Qualcomm 2002 Annual Report Download - page 69

In fiscal 2000, the Company purchased 308,000 units of Leap Wireless’ senior dis-
count notes with detachable warrants for $150 million. The notes mature in April 2010
and bear interest at 14.5% payable beginning in 2005. The warrants entitle each holder
to purchase 2.503 common shares per each senior discount note unit held. The exercise
price is $96.80 per common share. Upon the adoption of FAS 133, the Company
bifurcated the warrants from the senior discount notes and accounted for the
warrants separately. The Company calculated the fair value of the warrants as of the
purchase date using the Black-Scholes option pricing model and used the fair value to
determine the warrants’ cost basis. The resulting adjustment between the cost basis
and their fair value on the adoption date was recorded as an accounting change, net of
tax, and subsequent changes in fair value of the warrants were recorded in investment
(expense) income. In addition, the Company holds 489,000 shares of Leap Wireless’
common stock at September 30, 2002 and a warrant to purchase common stock
issued to the Company in connection with its spin-off of Leap Wireless (Note 1). During
fiscal 2002, management determined that declines in the market values of the
Company’s investments in Leap Wireless were other than temporary when those val-
ues declined significantly as a result of unfavorable business developments. As a
result, the Company recorded $162 million and $18 million in other-than-temporary
losses on marketable securities for the notes and stock, respectively, during fiscal
2002. The Company also recorded $59 million and $213 million in losses related to
changes in the fair values of Leap Wireless derivative investments for fiscal 2002 and
2001, respectively. The fair values of the senior discount notes and the common stock
totaled $1 million, and the warrants had insignificant value at September 30, 2002.
In fiscal 2000, the Company purchased 2,565,000 common shares of Korea
Telecom Freetel Co., Ltd. (KTF), representing a 1.9% interest, for $110 million and an
$86 million zero coupon bond with warrants to purchase approximately 1,851,000
additional shares. The Company used the cost method to account for 1,924,000 of the
common shares and approximately 1,388,000 shares under warrant through June 1,
2001, as those shares were restricted. Subsequent to that date, the Company used
the fair value method to account for all of the common shares and the warrants,
recording changes in fair value as a component of comprehensive loss, net of tax, and
investment (expense) income, respectively. Upon the adoption of FAS 133, the
Company had bifurcated the warrants from the zero coupon bond and accounted for
the warrants separately. The Company calculated the fair value of the warrants as of
the purchase date using the Black-Scholes option pricing model and used the fair
value to determine the warrants’ cost basis. Since only the warrants with unrestricted
underlying shares met the definition of a derivative instrument at the time of adop-
tion, the resulting adjustment between those warrants’ cost basis and their fair value
on the adoption date was recorded as an accounting change, net of tax, and subse-
quent changes in fair value of the warrants were recorded in investment (expense)
income. During the first quarter of fiscal 2002, KTF met certain obligations related to
the commercial deployment of 1xEV-DO technology, and the Company was required
to exercise the warrants. The exercise price of the warrants was paid by tendering the
bond as payment in full. As a result of the exercise, the Company holds 4,416,000
common shares of KTF as of September 30, 2002. The fair value of the common
shares was $110 million at September 30, 2002.
NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
ACCOUNTS RECEIVABLE
September 30,
(In thousands) 2002 2001
Trade, net of allowance for doubtful accounts
of $21,647 and $15,756, respectively $521,371 $493,930
Long-term contracts:
Billed 4,576 11,917
Unbilled 985 3,846
Other 10,018 7,864
$536,950 $517,557
At September 30, 2002, trade accounts receivable and the allowance for doubtful
accounts included $39 million and $11 million, respectively, related to the consolidation
of Vésper Holding Ltd. (Vésper Holding) (Note 13). 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
Finance receivables result from arrangements in which the Company has agreed
to provide its customers or certain CDMA customers of Telefonaktiebolaget LM
Ericsson (Ericsson) with long-term interest bearing debt financing for the purchase
of equipment and/or services. Finance receivables were comprised as follows:
September 30,
(In thousands) 2002 2001*
Finance receivables $881,859 $1,388,684
Allowance for doubtful receivables (50,529) (703,948)
831,330 684,736
Current maturities, net 388,396 10,345
Noncurrent finance receivables, net $442,934 $ 674,391
* As adjusted (Note 13)
QUALCOMM 2002 ANNUAL REPORT PAGE 67