Qualcomm 2011 Annual Report Download - page 75

Download and view the complete annual report

Please find page 75 of the 2011 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.

Page out of 110

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110

QUALCOMM Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
similar securities) or, in some cases cash flow pricing models with observable inputs, such as contractual terms, maturity, credit rating and/or
securitization structure, to determine the timing and amount of future cash flows. Certain mortgage- and asset-backed securities, principally
those that are rated below AAA, may require use of significant unobservable inputs to estimate fair value, such as default likelihood, recovery
rates and prepayment speed.
The fair value of auction rate securities is estimated by the Company using a discounted cash flow model that incorporates transaction details
such as contractual terms, maturity and timing and amount of future cash flows, as well as assumptions related to liquidity, default likelihood and
recovery, the future state of the auction rate market and credit valuation adjustments of market participants. Though certain of the securities held
by the Company are pools of student loans guaranteed by the U.S. government, prepayment speeds and illiquidity discounts are considered
significant unobservable inputs. These additional inputs are generally unobservable, and therefore, auction rate securities are included in Level 3.
Derivative Instruments. Derivative instruments include foreign currency option and forward contracts to manage foreign exchange risk for
certain foreign currency transactions and certain balances denominated in a foreign currency, and written put options to repurchase shares of the
Company’s common stock at fixed prices. Derivative instruments are valued using standard calculations/models that are primarily based on
observable inputs, such as foreign currency exchange rates, the Company’s stock price, volatilities and interest rates. Therefore, derivative
instruments are included in Level 2.
Other Liabilities. Other liabilities included in Level 3 are comprised of put rights held by third parties representing interests in certain of the
Company’s subsidiaries (Note 7). These put rights are valued with a standard option pricing model using significant unobservable inputs.
Activity between Levels of the Fair Value Hierarchy. There were no significant transfers between Level 1 and Level 2 during fiscal 2011 or
2010 . When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the
unobservable inputs to the overall fair value measurement. The following table includes the activity for marketable securities and other liabilities
classified within Level 3 of the valuation hierarchy (in millions):
The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the fiscal month in which the actual
event or change in circumstances that caused the transfer occurs. Transfers into Level 3 in fiscal 2011 and 2010 primarily consisted of debt
securities with significant inputs that became unobservable as a result of an increased likelihood of a shortfall in contractual cash flows or a
significant downgrade in credit ratings.
Nonrecurring Fair Value Measurements. The Company measures certain assets at fair value on a nonrecurring basis. These assets include
cost and equity method investments when they are deemed to be other-than-temporarily impaired, assets acquired and liabilities assumed in an
acquisition or in a nonmonetary exchange, and property, plant and equipment and intangible assets that are written down to fair value when they
are held for sale or determined to be impaired. During fiscal 2011 , goodwill with a carrying amount of $154 million was written down to its
implied fair value of $40 million , resulting in an impairment charge of $114 million (Note 4). The implied fair value was based on significant
unobservable inputs, and as a result, the fair value measurement was classified as Level 3. During fiscal 2011 , 2010 and 2009
, the Company did
not have any other significant assets or liabilities that were measured at fair value on a nonrecurring basis in periods subsequent to initial
recognition.
Note 3. Marketable Securities
Marketable securities were comprised as follows (in millions):
2011
2010
Auction Rate
Securities
Other
Marketable
Securities
Other
Liabilities
Auction Rate
Securities
Other
Marketable
Securities
Beginning balance of Level 3
$
126
$
18
$
—
$
174
$
31
Total realized and unrealized gains (losses):
Included in investment income, net
—
2
(1
)
—
5
Included in other comprehensive income
2
(1
)
—
7
(1
)
Purchases
4
6
—
—
—
Issuances
—
—
8
—
—
Settlements
(8
)
(6
)
—
(
55
)
(21
)
Transfers into Level 3
—
8
—
—
4
Ending balance of Level 3
$
124
$
27
$
7
$
126
$
18