Qualcomm 2011 Annual Report Download - page 92

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation Settlement, Patent License and Other Related Items. On April 26, 2009, the Company entered into a Settlement and Patent
License and Non-Assert Agreement with Broadcom. The Company agreed to pay Broadcom $891 million , of which $589 million was paid
through September 25, 2011 , and the remainder will be paid ratably through April 2013 . The Company recorded a pre-tax charge of $783
million in other operating expenses related to this agreement in fiscal 2009. At September 25, 2011 , the carrying value of the liability was $294
million , which also approximated the fair value of the contractual liability net of imputed interest.
Loans Payable Related to India BWA Spectrum. In connection with the India BWA spectrum won in India in June 2010, certain of the
Company’s subsidiaries in India entered into loan agreements with multiple lenders that are denominated in Indian rupees. The loans bear
interest at an annual rate based on the highest rate among the bank lenders, which is reset quarterly, plus 0.25% ( 10% at September 25, 2011 )
with interest payments due monthly. The loans are due and payable in full in December 2012 . As of September 25, 2011, all but one of the
lenders had the right to demand prepayment of its portion of the loans outstanding on December 15, 2011 subject to sufficient prior written
notice. As a result, the loans were classified as a component of current liabilities. The date by which those lenders were required to have given
notice has now passed, and those lenders can no longer demand prepayment. One remaining lender can demand prepayment of its portion of the
loans outstanding on February 28, 2012 ( $152 million at September 25, 2011) if notice is given by December 15, 2011. The loan agreements
also define certain events as events of default, including, among other things, if certain government authorizations are revoked, terminated,
withdrawn, suspended, modified or withheld. If the DoT’s rejection of the Company's license applications were to be considered an event of
default, the bank lenders could declare the loans due and payable immediately. The Company has received waivers from each of the bank
lenders related to this matter until at least April 1, 2012, conditioned upon the Company continuing to pursue its legal rights in this matter, and
agreeing that any default will be deemed cured under certain circumstances, including if one of the relevant subsidiaries is granted the license
and the other three are pursuing a merger into the subsidiary that has been offered a license. The loans can be prepaid without penalty on certain
dates and are guaranteed by QUALCOMM Incorporated and one of its subsidiaries. The loan agreements contain standard covenants, which,
among other things, limit actions by the subsidiaries that are party to the loan agreements, including the incurrence of loans and equity
investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. At September 25,
2011 , the aggregate carrying value of the loans was $994 million , which approximated fair value. Cash amounts paid for interest on the loans
were $94 million and $15 million for fiscal 2011 and 2010, respectively.
Indemnifications. With the exception of the practices of Atheros, which the Company acquired in May 2011 (Note 12), the Company
generally does not indemnify its customers and licensees for losses sustained from infringement of third-party intellectual property rights.
However, the Company is contingently liable under certain product sales, services, license and other agreements to indemnify certain customers
against certain types of liability and/or damages arising from qualifying claims of patent infringement by products or services sold or provided
by the Company. The Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the
Company may have recourse against third parties for certain payments made by the Company. Under Atheros’ indemnification agreements,
software license agreements and product sale agreements, including its standard software license agreements and standard terms and conditions
of semiconductor sales, Atheros agrees, subject to restrictions and after certain conditions are met, to indemnify and defend its licensees and
customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights,
trademarks or trade secrets, and to pay any judgments entered on such claims against the licensees or customers. Through September 25, 2011 ,
Atheros has received a number of claims from its direct and indirect customers and other third parties for indemnification under such agreements
with respect to alleged infringement of third-party intellectual property rights by Atheros’ products.
These indemnification arrangements are not initially measured and recognized at fair value because they are deemed to be similar to product
warranties in that they relate to claims and/or other actions that could impair the ability of the Company’s direct or indirect customers to use the
Company’s products or services. Accordingly, the Company records liabilities resulting from the arrangements when they are probable and can
be reasonably estimated. Reimbursements under indemnification arrangements have not been material to the Company’s consolidated financial
statements. The Company has not recorded any accrual for contingent liabilities at September 25, 2011 associated with these indemnification
arrangements, other than negligible amounts for reimbursement of legal costs, based on the Company’s belief that additional liabilities, while
possible, are not probable. Further, any possible range of loss cannot be estimated at this time.
Purchase Obligations. The Company has agreements with suppliers and other parties to purchase inventory, other goods and services and
long-lived assets. Noncancelable obligations under these agreements at September 25, 2011 for each of the subsequent five years from fiscal
2012 through 2016 were approximately $1.9 billion , $62 million , $40 million , $37 million and $27 million , respectively, and $9 million
thereafter. Of these amounts, for fiscal 2012 and 2013, commitments to purchase integrated circuit product inventories comprised $1.4 billion
and $2 million , respectively.
Leases. The future minimum lease payments for all capital leases and operating leases at September 25, 2011 were as follows (in millions):
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