Virgin Media 2009 Annual Report Download - page 127

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9—Fair Value Measurements (Continued)
these institutions using a range of metrics. We have not experienced any losses in cash balances and do
not believe we are exposed to any significant credit risk on our cash balances.
Concentrations of credit risk with respect to trade receivables are limited because of the large
number of customers and their dispersion across geographic areas. We perform periodic credit
evaluations of our Business segment customers’ financial condition and generally do not require
collateral. No single group or customer represents greater than 10% of total accounts receivable.
Concentrations of credit risk with respect to derivative contracts are focused within a limited
number of international financial institutions with which we operate and relate only to derivatives with
recorded asset balances at December 31, 2009. We perform regular reviews of the financial institutions
with which we operate as to their credit worthiness and financial condition. We have not experienced
non-performance by any of our derivative counterparties nor do we expect there to be non-performance
risks associated with our counterparties. At December 31, 2009, based on market values, we had 68.2%
of our derivative contracts with three financial institutions, each with more than 10% of our total
exposure. At December 31, 2008, based on market values, we had 54.4% of our derivative contracts
with three financial institutions, each with more than 10% of our total exposure.
Note 10—Derivative Financial Instruments and Hedging Activities
Strategies and Objectives for Holding Derivative Instruments
Our results are materially impacted by changes in interest rates and foreign currency exchange
rates. In an effort to manage these risks, we periodically enter into various derivative instruments
including interest rate swaps, cross- currency interest rate swaps and foreign exchange forward rate
contracts. We are required to recognize all derivative instruments as either assets or liabilities at fair
value on our consolidated balance sheets, and to recognize certain changes in the fair value of
derivative instruments on our consolidated statements of operations.
We have entered into cross-currency interest rate swaps and foreign currency forward rate
contracts to manage interest rate and foreign exchange rate currency exposures with respect to our U.S.
dollar ($) and euro (A) denominated debt obligations. Additionally, we have entered into interest rate
swaps to manage interest rate exposures resulting from variable rates of interest we pay on our U.K.
pound sterling (£) denominated debt obligations. We have also entered into U.S. dollar, euro and
South African rand (ZAR) forward rate contracts to manage our foreign exchange rate currency
exposures related to certain committed and forecasted purchases.
Whenever it is practical to do so, we will designate a derivative contract as either a cash flow or
fair value hedge for accounting purposes. These derivatives are referred to as ‘‘Accounting Hedges’’
below. When a derivative contract is not designated as an Accounting Hedge, the derivative will be
treated as an economic hedge with mark-to-market movements and realized gains or losses recognized
through gains (losses) on derivative instruments in the statements of operations. These derivatives are
referred to as ‘‘Economic Hedges’’ below. We do not enter into derivatives for speculative trading
purposes.
In respect to Accounting Hedges, we believe our hedge contracts will be highly effective during
their term in offsetting changes in cash flow or fair value attributable to the hedged risk. We perform,
at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge
contracts, including assessing the possibility of counterparty default. If we determine that a derivative is
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