DIRECTV 2012 Annual Report Download - page 78

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DIRECTV
Foreign Currency Risk gains and losses on the cross-currency swaps offset changes in the U.S. dollar
equivalent value of the related exposures. As of December 31, 2012, the fair value
Transaction Exposure of our cross-currency swaps on our £750 million principal amount of 4.375%
We generally conduct our business in U.S. dollars with some business senior notes due in 2029 was a liability of $17 million, which is recorded in
conducted in a variety of foreign currencies and therefore we are exposed to ‘‘Other liabilities and deferred credits’’ in our Consolidated Balance Sheets. For
fluctuations in foreign currency exchange rates. Our objective in managing our additional information, refer to Note 11 of the Notes to the Consolidated Financial
exposure to foreign currency changes is to reduce earnings and cash flow volatility Statements in Part II, Item 8 of this Annual Report.
associated with foreign exchange rate fluctuations. Accordingly, we may enter into
foreign exchange contracts to mitigate risks associated with foreign currency Counterparty Credit Risk
denominated assets, liabilities, commitments and anticipated foreign currency We manage the credit risks associated with our derivative financial instruments
transactions. The gains and losses on derivative foreign exchange contracts offset through diversification and the evaluation and monitoring of the creditworthiness of
changes in value of the related exposures. the counterparties. Although we may be exposed to losses in the event of
As of December 31, 2012, we had no significant foreign currency exchange nonperformance by the counterparties, we do not expect such losses, if any, to be
contracts outstanding, excluding the cross-currency swaps described in Note 11 of significant. We have agreements with certain counterparties that include collateral
the Notes to the Consolidated Financial Statements in Part II, Item 8 of this provisions. These provisions require a party with an aggregate unrealized loss
Annual Report. The impact of a hypothetical 10% adverse change in exchange rates position in excess of certain thresholds to post cash collateral for the amount in
on our net monetary assets would be a loss of $146 million, net of taxes, at excess of the threshold. The threshold levels in our collateral agreements are based
December 31, 2012, a portion of which could be recorded in ‘‘Foreign currency on our and the counterparties’ credit ratings. As of December 31, 2012 neither we
translation adjustments’’ in our Consolidated Statements of Comprehensive Income. nor any of the counterparties were required to post collateral under the terms of the
agreements.
Economic Exposure
Interest Rate Risk
We are exposed to the market risks associated with fluctuations in foreign
exchange rates as they relate to our foreign currency denominated debt obligations. From time to time, we may be subject to fluctuating interest rates for variable
Cross-currency swaps are used to effectively convert fixed rate foreign currency rate borrowings, which may adversely impact our consolidated results of operations
denominated debt to fixed rate U.S. dollar denominated debt, hedging the risk that and cash flows. We had outstanding debt of $17,528 million at December 31,
the cash flows related to annual interest payments and the payment of principal at 2012, which consisted principally of DIRECTV U.S.’ fixed rate borrowings.
maturity may be adversely affected by fluctuations in currency exchange rates. The
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