Virgin Media 2007 Annual Report Download - page 41

We are a holding company dependent upon cash flow from subsidiaries to meet our obligations.
Virgin Media Inc. and a number of its subsidiaries are holding companies with no independent
operations or significant assets other than investments in their subsidiaries. Each of these holding
companies depends upon the receipt of sufficient funds from its subsidiaries to meet its obligations.
The terms of our senior credit facility and other debt securities limit the payment of dividends,
loan repayments and other distributions to or from these companies under many circumstances. Various
agreements governing our debt may restrict and, in some cases, may also prohibit the ability of these
subsidiaries to move cash within their restricted group. Applicable tax laws may also subject such
payments to further taxation.
Applicable law may also limit the amounts that some of our subsidiaries will be permitted to pay
as dividends or distributions on their equity interests, or even prevent such payments.
The inability to transfer cash among entities within their respective consolidated groups may mean
that even though they may have sufficient resources to meet their obligations, they may not be
permitted to make the necessary transfers from one entity in their restricted group to another entity in
their restricted group in order to make payments to the entity owing the obligations.
We are subject to currency and interest rate risks.
We are 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
sterling 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.
We are also subject to interest rate risks. Before taking into account the impact of current hedging
arrangements, as of December 31, 2007, we would have had interest determined on a variable basis on
£4.8 billion, or 81%, of our long term debt. An increase in interest rates of 0.25% would increase
unhedged gross interest expense by approximately £12 million per year.
To manage these foreign exchange and interest rate risks, we have entered into a number of
derivative instruments, including interest rate swaps, cross-currency swaps and foreign currency forward
rate contracts. We are required by our lenders under our senior credit facility to fix the interest rate
(whether through coupon or through derivatives) on not less than two thirds of the total debt
represented by our senior credit facility and high yield notes, for a period of not less than three years
from March 3, 2006. Accordingly, after giving effect to these hedges, an increase in interest rates of
0.25% would increase our gross interest expense by approximately £4 million per year.
Risks Relating to Our Common Stock
The market price of our common stock is subject to volatility, as well as to trends in the telecommunications
industry in general, which will continue.
The current market price of our common stock may not be indicative of prices that will prevail in
the trading markets in the future. Stock prices in the telecommunications sector have historically been
highly volatile, and the market price of our common stock could be subject to wide fluctuations in
response to numerous factors, many of which will be beyond our control. These factors include actual
or anticipated variations in our operational results and cash flow, our earnings releases and our
competitors’ earnings releases, announcements of technological innovations, changes in financial
estimates by securities analysts, trading volume, rumors of private equity interest in our company,
market conditions in the industry and the general state of the securities markets and the market for
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