Qualcomm 2004 Annual Report Download - page 55

QUALCOMM 51
Equity Price Market Risk. We hold a diversified portfolio of marketable securities, equity mutual fund shares and derivative instruments subject
to equity price risk. The recorded values of marketable equity securities increased to $765 million at September 30, 2004 from $140 million at
September 30, 2003. The recorded value of equity mutual fund shares was $296 million at September 30, 2004. The recorded value of derivative
instrument assets, mainly comprised of warrants, subject to Statement of Financial Accounting Standards No. 133 (FAS 133) “Accounting for
Derivative Instruments and Hedging Activities,” at September 30, 2004 was $4 million. We generally invest in companies in the high-technology
industry, and typically do not attempt to reduce or eliminate our market exposure on these securities. The portfolio’s concentrations in specific
companies and industry segments may vary over time, and changes in concentrations may affect the portfolio’s price volatility. During the last
three years, many technology stocks experienced significant decreases in value, negatively affecting the fair values of our available-for-sale
equity securities and derivative instruments. A 10% decrease in the market price of our marketable equity securities and equity mutual fund
shares at September 30, 2004 would cause a corresponding 10% decrease in the carrying amounts of these securities, or $106 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 $162 million at September 30, 2004.
Additional information regarding our strategic investments is provided in Management’s Discussion and Analysis of Financial Condition and
Operating Results in this Annual Report.
Foreign Exchange Market Risk. We manage our exposure to foreign exchange market risks, when deemed appropriate, through the use of
derivative financial instruments, consisting primarily of foreign currency forward and option contracts. Derivative financial instruments are
viewed as risk management tools and are not used for speculative or trading purposes. At September 30, 2004, the value of our foreign cur-
rency forward contracts was insignificant, and there were no foreign currency option contracts outstanding. See “Note 1 to the Consolidated
Financial Statements — The Company and its Significant Accounting Policies” for a description of our foreign currency accounting policies.
Financial instruments held by consolidated subsidiaries and equity method investees which are not denominated in the functional currency of
those entities aresubject to the effects of currency fluctuations 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 denomi-
nated in nonfunctional currencies and certain anticipated nonfunctional currency transactions. As a result, we could experience unanticipated
gains or losses on anticipated foreign currency cash flows, 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.
Finance receivables and notes receivable from international operators and customers that do not use the United States dollar as their functional
currencies subject us to credit risk. Because our financing is U.S. dollar denominated, any significant change in the value of the U.S. dollar
against the debtors’ functional currencies could result in an increase in the debtor’s cash flow requirements and could thereby affect our ability
to collect our receivables. At September 30, 2004, finance and note receivables from international operators and customers totaled $2 million,
net of allowances.
Our analysis methods used to assess and mitigate risk discussed above should not be considered projections of future risks.
Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting and Financial Disclosure
None.
Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Under the supervision and with the participation of our man-
agement, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and
procedures, as such termis defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosurecontrols and pro-
cedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation
of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework,
our management concluded that our internal control over financial reporting was effective as of September 30, 2004.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of September 30, 2004 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.