PT » Topics » Quantitative and Qualitative Disclosures about Market Risk

This excerpt taken from the PT 6-K filed Oct 16, 2007.

Quantitative and Qualitative Disclosures about Market Risk

        PT Multimédia is exposed to market risks primarily related to fluctuations in foreign currency exchange rates. These risks relate mainly to transactions entered into with foreign audiovisual content providers and film distributors (as described in "Information About PT Multimédia—Business—Cinema Distribution and Exhibition and Entertainment—Lusomundo Audiovisuais"), which are generally denominated in U.S. dollars. As of June 30, 2007, the outstanding amount of our U.S.-dollar denominated accounts payable was US$4.3 million. A hypothetical change of 1% in the U.S. dollar-Euro exchange rate would have increased PT Multimédia's accounts payable by approximately €31,800 as of June 30, 2007. PT Multimédia's hedging policies include entering into exchange rate forward agreements contracts from time to time when management believes it necessary.

        PT Multimédia is also subject to the risk of interest rate risk to the extent that all of its outstanding indebtedness as of June 30, 2007 bore interest at floating rates, primarily Euribor rates. See "—Liquidity and Capital Resources—Indebtedness." A hypothetical increase in the Euribor rate of 100 basis points would have increased PT Multimédia's annual cash interest expense by approximately €1 million for the six months ended June 30, 2007. PT Multimédia has not historically entered into derivative instruments to hedge its interest rate risk.

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INFORMATION ABOUT PORTUGAL TELECOM

        We are a limited liability holding company, organized as a sociedade gestora de participações sociais under the laws of the Republic of Portugal. Our principal offices are located at Avenida Fontes Pereira de Melo, 40, 1069-300 Lisboa, Portugal, and our telephone number is +351 21 500 1701. We provide telecommunications services principally in Portugal and Brazil. Our services include:

    wireline services, which include telephone services at a fixed location for residential and non-residential customers, leased lines, unbundled local loop access and wholesale line rental, interconnection, Internet access (dial-up and broadband ADSL), data and business solutions, portal and e-commerce services through our subsidiary PT Comunicações and its subsidiaries;

    mobile telecommunications services, such as voice, data and Internet-related services in Portugal through our subsidiary TMN and in Brazil through our 50%-owned joint venture Vivo S.A.; and

    sales of telecommunications equipment.

        Before the spin-off, we hold 58.43% of PT Multimédia, which provides the services described in "Information About PT Multimédia."

        The 2006 PT Annual Report, which is incorporated by reference into this information statement, contains a description of our business and a review of our financial condition and performance through December 31, 2006. Consolidated interim financial statements as of, and for the six months ended June 30, 2006 and 2007 and contained elsewhere in this information statement, and commentary on our financial condition and performance during the first six months of 2007, are contained in this information statement under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations of Portugal Telecom."

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