Virgin Media 2007 Annual Report Download - page 79
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Please find page 79 of the 2007 Virgin Media annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.-
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subject us to material volatility in our earnings and cash flows because changes in the fair value
directionally and partially mitigate the gains or losses on the remeasurement of our U.S. dollar
denominated debt into our functional currency pound sterling in accordance with FASB Statement
No. 52, Foreign Currency Translation. Changes in fair value of these contracts are reported within
foreign currency transaction gains (losses).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including changes in foreign currency exchange rates and
interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices,
like foreign currency exchange and interest rates. As some of our indebtedness accrues interest at
variable rates, we have exposure to volatility in future cash flows and earnings associated with variable
interest rate payments.
Also, substantially all of our revenues and operating costs are earned and paid in pounds sterling
but we pay interest and principal obligations on some of our indebtedness in U.S. dollars and euros. As
of December 31, 2007, £807.9 million, or 14% of our indebtedness, was denominated in U.S. dollars
and £522.1 million, or 9%, of our indebtedness was denominated in euros. As a result, we have
exposure to volatility in future cash flows and earnings associated with changes in foreign exchange
rates on payments of principal and interest on a portion of our indebtedness.
To mitigate the risk from these exposures, we have implemented a cash flow hedging program. The
objective of this program is to reduce the volatility of our cash flows and earnings caused by changes in
underlying rates. To achieve this objective we have entered into a number of derivative instruments.
The derivative instruments utilized comprise interest rate swaps, cross-currency interest rate swaps and
foreign currency forward contracts. We do not enter into derivative instruments for trading or
speculative purposes. See note 10 to Virgin Media’s consolidated financial statements—Derivative
Financial Instruments and Hedging Activities, and Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Derivative Instruments and Hedging Activities.
The fair market value of long term fixed interest rate debt and the amount of future interest
payments on variable interest rate debt are subject to interest rate risk.
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