Virgin Media 2011 Annual Report Download - page 80

We are also subject to currency exchange rate risks because substantially all of our revenues, operating costs
and selling, general and administrative expenses are paid in U.K. pounds sterling, but we pay interest and
principal obligations with respect to a portion of our indebtedness in U.S. dollars and euros. To the extent that the
pound sterling declines in value against the U.S. dollar and the euro, the effective cost of servicing our
U.S. dollar and euro denominated debt will be higher. Changes in the exchange rate result in foreign currency
gains or losses. As of December 31, 2011, £2,862.5 million, or 48.5%, of our indebtedness based upon
contractual obligations, was denominated in U.S. dollars and £150.1 million, or 2.5%, of our indebtedness based
upon contractual obligations, was denominated in euros. We also purchase goods and services in U.S. dollars,
euros and South African rand.
Interest Rate Swaps
We have entered into interest rate swap agreements to manage the exposure to variability in future cash
flows on the interest payments associated with our senior credit facility, which accrue at variable rates based on
LIBOR. We have also entered into interest rate swap agreements to manage our exposure to changes in the fair
value of certain debt obligations due to interest rate fluctuations. The interest rate swaps allow us to receive or
pay interest based on three or six month LIBOR in exchange for payments or receipts of interest at fixed rates.
We have designated some of the interest rate swaps as cash flow hedges because they hedge against changes
in LIBOR. All interest rate swaps are recognized as either assets or liabilities and measured at fair value.
Changes in the fair value are 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.
Cross-currency Interest Rate Swaps
We have entered into cross-currency interest rate swaps to mitigate the interest and foreign exchange rate
risks relating to the pound sterling value of interest and principal payments on the U.S. dollar and euro
denominated senior notes and senior secured notes. We have also entered into cross-currency interest rate swap
agreements to manage our exposure to changes in the fair value of certain debt obligations.
We have designated some of the cross-currency interest rate swaps as cash flow hedges because they hedge
against changes in the pound sterling value of the interest payments on the senior notes that result from changes
in the U.S. dollar and euro exchange rates. All cross-currency interest rate swaps are recognized as either assets
or liabilities and measured at fair value. 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.
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.
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