Virgin Media 2011 Annual Report Download - page 197

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES
COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7—Fair Value Measurements (continued)
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, 2011. 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, 2011, based on market values, we had 82.0% of our derivative contracts with five financial
institutions, each with more than 10% of our total exposure. At December 31, 2010, based on market values, we
had 57% of our derivative contracts with three financial institutions, each with more than 10% of our total
exposure.
Note 8—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 recognize all
derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets and recognize
certain changes in the fair value of derivative instruments in our consolidated statements of operations.
We have entered into cross-currency interest rate swaps to manage interest rate and foreign exchange rate
currency exposures with respect to our U.S. dollar ($) and euro (€) denominated debt obligations. Additionally,
we have entered into interest rate swaps to manage interest rate exposures resulting from variable and fixed rates
of interest we pay on our U.K. pound sterling (£) denominated debt obligations. We have also entered into
U.S. dollar and South African rand 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 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. 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
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