of QUALCOMM's Trust Convertible Preferred Securities upon the conversion of such securities and to, at all times, have reserved and keep available, solely for issuance and delivery upon such conversion, all Leap common stock issuable from time to time upon such conversion. A number of Leap's senior management members were members of QUALCOMM's senior management and joined Leap from QUALCOMM in connection with the formation of Leap, including Harvey P. White, Leap's President, Chief Executive Officer and Chairman of the Board and formerly Vice Chairman of the Board of QUALCOMM; Thomas J. Bernard, Leap's Executive Vice President and formerly Senior Vice President of QUALCOMM; and James E. Hoffmann, Leap's Senior Vice President and General Counsel and formerly Vice President, Legal Counsel of QUALCOMM. 4 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 28, 1998 7 Unaudited Pro Forma Condensed Consolidated Statement of Income for the nine months ended June 28, 1998 8 Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended September 30, 1997 9 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information 10
(c) EXHIBITS. 2.1 Separation and Distribution Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to the Registration Statement on Form 10, as amended, filed by Leap with the Commission on July 1, 1998, SEC File No. 0-29752 (the "Form 10")). 99.1 Warrant issued to QUALCOMM by Leap (incorporated herein by reference to Exhibit 4.2 to the Form 10). 99.2 Credit Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.1 to the Form 10). 99.3 Tax Matters Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.2 to the Form 10). 99.4 Interim Services Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.3 to the Form 10). 99.5 Master Agreement Regarding Equipment Procurement 99.4 between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.4 to the Form 10). 5 99.6 Employee Benefits Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.5 to the Form 10). 99.7 Conversion Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.6 to the Form 10). 99.8 Press release dated September 23, 1998. 6 QUALCOMM Incorporated UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except per share data)
JUNE 28, 1998 -------------------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (1) ---------- ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 179,905 $ 0 $ 179,905 Investments 118,454 0 118,454 Accounts receivable, net 787,865 0 787,865 Finance receivables 45,242 0 45,242 Inventories 393,805 0 393,805 Other current assets 112,834 0 112,834 ---------- ---------- ---------- Total current assets 1,638,105 0 1,638,105 Property, plant and equipment, net 565,671 0 565,671 Investments 111,626 (37,034)(2) 74,592 Finance receivables, net 132,663 0 132,663 Other assets 187,299 33,079(3) 220,378 ---------- ---------- ---------- Total assets $2,635,364 $ (3,955) $2,631,409 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 551,777 $ 803(4) $ 552,580 Unearned revenue 92,494 0 92,494 Bank lines of credit 138,000 0 138,000 Current portion of long-term debt 2,959 0 2,959 ---------- ---------- ---------- Total current liabilities 785,230 803 786,033 Long-term debt 4,734 0 4,734 Other liabilities 23,591 0 23,591 ---------- ---------- ---------- Total liabilities 813,555 803 814,358 Minority interest in consolidated subsidiaries 27,195 0 27,195 ---------- ---------- ---------- Company-obligated mandatorily redeemable trust convertible preferred securities of a subsidiary trust holding solely debt securities of the Company 660,000 0 660,000 ---------- ---------- ---------- Stockholders' equity: Preferred stock, $0.0001 par value 0 0 0 Common stock, $0.0001 par value 7 0 7 Paid-in capital 948,193 0 948,193 Retained earnings 186,414 (4,758)(2)(3)(4) 181,656 ---------- ---------- ---------- Total stockholders' equity 1,134,614 (4,758) 1,129,856 ---------- ---------- ---------- Total liabilities and stockholders' equity $2,635,364 $ (3,955) $2,631,409 ========== ========== ==========
See accompanying notes to unaudited pro forma condensed consolidated financial information 7 QUALCOMM Incorporated UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data)
NINE MONTHS ENDED JUNE 28, 1998 ---------------------------------------------------------- HISTORICAL PRO FORMA PRO FORMA (1) ADJUSTMENTS Revenues: Communications systems $ 2,061,084 $ 0 $ 2,061,084 Contract services 198,905 0 198,905 License, royalty and development fees 161,915 0 161,915 ----------- ----------------- ----------- Total revenues 2,421,904 0 2,421,904 ----------- ----------------- ----------- Operating expenses: Communications systems 1,566,671 0 1,566,671 Contract services 145,956 0 145,956 Research and development 244,557 0 244,557 Selling and marketing 180,519 0 180,519 General and administrative 114,676 (16,188)(5) 98,488 Other 11,976 0 11,976 ----------- ----------------- ----------- Total operating expenses 2,264,355 (16,188) 2,248,167 ----------- ----------------- ----------- Operating income 157,549 16,188 173,737 Interest income 32,435 0 32,435 Interest expense (6,166) 0 (6,166) Net gain on sale of investments 2,950 0 2,950 Write-off of investment in other entity (20,000) 0 (20,000) Distributions on trust convertible preferred securities of subsidiary trust (29,496) 0 (29,496) Minority interest in income of consolidated subsidiary (36,557) 0 (36,557) Equity in losses of investees (9,707) 7,278(6) (2,429) ----------- ----------------- ----------- Income before income taxes 91,008 23,466 114,474 Income tax expense (22,392) (4,533)(7) (26,925) ----------- ----------------- ----------- Net income $ 68,616 $ 18,933 $ 87,549 =========== ================= =========== Net earnings per common share: Basic $ 1.00 $ 1.27 =========== =========== Diluted $ 0.93 $ 1.19 =========== =========== Shares used in per share calculation: Basic 68,899 68,899 =========== =========== Diluted 73,754 73,754 =========== ===========
See accompanying notes to unaudited pro forma condensed consolidated financial information 8 QUALCOMM Incorporated UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data)
YEAR ENDED SEPTEMBER 30, 1997 ---------------------------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA (1) Revenues: Communications systems $ 1,733,169 $ 0 $ 1,733,169 Contract services 211,661 0 211,661 License, royalty and development fees 151,535 0 151,535 ----------------- ----------- ----------- Total revenues 2,096,365 0 2,096,365 Operating expenses: Communications systems 1,361,641 0 1,361,641 Contract services 156,365 0 156,365 Research and development 235,922 0 235,922 Selling and marketing 147,040 0 147,040 General and administrative 89,148 (1,361)(5) 87,787 Other 8,792 0 8,792 ----------------- ----------- ----------- Total operating expenses 1,998,908 (1,361) 1,997,547 ----------------- ----------- ----------- Operating income 97,457 1,361 98,818 Interest income 34,845 0 34,845 Interest expense (11,012) 0 (11,012) Gain on sale of trading securities 13,400 0 13,400 Distributions on trust convertible preferred securities of subsidiary trust (23,277) 0 (23,277) Minority interest in income of consolidated subsidiary (2,979) 0 (2,979) ----------------- ----------- ----------- Income before income taxes 108,434 1,361 109,795 Income tax expense (16,500) (204)(7) (16,704) ----------------- ----------- ----------- Net income $ 91,934 $ 1,157 $ 93,091 ================= =========== =========== Net earnings per common share: Basic $ 1.37 $ 1.38 ================= =========== Diluted $ 1.28 $ 1.29 ================= =========== Shares used in per share calculation: Basic 67,335 67,335 ================= =========== Diluted 71,887 71,887 ================= ===========
See accompanying notes to unaudited pro forma condensed consolidated financial information 9 QUALCOMM Incorporated NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (In thousands) (1) The unaudited pro forma condensed consolidated financial statements give retroactive effect to the spin-off of Leap Wireless International, Inc. ("Leap"). Pro forma balance sheet and statement of income adjustments as of and for the nine months ended June 28, 1998 are presented as of and for the nine months ended May 31, 1998. Pro forma statement of income adjustments for the year ended September 30, 1997 are presented for the year ended August 31, 1997, Leap's fiscal year-end. (2) Reflects $42,777 in investments in wireless telecommunications operating companies transferred to Leap net of $4,735 profit and $1,008 interest income previously eliminated in connection with transactions with equity investees. (3) Reflects a $15,000 note receivable transferred to Leap and $48,079 in assets to be recorded by QUALCOMM in connection with the spin-off. Assets recorded by QUALCOMM include: a warrant to purchase 5.5 million shares of Leap common stock valued at predecessor basis of $36,289, and a call option related to Leap's obligation to issue common stock to holders of QUALCOMM's Trust Convertible Preferred Securities upon the conversion of such securities at a fair value of $11,790. (4) Reflects a $2,897 reduction related to Leap accounts payable and a $3,700 increase in payables resulting from transaction costs related to the spin-off. Transaction costs consist primarily of investment banking, legal and accounting fees, printing and registration expenses. (5) Reflects Leap's general and administrative expenses. (6) Reflects reversal of (a) $1,535 in equity losses and (b) $4,735 profit and $1,008 interest income previously eliminated in connection with transactions with equity investees. (7) Pro forma adjustments have been tax affected at a 15% incremental income tax rate for the year ended September 30, 1997 and at a 28% incremental tax rate for the nine months ended June 28, 1998. 10 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: October 7, 1998 By: /s/ STEVEN R. ALTMAN ------------------------------------ Steven R. Altman Executive Vice President and General Counsel, Assistant Secretary and General Manager, Technology Transfer & Strategic Alliances Division 11 INDEX TO EXHIBITS 2.1 Separation and Distribution Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to the Registration Statement on Form 10, as amended, filed by Leap with the Commission on July 1, 1998, SEC File No. 0-29752 (the "Form 10")). 99.1 Warrant issued to QUALCOMM by Leap (incorporated herein by reference to Exhibit 4.2 to the Form 10). 99.2 Credit Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.1 to the Form 10). 99.3 Tax Matters Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.2 to the Form 10). 99.4 Interim Services Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.3 to the Form 10). 99.5 Master Agreement Regarding Equipment Procurement 99.4 between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.4 to the Form 10). 99.6 Employee Benefits Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.5 to the Form 10). 99.7 Conversion Agreement between QUALCOMM and Leap dated September 23, 1998 (incorporated herein by reference to Exhibit 10.6 to the Form 10). 99.8 Press release dated September 23, 1998.