Qualcomm 2006 Annual Report Download - page 66

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52 qualcomm 2006
Financial instruments held by consolidated subsidiaries and equity
method investees which are not denominated in the functional
currency of those entities are subject to the effects of currency
uctuations and may affect reported earnings. As a global concern,
we face exposure to adverse movements in foreign currency
exchange rates. We may hedge currency exposures associated
with certain assets and liabilities denominated in nonfunctional
currencies and certain anticipated nonfunctional currency trans-
actions. As a result, we could experience unanticipated gains or
losses on anticipated foreign currency cashows, as well as economic
loss with respect to the recoverability of investments. While we
may hedge certain transactions with non-United States customers,
declines in currency values in certain regions may, if not reversed,
adversely affect future product sales because our products may
become more expensive to purchase in the countries of the
affected currencies.
Our analysis methods used to assess and mitigate risk discussed
above should not be considered projections of future risks.
Foreign Exchange Risk
We manage our exposure to foreign exchange market risks, when
deemed appropriate, through the use of derivative nancial instru-
ments, consisting primarily of foreign currency forward and option
contracts. Such derivative nancial instruments are viewed as
hedging or risk management tools and are not used for speculative
or trading purposes. At September 24, 2006, we had no foreign
currency forward contracts outstanding. At September 24, 2006,
the net recorded value of our foreign currency option contracts that
hedge the foreign currency risk on royalties earned from certain
international licensees on their sales of CDMA and WCDMA products
was a liability of $2 million. If our forecasted royalty revenues were
to decline by 20% and foreign exchange rates were to change
unfavorably by 20% in each of our hedged foreign currencies,
we would incur a loss of approximately $3 million resulting from
a decrease in fair value of the portion of our hedges that would
be rendered ineffective. See “Notes to Consolidated Financial
Statements, Note 1—The Company and Its Signicant Accounting
Policies” for a description of our foreign currency accounting policies.
Market Risk continued