v3.10.0.1

Derivative Instruments | 6 Months Ended
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Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt, (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity, and (iii) decreases in the market prices of certain publicly traded securities that we own. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure primarily with respect to the U.S. dollar ($), the euro (€), the British pound sterling (£), the Swiss franc (CHF), the Czech koruna (CZK), the Hungarian forint (HUF), the Polish zloty (PLN) and the Romanian lei (RON). With the exception of a limited number of our foreign currency forward contracts, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our condensed consolidated statements of operations. The following table provides details of the fair values of our derivative instrument assets and liabilities:
| June 30, 2018 |  | December 31, 2017
| Current (a) |  | Long-term (a) |  | Total |  | Current (a) |  | Long-term (a) |  | Total
| in millions
Assets: |  |  |  |  |  |  |  |  |  |  |
Cross-currency and interest rate derivative contracts (b) | $ | 371.6 |  |  | $ | 1,344.1 |  |  | $ | 1,715.7 |  |  | $ | 477.0 |  |  | $ | 1,071.9 |  |  | $ | 1,548.9 |
Equity-related derivative instruments (c) | — |  |  | 491.9 |  |  | 491.9 |  |  | — |  |  | 560.9 |  |  | 560.9 |
Foreign currency forward and option contracts | 13.6 |  |  | — |  |  | 13.6 |  |  | 17.0 |  |  | 0.1 |  |  | 17.1 |
Other | 0.1 |  |  | — |  |  | 0.1 |  |  | 0.4 |  |  | 0.4 |  |  | 0.8 |
Total | $ | 385.3 |  |  | $ | 1,836.0 |  |  | $ | 2,221.3 |  |  | $ | 494.4 |  |  | $ | 1,633.3 |  |  | $ | 2,127.7 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Cross-currency and interest rate derivative contracts (b) | $ | 386.5 |  |  | $ | 1,254.1 |  |  | $ | 1,640.6 |  |  | $ | 210.2 |  |  | $ | 1,557.7 |  |  | $ | 1,767.9 |
Equity-related derivative instruments (c) | 1.7 |  |  | — |  |  | 1.7 |  |  | 5.4 |  |  | — |  |  | 5.4 |
Foreign currency forward and option contracts | 4.5 |  |  | — |  |  | 4.5 |  |  | 7.7 |  |  | 0.2 |  |  | 7.9 |
Other | — |  |  | 0.1 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |
Total | $ | 392.7 |  |  | $ | 1,254.2 |  |  | $ | 1,646.9 |  |  | $ | 223.3 |  |  | $ | 1,557.9 |  |  | $ | 1,781.2 |
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(a) | Our current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other current and accrued liabilities, other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
(b) | We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our subsidiary borrowing groups (as defined and described in note 9). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in a net gain (loss) of ($65.6 million) and $59.6 million during the three months ended June 30, 2018 and 2017, respectively, and a net gain (loss) of ($27.9 million) and $109.0 million during the six months ended June 30, 2018 and 2017, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 7.
(c) | Our equity-related derivative instruments primarily include the fair value of (i) the share collar (the ITV Collar) with respect to ITV shares held by our company, (ii) the prepaid forward transaction (the Lionsgate Forward) with respect to 1.25 million of our voting and 1.25 million of our non-voting Lionsgate shares and (iii) at December 31, 2017, the share collar (the Sumitomo Collar) with respect to a portion of the shares of Sumitomo held by our company. On May 22, 2018, we settled the final tranche of the Sumitomo Collar and related borrowings with a portion of the existing Sumitomo shares held by our company. The aggregate market value of these shares on the transaction date was $159.3 million.The fair values of the ITV Collar and the Lionsgate Forward do not include credit risk valuation adjustments as we assume that any losses incurred by our company in the event of nonperformance by the respective counterparty would be, subject to relevant insolvency laws, fully offset against amounts we owe to such counterparty pursuant to the related secured borrowing arrangements.
The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
| Three months ended |  | Six months ended
| June 30, |  | June 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
| in millions
Cross-currency and interest rate derivative contracts | $ | 870.1 |  |  | $ | (502.3 | ) |  | $ | 508.2 |  |  | $ | (659.1 | )
Equity-related derivative instruments: |  |  |  |  |  |  |
ITV Collar | (183.6 | ) |  | 163.4 |  |  | (60.0 | ) |  | 110.2 |
Lionsgate Forward | 3.4 |  |  | (2.5 | ) |  | 12.4 |  |  | (2.0 | )
Sumitomo Collar | (23.2 | ) |  | 2.2 |  |  | (11.8 | ) |  | (21.3 | )
Other | 1.0 |  |  | 0.4 |  |  | 2.2 |  |  | (5.4 | )
Total equity-related derivative instruments | (202.4 | ) |  | 163.5 |  |  | (57.2 | ) |  | 81.5 |
Foreign currency forward and option contracts | 8.3 |  |  | (12.9 | ) |  | 13.9 |  |  | (19.0 | )
Other | (0.5 | ) |  | — |  |  | (0.7 | ) |  | 0.5 |
Total | $ | 675.5 |  |  | $ | (351.7 | ) |  | $ | 464.2 |  |  | $ | (596.1 | )
The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our condensed consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows. For foreign currency forward contracts that are used to hedge capital expenditures, the net cash received or paid is classified as an adjustment to capital expenditures in our condensed consolidated statements of cash flows. For derivative contracts that are terminated prior to maturity, the cash paid or received upon termination that relates to future periods is classified as a financing activity. The following table sets forth the classification of the net cash inflows (outflows) of our derivative instruments:
| Six months ended
| June 30,
| 2018 |  | 2017
| in millions
Operating activities | $ | 246.1 |  |  | $ | 89.5 |
Investing activities | — |  |  | (0.5 | )
Financing activities | 10.2 |  |  | (139.0 | )
Total | $ | 256.3 |  |  | $ | (50.0 | )
Counterparty Credit Risk We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. With the exception of a limited number of instances where we have required a counterparty to post collateral, neither party has posted collateral under the derivative instruments of our subsidiary borrowing groups. At June 30, 2018, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $456.1 million. Details of our Derivative Instruments Cross-currency Derivative Contracts As noted above, we are exposed to foreign currency exchange rate risk in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our subsidiaries’ borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). Our policy is generally 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 June 30, 2018, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations. The following table sets forth the total notional amounts and the related weighted average remaining contractual lives of our cross-currency swap contracts at June 30, 2018:
Borrowing group |  | Notional amount due from counterparty |  | Notional amount due to counterparty |  |  | Weighted average remaining life
|  | in millions |  |  | in years
Virgin Media | $ | 400.0 |  |  | € | 339.6 |  |  |  | 4.6
|  | $ | 8,933.0 |  |  | £ | 5,844.3 |  |  | (a) (b) | 5.2
|  | £ | 2,396.1 |  |  | $ | 3,450.0 |  |  | (a) | 6.5
UPC Holding | $ | 2,765.0 |  |  | € | 2,276.7 |  |  |  | 6.3
|  | $ | 1,200.0 |  |  | CHF | 1,107.5 |  |  | (b) | 6.7
|  | € | 2,521.2 |  |  | CHF | 2,901.0 |  |  | (b) | 5.5
|  | € | 418.5 |  |  | CZK | 11,521.8 |  |  |  | 2.0
|  | € | 488.0 |  |  | HUF | 138,437.5 |  |  |  | 3.5
|  | € | 851.6 |  |  | PLN | 3,604.5 |  |  |  | 3.2
|  | € | 225.9 |  |  | RON | 650.0 |  |  |  | 3.6
Telenet | $ | 3,195.0 |  |  | € | 2,834.1 |  |  | (b) | 6.9
|  | € | 1,431.2 |  |  | $ | 1,600.0 |  |  | (a) | 7.0
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(a) | Includes certain derivative instruments that do not involve the exchange of notional amounts at the inception and maturity of the instruments. Accordingly, the only cash flows associated with these derivative instruments are coupon-related payments and receipts. At June 30, 2018, the total U.S. dollar equivalents of the notional amount of these derivative instruments was $5.3 billion.
(b) | Includes certain derivative instruments that are “forward-starting,” such that the initial exchange occurs at a date subsequent to June 30, 2018. These instruments are typically entered into in order to extend existing hedges without the need to amend existing contracts.
Interest Rate Swap Contracts As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at June 30, 2018:
|  | Borrowing group pays fixed rate (a) |  | Borrowing group receives fixed rate
Borrowing group |  | Notional amount |  | Weighted average remaining life |  | Notional amount |  | Weighted average remaining life
|  | in millions |  | in years |  | in millions |  | in years
Virgin Media | $ | 18,625.7 |  |  | 3.6 |  | $ | 11,789.1 |  |  | 5.7
UPC Holding | $ | 5,766.6 |  |  | 5.1 |  | $ | 3,408.3 |  |  | 7.3
Telenet | $ | 3,686.4 |  |  | 5.5 |  | $ | 1,666.3 |  |  | 5.2
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(a) | Includes forward-starting derivative instruments.
Interest Rate Swap Options We have entered into various interest rate swap options (swaption s), which give us the right, but not the obligation, to enter into certain interest rate swap contracts at set dates in the future, with each such contract having a life of no more than three years. At the transaction date, the strike rate of each of these contracts was above the corresponding market rate. The following table sets forth certain information regarding our swaption s at June 30, 2018:
Borrowing group |  | Notional amount |  | Underlying swap currency |  | Weighted average option expiration period (a) |  | Weighted average strike rate (b)
|  | in millions |  |  |  | in years |  |
Virgin Media | $ | 6,275.6 |  |  | £ |  | 1.4 |  | 2.47%
|  | $ | 601.1 |  |  | € |  | 1.4 |  | 2.08%
UPC Holding | $ | 1,328.3 |  |  | CHF |  | 0.6 |  | 1.22%
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(a) | Represents the weighted average period until the date on which we have the option to enter into the interest rate swap contracts.
(b) | Represents the weighted average interest rate that we would pay if we exercised our option to enter into the interest rate swap contracts.
Basis Swaps Our basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. The following table sets forth the total U.S. dollar equivalents of the notional amounts and related weighted average remaining contractual lives of our basis swap contracts at June 30, 2018:
Borrowing group |  | Notional amount due from counterparty |  | Weighted average remaining life
|  | in millions |  | in years
Virgin Media | $ | 4,587.5 |  |  | 0.5
UPC Holding | $ | 1,975.0 |  |  | 0.5
Telenet | $ | 1,600.0 |  |  | 0.5
Interest Rate Caps and Collars We enter into interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At June 30, 2018, the total U.S. dollar equivalents of the notional amounts of our interest rate caps and collars were $164.9 million and $662.7 million, respectively. Impact of Derivative Instruments on Borrowing Costs The impact of the derivative instruments that mitigate our foreign currency and interest rate risk, as described above, on our borrowing costs is as follows:
Borrowing group |  | Decrease to borrowing costs at June 30, 2018 (a)
Virgin Media | (0.32 | )%
UPC Holding | (0.02 | )%
Telenet | (0.44 | )%
Total decrease to borrowing costs | (0.27 | )%
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(a) | Represents the effect of derivative instruments in effect at June 30, 2018 and does not include forward-starting derivative instruments or swaption s.
Foreign Currency Forwards and Options Certain of our subsidiaries enter into foreign currency forward and option contracts with respect to non-functional currency exposure. As of June 30, 2018, the total U.S. dollar equivalents of the notional amount of foreign currency forward and option contracts was $482.4 million.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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