Qualcomm 2004 Annual Report Download - page 46

QUALCOMM 42
Management’s Discussion and Analysis continued
Key developments in our strategic investments during fiscal 2004 included the sale of the Vésper Operating Companies and related assets which are
presented as discontinued operations, our receipt from Pegaso of prepayment of our $193 million loan facility, and ongoing investment in Inquam.
Discontinued Operations in our QSI Segment. In fiscal 1999, we acquired ownership interests in two companies in Brazil, Vésper São Paulo
S.A. and Vésper S.A. (the Vésper Operating Companies). In November 2001, we consummated a series of transactions resulting in an overall
financial restructuring of the Vésper Operating Companies, which resulted in our holding direct and indirect controlling ownership interests in
the Vésper Operating Companies.
On December 2, 2003 (the Closing Date), Embratel Participações S.A. (Embratel) acquired our direct and indirect ownership interests in the
Vésper Operating Companies (the Embratel sale transaction) for no consideration. The Vésper Operating Companies’ existing communication
towers and related interests in tower site property leases (Vésper Towers) were not included in the Embratel sale transaction, and as such, we
effectively retained, through a new wholly-owned subsidiary (TowerCo), ownership and control of the Vésper Towers. The Vésper Towers had a
net book value of approximately $5 million at December 28, 2003. Concurrent with the closing, the Vésper Operating Companies entered into
a10-year agreement (renewable at the Vésper Operating Companies’ option for up to two successive 5-year terms) whereby the Vésper Operating
Companies would pay a monthly fee to us for use of aerial and ground space on the tower sites. We provided approximately $6 million to fund
operations of the Vésper Operating Companies during the first quarter of fiscal 2004 prior to their sale and additionally provided approximately
$39 million in aggregate funding to or for the benefit of the Vésper Operating Companies on or before the Closing Date to facilitate the Embratel
sale transaction. Such funding enabled the Vésper Operating Companies to completely extinguish their existing local bank debt (at an agreed
discount) to allow us to retain ownership of the Vésper Towers free and clear of any local bank security interest. The major classes of assets and
liabilities sold in the Embratel sale transaction included: $25 million in accounts receivable, $5 million in inventory, $24 million in other current
assets, $95 million in property, plant and equipment, $6 million in other assets, $52 million in accounts payable, $5 million in payroll and other ben-
efits related liabilities, $6 million in unearned revenue, $1 million in other current liabilities, $14 million in long-term debt and $3 million in other
liabilities. We realized a net loss of $52 million on the Embratel sale transaction during the first quarter of fiscal 2004, including a $74 million loss on
the net assets sold to Embratel and a $46 million loss related to the recognition of cumulative foreign currency translation losses previously included
in stockholders’ equity, partially offset by $68 million in gains related to the extinguishment of local bank debt and the settlement of other liabilities.
On November 19, 2002, we won bids to acquire personal mobile service (SMP) licenses in certain regions of Brazil. Approximately $8 million
of the approximate $82 million purchase price for the SMP licenses was paid in December 2002. The remaining Brazilian real-denominated
obligation was financed by the Brazilian government at an interest rate of 12% per annum, plus an adjustment for inflation. These SMP licenses
were not included in the Embratel sale transaction. In December 2003, we initiated a waiver and return of the SMP licenses to Anatel, the
telecommunications regulatory agency in Brazil. In February 2004, the waiver and return of the SMP licenses was approved by Anatel, and
the license debt was extinguished. We realized a net gain of $19 million as a result of the removal of the $104 million SMP licenses and the
related $123 million debt and accrued interest during the second quarter of fiscal 2004.
On March 2, 2004, we sold TowerCo to Embratel in a separately negotiated transaction (the TowerCo sale transaction) for $45 million in cash.
TowerCo’sassets wereprimarily comprised of $5 million in property, plant and equipment. We realized a net gain of $40 million on the TowerCo
sale transaction during the second quarter of fiscal 2004. As a result of the disposition of the remaining operations and assets related to the
Vésper Operating Companies, we determined that the results of operations and cash flows related to the Vésper Operating Companies, including
the results related to TowerCo and the SMP licenses and the gains and losses realized on the Embratel and TowerCo sales transactions, should
be presented as discontinued operations in our consolidated statements of operations and cash flows. Our statements of operations and cash
flows for all prior periods have been adjusted to present the discontinued operations.
For fiscal 2004, 2003 and 2002, revenues of $36 million, $123 million and $125 million, respectively,were reported in the loss from discon-
tinued operations. At September 30, 2004, we had no remaining assets or liabilities related to the Vésper Operating Companies, TowerCo or
the SMP licenses recorded on our consolidated balance sheet.
Prepayment of the Pegaso Telecomunicaciones, S.A. de C.V. Loan Facility. We had various financing arrangements, including a bridge loan
facility,an equipment loan facility, interim and additional interim loan facilities, with Pegaso Comunicaciones y Sistemas S.A. de C.V., a wholly
owned subsidiary of Pegaso Telecomunicaciones, S.A. de C.V., a CDMA wireless operator in Mexico (collectively referred to as Pegaso). On
September 10, 2002, Telefónica Móviles (Telefónica) acquired a 65% controlling interest in Pegaso. On October 10, 2002, Pegaso paid $82 mil-
lion in full satisfaction of the interim and additional interim loans. On November 8, 2002, Pegaso paid $435 million in full satisfaction of the
bridge loan facility.We used approximately $139 million of the bridge loan proceeds to purchase outstanding vendor debt owed by Pegaso to
other lenders. On June 13, 2003, Pegaso prepaid $281 million of the equipment loan facility,including accrued interest, in accordance with
certain terms of the equipment loan facility.On December 15, 2003, Pegaso prepaid $193 million, including accrued interest, in full satisfaction
of the equipment loan facility. We recognized $12 million, $41 million and $9 million in interest income related to the Pegaso financing arrange-
ments during fiscal 2004, 2003 and 2002, respectively, including $10 million and $23 million of deferred interest income recorded as a result
of the prepayments in fiscal 2004 and 2003, respectively.
Investment in Inquam Limited. We have invested $200 million in the convertible preferred shares of Inquam Limited (Inquam) for an approximate
42% ownership interest in Inquam. Inquam owns, develops and manages wireless communications systems, either directly or indirectly, with the
intent of deploying CDMA-based technology, primarily in Europe. Starting in the third quarter of fiscal 2003, we and another investor (the Other
Investor) also extended $117 million in bridge loan financings to Inquam, including $31 million in bridge loan funding put in place during fiscal