<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
-------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended March 26, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ________ to ________.
Commission File Number 0-19528
QUALCOMM Incorporated
(Exact name of registrant as specified in its charter)
Delaware 95-3685934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5775 Morehouse Dr., San Diego, California 92121-1714
(Address of principal executive offices) (Zip Code)
(858) 587-1121
(Registrant's telephone number, including area code)
[Open]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on April 24, 2000:
Class Number of Shares
Common Stock; $0.0001 per share par value 741,035,738
<PAGE> 2
SIGNATURES
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
-----------------------------------------------
Anthony S. Thornley
Executive Vice President
& Chief Financial Officer
Dated: April 26, 2000
2
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QUALCOMM INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ................ 4
Condensed Consolidated Statements of Income .......... 5
Condensed Consolidated Statements of Cash Flows ...... 6
Notes to Condensed Consolidated Financial Statements.. 7-17
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ................... 18-25
PART II. OTHER INFORMATION.......................................... 26
Item 1. Legal Proceedings .................................... 26
Item 2. Changes in Securities ................................ 26
Item 3. Defaults Upon Senior Securities ...................... 26
Item 4. Submission of Matters to a Vote of Security Holders .. 26
Item 5. Other Information .................................... 26
Item 6. Exhibits and Reports on Form 8-K ..................... 26-27
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 26, SEPTEMBER 26,
2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 772,548 $ 660,016
Investments 935,778 954,415
Accounts receivable, net 659,297 883,640
Finance receivables 23,597 26,377
Inventories, net 77,902 257,941
Other current assets 332,297 195,849
----------- -----------
Total current assets 2,801,419 2,978,238
Property, plant and equipment, net 440,195 555,991
Investments 318,566 70,495
Finance receivables, net 784,297 548,482
Goodwill, net 942,293 1,833
Deferred income taxes 443,194 123,788
Other assets 413,760 256,123
----------- -----------
Total assets $ 6,143,724 $ 4,534,950
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 507,532 $ 705,208
Unearned revenue 81,617 56,070
Bank lines of credit - 112,000
Current portion of long-term debt 200 3,099
----------- -----------
Total current liabilities 589,349 876,377
Long-term debt 343 795
Other liabilities 49,085 74,872
----------- -----------
Total liabilities 638,777 952,044
----------- -----------
Commitments and contingencies (Note 11)
Minority interest in consolidated subsidiaries 45,695 51,596
----------- -----------
Company-obligated mandatorily redeemable Trust
Convertible Preferred Securities of a subsidiary trust
holding solely debt securities of the Company - 659,555
----------- -----------
Stockholders' Equity:
Preferred stock, $0.0001 par value - -
Common stock, $0.0001 par value 74 65
Paid-in capital 4,897,967 2,587,899
Retained earnings 577,714 200,879
Accumulated other comprehensive income (loss) (16,503) 82,912
----------- -----------
Total stockholders' equity 5,459,252 2,871,755
----------- -----------
Total liabilities and stockholders' equity $ 6,143,724 $ 4,534,950
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- ------------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues $ 727,741 $ 932,395 $ 1,847,814 $ 1,873,618
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating expenses:
Cost of revenues 350,396 623,775 999,144 1,266,165
Research and development 90,153 102,713 173,557 203,075
Selling, general and administrative 97,398 104,592 199,174 224,813
Amortization of goodwill and other
acquisition-related intangible assets 20,536 302 20,608 604
Purchased in-process technology 60,030 - 60,030 -
Other 37,437 95,824 63,589 95,824
----------- ----------- ----------- -----------
Total operating expenses 655,950 927,206 1,516,102 1,790,481
----------- ----------- ----------- -----------
Operating income 71,791 5,189 331,712 83,137
Interest expense (1,213) (5,459) (3,886) (8,774)
Investment income (expense), net 333,749 (2,863) 369,996 3,887
Distributions on Trust Convertible
Preferred Securities of subsidiary trust (1,994) (9,904) (13,039) (19,703)
Other (3,265) (52,531) (3,265) (52,531)
----------- ----------- ----------- -----------
Income (loss) before income taxes 399,068 (65,568) 681,518 6,016
Income tax (expense) benefit (199,352) 22,948 (304,683) (106)
----------- ----------- ----------- -----------
Net income (loss) $ 199,716 $ (42,620) $ 376,835 $ 5,910
=========== =========== =========== ===========
Net earnings (loss) per common share:
Basic $ 0.28 $ (0.07) $ 0.55 $ 0.01
=========== =========== =========== ===========
Diluted $ 0.25 $ (0.07) $ 0.48 $ 0.01
=========== =========== =========== ===========
Shares used in per share calculations:
Basic 716,818 578,457 690,702 572,118
=========== =========== =========== ===========
Diluted 801,388 578,457 796,107 586,103
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
MARCH 26, MARCH 28,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 376,835 $ 5,910
Depreciation and amortization 81,394 86,719
Purchased in-process technology 60,030 -
Restructuring, impairments and other non-cash charges and credits 73,673 152,684
Gain on sale of available-for-sale securities (270,061) (5,663)
Minority interest in income of consolidated subsidiaries 3,614 6,543
Equity in losses of investees 5,614 5,995
Deferred income tax provision (benefit) 276,666 (45,178)
Increase (decrease) in cash resulting from changes in:
Accounts receivable, net 180,890 (207,641)
Finance receivables, net (230,035) (68,030)
Inventories (55,365) 126,024
Other current assets (46,631) (24,944)
Accounts payable and accrued liabilities (144,182) (4,868)
Unearned revenue 23,210 (4,265)
--------- ---------
Net cash provided by operating activities 335,652 23,286
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (115,104) (95,048)
Purchases of available-for-sale securities (964,823) -
Maturities of available-for-sale investments 436,249 -
Proceeds from sale of available-for-sale securities 353,679 7,163
Purchases of held-to-maturity investments (607,996) (15,894)
Maturities of held-to-maturity investments 652,330 59,977
Issuance of notes receivable (199,021) (55,374)
Collection of notes receivable 228,763 22,475
Proceeds from sale of business 216,144 -
Business acquisitions and investments in other entities (189,633) (9,939)
Other items, net (6,488) 3,000
--------- ---------
Net cash used by investing activities (195,900) (83,640)
--------- ---------
FINANCING ACTIVITIES:
Net reduction in borrowings under bank lines of credit (112,000) (87,000)
Net proceeds from issuance of common stock 85,059 105,961
Other items, net (3,458) (1,824)
--------- ---------
Net cash (used) provided by financing activities (30,399) 17,137
--------- ---------
Effect of exchange rate changes on cash 3,179 (11,376)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 112,532 (54,593)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 660,016 175,846
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 772,548 $ 121,253
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
QUALCOMM INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements have
been prepared by QUALCOMM Incorporated (the "Company" or "QUALCOMM"), without
audit, in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information and footnotes necessary for a fair
presentation of its financial position, results of operations and cash flows in
accordance with generally accepted accounting principles. The condensed
consolidated balance sheet at September 26, 1999 was derived from the audited
consolidated balance sheet at that date which is not presented herein. The
Company operates and reports using a period ending on the last Sunday of each
month.
In the opinion of management, the unaudited financial information for the
interim periods presented reflects all adjustments, which are only normal and
recurring, necessary to provide a fair presentation. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 26, 1999. Operating results for
interim periods are not necessarily indicative of operating results for an
entire fiscal year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior year amounts
have been reclassified to conform to the current year presentation.
The Company effected a two-for-one stock split in May 1999 and a four-for-one
stock split in December 1999. Stockholders' equity has been restated to give
retroactive recognition to the stock splits for all periods presented by
reclassifying the par value of the additional shares arising from the splits
from paid-in capital to common stock. All references in the financial statements
and notes to number of shares and per share amounts have been restated to
reflect these stock splits.
Basic earnings (loss) per common share are calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
reporting period. Diluted earnings per common share ("diluted EPS") reflect the
potential dilutive effect, calculated using the treasury stock method, of
additional common shares that are issuable upon exercise of outstanding stock
options and the potential dilutive effect for the period prior to conversion of
shares issuable upon conversion of Trust Convertible Preferred Securities,
determined on an if-converted basis, as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- --------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options 69,727 - 69,177 13,985
Trust Convertible Preferred Securities 14,843 - 36,229 -
------- ---- ------- -------
84,570 - 105,406 13,985
======= ==== ======= =======
</TABLE>
Options outstanding during the three months ended March 26, 2000 and March
28, 1999 to purchase approximately 70,000 shares and 617,000 shares of common
stock, respectively, and options outstanding during the six months ended March
26, 2000 and March 28, 1999 to purchase approximately 945,000 and 26,864,000
shares of common stock, respectively, were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common stock during the period and, therefore, the effect
would be anti-dilutive. In addition, diluted shares for the three months ended
March 28, 1999 exclude approximately 44,116,000 additional common shares
issuable upon exercise of outstanding stock options that were anti-dilutive
because of the net loss during that period. Net income in the computation of
diluted EPS for the three and six month periods ended March 26, 2000 is
increased by $1 million and $7 million, respectively, representing the assumed
savings of distributions, net of taxes, on the Trust Convertible Preferred
Securities. The inclusion of additional common shares assuming the conversion of
the Trust Convertible Preferred Securities for the three and six month periods
ended March 28, 1999 would have been anti-dilutive.
7
<PAGE> 8
During the first and second quarters of fiscal 2000 approximately 7,793,000
and 5,398,000 Trust Convertible Preferred Securities were converted into
approximately 42,906,000 and 29,716,000 shares of common stock, respectively.
All Trust Convertible Preferred Securities have been converted into common
stock.
The Company displays the accumulated balance of other comprehensive income or
loss separately in the equity section of the consolidated balance sheets. Total
comprehensive income (loss), which is comprised of net income and other
comprehensive loss, amounted to approximately $69 million and ($72) million for
the three months ended March 26, 2000 and March 28, 1999, respectively, and $277
million and ($24) million for the six months ended March 26, 2000 and March 28,
1999, respectively. Components of other comprehensive loss consist of the
following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Foreign currency translation $ 7,002 $ (29,298) $ 6,136 $ (29,701)
Change in unrealized gain on securities,
net of income taxes 22,892 - 56,239 -
Reclassification adjustment for gains
included in net income, net of income taxes (160,139) - (161,790 -
--------- --------- --------- ---------
$(130,245) $ (29,298) $ (99,415 $ (29,701)
========= ========= ========= =========
</TABLE>
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." The Company will be required to adopt SAB 101 for fiscal 2000. SAB
101 requires, among other things, that license and other up-front fees be
recognized over the term of the agreement, unless the fees are in exchange for
products delivered or services performed that represent the culmination of a
separate earnings process. The Company does not expect this change in accounting
principle to have a material effect on the Company's financial position and
results of operation.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB voted to
delay the effective date of FAS 133 by one year. The Company will be required to
adopt FAS 133 for fiscal year 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company has not completed its determination of the impact of the
adoption of this new accounting standard on its consolidated financial position
or results of operations.
NOTE 2 - ACQUISITIONS
SnapTrack, Inc.
On March 1, 2000, the Company completed the acquisition of 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 QUALCOMM shares issuable to effect the purchase, the value of vested
and unvested options and warrants assumed 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 and an independent appraisal of intangible assets, reflects acquired
goodwill of $948 million, other intangible assets of $34 million and purchased
in-process technology of $60 million. Tangible assets acquired and liabilities
assumed were not material to the Company's financial statements. The Company
expects to finalize the purchase price allocation within one year and does not
anticipate material adjustments to the preliminary purchase price allocation.
Amounts allocated to goodwill and other intangible assets are amortized on a
straight-line basis over their estimated useful lives of four years. These
financial statements should be read in conjunction with the supplementary
consolidated financial statements and related notes included in the Company's
Current Report on Form 8-K/A, which was filed with the SEC on April 11, 2000.
8
<PAGE> 9
Purchased in-process technology was expensed upon acquisition because
technological feasibility had not been established and no future alternative
uses existed. The value of in-process technology was calculated by identifying
research projects in areas for which technological feasibility has not been
established, estimating the costs to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows from
such products, discounting the net cash flows to present value, and applying the
reduced percentage completion of the projects thereto. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology.
The condensed consolidated financial statements include the operating results
of SnapTrack from the date of acquisition. Unaudited pro forma operating results
for the Company, assuming the acquisition of SnapTrack had been made at the
beginning of the periods presented, are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 727,761 $ 932,395 $ 1,848,153 $ 1,873,634
------------- ------------- ------------- -------------
Net income (loss) $ 154,515 $ (104,198) $ 268,549 $ (117,882)
============= ============= ============= =============
Basic earnings (loss) per common share $ 0.21 $ (0.18) $ 0.39 $ (0.20)
============= ============= ============= =============
Diluted earnings (loss) per common share $ 0.19 $ (0.18) $ 0.34 $ (0.20)
============= ============= ============= =============
</TABLE>
These pro forma results have been prepared for comparative purposes only and
may not be indicative of the results of operations which actually would have
occurred had the combination been in effect at the beginning of the respective
periods or of future results of operations of the consolidated entities.
Technology Development Group of Tellit Communications Ltd.
On February 25, 2000, the Company purchased the Technology Development Group
of Tellit Communications Limited ("Tellit"), a U.K.-based company. The initial
purchase price of $13 million was paid in cash. An additional $9 million in
consideration is payable in cash through March 31, 2001 if certain performance
and other milestones are reached. The preliminary allocation of purchase price,
based on the estimated fair values of acquired assets and liabilities assumed,
reflects acquired goodwill of $11 million, assembled workforce of $1 million,
and net tangible assets of $1 million. The Company expects to finalize the
purchase price allocation within one year and does not anticipate material
adjustments to the preliminary purchase price allocation. Amounts allocated to
goodwill and assembled workforce are amortized on a straight-line basis over
their estimated useful lives of three years. The condensed consolidated
financial statements include the operating results of the new QUALCOMM
subsidiary formed to purchase the Technology Development Group from Tellit from
the date of acquisition. Pro forma results of operations have not been presented
because the effect of this acquisition is not material.
NOTE 3 - COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
Accounts receivable, net are comprised as follows (in thousands):
9
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<TABLE>
<CAPTION>
MARCH 26, SEPTEMBER 26,
2000 1999
-------- --------
<S> <C> <C>
Trade, net of allowance for doubtful accounts
of $14,699 and $22,276, respectively $489,944 $674,211
Long-term contracts:
Billed 98,452 128,208
Unbilled 67,605 69,409
Other 3,296 11,812
-------- --------
$659,297 $883,640
======== ========
</TABLE>
Unbilled receivables represent costs and profits recorded in excess of
amounts billable pursuant to contract provisions and are expected to be realized
within one year.
Finance receivables result from arrangements in which the Company has
agreed to provide its customers or certain Code Division Multiple Access
("CDMA") customers of Telefonaktiebolaget LM Ericsson ("Ericsson") (Note 9) with
long-term interest bearing debt financing for the purchase of equipment and/or
services. Such financing is generally collateralized by the related equipment.
Finance receivables are comprised as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 26, SEPTEMBER 26,
2000 1999
--------- ---------
<S> <C> <C>
Finance receivables $ 818,513 $ 585,482
Allowance for doubtful receivables (10,619) (10,623)
--------- ---------
807,894 574,859
Current maturities 23,597 26,377
--------- ---------
Noncurrent finance receivables, net $ 784,297 $ 548,482
========= =========
</TABLE>
At March 26, 2000, commitments to extend long-term financing to CDMA
customers of Ericsson (Note 9) totaled approximately $306 million, which the
Company expects to fund over the next five years. Such commitments are subject
to the customers meeting certain conditions established in the financing
arrangements and, in most cases, to Ericsson also financing a portion of such
sales. Commitments represent the estimated amounts to be financed under these
arrangements; actual financing may be in lesser amounts.
Inventories are comprised as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 26, SEPTEMBER 26,
2000 1999
--------- ---------
<S> <C> <C>
Raw materials $ 19,054 $ 161,481
Work-in-process 6,811 51,003
Finished goods 52,037 45,457
--------- ---------
$ 77,902 $ 257,941
========= =========
</TABLE>
NOTE 4 - INVESTMENTS
In February 2000, the Company purchased 308,000 units of Leap Wireless
International Inc.'s ("Leap Wireless") senior discount notes with warrants for
$150 million. The notes mature in April 2010 and bear interest at 14.5%. The
warrants are detachable after six months and entitle each holder to 2.503 common
shares per unit held. The exercise price is $96.80 per share. The carrying value
of the senior discount notes with warrants is $159 million at March 26, 2000.
Leap Wireless used $227 million of the proceeds from the issuance of senior
discount notes and senior notes to pay down its credit facility with QUALCOMM.
The credit facility was cancelled in the second quarter of fiscal 2000.
10
<PAGE> 11
NOTE 5 - INVESTMENT INCOME (EXPENSE), NET
Investment income (expense) is comprised as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income $ 67,605 $ 8,229 $ 109,163 $ 14,035
Realized gains on marketable securities 267,487 - 270,061 5,663
Loss on cancellation of warrants - (3,273) - (3,273)
Minority interest in income of
consolidated subsidiaries (300) (2,845) (3,614) (6,543)
Equity in losses of investees (1,043) (4,974) (5,614) (5,995)
--------- --------- --------- ---------
$ 333,749 $ (2,863) $ 369,996 $ 3,887
========= ========= ========= =========
</TABLE>
NOTE 6 - INVESTMENTS IN OTHER ENTITIES
Globalstar L.P.
Through partnership interests held in certain intermediate limited
partnerships, the Company owns a 6.2% partnership interest in Globalstar L.P.
("Globalstar"), a limited partnership formed to develop, own and operate the
Globalstar low-Earth-orbit ("LEO") satellite system utilizing CDMA technology
("the Globalstar System").
At March 26, 2000 and September 26, 1999, $472 million and $349 million in
interest bearing financed amounts and $149 million and $171 million in accounts
receivable, including $56 million and $59 million in unbilled receivables, were
outstanding from Globalstar, respectively. In March 2000, the Company reached an
agreement with Globalstar to finance current and future contract payments. Such
financing will be interest bearing and payable in quarterly installments
beginning January 15, 2001 through August 15, 2003. As a result of the
agreement, the Company changed its estimate of amounts collectible under
Globalstar contracts and recorded previously unrecognized interest income of $4
million during the second quarter of fiscal 2000 and previously unrecognized
revenue of $8 million and interest income of $10 million during the first six
months of fiscal 2000. At March 26, 2000, $70 million in future contract
payments are expected to be eligible for financing under the financing agreement
with Globalstar.
Korea Telecom Freetel
On November 24, 1999, the Company invested approximately $196 million in
Korea Telecom Freetel ("KT Freetel") and received 2,565,000 common shares,
representing a 1.9% interest in KT Freetel, and a zero coupon bond with warrants
to purchase approximately 1,851,000 additional shares. The exercise price of the
warrants is expected to be paid by tendering the bond as payment in full. KT
Freetel has agreed to commercially deploy high data rate ("HDR") technology,
subject to the successful completion of technical and marketing trials. If KT
Freetel meets certain obligations related to HDR technology, QUALCOMM is
required to exercise the warrants. If KT Freetel does not meet such obligations,
QUALCOMM will have the right to redeem the bond at a premium equal to 10% per
annum.
Ignition, LLC
In March 2000, the Company purchased 42 million Series B Preferred units,
representing an approximate 13% undiluted interest, in Ignition, LLC
("Ignition"), a venture firm formed to fund, mentor and build wireless Internet
start-up companies. The Company also received a warrant to purchase four million
common units at $0.46 per unit. The Company made an initial capital contribution
of $8 million and will be required to provide $34 million in additional equity
contributions over five years. The Company accounts for its investment in
Ignition under the equity method.
11
<PAGE> 12
Other Investments
The Company has entered into strategic alliances with domestic and
international emerging wireless telecommunications operating companies. These
alliances often involve investment by QUALCOMM of capital in these operating
companies. Funding commitments related to these investments total $93 million at
March 26, 2000, which the Company expects to fund over three years. Such
commitments are subject to the operating companies meeting certain conditions;
actual equity funding may be in lesser amounts.
NOTE 7 - BANK LINE OF CREDIT
The Company has an unsecured credit facility under which banks are committed
to make up to $400 million in revolving loans to the Company. The credit
facility expires in March 2001. The facility may be extended on an annual basis
upon maturity. The Company is currently obligated to pay commitment fees equal
to 0.175% per annum on the unused amount of the credit facility. The credit
facility includes certain restrictive financial and operating covenants. At
March 26, 2000, there were no amounts or letters of credit issued or outstanding
under the credit facility.
NOTE 8 - RESTRUCTURING
During January 1999, the Company completed a review of its operating
structure to identify opportunities to improve operating effectiveness. As a
result of this review, management approved a formal restructuring plan, and the
Company recorded charges to operations of $15 million during the second quarter
of fiscal 1999, including $10 million in employee termination costs, $3 million
in asset impairments and $1 million in estimated net losses on subleases or
lease cancellation penalties. The activities related to the restructuring have
been completed. The following table presents the rollforward from the initial
provision during the second quarter of fiscal 1999 to March 26, 2000 (in
thousands):
<TABLE>
<CAPTION>
MARCH 26,
PROVISIONS DEDUCTIONS 2000
-------------- --------------- --------------
<S> <C> <C> <C>
Employee termination costs $ 10,162 $(10,162) $ -
Facility exit costs 4,397 (4,397) $ -
-------- -------- --------
Total $ 14,559 $(14,559) $ -
======== ======== ========
</TABLE>
NOTE 9 - DISPOSITION OF ASSETS AND OTHER CHARGES
In February 2000, the Company sold its terrestrial-based CDMA wireless
consumer phone business, including its phone inventory, manufacturing equipment
and customer commitments, to Kyocera Corporation ("Kyocera"). Under the
agreement with Kyocera, Kyocera agreed to purchase a majority of its CDMA
chipsets and system software requirements from QUALCOMM for a period of five
years. Kyocera will continue its existing royalty-bearing CDMA license agreement
with QUALCOMM. QUALCOMM received $216 million in cash on February 22, 2000.
Total consideration to be paid will be based on a final determination of the
value of the net assets actually sold. At March 26, 2000, approximately $33
million in net assets held for sale to Kyocera in connection with the pending
sale of certain foreign business operations and assets is included in other
current assets.
As part of the agreement with Kyocera, QUALCOMM formed a new subsidiary, that
has a substantial number of employees from QUALCOMM Consumer Products business,
to provide services to Kyocera on a cost-plus basis to support Kyocera's phone
business for up to three years. Selected employees of QUALCOMM Personal
Electronics ("QPE"), a 51% owned consolidated subsidiary of the company and
manufacturer of phones for QUALCOMM, were transferred to Kyocera. As a condition
of the purchase, QPE paid down and cancelled its two revolving credit
agreements. The Company anticipates that remaining QPE manufacturing assets will
be liquidated. QUALCOMM recorded $56 million and $83 million in charges during
the three months and six months ended March 26, 2000, respectively, to reflect
the estimated difference between the carrying value of the net assets and the
consideration to be received from Kyocera, less costs to sell, and employee
termination costs.
In May 1999, the Company sold certain of its assets related to its
terrestrial CDMA wireless infrastructure business to Ericsson and entered into
various license and settlement agreements with Ericsson. Ericsson has
12
<PAGE> 13
notified the Company that it is disputing the purchase price (Note 11). Pursuant
to the Company's agreement with Ericsson, the Company has and will extend
financing for possible future sales by Ericsson of infrastructure equipment and
related services to specific customers in certain geographic areas, including
Brazil, Chile, Mexico, and Russia or in other areas selected by Ericsson (Note
3).
NOTE 10 - INCOME TAXES
The Company currently estimates its annual effective income tax rate to be
approximately 45% for fiscal 2000, compared to 35% for fiscal 1999. The higher
tax rate for fiscal 2000 is primarily a result of higher pretax earnings,
non-deductible charges for purchased in-process technology and amortization of
goodwill.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation
On March 5, 1997, the Company filed a complaint against Motorola, Inc.
("Motorola"). The complaint was filed in response to allegations by Motorola
that the Company's then, recently announced, Q Phone infringes design and
utility patents held by Motorola as well as trade dress and common law rights
relating to the appearance of certain Motorola wireless telephone products. The
complaint denied such allegations and sought a judicial declaration that the
Company's products do not infringe any patents held by Motorola. On March 10,
1997, Motorola filed a complaint against the Company alleging claims based
primarily on the above-alleged infringement. In 1997 and 1999, Motorola and the
Company filed additional claims and counterclaims for patent infringement and
related causes of action, all of which were consolidated for pretrial
proceedings in the United States District Court in San Diego.
On March 23, 2000, the Company and Motorola entered into an agreement to
settle all of their outstanding litigation by dismissing all claims and
counterclaims in the lawsuits. No payments were made in consideration for the
dismissals. In addition, the Company and Motorola agreed to a three-year
moratorium on patent infringement lawsuits with respect to each company's CDMA
subscriber products, network equipment, chipsets and test equipment. Under the
settlement, the Company and Motorola agreed to leave unmodified the financial
terms of their original 1990 royalty-bearing license agreement for CDMA
applications that covered certain patents filed before July 3, 1995 and extended
their cross-licenses to include certain patents after that date. The licenses
granted by Motorola to the Company under the 1990 agreements for subscriber and
infrastructure products were terminated since the Company has since sold its
subscriber and infrastructure businesses. The new accord covers certain patents
filed after July 3, 1995 and licenses patents for CDMA standards. Motorola will
pay royalties to the Company at rates that are generally paid by the industry to
the Company for using newly licensed patents, including patents of the Company
that had been at issue in the lawsuits, for CDMA subscriber products across all
licensed CDMA standards.
On or about June 5, 1997, Elisra Electronic Systems Ltd. ("Elisra") submitted
to the International Chamber of Commerce a Request for Arbitration of a dispute
with the Company based upon a Development and Supply Agreement ("DSA") entered
into between the parties effective November 15, 1995, alleging that the Company
wrongfully terminated the DSA, seeking monetary damages. The Company thereafter
submitted a Reply and Counterclaim, alleging that Elisra breached the DSA,
seeking monetary damages. Subsequently, the parties stipulated that the dispute
be heard before an arbitrator under the jurisdiction of the American Arbitration
Association, and to bifurcate the resolution of liability issues from damage
issues. To date, the arbitrator has heard testimony regarding the liability or
non-liability of the parties, and post-hearing briefs have been filed. Oral
argument on the liability phase is currently scheduled for May 31, 2000.
Although there can be no assurance that the resolution of these claims will not
have a material adverse effect on the Company's results of operations, liquidity
or financial position, the Company believes that the claims made by Elisra are
without merit and will vigorously defend against the claims.
On October 27, 1998, the Electronics and Telecommunications Research
Institute of Korea ("ETRI") submitted to the International Chamber of Commerce a
Request for Arbitration (the "Request") of a dispute with the Company arising
out of a Joint Development Agreement ("JDA") dated April 30, 1992, between ETRI
and the Company. In the Request, ETRI alleged that the Company breached certain
provisions of the JDA and sought monetary damages and an accounting. The Company
filed an answer and counterclaims denying the allegations, seeking a declaration
establishing the termination of the JDA and monetary damages and injunctive
relief against ETRI. In accordance with the JDA, the arbitration will take place
in San Diego. The arbitration hearing is
13
<PAGE> 14
scheduled to commence July 5, 2000. Although there can be no assurance that the
resolution of these claims will not have a material adverse effect on the
Company's results of operations, liquidity or financial position, the Company
believes that the claims are without merit and will vigorously defend the
action.
On May 6, 1999, Thomas Sprague, a former employee of the Company, filed a
putative class action against the Company, ostensibly on behalf of himself and
those of the Company's former employees who were offered employment with
Ericsson in conjunction with the sale to Ericsson of certain of the Company's
infrastructure division assets and liabilities and who elected not to
participate in a Retention Bonus Plan being offered to such former employees.
The complaint was filed in California Superior Court in and for the County of
San Diego and purports to state eight causes of action arising primarily out of
alleged breaches of the terms of the Company's 1991 Stock Option Plan, as
amended from time to time. The putative class sought to include former employees
of the Company whom, among other things, "have not or will not execute the Bonus
Retention Plan and accompanying full and complete release of QUALCOMM." The
complaint seeks an order accelerating all unvested stock options for the members
of the class. Of the 1,053 transitioning former employees who had unvested stock
options, 1,016 elected to participate in the Retention Bonus Plan offered by
QUALCOMM and Ericsson, which provides several benefits including cash
compensation based upon a portion of the value of their unvested options, and
includes a written release of claims against the Company. On July 30, 1999,
plaintiffs filed a First Amended Complaint incorporating the allegations set
forth in the original complaint, adding two new causes of action and expanding
the putative class to also include those former employees who chose to
participate in the Bonus Retention Plan. In October 1999, the court sustained
the Company's demurrer to the plaintiffs' cause of action for breach of
fiduciary duty. Counsel for the putative class filed a Second Amended Complaint,
including substantially the same allegations as the First Amended Complaint, on
November 1, 1999. On March 10, 2000, counsel for plaintiffs and QUALCOMM filed a
Stipulation of Settlement with the court that would allocate a settlement
payment of $9 million, which will be funded by third parties, to all plaintiffs
who do not elect to opt out of the settlement on or before April 17, 2000.
QUALCOMM has the right to void the settlement if the number of employees
electing to opt out exceeds a certain number, based upon the number of unvested
stock options held by the employees at the time their employment with QUALCOMM
terminated. To date, the number of employees electing to opt out has exceeded
the limit, giving the Company the right to elect to void the settlement prior to
the approval of the settlement by the court, however the Company has not yet
given notice of its election to accept or void the settlement. A settlement
hearing has been set for April 28, 2000, in which the Court shall consider the
proposed stipulation of settlement. Although there can be no assurance that the
court will approve the Stipulation of Settlement, or that an unfavorable outcome
of the dispute would not have a material adverse effect on the Company's results
of operations, liquidity or financial position, the Company believes the claims
are without merit and will vigorously defend the action.
On June 29, 1999, GTE Wireless, Incorporated ("GTE") filed an action in the
U.S. District Court for the Eastern District of Virginia asserting that wireless
telephones sold by the Company infringe a single patent allegedly owned by GTE.
On September 15, 1999, the court granted the company's motion to transfer the
action to the U.S. District Court for the Southern District of California.
Although there can be no assurance that an unfavorable outcome of the dispute
would not have a material adverse effect on the Company's results of operations,
liquidity or financial position, the Company believes the action is without
merit and will vigorously defend the action.
QUALCOMM and Ericsson are currently participating in an arbitration in which
Ericsson is disputing the determination of the purchase price under the asset
purchase agreement pursuant to which Ericsson acquired certain assets related to
the Company's terrestrial wireless infrastructure business in May 1999. QUALCOMM
has also received notice from Ericsson that Ericsson intends to assert claims
for indemnification under the subject asset purchase agreement. QUALCOMM and
Ericsson are having on-going discussions aimed at potentially resolving these
claims. In the event the parties are unable to otherwise resolve these claims,
the pending arbitration with respect to the purchase price determination shall
continue to proceed forward and Ericsson's claims for indemnification will be
subject to resolution pursuant to the dispute resolution procedures set forth in
the asset purchase agreement. Although there can be no assurance that the
resolution of these claims will not have a material adverse effect on the
Company's results of operations, liquidity or financial position, the Company
believes the claims are without merit and will vigorously defend them.
On February 2, 2000, Thomas Durante, James Curley, Curtis Parker and Joseph
Edwards, filed a putative class action against the Company, ostensibly on behalf
of themselves and those former employees of the Company
14
<PAGE> 15
whose employment was terminated in April 1999. Virtually all of the purported
class of plaintiffs received severance packages at the time of the termination
of their employment, in exchange for their general release of claims against the
company. The complaint was filed in California Superior Court in and for the
County of Los Angeles and purports to state ten causes of action including
breach of contract, age discrimination, violation of Labor Code ss. 200,
violation of Labor Code ss. 970, unfair business practices, intentional
infliction of emotional distress, unjust enrichment, breach of the covenant of
good faith and fair dealing, declaratory relief and undue influence. The
complaint seeks an order accelerating all unvested stock options for the members
of the class. Although there can be no assurance that an unfavorable outcome of
the dispute would not have a material adverse effect on the Company's results of
operations, liquidity or financial position, the Company believes the claims are
without merit and will vigorously defend the action.
The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its results of operations, liquidity or
financial position.
Letters of Credit and Financial Guarantees
The Company has issued a letter of credit to support a guarantee of up to
$22.5 million of Globalstar (Note 6) borrowings under an existing bank financing
agreement. The guarantee will expire in December 2000. The letter of credit is
collateralized by a commensurate amount of the Company's investments in debt
securities. As of March 26, 2000, Globalstar had no borrowings outstanding under
the existing bank financing agreement.
In addition to the letter of credit on behalf of Globalstar, the Company has
$22 million of letters of credit and $200 million of other financial guarantees
outstanding as of March 26, 2000, none of which are collateralized.
Metrosvyaz Ltd.
In September 1999, the Company recorded $51 million in charges to reflect the
impairment of assets related to Metrosvyaz Ltd. ("Metrosvyaz"), a company formed
to develop and manage investments in wireless operating companies in Russia, as
a result of Leap Wireless' announcement of its intention to withdraw its support
for Metrosvyaz. In February 2000, as a result of ongoing discussions and
QUALCOMM's continued interest in promoting CDMA in Russia, the Company signed a
Memorandum of Understanding ("MOU") with Metrosvyaz, pursuant to which, the
Company advanced $6 million under a previously existing loan facility. The
amount advanced was deemed to be nonrecoverable, and the $6 million charge was
recorded as other non-operating expense. The MOU provides specific milestones
that Metrosvyaz and its investors must meet to obtain an additional $10 million
in funding. If the additional funding occurs, QUALCOMM will receive a right to
obtain a 35% interest in Metrosvyaz if certain performance goals are met. The
Company also has a commitment to provide approximately $30 million in vendor
financing to Metrosvyaz related to potential future sales made by Ericsson to
Metrosvyaz (Note 3).
NOTE 12 - SEGMENT INFORMATION
The Company is organized on the basis of products and services. Reportable
segments are as follows: QUALCOMM CDMA Technologies ("QCT") designs and supplies
chipsets and software solutions to handset and infrastructure manufacturers;
QUALCOMM Technology Licensing ("QTL") licenses third parties to design,
manufacture, and sell products incorporating the Company's technologies; and
QUALCOMM Wireless Systems ("QWS") designs, manufactures, markets, and deploys
infrastructure and handset products for use in terrestrial and non-terrestrial
CDMA wireless and satellite networks and provides satellite-based two-way data
messaging, position reporting equipment and services to transportation
companies. The Company sold its terrestrial-based CDMA wireless consumer phone
business, the former operating segment, QUALCOMM Consumer Products ("QCP"), to
Kyocera in February 2000 (Note 9).
The table below presents revenues and earnings before taxes ("EBT") for
reported segments (in thousands):
15
<PAGE> 16
<TABLE>
<CAPTION>
RECONCILING
QCT QTL QWS ITEMS TOTAL
------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
For the three months ended:
March 26, 2000
Revenues $ 279,186 $ 167,652 $ 188,302 $ 92,601 $ 727,741
EBT 89,977 150,423 83,034 75,634 399,068
March 28, 1999
Revenues $ 263,411 $ 106,476 $ 202,781 $ 359,727 $ 932,395
EBT 109,006 93,771 (24,200) (244,145) (65,568)
For the six months ended:
March 26, 2000
Revenues $ 631,581 $ 345,197 $ 403,266 $ 467,770 $ 1,847,814
EBT 217,667 313,013 149,181 1,657 681,518
March 28, 1999
Revenues $ 456,726 $ 180,542 $ 502,862 $ 733,488 $ 1,873,618
EBT 172,930 156,067 (39,075) (283,906) 6,016
</TABLE>
Reconciling items in the above table are comprised as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
MARCH 26, MARCH 28, MARCH 26, MARCH 28,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Revenues from external customers of
QCP segment sold $ 100,492 $ 325,224 $ 541,856 $ 694,759
Elimination of intersegment revenue (41,951) (79,365) (142,055) (166,086)
Other products 34,060 113,868 67,969 204,815
--------- --------- --------- ---------
Reconciling items $ 92,601 $ 359,727 $ 467,770 $ 733,488
========= ========= ========= =========
EARNINGS BEFORE INCOME TAXES
Unallocated corporate expenses $(155,750) $(162,365) $(183,320) $(157,814)
EBT of QCP segment sold (62,676) (30,645) (80,222) (30,775)
Unallocated investment income (expense), net 299,577 (1,549) 325,608 7,175
Distributions on Trust Convertible
Preferred Securities of subsidiary trust (1,994) (9,904) (13,039) (19,703)
Intracompany profit (10,548) (31,042) (42,453) (65,828)
Other 7,025 (8,640) (4,917) (16,961)
--------- --------- --------- ---------
Reconciling items $ 75,634 $(244,145) $ 1,657 $(283,906)
========= ========= ========= =========
</TABLE>
16
<PAGE> 17
Unallocated corporate expenses during the three months and six months ended
March 26, 2000 include $56 million and $83 million, respectively, related to the
sale of the terrestrial-based CDMA phone business, $60 million for in-process
technology related to the SnapTrack acquisition, and $21 million for
amortization of goodwill and other acquisition-related intangible assets.
Unallocated corporate expenses include $166 million for the three months and six
months ended March 28, 1999 related to the sale of certain assets of the
Company's terrestrial CDMA wireless infrastructure business and restructuring
charges.
Revenues from external customers and intersegment revenues are as follows (in
thousands):
<TABLE>
<CAPTION>
QCT QTL QWS
-------- -------- --------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED:
MARCH 26, 2000
Revenues from external customers $257,794 $150,575 $184,820
Intersegment revenues 21,392 17,077 3,482
MARCH 28, 1999
Revenues from external customers $211,003 $ 80,739 $201,561
Intersegment revenues 52,408 25,737 1,220
FOR THE SIX MONTHS ENDED:
MARCH 26, 2000
Revenues from external customers $543,769 $294,436 $399,784
Intersegment revenues 87,812 50,761 3,482
MARCH 28, 1999
Revenues from external customers $350,769 $130,960 $492,315
Intersegment revenues 105,957 49,582 10,547
</TABLE>
Segment assets were presented in the Company's 1999 Annual Report on Form
10-K. QWS segment assets increased to $1,107 million at March 26, 2000 from $868
million at September 26, 1999, principally as a result of the financing of
Globalstar contract payments (Note 6) and capitalized interest on other finance
receivables.
Note 13 - Subsequent Event
In April 2000, the Company purchased 11,499,627 shares of the common stock of
NetZero, Inc. ("NetZero"), representing a 9.9% interest, for $144 million in
cash. NetZero is a publicly-traded company that provides Internet access and
services to consumers and on-line direct marketing services to advertisers.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included in Item 1 of
Part I of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended September 26,
1999 contained in the Company's 1999 Annual Report on Form 10-K.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. QUALCOMM's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to: the ability to develop and
introduce cost effective new products in a timely manner; risk that the rate of
growth in the CDMA subscriber base will decrease; risks associated with the
scale-up, acceptance and operations of CDMA systems, including HDR technology;
risks associated with component shortages; risks associated with strategic
opportunities or acquisitions, divestitures and investments the Company may
pursue; risks related to the ability to sustain or improve operational
efficiency and profitability; risks relating to the success of the Globalstar
business; developments in current or future litigation; the Company's ability to
effectively manage growth and the intense competition in the wireless
communications industry; risks associated with the timing and receipt of license
fees and royalties; risk associated with international business activities; and
risks related to accounts receivable and finance receivables, as well as the
other risks detailed in this section, "Liquidity and Capital Resources," and in
the Company's 1999 Annual Report on Form 10-K. The Company's consolidated
financial data includes QPE and certain other consolidated subsidiaries of the
Company.
OVERVIEW
QUALCOMM is a leading provider of digital wireless communications products,
technologies and services based on the Company's technology. The Company
designs, develops, and markets CDMA chipsets and system software. The Company
also licenses and receives royalty payments on its CDMA technology from major
domestic and international telecommunications equipment suppliers. In addition,
the Company designs, manufactures and distributes products and provides services
for its OmniTRACS system. The Company also has contracts with Globalstar to
design, develop and manufacture subscriber products and ground communications
systems utilizing CDMA technology and to provide contract development services.
The Company also recently announced a new business model for the Company's
Eudora e-mail software product. The Company will provide the Eudora e-mail
software to users for free and generate revenues from sponsor advertising within
the program.
The Company is increasing its strategic investment activities to promote the
worldwide adoption of CDMA products and the growth of CDMA-based wireless data
and CDMA-based wireless Internet products and solutions. The Company generally
invests in start-up companies that have developed or are developing innovative
technologies for the wireless industry, venture firms that invest in similar
start-up companies and CDMA carrier companies.
The Company's CDMA technology has been adopted as an industry standard for
digital cellular, Personal Communications Services and other wireless services.
Wireless networks based on the Company's current implementation of CDMA
technology, referred to as cdmaOne, have been commercially deployed or are under
development in more than 35 countries around the world, with 27 countries
already in commercial deployments. In February 2000, the CDMA Development Group
reported that CDMA carriers now have over 50 million commercial subscribers
worldwide as of December 1999, a growth of 118% in one year.
QUALCOMM continues to invest in research and development projects focused on
improving current CDMA applications and products, developing and commercializing
next generation CDMA technology and products, interfacing with other digital
cellular standards, and developing and commercializing new leading edge HDR
technology, products and services. The Company believes HDR will provide a high
speed, cost-effective, fixed and mobile alternative for Internet access,
competing with digital subscriber loop, cable, and satellite networks. HDR is
designed to enable existing wireless operators and future CDMA third-generation
service providers to obtain higher capacities and superior performance by
optimizing voice and data spectrum separately, while serving both applications
from the same base station. The Company is developing a Digital Cinema System
which will combine QUALCOMM's expertise in advanced image compression,
electronic security, network management, integrated circuit design and satellite
communications to provide a complete electronic delivery system to support
18
<PAGE> 19
the motion picture industry. QUALCOMM is also marketing its system and
technology to the motion picture industry and participating in the industry-wide
standards setting process.
QUALCOMM has entered into a number of development and manufacturing contracts
involving the Globalstar System. QUALCOMM's development agreement provides for
the design and development of the ground communications stations, known as
gateways, and user terminals of the Globalstar System. Since telephone systems
using LEO satellites are a new commercial technology, demand for Globalstar's
service is uncertain. If Globalstar fails to generate sufficient cash flow from
operations through the marketing efforts of its service providers, it might be
unable to fund its operating costs or service its debt.
The value of QUALCOMM's investment in and future business with Globalstar, as
well as QUALCOMM's ability to collect outstanding receivables from Globalstar,
depends on the success of Globalstar and the Globalstar System. See "Notes to
Condensed Consolidated Financial Statements - Note 6 - Investments in Other
Entities."
RECENT DEVELOPMENTS
In February 2000, the Company sold its terrestrial-based CDMA wireless
consumer phone business (the former QCP operating segment) to Kyocera. See
"Notes to Condensed Consolidated Financial Statements - Note 9 - Disposition of
Assets and Other Charges."
On February 25, 2000, the Company purchased the Technology Development Group
of Tellit Communications Limited, a U.K.-based company. The initial purchase
price of $13 million was paid in cash. An additional $9 million in consideration
is payable in cash through March 31, 2001 if certain performance and other
milestones are reached. See "Notes to Condensed Consolidated Financial
Statements - Note 2 - Acquisitions."
On March 1, 2000, the Company completed the acquisition of all of the
outstanding capital stock of SnapTrack, a developer of wireless position
location technology, in a transaction accounted for as a purchase. See "Notes to
Condensed Consolidated Financial Statements - Note 2 - Acquisitions."
In March 2000, the Company purchased 42 million Series B Preferred units,
representing an approximate 13% undiluted interest, in Ignition, a venture firm
formed to fund, mentor and build wireless Internet start-up companies. The
Company made an initial capital contribution of $8 million and will be required
to provide $34 million in additional equity contributions. See "Notes to
Condensed Consolidated Financial Statements - Note 6 Investments in Other
Entities."
In April 2000, the Company purchased 11,499,627 shares of the common stock of
NetZero, representing a 9.9% interest, for $144 million in cash. See "Notes to
Condensed Consolidated Financial Statements - Note 13 - Subsequent Event."
SECOND QUARTER OF FISCAL 2000 COMPARED TO SECOND QUARTER OF FISCAL 1999
Total revenues for the second quarter of fiscal 2000 were $728 million
compared to $932 million for the second quarter of fiscal 1999. The decrease in
revenue for the second quarter of fiscal 2000 was primarily due to a decrease in
the terrestrial-based CDMA wireless consumer phone product revenue as a result
of the sale of the business in February 2000, a decrease in the wireless
infrastructure product revenue related to the sale of this business in May 1999,
and a decrease in average selling prices of chipsets, offset by increases in
royalty revenues and CDMA chipset shipments.
The Company's shipments of its chipsets in the second quarter of fiscal 2000
were lower than the first quarter of fiscal 2000 due to seasonal factors,
inventory balancing by customers due to continued shortages of other phone
components, and customers transitioning to next generation chips.
Cost of revenues for the second quarter of fiscal 2000 was $350 million
compared to $624 million for the second quarter of fiscal 1999. The dollar
decrease was primarily due to a decrease in the terrestrial-based CDMA consumer
product phone costs as a result of the sale of the business in February 2000, a
decrease in the wireless infrastructure product costs related to the sale of
this business in May 1999, and a reduction in the unit cost of chipsets, offset
by an increase in CDMA chipsets unit volume. Cost of revenues decreased as a
percentage of revenues to 48% in the second quarter of fiscal 2000 from 67% in
the second quarter of fiscal 1999. This is primarily due to higher revenues from
high margin chipsets and software, royalties and OmniTRACS, offset by lower
revenues from lower gross margin CDMA terrestrial-based phones and
infrastructure. During second quarter of fiscal 2000, cost of revenues included
$19 million in charges related to the sale of the terrestrial-based CDMA
19
<PAGE> 20
consumer phone business, as compared to $10 million for the same period in
fiscal 1999 related to the sale of the wireless infrastructure product business.
For the second quarter of fiscal 2000, research and development expenses were
$90 million or 12% of revenues, compared to $103 million or 11% of revenues for
the second quarter of fiscal 1999. The dollar decrease was due to a decrease in
terrestrial-based CDMA consumer phone product research and development as a
result of the sale of this business in February 2000 and a decrease in
terrestrial CDMA wireless infrastructure product research and development
related to the sale of this business in May 1999, offset by increased chipset
product initiatives and software development efforts and new HDR products.
For the second quarter of fiscal 2000, selling, general and administrative
expenses were $97 million or 13% of revenues, compared to $105 million or 11% of
revenues for the second quarter of fiscal 1999. The dollar decrease from the
second quarter of fiscal 1999 was due to a decrease in marketing costs in
terrestrial-based CDMA wireless consumer phone products as a result of the sale
of the business in February 2000, and a decrease in selling, general and
administrative expenses for terrestrial CDMA wireless infrastructure products as
a result of the sale of this business in May 1999, partially offset by continued
growth in personnel and associated overhead expenses necessary to support growth
in other business operations, and increased patent, litigation, employer payroll
tax on employee non-qualified stock option exercises and public reporting
expenses.
Amortization of goodwill and other acquisition-related intangible assets
increased to $21 million for the second quarter of fiscal 2000 compared to $0.3
million for the second quarter of fiscal 1999, primarily due to the acquisition
of SnapTrack. See "Notes to Condensed Consolidated Financial Statements - Note 2
- - Acquisitions."
Purchased in-process technology of $60 million in the second quarter of
fiscal 2000 resulted from the acquisition of SnapTrack. See "Notes to Condensed
Consolidated Financial Statements - Note 2 - Acquisitions."
For the second quarter of fiscal 2000, other operating expenses were $37
million, compared to $96 million in the second quarter of fiscal 1999. Other
operating expenses during the second quarter of fiscal 2000 were comprised
primarily of charges to reflect the estimated difference between the carrying
value of the net assets and the consideration to be received from Kyocera, less
costs to sell, and employee termination costs. During the second quarter of
fiscal 1999, the Company recorded a $15 million restructuring charge and $81
million in charges relating to the sale of the terrestrial CDMA wireless
infrastructure business to Ericsson. See "Notes to Condensed Consolidated
Financial Statements - Note 9 Disposition of Assets and Other Charges."
Interest expense was $1 million for the second quarter of fiscal 2000,
compared to $5 million for the second quarter of fiscal 1999. The decrease was
due to the payoff and cancellation of the QPE bank lines of credit in February
2000.
Net investment income was $334 million in the second quarter of fiscal 2000
compared to a $3 million expense, net for the second quarter of fiscal 1999. The
increase was primarily due to a $267 million realized gain on the sale of
marketable securities, interest earned on the $1 billion in cash proceeds from a
stock offering in July 1999 and cash provided by operating activities, interest
earned on Globalstar finance receivables and changes in the estimate of amounts
collectible under the Globalstar contracts. See "Notes to Condensed Consolidated
Financial Statements - Note 6 - Investments in Other Entities."
Distributions on Trust Convertible Preferred Securities decreased to $2
million for the second quarter of fiscal 2000 compared to $10 million for the
second quarter of fiscal 1999 as a result of conversions of the 5 3/4% Trust
Convertible Preferred Securities into common stock. During the second quarter of
fiscal 2000, all remaining Trust Convertible Preferred Securities were converted
into common stock. See "Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
During the second quarter of fiscal 2000, the Company recorded $3 million in
net non-operating other charges, including $6 million in charges relating to
amounts advanced to Metrosvyaz (see "Notes to Condensed Consolidated Financial
Statements - Note 11 Commitments and Contingencies"), offset by a $3 million
release of reserves as a result of a settlement related to a non-operating
liability. During the second quarter of fiscal 1999, the Company recorded $53
million in non-operating charges, including $37 million related to the Ericsson
transaction and $15 million related to the write-off of non-operating assets.
Income tax expense was $199 million for the second quarter of fiscal 2000
compared to a tax benefit of $23 million for the second quarter of fiscal 1999.
The annual effective tax rate is currently estimated to be 45% for
20
<PAGE> 21
fiscal 2000, compared to 35% for fiscal 1999. The higher tax rate is primarily a
result of higher pretax earnings, non-deductible charges for purchased
in-process technology and amortization of goodwill.
FIRST SIX MONTHS OF FISCAL 2000 COMPARED TO FIRST SIX MONTHS OF FISCAL 1999
Total revenues for the first six months of fiscal 2000 were $1,848 million
compared to $1,874 million for the first six months of fiscal 1999. The decrease
in revenue for the first six months of fiscal 2000 was primarily due to a
decrease in the terrestrial-based CDMA consumer product revenue as a result of
the sale of the business in February 2000, a decrease in the wireless
infrastructure product revenue related to the sale of this business in May 1999
and a decrease in average selling prices of chipsets, offset by significant
increases in royalty revenues and in sales of CDMA chipsets. Revenue from one
South Korean customer, Samsung Electronics Company, by the QCT and QTL segments
comprised 10% of total revenues in the first six months of fiscal 2000.
Cost of revenues for the first six months of fiscal 2000 was $999 million
compared to $1,266 million for the first six months of fiscal 1999. The dollar
decrease was primarily due to a decrease in the terrestrial-based CDMA wireless
consumer phone product costs as a result of the sale of the business in February
2000, a decrease in the wireless infrastructure product costs related to the
sale of this business in May 1999, and a reduction in the unit cost of chipsets,
offset by an increase in CDMA chipsets unit volume. Cost of revenues decreased
as a percentage of revenues to 54% in the first six months of fiscal 2000 from
68% in the second quarter of fiscal 1999. This is primarily due to higher
revenues from high margin chipsets and software, royalties and OmniTRACS, offset
by lower revenues from lower gross margin CDMA terrestrial-based phones and
infrastructure. During the first six months of fiscal 2000, cost of revenues
included $20 million in charges related to the sale of the terrestrial-based
CDMA consumer phone business, as compared to $10 million for the same period in
fiscal 1999 related to the sale of the wireless infrastructure product business.
For the first six months of fiscal 2000, research and development expenses
were $174 million or 9% of revenues, compared to $203 million or 11% of revenues
for the first six months of fiscal 1999. The dollar decrease was due to a
decrease in terrestrial CDMA wireless infrastructure product research and
development as a result of the sale of this business in May 1999, offset by
increased chipset product initiatives and software development efforts and new
HDR products.
For the first six months of fiscal 2000, selling, general and administrative
expenses were $199 million or 11% of revenues, compared to $225 million or 12%
of revenues for the first six months of fiscal 1999. The dollar decrease from
the first six months of fiscal 1999 was due to a decrease in marketing costs in
terrestrial-based CDMA wireless consumer phone products as a result of the sale
of the business in February 2000 and a decrease in selling, general and
administrative expenses for terrestrial CDMA wireless infrastructure products as
a result of the sale of this business in May 1999, partially offset by continued
growth in personnel and associated overhead expenses necessary to support other
growing business operations and increased patent, litigation, employer payroll
tax on employee non-qualified stock option exercises and public reporting
expenses.
Amortization of goodwill and other acquisition-related intangible assets
increased to $21 million for the first six months of fiscal 2000 compared to $1
million for the first six months of fiscal 1999, primarily due to the
acquisition of SnapTrack. See "Notes to Condensed Consolidated Financial
Statements - Note 2 - Acquisitions."
Purchased in-process technology of $60 million in the first six months of
fiscal 2000 resulted from the acquisition of SnapTrack. See "Notes to Condensed
Consolidated Financial Statements - Note 2 - Acquisitions."
For the first six months of fiscal 2000, other operating expenses were $64
million, compared to $96 million in the first six months of fiscal 1999. Other
operating expenses during the first six months of fiscal 2000 were comprised
primarily of charges to reflect the estimated difference between the carrying
value of the net assets and the consideration to be received from Kyocera, less
costs to sell, and employee termination costs. During the first six months of
fiscal 1999, the Company recorded a $15 million restructuring charge and $81
million in charges relating to the sale of the terrestrial CDMA wireless
infrastructure business to Ericsson. See "Notes to Condensed Consolidated
Financial Statements - Note 9 Disposition of Assets and Other Charges."
Interest expense was $4 million for the first six months of fiscal 2000,
compared to $9 million for the first six months of fiscal 1999. The decrease was
due to decreased bank borrowings by QPE and the subsequent payoff and
cancellation of the QPE bank lines of credit in February 2000.
21
<PAGE> 22
Net investment income was $370 million in the first six months of fiscal 2000
compared to $4 million for the first six months of fiscal 1999. The increase was
primarily due to a $270 million realized gain on the sale of marketable
securities, interest earned on the $1 billion in cash proceeds from a stock
offering in July 1999 and on cash provided by operating activities, higher
interest rates, and changes in the estimate of amounts collectible under the
Globalstar contracts. See "Notes to Condensed Consolidated Financial Statements
- - Note 6 - Investment in Other Entities."
Distributions on Trust Convertible Preferred Securities decreased to $13
million for the first six months of fiscal 2000 compared to $20 million for the
first six months of fiscal 1999 as a result of conversions of the 5 3/4% Trust
Convertible Preferred Securities outstanding into common stock. During the
second quarter of fiscal 2000, all remaining Trust Convertible Preferred
Securities were converted into common stock. See "Item 2 Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
During the first six months of fiscal 2000, the Company recorded $3 million
in net non-operating other charges, including $6 million in charges relating to
amounts advanced to Metrosvyaz (see "Notes to Condensed Consolidated Financial
Statements - Note 11 Commitments and Contingencies"), offset by a $3 million
release of non-operating reserves due to a settlement. During the first six
months of fiscal 1999, the Company recorded $53 million in non-operating
charges, including $37 million related to the Ericsson transaction and $15
million related to the write-off of non-operating assets.
Income tax expense was $305 million for the first six months of 2000 compared
to $0.1 million for the first six months of 1999. The Company's income tax
provisions for the first six months of fiscal 2000 and 1999 reflect adjustments
for the retroactive reinstatements of the R&D tax credit.
QUALCOMM SEGMENT RESULTS FOR THE SECOND QUARTER OF FISCAL 2000 COMPARED TO
SECOND QUARTER OF FISCAL 1999
The following should be read in conjunction with the second quarter financial
results of fiscal 2000 for each reporting segment. See "Notes to Condensed
Consolidated Financial Statements - Note 12 - Segment Information."
CDMA Technologies Segment ("QCT")
The QCT segment is a major supplier of chipsets and software solutions to
handset and infrastructure manufacturers. QCT helps manufacturers produce
smaller and more affordable products by bringing new chipsets to the market with
more functionality in a substantially smaller package size. QCT's CDMA ASIC
products include Mobile Station Modem ("MSM") chips for telephone handsets, Cell
Site Modem chips for infrastructure base stations and a number of related chips
that make digital voice transmission and processing possible.
QCT segment revenues for the second quarter of fiscal 2000 were $279 million
compared to $263 million for the second quarter of fiscal 1999. Earnings before
taxes for the second quarter of fiscal 2000 were $90 million compared to $109
million for the second quarter of fiscal 1999. Revenue growth was primarily due
to increased customer demand for CDMA chipsets in the United States, Korea, and
Japan, offset by a decrease in average selling prices of chipsets. The decrease
in earnings before taxes was due to increased research and development chipset
product initiatives and software development efforts and the decrease in the
average sales prices per chipset. Over 11 million MSM chipsets were sold during
the second quarter of fiscal 2000, compared to 9 million in the second quarter
of fiscal 1999.
The Company's shipments of its chipsets in the second quarter of fiscal 2000
were lower than the first quarter of fiscal 2000 due to seasonal factors,
inventory balancing by customers due to continued shortages of other phone
components, and customers transitioning to next generation chips.
Technology Licensing Segment ("QTL")
QTL licenses third parties to design, manufacture and sell products
incorporating the Company's technologies.
QTL segment revenues for the second quarter of fiscal 2000 were $168 million
compared to $106 million for the second quarter of fiscal 1999. Earnings before
taxes for the second quarter of fiscal 2000 were $150 million compared to $94
million for the second quarter of fiscal 1999. Revenue and earnings before taxes
growth was
22
<PAGE> 23
primarily due to royalties received from licensees resulting from an increase in
worldwide demand for CDMA products and an increase in up-front license fees.
In March 2000, the Company reached an agreement with Motorola to extend
cross-licenses and to dismiss claims and counterclaims in the series of patent
infringement lawsuits between the companies and to resolve certain items
resulting from the companies' audits of each others' royalty payments. The
settlement resulted in the reversal of accruals of certain royalty related
items.
Royalty revenue declined from the first quarter of fiscal 2000 as a result of
seasonal and other factors that also impacted the QCT segment in the quarter.
Wireless Systems Segment ("QWS")
QWS designs, manufactures, markets and deploys infrastructure and handset
products for use in terrestrial and non-terrestrial CDMA wireless and satellite
networks and provides satellite-based two-way data messaging, position reporting
equipment, and services to transportation companies.
QWS segment revenues for the second quarter of fiscal 2000 were $188 million
compared to $203 million for the second quarter of fiscal 1999. Earnings before
taxes for the second quarter of fiscal 2000 were $83 million compared to $24
million loss for the second quarter of fiscal 1999. Revenues decreased due to
the sale of certain assets of the Company's terrestrial CDMA wireless
infrastructure business in May 1999 to Ericsson and the completion of the
production and sale of Globalstar gateways, offset by increased OmniTRACS
domestic and international unit demand and messaging revenue due to an increase
in the customer base. The Company shipped 16,460 OmniTRACS and other related
communication systems during the second quarter of fiscal 2000, compared to
10,700 in the second quarter of fiscal 1999. In addition, during the second
quarter of fiscal 2000, QWS recognized approximately $15 million in revenue as a
result of revisions in estimated costs related to its contracts with Globalstar
based on gateway equipment performance to date and accumulated cost data.
Earnings before taxes increased due to the sale of certain assets related to
the Company's terrestrial CDMA wireless infrastructure business in May 1999 to
Ericsson and an increase in interest income and fees on finance receivables.
(See "Notes to Condensed Consolidated Financial Statements - Note 6 -
Investments in Other Entities.") During the second quarter of fiscal 2000, the
Company recognized previously unamortized loan fees in connection with the pay
off and cancellation of certain credit facilities, including the Leap facility.
See "Notes to Condensed Consolidated Financial Statements - Note 4 -
Investments."
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its cash and cash equivalents and investments
balances of $2,027 million at March 26, 2000, including interest earned thereon,
will be used to fund its working and other capital requirements, including
investments in other companies and other assets to support the growth of its
business, financing for customers of CDMA infrastructure products in accordance
with the agreement with Ericsson, and facilities related to the expansion of the
Company's operations. In the event additional needs for cash arise, the Company
may raise additional funds from a combination of sources including potential
debt and equity issuance.
The Company has an unsecured credit facility under which banks are committed
to make up to $400 million in revolving loans to the Company. The facility
expires in March 2001 and may be extended on an annual basis upon maturity. The
Company is currently obligated to pay commitment fees equal to 0.175% per annum
on the unused amount of the facility. The facility includes certain restrictive
financial and operating covenants. At March 26, 2000, there were no amounts or
letters of credit issued or outstanding under the facility.
In the first six months of fiscal 2000, $336 million in cash was provided by
operating activities, compared to $23 million in cash provided by operating
activities in the first six months of fiscal 1999. Cash provided by operating
activities in the first six months of fiscal 2000 includes $608 million of net
cash flow provided by operations offset by $272 million of net working capital
requirements. The improved cash flow from operations primarily reflects the
increase in net income resulting from improved gross margins and investment
income. Net working capital requirements of $272 million primarily reflect
increases in finance receivables and a decrease in accounts payable and accrued
liabilities, offset by a decrease in accounts receivable. The increase in
finance receivables in the first six months of fiscal 2000 resulted from the
financing of contract payments under the
23
<PAGE> 24
development agreement with Globalstar, and the decrease in accounts payable and
accrued liabilities and accounts receivable is primarily attributed to the sale
of the terrestrial-based CDMA wireless consumer phone business.
In the first six months of fiscal 2000, $196 million in cash was used by the
Company in investing activities, including $190 million for business
acquisitions and investments in entities in which the Company holds less than a
50% interest, the issuance of $199 million in notes receivable, $131 million in
net purchases of marketable securities and $115 million in capital expenditures,
offset by $216 million in proceeds from the sale of the terrestrial-based CDMA
wireless consumer phone business and $229 million collected on notes receivable.
The Company is increasing its strategic investment activities to promote the
worldwide adoption of CDMA products and the growth of CDMA-based wireless data
and CDMA-based wireless Internet products and solutions. The Company expects to
continue making significant investments in other entities and in capital assets,
including new facilities and building improvements, throughout fiscal 2000.
The Company also makes equity and debt investments generally aimed at
promoting the worldwide adoption of CDMA technology products and the growth of
wireless data and wireless Internet products and solutions. The Company
generally invests in start-up companies that have developed or are developing
innovative technologies for the wireless industry, venture firms that invest in
similar start-up companies and CDMA carrier companies.
In the first six months of fiscal 2000, the Company's financing activities
used $30 million, including $112 million in net repayments under bank lines of
credit, offset by $85 million from the issuance of common stock under the
Company's stock option and employee stock purchase plans. In the first six
months of fiscal 1999, the Company's financing activities provided net cash of
$17 million. The Company and QPE repaid net amounts of $80 million and $7
million, respectively, on their outstanding credit facilities, and the Company
realized $106 million in proceeds from the issuance of common stock under the
Company's stock option and employee stock purchase plans.
On October 29, 1999, the Company and Pegaso executed a commitment letter,
subject to Pegaso shareholder approval, in which the Company agreed to
underwrite up to $500 million of debt financing to Pegaso and its wholly-owned
subsidiary, Pegaso Comunicaciones y Sistemas, a CDMA wireless operating company
in Mexico. The debt financing would consist of a $250 million senior secured
facility and a $250 million unsecured facility. The Company currently has
guaranteed a $175 million facility that could be refinanced by the $250 million
senior secured facility. The debt facilities are expected to have final
maturities of seven to eight years.
Information regarding the Company's financial commitments at March 26, 2000
is provided in the Notes to the Condensed Consolidated Financial Statements. See
"Notes to Condensed Consolidated Financial Statements - Note 3 - Composition of
Certain Balance Sheet Captions, Note 6 - Investments in Other Entities, and Note
11 - Commitments and Contingencies."
YEAR 2000
The Company has completed its Year 2000 ("Y2K") Project ("Project") as
scheduled, including addressing leap year calendar date calculation concerns.
The possibility of significant interruptions of normal operations has been
reduced. As of April 24, 2000, the Company's products, computing, and
communications infrastructure systems have operated without Y2K related problems
and appear to be Y2K ready. The Company is not aware that any of its major
customers or third-party suppliers have experienced significant Y2K related
problems.
The Company believes all its critical systems are Y2K ready. However, there
is no guarantee that the Company has discovered all possible failure points.
Specific factors contributing to this uncertainty include failure to identify
all systems, non-ready third parties whose systems and operations impact the
Company, and other similar uncertainties.
Contingency plans are complete and will be implemented if required. Should a
significant problem occur, the Company would revert to standard manual
contingency procedures to continue operation until the problem is corrected.
To date, the Company has spent an estimated $20 million on this Project. The
funding for this Project comes from operations and working capital. The Company
estimates the allocable time of employees using average hourly rates for each
class of employee. None of the Company's other mission-critical information
projects have been delayed due to the implementation of the Y2K Project.
24
<PAGE> 25
As a result of the Y2K Project, the Company identified and fixed several
system issues. In addition, the Company received other benefits from the Y2K
Project, including acceleration of the development of alternative sourcing for
our supply base risk mitigation plans which are valid and beneficial to long
term supply assurance, refinement of the Company's Disaster Recovery Plan,
improvement of diagnostic procedures for core information technology services
and asset management, and establishment of a more consistent computer desktop
environment which should ultimately reduce support costs.
FUTURE ACCOUNTING REQUIREMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." The Company will be required to adopt SAB 101 for fiscal 2000. SAB
101 requires, among other things, that license and other up-front fees be
recognized over the term of the agreement, unless the fees are in exchange for
products delivered or services performed that represent the culmination of a
separate earnings process. The Company does not expect this change in accounting
principle to have a material effect on the Company's financial position and
results of operation.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
In May 1999, the FASB voted to delay the effective date of FAS 133 by one year.
The Company will be required to adopt FAS 133 for fiscal year 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. Under FAS 133, all derivatives must be recognized as assets and
liabilities and measured at fair value. The Company has not completed its
determination of the impact of the adoption of this new accounting standard on
its consolidated financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Financial market risks related to interest rates, foreign currency exchange
rates and equity price risks on investments held by the Company are described in
the Company's 1999 Annual Report on Form 10-K. At March 26, 2000, there have
been no other material changes to the market risks described at September 26,
1999. Additionally, the Company does not anticipate any near-term changes in the
nature of its market risk exposures or in management's objectives and strategies
with respect to managing such exposures.
25
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A review of the Company's current litigation is disclosed in the Notes to
Condensed Consolidated Financial Statements. See "Notes to Condensed
Consolidated Financial Statements - Note 11 - Commitments and Contingencies."
The Company is also engaged in other legal actions arising in the ordinary
course of its business and believes that the ultimate outcome of these actions
will not have a material adverse effect on its results of operations, liquidity
or financial position.
ITEM 2. CHANGES IN SECURITIES
On March 1, 2000, the Company completed the acquisition of all the
outstanding capital stock of SnapTrack, Inc. in exchange for the issuance of
7,433,792 shares of common stock of the Company; provided, however, that 10% of
the total shares will be subject to an escrow for a period of one year (which
one-year period may be extended in the event any claims are made) to satisfy any
indemnification obligations of the SnapTrack security holders. Each of the
individuals that received common stock of the Company in the exchange was, alone
or with the purchasers representative, an "accredited investor" within the
meaning of Rule 501(a) promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). The Company relied on the exemption provided by Section
4(2) under the Securities Act.
On March 17, 2000, the Company completed the acquisition of all the
outstanding capital stock of Within Technology, Inc. in exchange for the
issuance of 22,590 shares of common stock of the Company. Each of the
individuals that received common stock of the Company in the exchange was an
"accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act. The Company relied on the exemption provided by Section 4(2)
under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of QUALCOMM Incorporated was convened on
March 7, 2000 at 9:30 a.m. There were issued and outstanding on January 12,
2000, the record date, 702,838,277 shares of Common Stock. There were present at
said meeting in person or by proxy, shareholders of the Corporation who were the
holders of 630,317,211 shares of Common Stock entitled to vote thereat,
constituting a quorum. The proposal to elect four Class III directors to hold
office until the 2003 Annual Meeting of Stockholders received the following
votes:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Richard C. Atkinson 627,625,794 2,691,417
Diana Lady Dougan 627,674,949 2,642,262
Peter M. Sacerdote 625,372,821 4,944,390
Marc I. Stern 627,722,636 2,594,575
</TABLE>
The proposal to ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants received the following vote:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
626,722,889 628,826 2,965,496
</TABLE>
The foregoing proposal was approved and accordingly ratified.
ITEM 5. OTHER INFORMATION
Not applicable.
26
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 1998 Non-Employee Directors' Stock Option Plan and forms of
nonstatutory stock option agreement for initial and annual option
grants thereunder.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
Report on Form 8-K dated March 7, 2000, containing information relating
to the Asset Purchase Agreement, among QUALCOMM Incorporated, KII
Acquisition Company and Kyocera International, Inc. (1) (2) Report on
Form 8-K dated March 15, 2000, containing information relating to
acquisition of SnapTrack, Inc., among QUALCOMM Incorporated, Falcon
Acquisition Company, wholly-owned subsidiary of QUALCOMM, and SnapTrack,
Inc. Report on Form 8-K/A dated April 11, 2000, amending the Form 8-K
dated March 15, 2000, containing information relating to the acquisition
of SnapTrack, Inc. among QUALCOMM Incorporated, Falcon Acquisition
Company, wholly-owned subsidiary of QUALCOMM, and SnapTrack, Inc.
(1) Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment. Omitted portions will be
filed separately with the Securities and Exchange Commission.
(2) Schedules omitted pursuant to Rule 601(b)(2) of Regulation S-K of
the Securities and Exchange Commission. Registrant undertakes to
furnish such schedules and attachments thereto to the Securities
and Exchange Commission upon request.
27
<PAGE> 1
EXHIBIT 10.29
QUALCOMM INCORPORATED
1998 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
ADOPTED EFFECTIVE FEBRUARY 10, 1998
STOCKHOLDER APPROVAL FEBRUARY 10, 1998
AMENDED JANUARY 17, 2000
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Non-Employee
Directors may be given an opportunity to benefit from increases in value of the
common stock of the Company ("Common Stock") through the granting of
Nonstatutory Stock Options. This Plan shall serve as an amendment and
restatement of the Company's Non-Employee Director Stock Option Plan, which was
adopted by the Company in 1993 (the "Prior Plan"), and shall be effective
February 10, 1998 (the "Effective Date").
(b) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(c) The Company intends that the Options issued under the Plan shall be
Nonstatutory Stock Options granted pursuant to Section 6 hereof.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "ANNUAL OPTION" means a stock option granted pursuant to subsection
5(c) of the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(f) "COMPANY" means QUALCOMM Incorporated, a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided
1.
<PAGE> 2
that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Optionee's service to the
Company or an Affiliate of the Company, whether in the capacity of a Director or
subsequently as an Employee or a Consultant, is not interrupted or terminated.
The Optionee's Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders such service
to the Company or an Affiliate of the Company or a change in the entity for
which the Optionee renders such service, provided that there is no interruption
or termination of the Optionee's service. The Board or its designee, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of: (i) any leave of absence approved by the
Board or its designee, including sick leave, military leave, or any other
personal leave; or (ii) transfers between locations of the Company or between
the Company, Affiliates or their successors.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock exchange,
or traded on the Nasdaq National Market, the Fair Market Value of a share of
Common Stock shall be the average of the highest and lowest price at which the
Common Stock was sold on such exchange or national market on the trading day
prior to the day of determination (or, in the case in which the Common Stock is
traded on more than one market, the exchange or system on which the Common Stock
has the highest average trading volume), as reported in the Wall Street Journal
or such other source as the Board deems reliable; or
(ii) in the absence of any such market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INITIAL OPTION" means a stock option granted pursuant to subsection
5(b) of the Plan.
2.
<PAGE> 3
(p) "NON-EMPLOYEE DIRECTOR" means a Director who is not a current
Employee or Officer of the Company or its parent or a subsidiary and does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means any person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.
(v) "PLAN" means this QUALCOMM Incorporated 1998 Non-Employee Directors'
Stock Option Plan.
(w) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(ii) To amend the Plan or an Option as provided in Section 11.
(iii) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
3.
<PAGE> 4
(c) The Board may delegate administration of the Plan to a Committee or
Committees of not fewer than two members of the Board. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board, and to the
requirements of Section 144 of the Delaware General Corporation Law. The Board
may abolish the Committee at any time and revest in the Board the administration
of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Options shall not
exceed in the aggregate Four Million (4,000,000) shares of Common Stock. This
share reserve shall be comprised of: (i) the Two Hundred Forty Thousand
(240,000) shares of Common Stock available for grant under the Prior Plan plus
(ii) an additional Three Million Seven Hundred Sixty Thousand (3,760,000)
shares. If any Option (including an Option granted under the Prior Plan) shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Option shall
revert to and again become available for issuance under the Plan. Similarly, if
the Company shall for any reason exercise its right of repurchase with respect
to any unvested shares of Common Stock purchased pursuant to an early exercise
provision, as provided for in subsection 6(j), the unvested shares so
repurchased shall revert to and again become available for issuance under the
Plan. The foregoing numbers are after giving effect to the 2:1 split in the
Company's common stock effective May 10, 1999, and the 4:1 split in the
Company's common stock effective December 30, 1999.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY AND NON-DISCRETIONARY GRANTS.
(a) Options shall be granted only to Non-Employee Directors of the
Company.
(b) Each person who is, on the Effective Date or any subsequent date
thereto, elected or appointed for the first time to be a Non-Employee Director
shall automatically, upon such date of initial election or appointment, be
granted an Initial Option to purchase Twenty Thousand (20,000) shares of Common
Stock of the Company on the terms and conditions set forth herein.
(c) Each year, commencing with the annual meeting of stockholders of the
Company (the "Annual Meeting") occurring in 1998, each person who is then
serving as a Non-Employee Director, other than a Non-Employee Director who is
granted an Initial Option at such Annual Meeting, shall automatically be granted
an Annual Option to purchase Ten Thousand (10,000) shares of Common Stock of the
Company on the terms and conditions set forth herein. Notwithstanding the
foregoing, after January 17, 2000, an Annual Option shall not be granted to a
Non-Employee Director unless and until two hundred seventy (270) days shall have
passed since the date of the last grant of an Option to such Non-Employee
Director.
4.
<PAGE> 5
6. OPTION PROVISIONS.
Each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Option shall equal one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either: (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, by (A) delivery to the Company of other Common Stock of
the Company or (B) other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock of the Company) with
the Optionee in any other form of legal consideration that may be acceptable to
the Board.
(d) TRANSFERABILITY. An Option shall be transferable only to the extent
specifically provided in the Option Agreement; provided, however, that if the
Option Agreement does not specifically provide for the transferability of the
Option, the Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person or by such person's
guardian or legal representative. Notwithstanding the foregoing, the person to
whom the Option is granted may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING.
(i) The total number of shares of stock subject to an Option shall
be allotted in periodic installments. The Option Agreement shall provide that
from time to time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the Option became vested but
was not fully exercised.
(ii) Initial Options shall vest over a period of five (5) years as
follows: (A) if the Initial Option is granted pursuant to the election of the
Optionee to the Board at an Annual Meeting prior to January 18, 2000, then such
Initial Option will vest twenty percent (20%) of the total number of such shares
subject to such Option ("Option Shares") on January 15 of each of
5.
<PAGE> 6
the first, second, third, fourth and fifth years following the date of the grant
of such Initial Option; (B) if the Initial Option is granted pursuant to the
election or appointment of the Optionee to the Board prior to January 18, 2000
and at some time other than at an Annual Meeting, then such Initial Option will
vest twenty percent (20%) of the Option Shares on the anniversary of the date of
the grant of such Initial Option in each of first, second, third, fourth and
fifth years following such grant; or (C) any Initial Option granted after
January 17, 2000 shall vest twenty percent (20%) of the Option Shares on the
first anniversary of the date of its grant and the remaining eighty percent
(80%) of the Option Shares shall vest as to 1/48th of those shares in
forty-eight (48) consecutive monthly installments with the first such monthly
vesting installment to occur thirteen (13) months from the date of grant;
provided, however, that if the Optionee's Continuous Service is terminated due
to (1) death, (2) a Voluntary Termination with Good Reason (as defined in
subsection 10(c)), or (3) an Involuntary Termination without Cause (as defined
in subsection 10(d)), then the vesting of such Initial Option and the time
during which such Initial Option may be exercised shall be accelerated upon the
occurrence of such event.
(iii) An Annual Option granted prior to January 18, 2000, shall vest
over five (5) years, with twenty percent (20%) of the Option Shares vesting on
January 15 of each of the first, second, third, fourth and fifth years following
the date of the grant of such Annual Option, otherwise an Annual Option shall
vest 1/60th of the total shares in sixty (60) consecutive monthly installments
with the first such installment to commence one month after the date of grant;
provided, however, that if the Optionee's Continuous Service is terminated due
to (1) death, (2) a Voluntary Termination with Good Reason, or (3) an
Involuntary Termination without Cause, then the vesting of such Annual Option
and the time during which such Annual Option may be exercised shall be
accelerated upon the occurrence of such event.
(f) TERMINATION OF SERVICE. In the event an Optionee's Continuous
Service terminates (other than upon the Optionee's retirement at age seventy
(70) or older after nine (9) or more years of service on the Board, or the
Optionee's death or Disability), the Optionee may exercise his or her Option (to
the extent that the Optionee was entitled to exercise it at the date of
termination) but only within such period of time ending on the earlier of (i)
the date thirty (30) days after the termination of the Optionee's Continuous
Service or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
If the exercise of the Option following the termination of the
Optionee's Continuous Service (other than upon the Optionee's retirement at age
seventy (70) or older after nine (9) or more years of service on the Board, or
the Optionee's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option or (ii) the expiration of a period of
thirty (30) days after the termination of the Optionee's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements (if such provisions would result in an extension of
the time during which
6.
<PAGE> 7
the Option may be exercised beyond the period described in the first paragraph
of this subsection 6(f)).
If the exercise of the Option following the termination of the
Optionee's Continuous Service (other than upon the Optionee's retirement at age
seventy (70) or older after nine (9) or more years of service on the Board, or
the Optionee's death or Disability) would be prohibited at any time solely
because such exercise would result in liability under Section 16(b) of the
Exchange Act, then the Option shall terminate on the earliest of (i) the
expiration of the term of the Option, (ii) the tenth (10th) day after the last
date upon which exercise would result in such liability, or (iii) six (6) months
and ten (10) days after the termination of the Optionee's Continuous Service.
(g) RETIREMENT OF OPTIONEE. Notwithstanding anything in subsection 6(f)
to the contrary, in the event of the retirement of an Optionee at age seventy
(70) or older after nine (9) years of service on the Board, the Option will
terminate only upon the expiration of the Option term.
(h) DISABILITY OF OPTIONEE. Notwithstanding anything in subsection 6(f)
to the contrary, in the event an Optionee's Continuous Service terminates due to
the Disability of the Optionee, the Option will terminate only upon the
expiration of the Option term.
(i) DEATH OF OPTIONEE. In the event that: (i) an Optionee's Continuous
Service terminates due to the death of the Optionee, or (ii) an Optionee's
Continuous Service terminates due to the Disability of the Optionee and such
termination is subsequently followed by the death of the Optionee prior to the
expiration of the term of the Option, then the vesting of all unvested shares
owned by the Optionee will be accelerated effective as of the date of death of
the Optionee and the Option may be exercised by the Optionee's estate, by a
person who acquired the right to exercise the Option by bequest or inheritance,
or by a person designated to exercise the option upon the Optionee's death
pursuant to subsection 6(d), but only within the period ending twelve (12)
months after the death of the Optionee. If, after the death of the Optionee, the
Option is not exercised within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the Common
Stock, or to any other restriction the Board determines to be appropriate;
provided, however, that (i) the right to repurchase at the original purchase
price shall lapse at a rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of the
Optionee's Continuous Service or (B) such longer period as may be agreed to by
the Company and the Optionee.
7. COVENANTS OF THE COMPANY.
7.
<PAGE> 8
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Options. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Neither a Non-Employee Director nor any person to whom an Option is
transferred in accordance with the Plan shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any shares subject to
such Option unless and until such person has satisfied all requirements for
exercise of the Option pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any holder of Options any right to continue
serving as a Director, Employee or Consultant, or shall affect the right of the
Company or any Affiliate to terminate the Optionee's service as a Director,
Employee or Consultant, pursuant to the Company's Bylaws and the provisions of
the corporate law of the state in which the Company is incorporated.
(c) The Company may require any person to whom an Option is granted, or
any person to whom an Option is transferred in accordance with the Plan, as a
condition of exercising or acquiring stock under any Option: (i) to give written
assurances satisfactory to the Company as to such person's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the
Option has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such
8.
<PAGE> 9
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(d) To the extent provided by the terms of an Option Agreement, the
person to whom an Option is granted may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to such person by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the type(s) and maximum
number of securities subject to the Plan pursuant to subsection 4(a), and the
outstanding Options will be appropriately adjusted in the type(s) and number of
securities and price per share of stock subject to such outstanding Options.
Such adjustments shall be made by the Board, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company,
(2) the sale of all or substantially all of the Company's assets, (3) a merger,
consolidation or reorganization of the Company with or into another corporation
or other legal person, other than a merger, consolidation or reorganization in
which more than fifty percent (50%) of the combined voting power of the
then-outstanding securities of the surviving entity (or if more than one entity
survives the transaction, the controlling entity) immediately after such a
transaction are held in the aggregate by holders of voting securities of the
Company immediately prior to such transaction, (4) the acquisition by any person
(within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act)
of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act) of securities representing
fifty percent (50%) or more of the combined voting power of the then-outstanding
securities of the Company, or (5) during any period of two (2) consecutive
years, individuals who at the beginning of any such period constitute the
Directors of the Company (the "Incumbent Directors") cease for any reason to
constitute at least a majority thereof unless the election or the nomination for
election by the Company's stockholders of a Director of the Company first
elected during such period was approved by the vote of at least two-thirds of
the Incumbent Directors, whereupon such Director shall also be classified as an
Incumbent Director (collectively, a "Change in Control"), then: (i) any
surviving or acquiring corporation shall assume Options outstanding under the
Plan or shall substitute similar options (including an option to acquire the
9.
<PAGE> 10
same consideration paid to stockholders in the transaction described in this
subsection 10(b)) for those outstanding under the Plan and in the event any
surviving or acquiring corporation does assume such Options or substitute
similar options for those outstanding under the Plan, then upon the Optionee's
Voluntary Termination with Good Reason (as described in subsection 10(c)) or the
Optionee's Involuntary Termination without Cause (as described in subsection
10(d)) the vesting of such Options and the time during which such Options may be
exercised shall be accelerated upon the occurrence of such event or (ii) in the
event any surviving or acquiring corporation refuses to assume such Options or
to substitute similar options for those outstanding under the Plan, then (A)
with respect to Options held by persons then performing services as Directors,
Employees or Consultants, the vesting of such Options and the time during which
such Options may be exercised shall be accelerated prior to such event and the
Options terminated if not exercised after such acceleration and at or prior to
such event, and (B) with respect to any other Options outstanding under the
Plan, such Options shall be terminated if not exercised prior to such event.
(c) The term "Voluntary Termination with Good Reason" means the
Optionee's resignation, with Good Reason (as defined below), as a Director,
within one (1) month prior to the Change in Control or within thirteen (13)
months following a Change in Control. "Good Reason" means any of the following
to the extent applicable to the Optionee's position as a Director, Employee or
Consultant at that time:
(i) reduction of the Optionee's rate of compensation (including
Director fees) as in effect immediately prior to the Change in Control;
(ii) failure to provide a package of benefits which, taken as a
whole, provide substantially similar benefits to those in which the Optionee was
entitled to participate immediately prior to the Change in Control;
(iii) a change in the Optionee's responsibilities, authority, title
or office resulting in diminution of position, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith which is
remedied by the Company promptly after notice thereof is given by the Optionee;
(iv) a request that the Optionee render services at a site more than
thirty-five (35) miles from the prior site at which Optionee rendered services,
unless the Optionee accepts such relocation request;
(v) failure or refusal of a successor to the Company to assume any
Option granted under this Plan; or
(vi) any material breach by the Company or any successor to the
Company of any of the material provisions of the Optionee's Option.
(d) The term "Involuntary Termination without Cause" means the
involuntary termination without Cause (as defined below) of the Optionee's
Continuous Service by the
10.
<PAGE> 11
Company within one (1) month prior to a Change in Control or within thirteen
(13) months following a Change in Control. "Cause" means any of the following:
(i) the Optionee's theft, dishonesty, or falsification of documents
or records;
(ii) the Optionee's improper use or disclosure of the Company's
confidential or proprietary information;
(iii) any action by the Optionee which has a material detrimental
effect on the Company's reputation or business;
(iv) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Board of, and a reasonable
opportunity to cure, such failure or inability;
(v) any material breach by the Optionee of any service agreement
between the Optionee and the Company which breach is not cured pursuant to the
terms of such agreement; or
(vi) the Optionee's conviction (including any plea of guilty or nolo
contendere) of any criminal act which materially impairs the Optionee's ability
to perform his or her duties with the Company.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding Options granted under the Plan. However, except
as provided in Section 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3, any requirements of Section 144 of the Delaware
General Corporation Law, or any Nasdaq National Market or securities exchange
listing requirements.
(b) An Optionee's rights and obligations under any Option granted before
any amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 9, 2013, which is
fifteen (15) years from the date the Plan was approved by the stockholders of
the Company. No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) An Optionee's rights and obligations under any Option granted while
the Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Option was granted.
11.
<PAGE> 12
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the Effective Date, which is the date
of the Plan's approval by the stockholders of the Company. In the event the Plan
is not approved by the stockholders, then the Prior Plan shall continue in full
force and effect without regard to the adoption of this Plan.
12.
<PAGE> 13
QUALCOMM INCORPORATED
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(ANNUAL OPTION #<<NUMBER>>)
<<First_Name>> <<Last_Name>>, Optionee:
On <<Option_Date>>, an option to purchase shares of common stock
("Common Stock") was automatically granted to you (the "Optionee") pursuant to
the QUALCOMM Incorporated (the "Company") 1998 Non-Employee Directors' Stock
Option Plan (the "Plan"). This option is not intended to qualify and will not be
treated as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms not
explicitly defined in this agreement shall have the meaning assigned to such
terms in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
ten thousand (10,000).
2. The exercise price of this option is <<Option_Price>> per share, such
amount being equal to the Fair Market Value of the Common Stock on the date of
grant of this option.
3. Subject to the limitations contained herein, this option shall become
exercisable (i.e., vest) in sixty (60) equal, consecutive monthly installments
with the first installment becoming exercisable one month after the date of the
grant. Notwithstanding the foregoing, this option shall not become fully
exercisable with respect to shares represented by the installment vesting on a
given vesting date unless you have remained in Continuous Service throughout the
period from the date of grant to such vesting date.
4. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) This option may only be exercised for whole shares.
(c) You may elect to pay the exercise price under one of the
following alternatives:
(i) In cash (or check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or
1.
<PAGE> 14
(iii) Payment by a combination of the methods of payment
specified in subparagraphs (i) and (ii) above.
(d) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option.
5. The term of this option is ten (10) years measured from the date of
grant, subject, however, to earlier termination upon your termination of
service, as set forth in Sections 6(f), (g), (h) and (i) of the Plan.
6. This option is not transferable in any manner (including without
limitation, sale, alienation, anticipation, pledge, encumbrance, or assignment)
other than, (i) by will or by the laws of descent and distribution, (ii) by
written designation of a beneficiary, in a form acceptable to the Company, with
such designation taking effect upon your death, (iii) pursuant to a domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder, or (iv) by delivering
written notice to the Company, in a form acceptable to the Company (including
such representations, warranties and indemnifications as the Company shall
require you to make to protect the Company's interests and ensure that this
option has been transferred under the circumstances approved by the Company), by
gift to your spouse, former spouse, children, stepchildren, grandchildren,
parent, stepparent, grandparent, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
persons having one of the foregoing types of relationship to you due to
adoption, any person sharing your household (other than a tenant or employee), a
foundation in which these persons or you control the management of assets, and
any other entity in which these persons (or you) own more than fifty percent of
the voting interests. A transfer to an entity in which more than fifty percent
of the voting interests are owned by these persons (or you) in exchange for an
interest in that entity is specifically included as a permissible type of
transfer. In addition, a transfer to a trust created solely for the benefit
(i.e., you and/or any or all of the foregoing persons hold more than 50 percent
of the beneficial interest in the trust) of you and/or any or all of the
foregoing persons is also a permissible transferee. During your life this option
is exercisable only by you or a transferee satisfying the above conditions.
Except in the event of your death, upon transfer of your options to any or all
of the foregoing persons, you, as the Optionee, are liable for any and all taxes
due upon exercise of those transferred options. At no time will a transferee who
is considered an affiliate under Rule 144(a)(1) be able to sell any or all such
shares without complying with Rule 144. The right of a transferee to exercise
the transferred portion of this option shall terminate in accordance with your
right of exercise under this option and is further subject to such
representations, warranties and indemnifications from the transferee that the
Company requires the transferee to make to protect the Company's interests and
ensure that this option has been transferred under the circumstances approved by
the Company. Once a portion of this option is transferred, no further transfer
may be made of that portion of this option, unless the Company consents in
writing to the transfer.
7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed
2.
<PAGE> 15
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of this option and
those of the Plan, the provisions of the Plan shall control.
Very truly yours,
QUALCOMM Incorporated
By:
----------------------------
Richard Sulpizio
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS: 1998 Non-Employee Directors' Stock Option Plan
3.
<PAGE> 16
QUALCOMM INCORPORATED
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION
(INITIAL OPTION #<<NUMBER>>)
<<First_Name>> <<Last_Name>>, Optionee:
On <<Option_Date>>, an option to purchase shares of common stock
("Common Stock") was automatically granted to you (the "Optionee") pursuant to
the QUALCOMM Incorporated (the "Company") 1998 Non-Employee Directors' Stock
Option Plan (the "Plan"). This option is not intended to qualify and will not be
treated as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms not
explicitly defined in this agreement shall have the meaning assigned to such
terms in the Plan.
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
twenty thousand (20,000).
2. The exercise price of this option is <<Option_Price>> per share, such
amount being equal to the Fair Market Value of the Common Stock on the date of
grant of this option.
3. Subject to the limitations contained herein, if:
(i) this option is being granted pursuant to your initial
election to the Board of Directors of the Company at an annual meeting of the
Company's stockholders, then this option shall become exercisable (i.e., vest)
as to twenty percent (20%) of the shares of Common Stock subject to this option
on the first anniversary of the date of grant and the remaining shares of Common
Stock subject to this option shall become exercisable in forty-eight (48) equal,
consecutive monthly installments thereafter with the first such installment
becoming exercisable thirteen (13) months after the date of the grant; or
(ii) this option is being granted pursuant to your initial
election to the Board of Directors of the Company at some time other than at an
annual meeting of the Company's stockholders, then this option shall become
exercisable (i.e., vest) as to twenty percent (20%) of the shares of Common
Stock subject to this option on the first anniversary of the date of grant and
the remaining shares of Common Stock subject to this option shall become
exercisable in forty-eight (48) equal, consecutive monthly installments
thereafter with the first such installment becoming exercisable thirteen (13)
months after the date of the grant.
Notwithstanding the foregoing, this option shall not become fully exercisable
with respect to shares represented by the installment vesting on a given vesting
date unless you have remained in Continuous Service throughout the period from
the date of grant to such vesting date.
4. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during
1.
<PAGE> 17
regular business hours, together with such additional
documents as the Company may then require.
(b) This option may only be exercised for whole shares.
(c) You may elect to pay the exercise price under one of the
following alternatives:
(i) In cash (or check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the Common
Stock or pursuant to the terms of irrevocable instructions issued by you prior
to the issuance of shares of the Common Stock; or
(iii) Payment by a combination of the methods of payment
specified in subparagraphs (i) and (ii) above.
(d) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option.
5. The term of this option is ten (10) years measured from the date of
grant, subject, however, to earlier termination upon your termination of
service, as set forth in Sections 6(f), (g), (h) and (i) of the Plan.
6. This option is not transferable in any manner (including without
limitation, sale, alienation, anticipation, pledge, encumbrance, or assignment)
other than, (i) by will or by the laws of descent and distribution, (ii) by
written designation of a beneficiary, in a form acceptable to the Company, with
such designation taking effect upon your death, (iii) pursuant to a domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder, or (iv) by delivering
written notice to the Company, in a form acceptable to the Company (including
such representations, warranties and indemnifications as the Company shall
require you to make to protect the Company's interests and ensure that this
option has been transferred under the circumstances approved by the Company), by
gift to your spouse, former spouse, children, stepchildren, grandchildren,
parent, stepparent, grandparent, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
persons having one of the foregoing types of relationship to you due to
adoption, any person sharing your household (other than a tenant or employee), a
foundation in which these persons or you control the management of assets, and
any other entity in which these persons (or you) own more than fifty percent of
the voting interests. A transfer to an entity in which more than fifty percent
of the voting interests are owned by these persons (or you) in exchange for an
interest in that entity is specifically included as a permissible type of
transfer. In addition, a transfer to a trust created solely for the benefit
(i.e., you and/or any or all of the foregoing persons hold more than 50 percent
of the beneficial interest in the trust) of you and/or any or all of the
foregoing persons is also a permissible transferee. During your life this option
is exercisable only by you or a transferee satisfying the
2.
<PAGE> 18
above conditions. Except in the event of your death, upon transfer of your
options to any or all of the foregoing persons, you, as the Optionee, are liable
for any and all taxes due upon exercise of those transferred options. At no time
will a transferee who is considered an affiliate under Rule 144(a)(1) be able to
sell any or all such shares without complying with Rule 144. The right of a
transferee to exercise the transferred portion of this option shall terminate in
accordance with your right of exercise under this option and is further subject
to such representations, warranties and indemnifications from the transferee
that the Company requires the transferee to make to protect the Company's
interests and ensure that this option has been transferred under the
circumstances approved by the Company. Once a portion of this option is
transferred, no further transfer may be made of that portion of this option,
unless the Company consents in writing to the transfer.
7. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
8. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of this option and
those of the Plan, the provisions of the Plan shall control.
Very truly yours,
QUALCOMM Incorporated
By:
-----------------------------
Richard Sulpizio
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS: 1998 Non-Employee Directors' Stock Option Plan
3.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 26, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-24-2000
<PERIOD-START> SEP-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 772,548
<SECURITIES> 935,778
<RECEIVABLES> 697,593
<ALLOWANCES> 14,699
<INVENTORY> 77,902
<CURRENT-ASSETS> 2,801,419
<PP&E> 440,195
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,143,724
<CURRENT-LIABILITIES> 589,349
<BONDS> 343
0
0
<COMMON> 74
<OTHER-SE> 5,459,178
<TOTAL-LIABILITY-AND-EQUITY> 6,143,724
<SALES> 1,847,814
<TOTAL-REVENUES> 1,847,814
<CGS> 999,144
<TOTAL-COSTS> 999,144
<OTHER-EXPENSES> 63,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,886
<INCOME-PRETAX> 681,518
<INCOME-TAX> 304,683
<INCOME-CONTINUING> 376,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376,835
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.48
<FN>
<F1>ON DECEMBER 30, 1999, THE COMPANY EFFECTED A FOUR-FOR-ONE STOCK DISTRIBUTION
TO QUALCOMM STOCKHOLDERS OF RECORD ON DECEMBER 20, 1999. FINANCIAL DATA
SCHEDULES PRIOR TO THE THREE MONTHS ENDED DECEMBER 26, 1999, HAVE NOT BEEN
RESTATED FOR THE RECAPITALIZATION. IN ADDITION ON MAY 10, 1999, THE COMPANY
EFFECTED A TWO-FOR-ONE STOCK DISTRIBUTION TO QUALCOMM STOCKHOLDERS OF RECORD ON
APRIL 21, 1999. FINANCIAL DATA SCHEDULES PRIOR TO THE NINE MONTHS ENDED JUNE 27,
1999, HAVE NOT BEEN RESTATED FOR SUCH RECAPITALIZATION
</FN>
</TABLE>
