Virgin Media 2006 Annual Report Download - page 110

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Derivative Financial Instruments and Hedging Activities (Continued)
2006, we recorded £11.7 million of unrealized gains in accumulated other comprehensive income (loss) as a result of the increase in
fair market value of these interest rate hedges.
Certain interest rate swaps originally entered into under our previous financing arrangements are not designated as hedges under
FAS 133. Changes in the fair value of these contracts are recognized through gains (losses) on derivative instruments in our statement
of operations. A loss in relation to ineffectiveness of these swaps totaling £1.0 million is included within gains and losses on
derivative instruments for the year ended December 31, 2006.
Cross−Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Credit Facility
As of December 31, 2006, we have outstanding cross−currency interest rate swaps with principal amounts of $1,625 million and
€725 million. We currently hedge the pound sterling value of interest payments on the U.S. dollar denominated 8.75% senior notes
due 2014, interest payments on the U.S. dollar denominated 9.125% senior notes due 2016, interest payments on our U.S. dollar
denominated senior credit facility, interest payments on our euro denominated 8.75% senior notes due 2014 and interest payments on
our euro denominated senior credit facility. Under these cross−currency swaps, we receive interest in U.S. dollars at a fixed rate of
8.75% for the 2014 senior notes and 9.125% for the 2016 senior notes and at a variable rate based on US LIBOR for the senior credit
facility. We also receive euros at a fixed rate of 8.75% for the 2014 senior notes and at a variable rate based on EURIBOR for the
senior credit facility. In exchange we make payments of interest in pound sterling at fixed rates of 9.42% for the U.S. dollar
denominated senior notes due 2014, 8.54% for the U.S. dollar denominated senior notes due 2016, 10.26% for the euro denominated
senior notes due 2014, and at a variable rate based on LIBOR based on the pound sterling equivalent of $650 million and €500
million. The net settlement of £5.0 million under these cross−currency interest rate swaps is included within interest expense for the
year ended December 31, 2006.
We have designated principal amounts totalling $1,625 million and €725 million of these cross−currency interest rate swaps as
cash flow hedges under FAS 133 because they hedge the changes in the pound sterling value of the interest payments on our U.S.
dollar denominated senior notes and U.S. dollar and euro denominated senior credit facility, that result from changes in the U.S.
dollar, euro and pound sterling exchange rates. In the year ended December 31, 2006, we recorded £7.4 million of unrealized losses in
accumulated other comprehensive income (loss) as a result of the increase in fair market value of these hedges. Certain cross−currency
interest rate swaps entered into under our previous financing arrangements are no longer designated as hedges under FAS 133.
Changes in the fair value of these contracts are recognized through gains (losses) on derivative instruments in our statement of
operations. A gain in relation to ineffectiveness of these swaps totaling £1.7 million is included within gain on derivative instruments
for the year ended December 31, 2006.
Foreign Currency Forward Rate Contracts—Hedging the Principal Obligations of the U.S. Dollar Senior Notes and Senior Credit
Facility
As of December 31, 2006, we have outstanding foreign currency forward rate contracts to purchase $425 million, maturing in
April 2009. These contracts hedge changes in the pound sterling value of the U.S. dollar denominated principal obligation of the
8.75% senior notes due 2014 caused by changes in the U.S. dollar and pound sterling exchange rates. The principal obligations under
the $550 million 9.125%
F−30
Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007