Qualcomm 2002 Annual Report Download - page 80

facilities, respectively. The interim and additional interim financing commitments
were cancelled at Close, and the interim and additional interim finance receivables
were repaid in full with interest on October 10, 2002.
Also in connection with the Close, Telefónica paid $9 million to the Company in
consideration for warrants to acquire equity in Pegaso at Close, and Pegaso paid
$12 million to the Company in October 2002 related to certain fees and
expense reimbursements.
As a result of the Close, the Company recognized a total of $9 million in interest
income in fiscal 2002. At September 30, 2002, finance and other receivables from
Pegaso totaled $821 million, net of $45 million in deferred interest income that will
be amortized over the remaining term of the equipment loan facility as an adjustment
to yield. The Company received $90 million of this amount in October 2002 and an
additional $295 million when the Bridge Payment was made in November 2002,
excluding the $139 million portion of the Bridge Payment that will be used to acquire
vendor debt. After receipt of the Bridge Payment, $436 million of the September 30, 2002
finance receivables remains, net of deferred interest. In the event that Pegaso were
to initiate the commercialization of GSM or TDMA services in its spectrum, Pegaso
would be obliged to prepay $285 million of that amount. Telefónica has recently
indicated its intention to deploy GSM in Mexico.
The Company’s aggregate commitments to provide additional long-term financ-
ing to Pegaso under its arrangements with Ericsson (Note 3) were $105 million as of
September 30, 2002, subject to Pegaso meeting certain conditions. Of this amount,
$9 million was cancelled when Pegaso made the Bridge Payment, and the remaining
$96 million is no longer available to Pegaso as a result of a series of events that
occurred in November 2002. The Company also had $4 million in other financing
commitments to Pegaso as of September 30, 2002 that were cancelled when Pegaso
made the Bridge Payment.
LEAP WIRELESS INTERNATIONAL INC.
The Company has a commitment to provide $125 million of cash loans under a
senior secured credit facility with Leap Wireless to facilitate Leap Wireless’ purchase
of licenses in the FCC’s Auction No. 35. At QUALCOMM’s option, and subject to FCC
consent, QUALCOMM may transfer all or a portion of any remaining amounts of its
Auction Discount Voucher (ADV) in satisfaction of a like dollar amount of such com-
mitment, with a cash commitment equal to any difference between $125 million and
the actual amount of the ADV transferred to Leap Wireless. The ADV was awarded to
QUALCOMM by the FCC in June 2000 as the result of a legal ruling. The terms of the
ADV allow QUALCOMM to use the voucher in whole or in part in any FCC spectrum
auction over a period of three years. The ADV is fully transferable and may, subject to
certain conditions, be used in whole or in part by any entity in any auction, including
those in which QUALCOMM is not a participant.
The credit facility may be used by Leap Wireless solely to pay for PCS spectrum
licenses acquired in the FCC’s Auction No. 35, which was completed in January 2001.
Under the terms of the credit facility, the Company is committed to fund up to
$125 million until the earlier of settlement of the FCC’s Auction No. 35 of PCS spectrum
or Leap Wireless’ withdrawal from Auction No. 35. In Auction No. 35, each of the
spectrum licenses as to which Leap Wireless was the highest bidder were licenses
the FCC reclaimed from Next
Wave Telecom, Inc. (Next Wave ), a company currently in
a Chapter 11 reorganization proceeding. The validity of the FCC’s reclamation and
reauction of these licenses in Auction No. 35 is currently subject to litigation between
NextWave and the federal government. Next
Wave has prevailed on certain of its
claims in the United States Court of Appeals for the District of Columbia Circuit. In
response to a petition by the FCC, the U.S. Supreme Court agreed to review the case
and heard oral argument on October 8, 2002. The grant to Leap Wireless of these
Auction 35 wireless licenses has been substantially delayed and has been brought
into question by the Next
Wave litigation. In addition, in November 2002, the FCC
adopted an order granting relief to Auction 35 bidders that were the high bidders for
Next
Wave licenses. Leap has until the end of December 2002 to elect to terminate its
obligation to purchase these licenses (Note 15). As a result, it is unclear when or if
Leap Wireless will be able to use the senior credit facility. Also, the Company believes
that Leap Wireless is not able to satisfy all of the conditions precedent to funding under
the credit facility. As a result, it appears unlikely that Leap Wireless will be able to use
the senior credit facility. The facility is repayable in a lump sum payment, including
principal and interest accrued through October 2002, no later than March 9, 2006. After
October 2002, interest is payable semi-annually. The facility bears interest at LIBOR
plus 7.5%. At September 30, 2002, no cash had been advanced to Leap Wireless.
OTHER
In addition to the financing commitments to Pegaso, Leap Wireless and Ericsson
(Note 3), the Company had $3 million of letters of credit and $6 million of
other financial commitments outstanding as of September 30, 2002, none of which
were collateralized.
NOTE 12. SEGMENT INFORMATION
The Company is organized on the basis of products and services. During the
first quarter of fiscal 2002, the Company formed two new operating segments,
QUALCOMM Wireless & Internet and QUALCOMM Strategic Initiatives, as a result of
changes in the Company’s businesses and in managerial reporting. Three divisions
have been aggregated into the QUALCOMM Wireless & Internet segment. Reportable
segments are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued