Virgin Media 2006 Annual Report Download - page 74

Early termination charges are amounts that would be payable in the above periods in the event of early termination during that
period of certain of the contracts underlying the purchase obligations listed above.
The following table includes information about our commercial commitments as of December 31, 2006. Commercial
commitments are items that we could be obligated to pay in the future. They are not required to be included in the consolidated
balance sheet (in millions).
Amount of Commitment Expiration per Period
Other Commercial Commitments Total
Less
than
1 year 1−3 years 3−5 years
More
than
5 years
Guarantees £ 24.8 £ 4.9 £ 11.3 £ — £ 8.6
Lines of Credit — — — — —
Standby Letters of Credit 0.7 — 0.7 — —
Standby Repurchase Obligations — — — — —
Other Commercial Commitments — — — — —
Total Commercial Commitments £ 25.5 £ 4.9 £ 12.0 £ — £ 8.6
Guarantees relate to performance bonds provided by banks on our behalf as part of our contractual obligations. The fair value of
the guarantees has been calculated by reference to the monetary value of each bond.
Derivative Instruments and Hedging Activities
We have entered into a number of derivative instruments with a number of counter−parties to manage our exposures to changes
in interest rates and foreign currency exchange rates. The derivative instruments consist of interest rate swaps, cross−currency interest
rate swaps and foreign currency forward contracts.
We are subject to interest rate risk because we have substantial indebtedness at variable interest rates. As of December 31, 2006,
interest is determined on a variable basis on £5.025 billion, or 82%, of our long−term debt. An increase in interest rates of 0.25%
would increase our interest expense by £12.6 million per year, before giving effect to hedges.
We are also subject to currency exchange rate risks, because substantially all of our revenues and operating expenses are paid in
U.K. pounds sterling, but we pay interest and principal obligations with respect to a portion of our indebtedness in U.S. dollars and
euros. To the extent that the pound declines in value against the U.S. dollar and the euro, the effective cost of servicing our U.S. dollar
and euro−denominated debt will be higher. Changes in the exchange rate result in foreign currency gains or losses. As of
December 31, 2006, £827.7 million, or 13.4% of our long−term debt, was denominated in U.S. dollars and £487.1 million, or 7.9% of
our long−term debt, was denominated in euros.
Interest Rate Swaps
We have entered into a number of interest rate swaps to hedge the variability in future interest payments on our senior credit
facility, which accrues interest at variable rates based on LIBOR. The interest rate swaps allow us to receive interest based on LIBOR
in exchange for payments of interest at fixed rates between 4.68% and 6.31%. 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 some of the interest rate swaps as cash flow hedges under FAS 133 because they hedge against changes in
LIBOR. The interest rate swaps are recognized as either assets or liabilities and measured at fair value. Changes in the fair value are
recorded within other comprehensive income (loss).
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Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007