Qualcomm 2006 Annual Report Download - page 65

qualcomm 2006 51
quantitative and qualitative disclosures about market risk
Interest Rate Risk
We invest our cash in a number of diversied investment and non-investment grade xed and 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
xed income investments. If interest rates in the general economy were to rise rapidly in a short period of time, our xed income investments
could lose value. If the general economy were to weaken signicantly, the credit pro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 nancial instruments that are sensitive to changes in interest rates. For our interest-
bearing securities, the table presents principal cash ows, weighted average yield at cost and contractual maturity dates. Additionally, we
have assumed that these securities are similar enough within the speci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) 2007 2008 2009 2010 2011 Thereafter Maturity Total Value
Fixed interest-bearing securities:
Cash and cash equivalents $ 482 $ — $ — $ — $ — $ — $ — $ 482 $ 482
Interest rate 5.3%
Available-for-sale securities:
Investment grade $2,138 $436 $238 $39 $12 $ 10 $267 $3,140 $3,140
Interest rate 4.1% 4.6% 5.2% 5.0% 5.2% 7.3% 4.9%
Non-investment grade $ 2 $ 13 $ 37 $30 $61 $352 $ — $ 495 $ 495
Interest rate 7.2% 5.8% 6.8% 7.7% 7.5% 8.0%
Floating interest-bearing securities:
Cash and cash equivalents $ 999 $ — $ — $ — $ — $ — $ — $ 999 $ 999
Interest rate 5.3%
Available-for-sale securities:
Investment grade $ 157 $116 $192 $52 $ 3 $ 87 $348 $ 955 $ 955
Interest rate 5.0% 5.3% 5.6% 5.6% 5.8% 5.8% 5.5%
Non-investment grade $ 10 $ 14 $ 12 $26 $65 $258 $512 $ 897 $ 897
Interest rate 6.4% 6.7% 6.6% 6.5% 7.1% 7.1% 7.2%
Market Risk
of our market risk exposures or in management’s objectives and strat-
egies with respect to managing such exposures. The recorded values
of these strategic investments totaled $93 million at September 24,
2006, compared to $121 million at September 25, 2005.
In connection with our stock repurchase program, we sell put options
that may require us to repurchase shares of our common stock at
xed prices. These written put options subject us to equity price
risk. At September 24, 2006, we had two outstanding put options,
enabling holders to purchase 2,000,000 shares of our common stock
upon exercise for approximately $89 million (net of the option
premiums received). The put option liabilities, with a fair value of
$19 million at September 24, 2006, were included in other current
liabilities. If the fair value of our common stock at September 24,
2006 decreased by 10%, the amount required to physically settle the
put options would exceed the fair value of the shares by $21 million,
net of the $6 million in premiums received.
Additional information regarding our strategic investments is
provided in Management’s Discussion and Analysis of Financial
Condition and Results of Operations in this Annual Report.
Equity Price Risk
We invest in a number of diversied marketable securities and
mutual fund shares subject to equity price risk. The recorded values
of marketable equity securities increased to $1.34 billion at
September 24, 2006 from $1.16 billion at September 25, 2005.
The recorded value of equity mutual fund shares increased to $1.52
billion at September 24, 2006 from $293 million at September 25,
2005. Our diversied investments in companies and industry seg-
ments 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 secu-
rities and equity mutual fund shares at September 24, 2006 would
cause a corresponding 10% decrease in the carrying amounts of
these securities, or $285 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