Qualcomm 2012 Annual Report Download - page 84

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice (DOJ) Investigation: On
September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The
Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the
Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance
of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting
practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s
Office for the Southern District of California/DOJ (DOJ) had begun a preliminary investigation regarding the Company’s compliance with the
Foreign Corrupt Practices Act (FCPA).The Company believes that FCPA compliance had also become a focus of the SEC investigation. The
audit committee has commenced an internal review into the Company’s compliance with the FCPA with the assistance of independent counsel
and independent forensic accountants.
The Company has discovered, and as a part of its ongoing cooperation with these investigations has informed the SEC and the DOJ of,
instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated
with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of
the benefits in question to be less than $250,000, excluding employment compensation. The Company is continuing to investigate the
circumstances relating to providing these benefits and is attempting to identify whether any other benefits were provided.
The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations.
Other: The Company has been named, along with many other manufacturers of wireless phones, wireless operators and industry-related
organizations, as a defendant in three lawsuits pending in Washington D.C. superior court, seeking monetary damages arising out of its sale of
cellular phones.
The Company will continue to vigorously defend itself in the foregoing actions. However, litigation and investigations are inherently
uncertain. Accordingly, the Company cannot predict the outcome of these matters. The Company has not recorded any accrual at September 30,
2012 for contingent losses associated with these matters based on its belief that losses, while possible, are not probable. Further, any possible
range of loss cannot be reasonably estimated at this time. Nonetheless, the unfavorable resolution of one or more of these matters could have a
material adverse affect on the Company’s business, results of operations, financial condition or cash flows. The Company is engaged in
numerous other legal actions not described above arising in the ordinary course of its business and, while there can be no assurance, believes that
the ultimate outcome of these actions will not have a material adverse effect on its business, results of operations, financial condition or cash
flows.
Loans and Debentures. The Company’s BWA subsidiaries have loan and debenture liabilities in connection with the India BWA spectrum
won in India in June 2010 and payment of $81 million to the DoT in March 2012. At September 30, 2012 , the aggregate carrying value of the
loans and debentures, including accrued interest on the debentures, of $1.1 billion , was classified as a component of liabilities held for sale
(Note 2). At September 25, 2011 , loans were $994 million . At September 30, 2012 and September 25, 2011
, the loans and debentures liabilities
approximated fair value (a Level 2 measurement). Cash paid for interest on the loans was $88 million , $94 million and $15 million for fiscal
2012 , 2011 and 2010 , respectively.
The BWA subsidiaries’ loan agreements with multiple lenders are denominated in Indian rupees. The majority of the loans ( $468 million at
September 30, 2012 ) bear interest at an annual rate based on the highest rate among the bank lenders, which is reset quarterly, plus 0.25%
( 10.00% at September 30, 2012 ) with interest payments due monthly. The remaining loan ( $77 million at September 30, 2012 ) bears interest
at an annual rate based on the highest rate of the bank that is party to the loan or of the other bank lenders, which is reset quarterly, plus 0.25%
( 10.50% at September 30, 2012 ) with interest payments due monthly. All of the loans can be prepaid without penalty on certain dates and are
guaranteed by QUALCOMM Incorporated and one of its wholly-owned subsidiaries. All of the loans are due and payable in full on
December 18, 2012 . The Company intends to refinance the loans with long-term loans on or before that date. 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. The
loan agreements also define certain events of default, including, among other things, if certain government authorizations are revoked,
terminated, withdrawn, suspended, modified or withheld.
On May 29, 2012 , the same BWA subsidiaries issued redeemable, unlisted, unsecured, non-convertible debentures (the debentures) to
multiple purchasers, the proceeds of which were used primarily to prepay a portion of the loans described in the previous paragraph. The
debentures are denominated in Indian rupees and bear interest at an agreed-upon annual rate, which is compounded annually and reset semi-
annually beginning on June 25, 2013 ( 10.25% at September 30, 2012 ) with interest due upon redemption. All of the debentures ( $519 million ,
including accrued interest, at September 30, 2012 ) are due and payable in full on June 25, 2017 . The debentures can be redeemed by the
Company without penalty on certain dates. Additionally, each
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