Virgin Media 2012 Annual Report Download - page 25

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EE is also a customer of Virgin Media Business. Any disagreements between EE and our mobile operations or between
EE and Virgin Media Business could have a material adverse effect on the relationship of the other Virgin Media
businesses and EE.
We do not insure the underground portion of our cable network and various pavement-based electronics
associated with our cable network.
Our cable network is one of our key assets. However, we do not insure the underground portion of our cable network
or various pavement-based electronics associated with our cable network. Almost all our cable network is constructed
underground. As a result, any catastrophe that affects our underground cable network or our pavement-based
electronics could prevent us from providing services to our customers and result in substantial uninsured losses that
would have a material adverse effect on our business and results of operations.
We are subject to currency and interest rate risks.
We are subject to currency exchange rate risks because substantially all of our revenues and operating expenses are
paid in 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.
We are also subject to interest rate risks as we have interest determined on a variable basis, either through unhedged
variable rate debt or derivative hedging contracts. We also incur costs in U.S. dollars, euros and South African rand,
in the ordinary course of our business, including for customer premises equipment and network maintenance services.
Any deterioration in the value of the pound relative to the U.S. dollar, euro or the rand could cause an increase in the
effective cost of purchases made in these currencies as only part of these exposures are hedged.
See Item 7A of this Form 10-K, "Quantitative and Qualitative Disclosures About Market Risk".
We are subject to tax in more than one tax jurisdiction and our structure poses various tax risks.
We are subject to taxation in multiple jurisdictions, in particular the U.S. and the U.K. Our effective tax rate and tax
liability will be affected by a number of factors in addition to our operating results, including the amount of taxable
income in particular jurisdictions, the tax rates in those jurisdictions, tax treaties between jurisdictions, the manner in
which and extent to which we transfer funds to and repatriate funds from our subsidiaries, accounting standards and
changes in accounting standards, and future changes in the law. We may incur losses in one jurisdiction that cannot
be offset against income earned in a different jurisdiction and so we may pay income taxes in one jurisdiction for a
particular period even though on an overall basis we incur a net loss for that period.
Substantially all of our operations are conducted through U.K. subsidiaries that are owned by one or more members
of a U.S. holding company group. We do not expect to have current U.K. tax liabilities on our operating earnings for
at least the medium term. However, our operations may give rise to U.S. tax on “Subpart F” income generated by our
U.K. subsidiaries, or on repatriations of cash from our U.K. operating subsidiaries to the U.S. holding company group.
We believe that our U.K. subsidiaries have a substantial U.S. tax basis that may be available to avoid or reduce U.S.
tax on repatriation of cash from our U.K. subsidiaries. However, there is a risk that the Internal Revenue Service, or
IRS, may seek to challenge the amount of that tax basis or that we will not be able to utilize such basis under applicable
tax law. As a result, although in accordance with applicable law we will seek to minimize our U.S. tax liability as well
as our overall worldwide tax liability, we may incur U.S. tax liabilities with respect to repatriation of cash from our U.K.
subsidiaries to the U.S.. The amount of the tax liability, if any, would depend upon a multitude of factors, including the
amount of cash actually repatriated.
We also pay Value Added Tax, or VAT, on our revenue generating activities in the U.K. From time to time, the U.K. tax
authorities review the basis upon which our VAT liability is assessed. We are currently engaged in a dispute with the
tax authorities over one of these reviews. See item 7 of this Form 10-K, “Management's Discussion and Analysis of
Financial Condition and Results of Operations-Consolidated Results of Operations-Taxation-Contingencies".
Acquisitions and other strategic transactions present many risks, and we may not realize the financial and
strategic goals that were contemplated at the time of any transaction.
From time to time we have made acquisitions, dispositions and have entered into other strategic transactions. In
connection with such transactions, we may incur unanticipated expenses, fail to realize anticipated benefits, have
difficulty integrating the acquired businesses, disrupt relationships with current and new employees, customers and
suppliers, incur significant indebtedness, or experience delays or fail to proceed with announced transactions. These
factors could have a material adverse effect on our business and/or our reputation.
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