Virgin Media 2011 Annual Report Download - page 121
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VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9—Derivative Financial Instruments and Hedging Activities (continued)
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. If we determine it is probable that
forecasted transactions to which a hedge contract relates will not occur, we discontinue hedge accounting
prospectively and reclassify any amounts accumulated in other comprehensive income to the statement of
operations. At least quarterly we perform 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 no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize
subsequent changes in the fair value of the derivative in gains or losses on derivative instruments in the
consolidated statements of operations. As a result of our effectiveness assessment at December 31, 2011, we
believe our derivative contracts that are designated and qualify for hedge accounting will continue to be highly
effective in offsetting changes in cash flows or fair value attributable to the hedged risk.
The conversion hedges are intended to offset a portion of the dilutive effects that could potentially be
associated with conversion of the convertible senior notes at maturity and provide us with the option to receive
the number of shares of our common stock (or in certain circumstances cash) with a value equal to the excess of
(a) the value owed by us (up to the cap price of $35.00 per share) to convertible senior note investors pursuant to
the terms of the notes on conversion of up to 90% of the notes over (b) the aggregate face amount of such
converted notes upon maturity of the convertible senior notes.
Derivative instruments which are subject to master netting arrangements are not offset and we have not
provided, nor do we require, cash collateral with any counterparty.
F-32