Qualcomm 2005 Annual Report Download - page 53
Download and view the complete annual report
Please find page 53 of the 2005 Qualcomm annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.qualcomm 2005 49
In connection with our stock repurchase program, we sell put options
that may require us to repurchase shares of our common stock at
fi xed prices. These written put options subject us to equity price risk.
At September 25, 2005, two put options were outstanding, which
expire on December 7, 2005 and March 21, 2006, that may require
us to repurchase 11,500,000 shares of our common stock upon exer-
cise for $411 million (net of the option premiums received). The put
option liabilities, with a fair value of $7 million at September 25,
2005, were included in other current liabilities. If the fair value of our
common stock at September 25, 2005 decreased by 10%, the put
options would expire unexercised resulting in $7 million in investment
income. If the fair value of our common stock at September 25, 2005
decreased by 25%, the amount required to physically settle the put
options would exceed the fair value of the shares repurchased by
approximately $25 million, net of the $23 million in premiums received.
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 fi nancial instru-
ments, consisting primarily of foreign currency forward and option
contracts. Such derivative fi nancial instruments are viewed as hedg-
ing or risk management tools and are not used for speculative or
trading purposes. At September 25, 2005, we had no foreign cur-
rency forward contracts outstanding. At September 25, 2005, the
recorded values of our foreign currency option contracts that hedge
the foreign currency risk on royalties earned from certain interna-
tional licensees on their sales of CDMA and WCDMA products were
$16 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 $6 million resulting from a decrease in fair value of
the portion of our hedges that would be rendered ineffective. See
“Note 1 to the Consolidated Financial Statements—The Company
and Its Signifi cant Accounting Policies” for a description of our for-
eign currency accounting policies.
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
fl 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 transactions. As a result,
we could experience unanticipated gains or losses on anticipated
foreign currency cash fl ows, as well as economic loss with respect to
the recoverability of investments. While we may hedge certain trans-
actions 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.