Twenty-First Century Fox 2011 Annual Report Download - page 36

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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. The Company 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., United Kingdom, Italian and Australian operations, respectively. Cash
is managed centrally within each of the four 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, draw downs in the appropriate local currency are
available from intercompany borrowings. Since earnings of the Company’s Australian, United Kingdom and Italian operations are expected to be
reinvested in those businesses indefinitely, the Company does not hedge its investment in the net assets of those foreign operations.
At June 30, 2011, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an aggregate fair
value of $193 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 $79 million at June 30,
2011.
Interest Rates
The Company’s current financing arrangements and facilities include approximately $15.5 billion of outstanding fixed-rate debt and the
Credit Agreement, which carries variable rates. 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, 2011, substantially all of the Company’s
financial instruments with exposure to interest rate risk were denominated in U.S. dollars and had an aggregate fair value of approximately $17.2
billion. The potential change in fair market 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 $1 billion at June 30, 2011.
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 had an aggregate fair value of approximately $12.5 billion as of June 30,
2011. A hypothetical decrease in the market price of these investments of 10% would result in a fair value of approximately $11.2 billion. Such a
hypothetical decrease would result in a before tax decrease in comprehensive income of approximately $36 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.
Credit Risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable
credit and, therefore, bear minimal credit risk.
The Company’s receivables did not represent significant concentrations of credit risk at June 30, 2011 or 2010 due to the wide variety of
customers, markets and geographic areas to which the Company’s products and services are sold.
The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. At June 30, 2011, the
Company did not anticipate nonperformance by any of the counterparties.
34 News Corporation