Qualcomm 1999 Annual Report Download - page 44

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QUALCOMM Incorporated
FINANCIAL REVIEW
In October 1999, QCP announced that Oracle Corporation, the world’s
leading supplier of software for information management technology,
has chosen QUALCOMM’s pdQ smartphone as one of the key platforms
for its Customer Relationship Management (“CRM”) mobile sales and
service applications. Oracle CRM 3I is a complete suite of products for
managing all aspects of customer relations, from marketing to sales to
service. With Oracle’s mobile sales and services applications, the pdQ
smartphone provides enterprise companies with a completely portable
management tool, from customer and contact data to sales forecasting
and opportunity tracking plus clear CDMA voice capabilities.
LIQUIDITY AND CAPITAL RESOURCES
On July 27, 1999, the Company completed an offering of 6,900,000
shares of common stock at a net price of $156.50 per share. The net pro-
ceeds of the offering were approximately $1 billion. The Company
anticipates that its cash and cash equivalents and investments bal-
ances of $1,685 million at September 30, 1999, together with the net
proceeds of the offering, including interest earned thereon, will be
used to fund working and fixed capital requirements, including facili-
ties related to the expansion of its operations, financing for customers
of CDMA infrastructure products in accordance with the Agreement
with Ericsson, and investment in joint ventures or other companies and
other assets to support the growth of its business. In the event addi-
tional needs for cash arise, the Company may raise additional funds
from a combination of sources including potential debt and equity
issuance. There can, however, be no assurance that additional financ-
ing will be available on acceptable terms or at all. In addition, the
Company’s credit facility, as well as notes and indentures, place
restrictions on the Company’s ability to incur additional indebtedness
which could adversely affect its ability to raise additional capital
through debt financing.
The Company has an unsecured credit facility (“Credit Facility”)
under which banks are committed to make up to $400 million in revolv-
ing 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 September 30, 1999, there were no amounts or letters of credit issued
outstanding under the Credit Facility. The Company cancelled a $200
million credit facility on August 2, 1999.
In fiscal 1999, $182 million in cash was provided by operating activ-
ities, compared to $25 million used by operating activities in fiscal 1998.
Cash provided by operating activities in fiscal 1999 includes $554 million
of net cash flow provided by operations offset by $372 million of net
working capital requirements. The improved cash flow from operations
primarily reflects the increase in net income resulting from increased
revenues and gross margins. Net working capital requirements of $372
million primarily reflect increases in accounts receivable and finance
receivables which were primarily offset by a decrease in inventories
and an increase in accounts payable and accrued liabilities. The
increase in accounts and finance receivables in fiscal 1999 reflects the
continued growth in products and component sales, and the deferral of
contract payments under the development agreement with Globalstar.
The increase in accounts payable and accrued liabilities are primarily
attributable to the growth of the business.
Investments in capital expenditures and other entities totaled
$224 million in fiscal 1999, compared to $429 million in fiscal 1998.
Significant components in fiscal 1999 consisted of the purchase of $180
million of capital assets and the investment of $44 million in entities
in which the Company holds less than a 50% interest. The Company
expects to continue making significant investments in capital assets,
including new facilities and building improvements, throughout
fiscal 2000.
In fiscal 1999, the Company’s financing activities provided $1,270
million. Proceeds from the issuance of common stock under the
Company’s stock option and employee stock purchase plans provided
$1,312 million, offset by a $39 million net repayment of bank lines of
credit. In fiscal 1998, the Company’s financing activities provided net
cash of $86 million, including $52 million from the issuance of common
stock under the Company’s stock option and employee stock purchase
plans and $41 million in net borrowing under bank lines of credit.
During March 1998, the Company agreed to defer up to $100 million
of contract payments, with interest accruing at 53/4% capitalized quar-
terly, as customer financing under its development contract with
Globalstar. Financed amounts outstanding as of January 1, 2000, will be
repaid in eight equal quarterly installments commencing as of that
date, with final payment due October 1, 2001, accompanied by all then
unpaid accrued interest. During the first quarter of fiscal 2000, the
Company expects to finalize negotiations with Globalstar which could
result in the deferral of up to $400 million of future contract payments
under the development agreement, including $240 million in trade
receivables which were reclassified to non-current finance receiv-
ables at September 30, 1999. Such deferrals will be interest bearing and
paid by Globalstar over a period not exceeding four years from the date
of the deferral. At September 30, 1999, approximately $349 million in
interest bearing financed amounts and approximately $171 million
in accounts receivable, including $59 million in unbilled receivables,
were outstanding from Globalstar.