Virgin Media 2008 Annual Report Download - page 129

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10—Derivative Financial Instruments and Hedging Activities (Continued)
The gains or losses on derivative instruments recognized through the consolidated statement of
operations and consolidated statement of accumulated other comprehensive income were as follows (in
millions):
December 31,
2008 2007 2006
Net settlement gains (losses) included within interest expense:
Interest rate swaps ........................................... £ 20.7 £ 11.9 £(24.7)
Cross-currency interest rate swaps ................................ (6.4) (16.7) (5.0)
£ 14.3 £ (4.8) £(29.7)
Changes in fair value included within accumulated other comprehensive income:
Interest rate swaps ........................................... £ 0.7 £ (0.1) £ 10.9
Cross-currency interest rate swaps ................................ 207.1 53.9 (60.7)
£207.8 £ 53.8 £(49.8)
Changes in fair value include within gains (losses) on derivative instruments:
Interest rate swap ineffectiveness ................................ £ (0.1) £ 8.1 £ 0.8
Cross-currency interest rate swap ineffectiveness ..................... — 1.5 (1.5)
Derivative instruments not designated as hedges ..................... 283.8 (12.1) 2.0
£283.7 £ (2.5) £ 1.3
Changes in fair value included within foreign currency (losses) gains
Cross-currency interest rate swaps ................................ £ — £ 0.2 £ (4.1)
Foreign currency forward rate contracts ............................ 70.7 (4.0) (72.0)
£ 70.7 £ (3.8) £(76.1)
During the years ended December 31, 2008, 2007 and 2006, the reclassification of derivative gains
to foreign currency (losses) gains in the consolidated statement of operations included a gain of
£147.8 million, a gain of £40.8 million and a loss of £55.0 million, respectively. In all periods presented,
the amount of ineffectiveness and gains or losses reclassified into earnings as a result of discontinuance
of cash flow hedges was not material.
Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations
As of December 31, 2008, we had outstanding interest rate swap agreements to manage the
exposure to variability in future cash flows on the interest payments associated with £3,167 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 4.81% and 5.38%. All of the interest rate swaps entered into as part of
our current financing arrangements became effective during 2006 and mature in April 2009. We have
also entered into additional interest rate swaps covering the period from April 2009 to April 2010 at
fixed rates between 1.49% and 3.05%.
We originally 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
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