Virgin Media 2006 Annual Report Download - page 109

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Derivative Financial Instruments and Hedging Activities
During the year we entered into a number of interest rate swaps to fix at least two thirds of the interest payments on our current
financing arrangements. On October 2, 2005, we and VMIH entered into an agreement with several financial institutions to provide
financing in connection with the merger agreement with Telewest. As a result of this agreement, we have discontinued the hedge
designation on October 2, 2005 for the interest rate swaps with notional amounts totalling £2,315 million, $545 million and €251
million related to the interest payments on the then outstanding senior debt facilities. Net unrealized losses of £9.1 million, which had
been included in other comprehensive income at September 30, 2005, were reclassified to earnings and net unrealized gains of
£6.7 million and £2.0 million have been taken directly to earnings in the final quarter of 2005 and year ended December 31, 2006,
respectively. These instruments expire on dates between April 2007 and December 2013 and have not been re−designated as hedges
for accounting purposes.
The fair values of our derivative instruments were as follows (in millions):
December 31,
2006 2005
Included within other current assets:
Foreign currency forward rate contracts £ — £ 51.3
Included within other assets:
Foreign currency forward rate contracts £ 16.4 £ —
Interest rate swaps 15.6 11.9
£ 32.0 £ 11.9
Included within other current liabilities:
Foreign currency forward rate contracts £ 0.1 £ 5.0
Interest rate swaps 0.4 —
£ 0.5 £ 5.0
Included within deferred revenue and other long term liabilities
Foreign currency forward rate contracts £ 62.0 £ 16.8
Interest rate swaps 75.1 15.1
£ 137.1 £ 31.9
Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations
As of December 31, 2006, we have outstanding interest rate swap agreements to manage the exposure to variability in future cash
flows on the interest payments associated with £3,200 million of our outstanding senior credit facility, which accrue at variable rates
based on LIBOR. The interest rate swaps allow us to receive interest based on three and six month LIBOR in exchange for payments
of interest at fixed rates between 4.68% and 6.31%. All of the interest rate swaps entered into as part of our current financing
arrangements became effective during the year and mature in April 2009. The net settlement of £23.1 million under these interest rate
swaps is included within interest expense for the year ended December 31, 2006.
We have designated all of the interest rate swaps entered into as part of our current financing arrangements as cash flow hedges
under FAS 133, because they are highly effective hedges against changes in the amount of future cash flows attributable to changes in
LIBOR. In the year ended December 31,
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Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007