Twenty-First Century Fox 2014 Annual Report Download - page 76

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70
ITEM 7A. 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 two principal currencies: the U.S. dollar and the Euro. These currencies
operate as the functional currency for the Company’s U.S., and European operations, respectively. Cash is managed
centrally, for wholly owned subsidiaries, within each of the two 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. Up to June 30, 2014, earnings of the Company’s European operations were expected to be reinvested in
those businesses indefinitely. Accordingly, the Company has not historically hedged its investment in the net assets
of those foreign operations. In July 2014, the Company entered into agreements with BSkyB to sell all of its
ownership interests in Sky Italia and Sky Deutschland whose functional currency is the Euro (See Note 3 –
Acquisitions, Disposals and Other Transactions to the accompanying Consolidated Financial Statements of Twenty-
First Century Fox, Inc. for further information). The Company may enter into derivative instruments in connection
with the proposed sale. Information on financial instruments with exposure to foreign currency exchange rate risk is
presented below:
As of June 30,
2014 2013
(in millions)
Notional Amount
Foreign currency purchases ...................................................................................... $ 608 $ 694
Foreign currency sales .............................................................................................. 90 12
Foreign currency denominated debt(a) ...................................................................... - 137
Aggregate notional amount ...................................................................................... $ 698 $ 843
Fair Value
Total fair value of financial instruments with foreign currency exchange rate risk:
liability ................................................................................................................... $ (4 ) $ (134)
Sensitivity Analysis
Potential change in fair values resulting from a 10% adverse change in quoted
foreign currency exchange rates: loss ..................................................................... $ (35 ) $ (79)
(a)The change in fair value of the Company’s financial instruments with exposure to foreign currency exchange
rate risk is primarily due to the repayment of the foreign currency denominated debt in February 2014.
Interest Rates
The Company's current financing arrangements and facilities include $17.0 billion of outstanding fixed-rate
debt and approximately $2.0 billion of outstanding variable and fixed-rate bank debt (see Note 11 – Borrowings to
the accompanying Consolidated Financial Statements of Twenty-First Century Fox for further discussion). The
Company also entered into interest rate swap contracts during fiscal 2014. As of June 30, 2014, the notional amount
of interest rate swap contracts outstanding was $578 million, and the fair value of the interest rate swap contracts
outstanding was $(6) million.