Qualcomm 1999 Annual Report Download - page 59

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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NextWave Telecom Inc.
In November 1995, the Company paid $5 million to purchase
1,666,666 shares of Series B Common Stock and provided a $25 million
short-term note receivable to NextWave Telecom Inc. (“NextWave”), a
privately held company. As part of the share purchase, the Company
also received warrants to buy 1,111,111 additional shares of Series B
Common Stock at $3 per share. During March 1996, the Company
converted $15 million of the note receivable into 5,000,000 shares of
Series B Common Stock. The conversion was treated as a non-cash
transaction for the consolidated statement of cash flows.
In June 1998, the Company recorded a $20 million non-cash charge
to write-off its investment in NextWave. Subsidiaries of NextWave
filed for bankruptcy protection in June 1998 under Chapter 11 of the U.S.
Bankruptcy Code. There is significant uncertainty as to the outcome of
the bankruptcy proceedings.
Other Joint Ventures
The Company has entered into other domestic and international
joint ventures providing advanced communications systems, products
and services based on wireless technology. The Company’s combined
investment in these joint ventures as of September 30, 1999 and 1998,
amounted to $51 million and $27 million, respectively. At September 30,
1999, effective ownership interests in the joint ventures ranged from
2% to 34%. Unfunded equity commitments totaled $119 million at
September 30, 1999, which the Company expects to fund over three
years. Such commitments are subject to the joint ventures meeting
certain conditions; actual equity funding may be in lesser amounts.
It is not practicable to estimate the total fair value of the Company’s
investment in these other joint ventures as the investments are pre-
dominantly closely-held and not publicly traded. The Company’s
investees are principally engaged in development of new products,
commercial deployment and expansion of wireless networks and ser-
vices. An investee’s failure to successfully develop and provide
competitive products and services due to lack of financing, market
demand or unfavorable economic environment could adversely affect
the value of the Company’s investment in the investee. There can be no
assurance that the investees will be successful in their efforts.
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 a restructuring charge to operations of
$15 million. The restructuring plan was comprised of employee termi-
nation and facility exit costs resulting primarily from the Company’s
plan to exit certain activities in its infrastructure equipment business.
The Company eliminated 651 positions as a result of the plan. Facility
exit costs include approximately $3 million of asset impairments and $1
million of estimated net losses on subleases or lease cancellation
penalties. The Company expects to complete implementation of the
plan by the end of the second quarter of fiscal 2000. The accrued
restructuring costs and amounts charged against the provision as of
September 30, 1999 were as follows (in thousands):
September 30,
Provisions Deductions 1999
Employee termination costs $ 10,162 $ (10,162) $ —
Facility exit costs 4,397 (3,866) 531
Total $ 14,559 $ (14,028) $ 531
DISPOSITION OF ASSETS AND OTHER CHARGES
On the Closing Date, the Company sold certain of its assets related
to its terrestrial CDMA wireless infrastructure business to Ericsson. The
Company and Ericsson also entered into various license and settlement
agreements in connection therewith, pursuant to the March 24, 1999
Asset Purchase Agreement (the “Agreement”), as amended. The Company
recorded charges of $66 million in other operating expenses during fis-
cal 1999 to reflect the difference between the carrying value of the net
assets and the consideration received from Ericsson, less costs to sell.
Total consideration will be based on a final determination of net assets
as of the Closing Date. The Company has received notice of Ericsson’s
intention to dispute the purchase price (Note 14).
In addition, the Company and Ericsson agreed to jointly support a
single worldwide CDMA standard with three optional modes for the
next generation of wireless communications and have agreed to settle
all of the existing litigation between the companies and enter into
cross-licenses for portions of their respective CDMA patent portfolios.
As part of the agreements, the Company and Ericsson will each commit
to the International Telecommunication Union (“ITU”) and to other stan-
dards bodies to license their essential patents for the single CDMA
standard or any of its modes to the rest of the industry on a fair and rea-
sonable basis free from unfair discrimination.
Pursuant to the Agreement, the Company will extend up to $400 mil-
lion in financing for possible future sales by Ericsson of cdmaOne or
cdma2000 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. 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 cdmaOne or cdma2000 sales. Commitments represent
the estimated amounts to be financed under these arrangements; how-
ever, actual financing may be in lesser amounts.
As a result of the Ericsson transaction, the Company reassessed the
recoverability of the carrying value of remaining assets relating to its
terrestrial CDMA wireless infrastructure business. The Company
recorded charges of $117 million in other operating expenses during
fiscal 1999, including $74 million for compensation benefits provided to
employees transferred to Ericsson, $31 million to reduce the carrying
value of certain other assets to their approximate net realizable value
and $12 million related to the TOU contract (Note 2). The Company also
recorded $52 million in non-operating charges during fiscal 1999,
including $37 million in reserves provided for financial guarantees on
projects which the Company will no longer pursue as a result of the
Ericsson transaction and $15 million related to the write-off of TOU
assets (Note 2).
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