Twenty-First Century Fox 2008 Annual Report Download - page 77

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NEWSCORP
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 (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 businesses indefinitely, the Company does not hedge its investment in the net assets of those
foreign operations.
At June 30, 2008, the Company’s outstanding financial instruments with foreign currency exchange rate risk exposure had an aggregate fair
value of $133 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 $18 million at June 30, 2008.
Interest Rates
The Company’s current financing arrangements and facilities include $13.5 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, 2008, 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 $13.6 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 $759 million at June 30, 2008.
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 $7,748 million as of June 30, 2008. A
hypothetical decrease in the market price of these investments of 10% would result in a fair value of approximately $6,973 million. Such a
hypothetical decrease would result in a before tax decrease in comprehensive income of approximately $14 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, 2008, the fair value of this conversion feature was $64 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 $17 million.
76 NEWSCORP 2008 Annual Report