DIRECTV 2009 Annual Report Download - page 83

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DIRECTV
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion and the estimated amounts generated from the sensitivity analyses
referred to below include forward-looking statements of market risk which assume for analytical
purposes that certain adverse market conditions may occur. Actual future market conditions may differ
materially from such assumptions and the amounts noted below are the result of analyses used for the
purpose of assessing possible risks and the mitigation thereof. Accordingly, you should not consider the
forward-looking statements as our projections of future events or losses.
General
Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency
exchange rates, interest rates and changes in the market value of our equity investments. We manage
our exposure to these market risks through internally established policies and procedures and, when
deemed appropriate, through the use of derivative financial instruments. We enter into derivative
instruments only to the extent considered necessary to meet our risk management objectives, and do
not enter into derivative contracts for speculative purposes.
Foreign Currency Risk
We generally conduct our business in U.S. dollars with some business conducted in a variety of
foreign currencies and therefore we are exposed to fluctuations in foreign currency exchange rates. Our
objective in managing our exposure to foreign currency changes is to reduce earnings and cash flow
volatility associated with foreign exchange rate fluctuations. Accordingly, we may enter into foreign
exchange contracts to mitigate risks associated with foreign currency denominated assets, liabilities,
commitments and anticipated foreign currency transactions. The gains and losses on derivative foreign
exchange contracts offset changes in value of the related exposures. As of December 31, 2009, we had
no significant foreign currency exchange contracts outstanding. The impact of a hypothetical 10%
adverse change in exchange rates on our net assets would be a loss of $109 million, net of taxes, at
December 31, 2009, a significant portion of which would be recorded in ‘‘Foreign currency translation
activity during the period’’ in our Consolidated Statement of Changes in Stockholders’ Equity.
Interest Rate Risk
We are subject to fluctuating interest rates, which may adversely impact our consolidated results of
operations and cash flows. We had outstanding debt of $8,010 million at December 31, 2009, which
consisted of DIRECTV U.S.’ fixed rate borrowings of $4,490 million, collar loan of $1,202 million and
variable rate borrowings of $2,316 million. As of December 31, 2009, a hypothetical one percentage
point increase in interest rates related to our outstanding variable rate debt would have increased our
annual interest expense by approximately $23 million.
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