Qualcomm 2011 Annual Report Download - page 48

Equity Price Risk. We hold a diversified marketable securities portfolio that includes equity securities and equity commingled and exchange-
traded fund shares that are subject to equity price risk. We have made investments in marketable equity securities of companies of varying size,
style, industry and geography, and changes in investment allocations may affect the price volatility of our investments. A 10% decrease in the
market price of our marketable equity securities and equity mutual fund and exchange-traded fund shares at September 25, 2011 would cause a
decrease in the carrying amounts of these securities of $263 million. At September 25, 2011 , gross unrealized losses of our marketable equity
securities and equity mutual and exchange-traded fund shares were $70 million. Although we consider these unrealized losses to be temporary,
there is a risk that we may incur net other-than-temporary impairment charges or realized losses on the values of these securities if they do not
recover in value within a reasonable period.
In connection with our stock repurchase program, we may sell put options that require us to repurchase shares of our common stock at fixed
prices. These written put options subject us to equity price risk. At September 25, 2011 , we had three outstanding put options, enabling holders
to sell 11,800,000 shares of our common stock upon exercise for approximately $586 million. The put option liabilities, with a fair value of $80
million at September 25, 2011 , were included in other current liabilities. If the fair value of our common stock at September 25, 2011 decreased
by 15%, the amount required to physically settle the put options would exceed the fair value of the shares by $12 million, net of the $75 million
in premiums received.
Foreign Exchange Risk. We manage our exposure to foreign exchange market risks, when deemed appropriate, through the use of
derivative financial instruments, including foreign currency forward and option contracts with financial counterparties. Such derivative financial
instruments are viewed as hedging or risk management tools and are not used for speculative or trading purposes. Counterparties to our
derivative contracts are all major institutions. In the event of the financial insolvency or distress of a counterparty to our derivative financial
instruments, we may be unable to settle transactions if the counterparty does not provide us with sufficient collateral to secure its net settlement
obligations to us, which could have a negative impact on our results. At September 25, 2011 , we had a net liability of $25 million related to
foreign currency option contracts that were designated as hedges of foreign currency risk on royalties earned from certain licensees on their sales
of CDMA-based devices. If our forecasted royalty revenues were to decline by 50% and foreign exchange rates were to change unfavorably by
20% in each of our hedged foreign currencies, we would incur a loss of approximately $23 million resulting from a decrease in the fair value of
the portion of our hedges that would be rendered ineffective. At September 25, 2011 , we had an asset of $7 million related to a foreign currency
forward contract that was designated as a net investment hedge of our investment in a wholly-owned subsidiary in Australia. We are subject to
market risk on such contract. If the exchange rates relevant to that contract were to change unfavorably by 20%, we would incur a loss of $11
million. See “Notes to Consolidated Financial Statements, Note 1 — The Company and Its Significant Accounting Policies” for a description of
our foreign currency accounting policies.
At September 25, 2011 , we had floating-rate bank loans in the aggregate of $994 million, which are payable in full in Indian rupees in
December 2012. The loans are payable in the functional currency of our consolidated subsidiaries that are party to the loans; however, we are
subject to foreign currency translation risk, which may impact our liability for principal repayment and interest expense that we will record in the
future. If the foreign currency exchange rate were to change unfavorably by 20%, we would incur additional principal of $248 million and
interest expense of $30 million through the remainder of the contractual terms of the loans.
Financial instruments held by consolidated subsidiaries that are not denominated in the functional currency of those entities are subject 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 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 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.
Our analysis methods used to assess and mitigate the risks discussed above should not be considered projections of future risks.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements at September 25, 2011 and September 26, 2010 and the Report of PricewaterhouseCoopers LLP,
Independent Registered Public Accounting Firm, are included in this Annual Report on Form 10-K on pages F-1 through F-34.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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