Virgin Media 2009 Annual Report Download - page 89

Foreign Currency Forward Contracts
We have entered into a number of forward contracts to mitigate the foreign exchange rate risk in
payable obligations that are not denominated in pounds sterling. We have designated certain, but not
all, of these contracts as accounting hedges. Changes in the fair value of these instruments are initially
recorded within other comprehensive income (loss) where designated as an accounting hedge, or
through (loss) gain on derivatives where not designated as an accounting hedge. The amounts initially
recorded in other comprehensive income (loss) are then recorded in the statement of operations when
the underlying hedged item impacts the statement of operations.
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, operating costs and selling, general and administrative
expenses 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, 2009, £2,495.5 million, or 40.7%, of
our indebtedness based upon contractual obligations, was denominated in U.S. dollars and
£558.0 million, or 9.1%, of our indebtedness based upon contractual obligations, 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 the consolidated financial statements of Virgin Media Inc. 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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