Hard to say how the upfront payment was calculated back in July when the settlement was reached, or what currency they used, but I would guess the entire deal was done in EUR, or in US $$ converted into EUR at the prevailing rate back then (1.5753 $/EUR).
From QCOM's last Q2:
Certain of our revenues, such as royalty revenues, are derived from licensee or customer sales that are denominated in foreign currencies.
Whatever NOK owed QCOM for the past 6 quarters, they would likely have owed almost all of it in non-dollar currencies, converted into EUR for their own reporting purposes. Seems likely that previous royalty payments from NOK have been made in EUR.
So when the payment is made this current quarter, why would it not also be in EUR, since EUR 1.7 billion is what NOK has said, and that's what they say they will account for as they expense it off over the next 15 years?
EUR 1.7 billion at today's exchange rates is about $2.3 billion (at 1.3587 $/EUR). Back in July with the weaker dollar then, EUR 1.7 billion would have been $2.7 billion (at 1.5753 $/EUR). So if the settlement payment was negotiated in EUR at $1.7 billion, it's worth less in $$ now.
Assuming it will be made in EUR, I don't see how QCOM could hedge that sum back in July when it doesn't yet have it in hand.
The NOK PR says:
The payment amounts to EUR 1.7 billion and is payable by Nokia to Qualcomm during the fourth quarter 2008. The lump-sum payment made to Qualcomm will be expensed quarterly over the term of the agreement. As a result of the agreement with Qualcomm and certain other license agreements concluded during the third quarter 2008, Nokia incurred a slightly positive impact to its gross margin during the quarter, as the royalty provisions earlier recorded well covered the related obligations.
That implies that the amounts set aside for royalties due to QCOM are part of the total recorded in "Provisions", which in the latest report are EUR 3,508 under "Current Liabilities". I the previous quarter ended 6/30/08 this amount was EUR 4,134.
That seems in agreement with the last sentence of the PR statement above, which implies that NOK had set aside more than they ultimately needed for all (not just QCOM) royalties owed.
I guess more clarity will have to await QCOM on 11/5/08 when we will hopefully hear both the converted dollar amount that appears on the balance sheet and how they intend to amortize this cash payment.
David |
