Qualcomm 2014 Annual Report Download - page 47

We use free cash flow to facilitate an understanding of the amount of cash flow generated that is available to grow our business and to create
long-term stockholder value. We believe return of capital to stockholders as a percentage of free cash flow provides insight into our cash-
generating activities relative to the amount of capital returned to stockholders. These non-GAAP measures are supplemental to the comparable
GAAP measures. The following is a reconciliation between GAAP and non-GAAP results for fiscal 2014 (dollars in millions):
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. We invest a portion of our cash in a number of diversified fixed and floating rate securities, consisting of cash
equivalents, marketable debt securities, debt funds and derivative instruments (including interest rate swaps) that are subject to interest rate risk.
Changes in the general level of interest rates can affect the fair value of our investment portfolio. If interest rates in the general economy were to
rise, our holdings could lose value. We provide a sensitivity analysis that shows the effect of an assumed 100 basis point adverse movement in
interest rates across the entire yield curve. At September 28, 2014 , a hypothetical increase in interest rates of 100 basis points on our holdings
would have resulted in decreases of $12 million and $360 million in the fair values of our holdings classified as trading (including derivative
instruments) and our remaining holdings, respectively.
Equity Price Risk. We hold a diversified marketable securities portfolio that includes equity securities and 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 fund shares at September 28, 2014 would have caused a decrease in the carrying amounts of these securities of $234 million. At
September 28, 2014 , gross unrealized losses of our marketable equity securities and fund shares were negligible. Although we consider the
unrealized losses to be temporary, there is a risk that we may incur 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.
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. We utilize such
derivative financial instruments for hedging or risk management purposes rather than for speculation purposes. Counterparties to our derivative
contracts are all major banking 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. 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 28, 2014
, our net asset related to foreign currency option contracts designated as hedges of foreign currency risk (on royalties
earned from certain licensees on their sales of CDMA-based devices) were negligible. If our forecasted royalty revenues for currencies in which
we hedge were to decline by 20% and foreign exchange rates were to change unfavorably by 20% in our hedged foreign currency, we would not
incur a loss as our hedge positions would continue to be fully effective.
At September 28, 2014
, our net asset related to foreign currency forwards, futures, options and swaps in our marketable securities portfolios
that were not designated as hedging instruments were negligible. If the foreign exchange rates relevant to these contracts were to change
unfavorably by 10% and we do not have an offset foreign currency exposure relating to debt instruments held in our marketable securities
portfolios classified as trading, we would incur a negligible loss.
Financial assets and liabilities 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 company, we face exposure to adverse movements in
foreign currency exchange rates. We may hedge currency exposures associated with certain
42
Net cash provided by operating activities (GAAP)
$
8,887
Capital expenditures
(1,185
)
Free cash flow (non-GAAP)
$
7,702
Cash paid to repurchase shares of our common stock (before commissions)
$
4,548
Cash dividends paid
2,586
Total return of capital to stockholders
$
7,134
Total return of capital to stockholders as a percentage of net cash provided by operating activities (GAAP)
80
%
Total return of capital to stockholders as a percentage of free cash flow (non-GAAP)
93
%