Twenty-First Century Fox 2006 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2006 Twenty-First Century Fox 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 134

  • 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
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134

Quantitative and Qualitative DisclosuresAbout 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 (including the
U.K.) 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 suffi-
cient tomeet working capital requirements, drawdowns in the appropriate local currency are available either under the
Credit Agreement or from intercompany borrowings. Since earnings of the Company’s Australian andEuropean (including
the U.K.) operations are expected to be reinvested in those businesses indefinitely, except for any one time repatriation in
conjunction with theAJCA, the Company does not hedge its investment in the net assetsof those foreign operations.
At June 30, 2006, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure
had an aggregate fair value of $139 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 a10%adverse change in quoted foreign currency
exchange rates would be approximately $12 million at June 30, 2006.
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 rateoryield of fixed rate debt will only impact the fair market value of such debt,
while a change in the interest rateof variable debt will impact interest expense as well as the amount of cash required to
service such debt. As of June 30, 2006, 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 acrossallmaturities, often
referred to as a parallel shift in the yield curve, would be approximately $646 million at June 30, 2006.
Stock Prices
The Company has common stock investments in several publicly traded companies that are subject tomarket price vola-
tility. These investments principally represent the Company’s equity affiliates and have an aggregate fair value of approx-
imately $16,622 million as of June 30, 2006. Ahypothetical decrease in the market price of these investments of 10%
would result in a fair value of approximately $14,960 million. Such a hypothetical decrease would result in a decrease in
comprehensive income of approximately $3 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 accountedforunder 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, 2006, the fair value of this conversion feature is $235 million andis sensitive to
movements in the share price of one of the Company’s publicly traded equity affiliates. Asignificant variance in the price
of the underlying stock could have amaterial impact on the operating results of the Company. A10% increase in the price
of the underlying stock, holding other factors constant, would increase the fair value of the call option by approximately
$75 million.
66 NEWS CORPORATION