Twenty-First Century Fox 2007 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2007 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 135

  • 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
  • 135

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 Austral-
ian dollar. These currencies operate as the functional currency for the Company’s U.S., European (including the United Kingdom)
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 from intercompany borrowings. Since earnings of
the Company’s Australian and European (including the United Kingdom) operations are expected to be reinvested in those busi-
nesses indefinitely, the Company does not hedge its investment in the net assets of those foreign operations.
At June 30, 2007, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an
aggregate fair value of $201 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 $25 million at June 30, 2007.
Interest Rates
The Company’s current financing arrangements and facilities include $12.5 billion of outstanding debt with fixed interest and the
New 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, 2007, 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 $13.2 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 $643 million at June 30, 2007.
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 $21,608 million
as of June 30, 2007. A hypothetical decrease in the market price of these investments of 10% would result in a fair value of approx-
imately $19,447 million. Such a hypothetical decrease would result in a decrease in comprehensive income of approximately $23
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, 2007, the fair value of this conversion feature is $352 million and is sensitive to movements in the
share price of one of the Company’s publicly traded equity affiliates. A significant variance in the price of the underlying stock could
have a material impact on the operating results of the Company. A 10% increase in the price of the underlying shares, holding other
factors constant, would increase the fair value of the call option by approximately $115 million.
NEWS CORPORATION 2007 Annual Report 63