Qualcomm 2005 Annual Report Download - page 52
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Market Risk
We invest most of our cash in a number of diversifi ed investment and non-investment grade fi xed and fl oating rate securities, consisting of cash
equivalents and marketable securities. Changes in the general level of United States interest rates can affect the principal values and yields of
fi xed-income investments. If interest rates in the general economy were to rise rapidly in a short period of time, our fi xed-income investments
could lose value. If the general economy were to weaken signifi cantly, the credit profi le of issuers of securities held in our investment portfolios
could deteriorate, and our investments could lose value. We may implement investment strategies of different types with varying duration and
risk/return trade-offs that do not perform well.
The following table provides information about our fi nancial instruments that are sensitive to changes in interest rates. For our interest-bearing
securities, the table presents principal cash fl ows, weighted average yield at cost and contractual maturity dates. Additionally, we have assumed
that these securities are similar enough within the specifi ed categories to aggregate these securities for presentation purposes.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rates
No Single Fair
(dollars in millions) 2006 2007 2008 2009 2010 Thereafter Maturity Total Value
Fixed interest-bearing securities:
Cash and cash equivalents $ 608 — — — — — — $ 608 $ 608
Interest rate 3.6%
Held-to-maturity securities $ 60 — — — — — — $ 60 $ 60
Interest rate 2.1%
Available-for-sale securities:
Investment grade $2,266 $336 $221 $ 9 $ 20 $ 9 $213 $3,074 $3,074
Interest rate 3.4% 3.7% 4.1% 4.4% 4.1% 6.7% 4.5%
Non-investment grade $ 2 $ 5 $ 24 $48 $38 $573 — $ 690 $ 690
Interest rate 6.5% 7.5% 7.3% 7.3% 8.2% 7.9%
Floating interest-bearing securities:
Cash and cash equivalents $1,364 — — — — — — $1,364 $1,364
Interest rate 3.7%
Held-to-maturity securities $ 70 — — — — — — $ 70 $ 70
Interest rate 1.4%
Available-for-sale securities:
Investment grade $ 174 $289 $131 $26 $13 $ 49 $ 552 $1,234 $1,234
Interest rate 3.6% 3.7% 3.6% 3.5% 4.0% 4.3% 4.1%
Non-investment grade — $ 6 — $ 3 $ 2 $ 17 — $ 28 $ 28
Interest rate 4.9% 6.4% 7.1% 8.5%
Equity Price Market Risk
We invest in a number of diversifi ed marketable securities and mutual
fund shares subject to equity price risk. The recorded values of market-
able equity securities increased to $1.16 billion at September 25, 2005
from $765 million at September 26, 2004. The recorded value of equity
mutual fund shares decreased to $293 million at September 25, 2005
from $296 million at September 26, 2004. Our diversifi ed investments
in specifi c companies and industry segments may vary over time, and
changes in the concentrations of these investments may affect the
price volatility of our investments. A 10% decrease in the market price
of our marketable equity securities and equity mutual fund shares at
September 25, 2005 would cause a corresponding 10% decrease in the
carrying amounts of these securities, or $145 million.
Our strategic investments in other entities consist substantially of
investments in private early-stage companies accounted for under the
equity and cost methods. Accordingly, we believe that our exposure
to market risk from these investments is not material. Additionally,
we do not anticipate any near-term changes in the nature of our
market risk exposures or in management’s objectives and strategies
with respect to managing such exposures. The recorded values of
these strategic investments totaled $121 million at September 25,
2005, as compared to $162 million at September 26, 2004.
We hold warrants to acquire equity interests in certain strategic
investees that are subject to equity price risk. Substantially all
of these warrants are recorded at fair value in accordance with
Statement of Financial Accounting Standards No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” The recorded
values of warrants held at September 25, 2005 totaled $1 million,
as compared to $4 million at September 26, 2004.
Market Risk