Qualcomm 2011 Annual Report Download - page 64

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QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
impairment. The credit loss portion is recorded as a charge to investment income (loss), and the noncredit loss portion is recorded as a separate
component of other comprehensive income (loss). Prior to the third quarter of fiscal 2009, the entire other-than-temporary impairment loss was
recognized in earnings for all debt securities.
When calculating the present value of expected cash flows to determine the credit loss portion of the other-than-temporary impairment, the
Company estimates the amount and timing of projected cash flows, the probability of default and the timing and amount of recoveries on a
security-by-security basis. These calculations use inputs primarily based on observable market data, such as credit default swap spreads,
historical default and recovery statistics, rating agency data, credit ratings and other data relevant to analyzing the collectibility of the security.
The amortized cost basis of a debt security is adjusted for any credit loss portion of the impairment recorded to earnings. The difference between
the new cost basis and cash flows expected to be collected is accreted to investment income (loss) over the remaining expected life of the
security.
Securities that are accounted for as equity securities include investments in common stock, equity mutual and exchange-traded funds and
debt mutual funds. For equity securities, the Company considers the loss relative to the expected volatility and the likelihood of recovery over a
reasonable period of time. If events and circumstances indicate that a decline in the value of an equity security has occurred and is other than
temporary, the Company records a charge to investment income (loss) for the difference between fair value and cost at the balance sheet date.
Additionally, if the Company has either the intent to sell the security or does not have both the intent and the ability to hold the equity security
until its anticipated recovery, the Company records a charge to investment income (loss) for the difference between fair value and cost at the
balance sheet date.
Securities Lending. The Company may engage in transactions in which certain fixed-income and equity securities are loaned to selected
broker-dealers. At September 25, 2011 , the loaned securities of $44 million were included in marketable securities on the balance sheet. There
were no securities loaned at September 26, 2010 under the Company’s securities lending program. Cash collateral is held and invested by one or
more securities lending agents on behalf of the Company. The Company monitors the fair value of securities loaned and the collateral received
and obtains additional collateral as necessary . Collateral of $46 million at September 25, 2011 was recorded in cash equivalents with a
corresponding amount in other current liabilities.
Allowances for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the
inability of the Company’s customers to make required payments. The Company considers the following factors when determining if collection
of a fee is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends, changes
in customer payment terms, and bank credit-worthiness for letters of credit. If the Company has no previous experience with the customer, the
Company typically obtains reports from various credit organizations to ensure that the customer has a history of paying its creditors. The
Company may also request financial information, including financial statements or other documents to ensure that the customer has the means of
making payment. If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably
assured, which is generally upon receipt of cash. If the financial condition of the Company’s customers was to deteriorate, adversely affecting
their ability to make payments, additional allowances would be required.
Inventories. Inventories are valued at the lower of cost or market (replacement cost, not to exceed net realizable value) using the first-in,
first-out method. Recoverability of inventories is assessed based on review of committed purchase orders from customers, as well as purchase
commitment projections provided by customers, among other things.
Derivatives. The Company may enter into foreign currency forward and option contracts to manage foreign exchange risk for certain foreign
currency transactions and probable anticipated foreign currency revenue transactions. Gains and losses arising from changes in the fair values of
such contracts that are not designated as hedging instruments are recorded in investment income (expense) as gains (losses) on derivative
instruments. Gains (losses) arising from the effective portion of foreign currency forward and option contracts that are designated as cash-flow
hedging instruments are recorded in accumulated other comprehensive income (loss) as gains (losses) on derivative instruments, net of tax. The
amounts are subsequently reclassified into revenues in the same period in which the underlying transactions affect the Company’s earnings. The
fair value of the Company’s foreign currency option contracts used to hedge foreign currency revenue transactions recorded in other current
assets was $17 million and $4 million at September 25, 2011 and September 26, 2010 , respectively, and the value recorded in other current
liabilities was $42 million and $19 million at September 25, 2011 and September 26, 2010 , respectively, all of which were designated as cash-
flow hedging instruments at September 25, 2011 and substantially all of which were designated as cash-flow hedging instruments at
September 26, 2010 . At September 25, 2011 , the Company had a foreign currency forward contract, with a fair value of $7 million in other
current assets, that was designated as a net investment hedge of the Company’s investment in a wholly-owned subsidiary in Australia. Gains
(losses) arising from changes in fair value of the net investment hedge are recorded in selling, general and administrative expenses.
In connection with its stock repurchase program, the Company may sell put options that require the Company to repurchase shares of its
common stock at fixed prices. The premiums received from put options are recorded as other current liabilities. Changes in the fair value of put
options are recorded in net investment income (loss) as gains (losses) on derivative
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