Virgin Media 2013 Annual Report Download - page 136

III - 26
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the normal course of our business operations due to our ongoing investing and financing
activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates and interest rates.
The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further
described below, we have established policies, procedures and processes governing our management of market risks and the use
of derivative instruments to manage our exposure to such risks.
Cash
We invest our cash in highly liquid instruments that meet high credit quality standards. At December 31, 2013, substantially
all of our consolidated cash balances were denominated in pound sterling. However, from a pound sterling perspective, we are
slightly exposed to exchange rate risk with respect to certain of our cash balances that are denominated in U.S. dollars. Subject
to applicable debt covenants, certain tax considerations and other factors, these U.S. dollar cash balances are available to be used
for future liquidity requirements that may be denominated in such currencies.
Foreign Currency Risk
We are exposed to foreign currency exchange rate risk with respect to our consolidated debt in situations where our debt is
denominated in U.S. dollars. Although we generally seek to match the denomination of our and our subsidiaries’ borrowings with
our functional currency, market conditions or other factors may cause us to enter into borrowing arrangements that are not
denominated in our functional currency (unmatched debt). In these cases, our policy is to provide for an economic hedge against
foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the
applicable underlying currency. At December 31, 2013, substantially all of our debt was either directly or synthetically matched
to our functional currency. For additional information concerning the terms of our derivative instruments, see note 4 to our
consolidated financial statements.
In addition to the exposure that results from the mismatch of our borrowings and our functional currency, we are exposed to
foreign currency risk to the extent that we enter into transactions denominated in currencies other than our functional currency
(non-functional currency risk), such as equipment purchases, programming contracts, notes payable and notes receivable (including
intercompany amounts) that are denominated in a currency other than our functional currency. Changes in exchange rates with
respect to amounts recorded in our consolidated balance sheets related to these items will result in unrealized (based upon period-
end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions. Moreover, to
the extent that our costs and expenses are denominated in currencies other than our functional currency, we will experience
fluctuations in our costs and expenses solely as a result of changes in foreign currency exchange rates. Generally, we will consider
hedging non-functional currency risks when the risks arise from agreements with third parties that involve the future payment or
receipt of cash or other monetary items to the extent that we can reasonably predict the timing and amount of such payments or
receipts and the payments or receipts are not otherwise hedged. Certain non-functional currency risks related to our operating and
SG&A expenses and property and equipment additions were not hedged as of December 31, 2013. For additional information
concerning our derivative instruments, see note 4 to our consolidated financial statements.