Qualcomm 1999 Annual Report Download - page 45

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QUALCOMM Incorporated
FINANCIAL REVIEW
At September 30, 1999, commitments to extend long-term financing
for possible future sales to customers, other than Globalstar, totaled
approximately $420 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.
Commitments represent the estimated amounts to be financed under
these arrangements; actual financing may be in lesser amounts.
Pursuant to the Ericsson Agreement, the Company will extend up
to $400 million in financing for possible future sales by Ericsson.
Commitments outstanding at September 30, 1999 include the commit-
ment to Ericsson.
The Company has issued a letter of credit to support a guarantee of
up to $22.5 million of Globalstar 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. At September 30, 1999,
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 $21 million of letters of credit and $103 million of other
financial guarantees outstanding as of September 30, 1999, none of
which are collateralized.
As part of the Company’s strategy of supporting the commercialization
and sale of its CDMA technology and products, the Company may from
time to time enter into strategic alliances with domestic and interna-
tional emerging wireless telecommunications operating companies.
These alliances often involve the investment by QUALCOMM of substantial
capital in the operating company. At September 30, 1999, the Company’s
investments include Shinsegi Telecom Inc. (Korea), Vesper, S.A.
(Brazil), Vesper Sao Paulo, S.A. (Brazil), and Wireless Knowledge, L.L.C.
(a Delaware limited liability company). Funding commitments related
to these investments total $119 million at September 30, 1999 which the
Company expects to fund over three years. Such commitments are sub-
ject to the joint ventures meeting certain commitments; actual equity
funding may be in lesser amounts.
On October 29, 1999, the Company and Pegaso Telecomunicaciones
(“Pegaso”) executed a commitment letter, subject to Pegaso share-
holder approval, in which the Company agreed to provide 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 $100 million facility that would be
refinanced by the $250 million senior secured facility. The debt facili-
ties will have final maturities of seven to eight years.
QUALCOMM has a funding commitment to Leap Wireless in the form
of a $265 million secured credit facility, which consists of two sub-
facilities. The first sub-facility enables Leap Wireless to borrow up to
$35 million from QUALCOMM, solely to meet the normal working capital
and operating expenses of Leap Wireless, including salaries, overhead
and credit facility fees, but excluding, among other things, strategic
capital investments in wireless operators, substantial acquisitions of
capital products, and/or the acquisition of telecommunications licens-
es. The other sub-facility enables Leap Wireless to borrow up to $230
million from QUALCOMM, solely to use as investment capital to make
certain identified portfolio investments. Amounts borrowed under
the credit facility will be due and payable on September 23, 2006.
QUALCOMM has a first priority security interest in, subject to minor
exceptions, substantially all of the assets of Leap Wireless for so long
as any amounts are outstanding under the credit facility. Amounts bor-
rowed under the credit facility bear interest at a variable rate equal to
LIBOR plus 5.25% per annum. Interest is payable quarterly beginning
September 30, 2001; prior to such time, accrued interest shall be added
to the principal amount outstanding. At September 30, 1999, $126 million
was outstanding under this facility.
In October 1999, 1,803,792 Trust Convertible Preferred Securities
were converted into 2,482,739 shares of common stock. The conversion
resulted in an approximate $90 million reduction in the recorded oblig-
ation to Trust Convertible Preferred Securities holders. The Company
has the right and intends to redeem the Trust Convertible Preferred
Securities on or after March 4, 2000. The holders of the Trust
Convertible Preferred Securities have the option to convert the securi-
ties into common stock or to redeem the securities at the initial
conversion price. A premium is payable over the conversion price if the
Company redeems prior to March 4, 2002. Upon conversion of all out-
standing Trust Convertible Preferred Securities, the approximately $660
million in Trust Convertible Preferred Securities will convert into
common stock on or after March 4, 2000.
On November 10, 1999 QUALCOMM entered into an agreement with
Korea Telecom Freetel (“KT Freetel”) pursuant to which QUALCOMM
agreed to invest approximately $200 million in KT Freetel to purchase
1.95% of KT Freetel’s common stock and zero coupon bonds of KT
Freetel with warrants to purchase additional common shares. KT
Freetel has agreed to commercially deploy 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 purchase the shares underlying the warrants,
for which the bond could be used as payment in full.