Twenty-First Century Fox 2005 Annual Report Download - page 65

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NEWS CORPORATION
Quantitative and Qualitative Disclosures About Market Risk
The Company has exposure to several types of market risk: changes in foreign currency exchange rates, interest rates and stock prices. The
Company neither holds nor issues financial instruments for trading purposes.
The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk, interest rate risk
and stock price risk. It makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from
changes in market conditions.
Foreign Currency Exchange Rates
The Company conducts operations in four principal currencies: the U.S. dollar, the British pound sterling, the Euro and the Australian dollar.
These currencies operate as the functional currency for the Company’s U.S., European and Australian operations, respectively. Cash is
managed centrally within each of the three regions with net earnings reinvested locally and working capital requirements met from existing liquid
funds. To the extent such funds are not sufficient to meet working capital requirements, drawdowns in the appropriate local currency are
available either under the Company’s Credit Agreement or from intercompany borrowings. Since earnings of the Company’s Australian and
European operations are expected to be reinvested in those businesses indefinitely, except for any one time repatriation in conjunction with the
American Jobs Creation Act, the Company does not hedge its investment in the net assets of those foreign operations.
At June 30, 2005, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an aggregate fair
value of $106 million (including the Company’s non-U.S. dollar-denominated fixed rate debt). The potential increase in the fair values of these
instruments resulting from a 10% adverse change in quoted foreign currency exchange rates would be approximately $19 million at June 30,
2005.
Interest Rates
The Company’s current financing arrangements and facilities include $11 billion of outstanding debt with fixed interest and the Credit Agreement,
which carries variable interest. Fixed and variable rate debts are impacted differently by changes in interest rates.
A change in the interest rate or yield of fixed rate debt will only impact the fair market value of such debt, while a change in the interest rate
of variable debt will impact interest expense as well as the amount of cash required to service such debt. As of June 30, 2005 substantially all of
the Company’s financial instruments with exposure to interest rate risk was denominated in U.S. dollars and had an aggregate fair market value
of $12.4 billion. The potential change in fair value for these financial instruments from an adverse 10% change in quoted interest rates across all
maturities, often referred to as a parallel shift in the yield curve, would be approximately $576 million at June 30, 2005.
Stock Prices
The Company has common stock investments in several publicly traded companies that are subject to market price volatility. These investments
principally represent the Company’s equity affiliates and have an aggregate fair value of approximately $15,654 million as of June 30, 2005. A
hypothetical decrease in the market price of these investments of 10% would result in a fair value of approximately $14,089 million. Such a
hypothetical decrease would result in a decrease in comprehensive income of approximately $19 million, as any changes in fair value of the
Company’s equity affiliates are not recognized unless deemed other-than-temporary, as these investments are accounted for under the equity
method.
In accordance with SFAS No. 133, the Company has recorded the conversion feature embedded in its exchangeable debentures in other
liabilities. At June 30, 2005, the fair value of this conversion feature is $152 million and is sensitive to movements in the share price of one of the
Company’s publicly traded equity affiliates. A 10% increase in the price of the underlying stock, holding other factors constant, would increase
the fair value of the call option by approximately $42 million.
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