Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Or

 

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-50886

 

 

VIRGIN MEDIA INC.

(Exact name of registrant as specified in its charter)

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

(Additional Registrant)

VIRGIN MEDIA INVESTMENTS LIMITED

(Additional Registrant)

 

 

 

Delaware   59-3778247

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

909 Third Avenue, Suite 2863

New York, New York

  10022
(Address of principal executive offices)   (Zip Code)

(212) 906-8440

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer    ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 31, 2011, there were 300,920,949 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding.

The Additional Registrants meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this report with the reduced disclosure format. See “Note Concerning the Additional Registrants” in this Form 10-Q.

 

 

 


Table of Contents

VIRGIN MEDIA INC.

FORM 10-Q

QUARTER ENDED September 30, 2011

INDEX

 

     Page  

PART I—FINANCIAL INFORMATION

     5   

Item 1. Financial Statements

     5   

Virgin Media Inc.

  

Condensed Consolidated Balance Sheets—September 30, 2011 and December 31, 2010

     5   

Condensed Consolidated Statements of Operations—Three and Nine Months ended September  30, 2011 and 2010

     6   

Condensed Consolidated Statements of Cash Flows—Nine Months ended September 30, 2011 and 2010

     7   

Notes to Condensed Consolidated Financial Statements

     8   

Virgin Media Investment Holdings Limited

  

Condensed Consolidated Balance Sheets—September 30, 2011 and December 31, 2010

     45   

Condensed Consolidated Statements of Operations— Three and Nine Months ended September  30, 2011 and 2010

     46   

Condensed Consolidated Statements of Cash Flows— Nine Months ended September 30, 2011 and 2010

     47   

Virgin Media Investments Limited

  

Condensed Consolidated Balance Sheets—September 30, 2011 and December 31, 2010

     48   

Condensed Consolidated Statements of Operations— Three and Nine Months ended September  30, 2011 and 2010

     49   

Condensed Consolidated Statements of Cash Flows— Nine Months ended September 30, 2011 and 2010

     50   

Virgin Media Investment Holdings Limited and Virgin Media Investments Limited

  

Combined Notes to Condensed Consolidated Financial Statements

     51   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     66   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     91   

Item 4. Controls and Procedures

     93   

PART II—OTHER INFORMATION

     94   

Item 1. Legal Proceedings

     94   

Item 1A. Risk Factors

     94   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     95   

Item 3. Defaults Upon Senior Securities

     95   

Item 4. (Removed and Reserved)

     95   

Item 5. Other Information

     95   

Item 6. Exhibits

     96   

SIGNATURES

     101   

In this quarterly report on Form 10-Q, unless we have indicated otherwise, or the context otherwise requires, references to “Virgin Media,” “the Company,” “we,” “us,” “our” and similar terms refer to the consolidated business of Virgin Media Inc. and its subsidiaries (including Virgin Media Investment Holdings Limited, or VMIH, Virgin Media Investments Limited, or VMIL, and their respective subsidiaries).

 

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“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Various statements contained in this document constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “think,” “strategy,” and similar expressions identify these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include the following:

 

   

the ability to compete with a range of other communications and content providers;

 

   

the effect of rapid and significant technological changes on our businesses;

 

   

the effect of a decline in fixed line telephony usage and revenues;

 

   

the ability to maintain and upgrade our networks in a cost-effective and timely manner;

 

   

possible losses of revenues or customers due to systems failures;

 

   

the ability to control unauthorized access to our network;

 

   

our reliance on third-party suppliers and contractors to provide necessary hardware, software or operational support;

 

   

our reliance on our use of the “Virgin” name and logo and any adverse publicity generated by other users of the Virgin name and logo;

 

   

the ability to manage customer churn;

 

   

the ability to provide attractive programming at a reasonable cost;

 

   

general economic conditions;

 

   

the ability to implement our restructuring plan successfully and realize the anticipated benefits;

 

   

currency and interest rate fluctuations;

 

   

our reliance on third parties to distribute our mobile telephony products;

 

   

the functionality or market acceptance of new products;

 

   

tax risks;

 

   

our reliance on Everything Everywhere to carry our mobile voice and non-voice services;

 

   

the ability to effectively manage complaints, litigation and adverse publicity;

 

   

our ability to retain key personnel;

 

   

changes in laws, regulations or governmental policy;

 

   

capacity limits on our network;

 

   

the ability to fund debt service obligations and refinance our debt obligations;

 

   

the ability to comply with restrictive covenants in our indebtedness agreements; and

 

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Virgin Media’s dependence on cash flow from subsidiaries.

These and other factors are discussed in more detail under “Risk Factors” and elsewhere in our annual report on Form 10-K for the year ended December 31, 2010, or the 2010 Annual Report, as filed with the U.S. Securities and Exchange Commission, or SEC, on February 22, 2011. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.

Note Concerning the Additional Registrants

VMIH is a wholly owned subsidiary of Virgin Media Finance PLC, or Virgin Media Finance, and a wholly owned indirect subsidiary of Virgin Media Inc. VMIH is a guarantor of the unsecured senior notes issued by Virgin Media Finance. VMIH is also a guarantor of the senior secured notes issued by Virgin Media Secured Finance PLC. VMIH carries on the same business as Virgin Media.

VMIL is a wholly owned subsidiary of VMIH and a wholly owned indirect subsidiary of Virgin Media Inc. VMIL is also a guarantor of the unsecured senior notes issued by Virgin Media Finance and the senior secured notes issued by Virgin Media Secured Finance PLC. VMIL carries on the same business as Virgin Media.

As the guarantees granted by VMIH and VMIL are not deemed to be unconditional, separate financial statements for these wholly owned indirect subsidiaries of Virgin Media Inc. have been included in this quarterly report pursuant to the rules and regulations of the SEC. Unless otherwise indicated, the discussion contained in this report applies to Virgin Media as well as VMIH and VMIL. Both VMIH and VMIL are incorporated in England and Wales, with their respective registered offices at Media House, Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UP. Neither VMIH nor VMIL is an accelerated filer.

Financial Information and Currency of Financial Statements

All of the financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The reporting currency of our consolidated financial statements is U.K. pounds sterling.

 

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   £ 438.3      £ 479.5   

Restricted cash

     2.2        2.2   

Accounts receivable - trade, less allowances for doubtful accounts of £9.9 (2011) and £6.4 (2010)

     428.4        431.2   

Inventory for resale

     20.1        26.4   

Derivative financial instruments

     18.0        0.8   

Prepaid expenses and other current assets

     89.5        89.0   
  

 

 

   

 

 

 

Total current assets

     996.5        1,029.1   

Fixed assets, net

     4,612.6        4,763.1   

Goodwill and other indefinite-lived assets

     2,017.5        2,017.5   

Intangible assets, net

     28.1        118.4   

Equity investments

     0.0        359.2   

Derivative financial instruments

     348.0        394.6   

Deferred financing costs, net of accumulated amortization of £40.3 (2011) and £23.8 (2010)

     79.0        98.6   

Other assets

     51.7        52.7   
  

 

 

   

 

 

 

Total assets

   £ 8,133.4      £ 8,833.2   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities

    

Accounts payable

   £ 296.3      £ 295.9   

Accrued expenses and other current liabilities

     358.2        391.5   

Derivative financial instruments

     24.4        13.3   

Restructuring liabilities

     37.6        57.6   

VAT and employee taxes payable

     77.7        88.6   

Interest payable

     115.2        126.5   

Deferred revenue

     313.8        301.7   

Current portion of long term debt

     111.5        222.1   
  

 

 

   

 

 

 

Total current liabilities

     1,334.7        1,497.2   

Long term debt, net of current portion

     5,717.9        5,798.3   

Derivative financial instruments

     63.9        62.0   

Deferred revenue and other long term liabilities

     188.8        207.9   

Deferred income taxes

     0.0        3.2   
  

 

 

   

 

 

 

Total liabilities

     7,305.3        7,568.6   
  

 

 

   

 

 

 

Commitments and contingent liabilities

    

Shareholders’ equity

    

Common stock - $0.01 par value; authorized 1,000.0 (2011 and 2010) shares; issued and outstanding 300.8 (2011) and 322.0 (2010) shares

     1.6        1.8   

Additional paid-in capital

     4,051.3        4,375.2   

Accumulated other comprehensive income

     52.5        86.5   

Accumulated deficit

     (3,277.3     (3,198.9
  

 

 

   

 

 

 

Total shareholders’ equity

     828.1        1,264.6   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 8,133.4      £ 8,833.2   
  

 

 

   

 

 

 

See accompanying notes.

 

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited) (in millions, except per share data)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Revenue

   £ 1,000.0      £ 978.4      £ 2,968.1      £ 2,872.0   

Costs and expenses

        

Operating costs (exclusive of depreciation shown separately below)

     401.7        395.6        1,202.7        1,166.5   

Selling, general and administrative expenses

     200.0        195.5        598.9        598.9   

Restructuring and other charges

     6.2        4.5        7.7        11.4   

Depreciation

     235.6        244.4        694.6        733.4   

Amortization

     28.1        36.7        90.3        110.9   
  

 

 

   

 

 

   

 

 

   

 

 

 
     871.6        876.7        2,594.2        2,621.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     128.4        101.7        373.9        250.9   

Other income (expense)

        

Interest expense

     (107.6     (118.2     (335.3     (359.1

Loss on extinguishment of debt

     (18.3     0.0        (47.2     (70.0

Share of income from equity investments

     3.6        6.7        18.6        21.4   

Loss on disposal of equity investments

     (8.0     0.0        (8.0     0.0   

Loss on derivative instruments

     (59.3     (24.7     (40.5     (52.9

Foreign currency (losses) gains

     (13.0     43.6        0.8        (33.9

Interest income and other, net

     0.5        0.8        83.8        4.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

     (73.7     9.9        46.1        (238.9

Income tax (expense) benefit

     (0.1     17.7        (17.2     34.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (73.8     27.6        28.9        (204.2

Discontinued operations

        

Gain on disposal, net of tax

     0.0        14.4        0.0        14.4   

(Loss) income from discontinued operations, net of tax

     0.0        (0.2     (1.2     11.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

     0.0        14.2        (1.2     25.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (73.8   £ 41.8      £ 27.7      £ (178.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share amounts

        

(Loss) income from continuing operations

        

Basic earnings per share

   £ (0.24   £ 0.08      £ 0.09      £ (0.62
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   £ (0.24   £ 0.08      £ 0.09      £ (0.62
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

        

Basic earnings per share

   £ (0.24   £ 0.13      £ 0.09      £ (0.54
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   £ (0.24   £ 0.13      £ 0.09      £ (0.54
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per share (in U.S. dollars)

   $ 0.04      $ 0.04      $ 0.12      $ 0.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 

     Nine months ended
September 30,
 
     2011     2010  

Operating activities:

    

Net income (loss)

   £ 27.7      £ (178.5

Loss (income) from discontinued operations

     1.2        (25.7
  

 

 

   

 

 

 

Income (loss) from continuing operations

     28.9        (204.2

Adjustments to reconcile (income) loss from continuing operations to net cash provided by operating activities:

    

Depreciation and amortization

     784.9        844.3   

Non-cash interest

     14.1        31.6   

Non-cash compensation

     17.2        21.4   

Loss on extinguishment of debt, net of prepayment premiums

     31.7        70.1   

Income from equity accounted investments, net of dividends received

     (0.6     (6.8

Unrealized losses on derivative instruments

     29.6        124.5   

Foreign currency losses (gains)

     0.3        (87.9

Loss on disposal of equity investments

     8.0        0.0   

Income taxes

     21.7        (13.9

Other

     5.3        0.3   

Changes in operating assets and liabilities, net of effect from business disposals:

     (86.4     (7.1
  

 

 

   

 

 

 

Net cash provided by operating activities

     854.7        772.3   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of fixed and intangible assets

     (479.3     (478.0

Proceeds from sale of fixed assets

     1.5        35.8   

Principal repayments on loans to equity investments

     108.2        15.0   

Acquisitions, net of cash acquired

     (14.6     0.0   

Disposal of equity investments, net

     241.0        0.0   

Disposal of businesses, net

     0.0        160.0   

Other

     2.5        2.3   
  

 

 

   

 

 

 

Net cash used in investing activities

     (140.7     (264.9
  

 

 

   

 

 

 

Financing activities:

    

New borrowings, net of financing fees

     977.2        3,072.1   

Repurchase of common stock

     (447.0     (122.5

Proceeds from employee stock option exercises

     14.4        9.9   

Principal payments on long term debt and capital leases

     (1,328.4     (3,225.9

Proceeds from settlement of cross currency interest rate swaps

     65.5        0.0   

Dividends paid

     (23.7     (26.0
  

 

 

   

 

 

 

Net cash used in financing activities

     (742.0     (292.4
  

 

 

   

 

 

 

Cash flow from discontinued operations:

    

Net cash used in operating activities

     (10.4     (37.9
  

 

 

   

 

 

 

Net cash used in discontinued operations

     (10.4     (37.9
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2.8     2.2   

(Decrease) increase in cash and cash equivalents

     (41.2     179.3   

Cash and cash equivalents, beginning of period

     479.5        430.5   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   £ 438.3      £ 609.8   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid during the period for interest exclusive of amounts capitalized

   £ 324.5      £ 331.4   

See accompanying notes.

 

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and notes thereto included in Virgin Media Inc.’s annual report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 22, 2011, or the 2010 Annual Report.

Note 2—Recent Accounting Guidance

In September 2011, the FASB issued guidance permitting companies to first assess qualitative factors as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption is permitted. We adopted this guidance effective October 1, 2011 and will apply it to the performance of our annual goodwill impairment test.

In June 2011, the Financial Accounting Standards Board, or FASB, issued new guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new standard will require companies to retrospectively present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of other comprehensive income in the statement of stockholders’ equity. This new guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2011. The adoption of this standard will not have a material impact on our consolidated financial statements.

On January 1, 2011 we adopted new accounting guidance issued by the FASB for revenue arrangements with multiple-elements. We adopted this guidance on a prospective basis applicable for transactions originating or materially modified after the date of adoption. This guidance changed the criteria for separating units of accounting in multiple-element arrangements and the way in which an entity is required to allocate revenue to these units of accounting.

Prior to the adoption of this guidance and with the exception of mobile revenue transactions, bundled revenue arrangements in our Consumer and Business segments generally did not contain separate units of accounting. Subsequent to the adoption of this guidance, these bundled revenue arrangements generally have the following units of accounting: an up-front installation element and an ongoing service provision element. Both prior and subsequent to the adoption of this guidance, mobile revenue transactions involving bundled equipment and service revenue have separate units of accounting.

 

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 2—Recent Accounting Guidance (continued)

 

Revenue is allocated to each unit of accounting based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. Currently, we do not sell installation services or ongoing rental separately on a regular basis and therefore we do not have the evidence to support VSOE for these deliverables. We use evidence of the amounts that third parties charge for similar or identical services, when available, to establish selling price. In some cases, when we are unable to establish VSOE or TPE, we use our best estimate of selling price. Our objective in determining the best estimate of selling price is to establish the price at which we would transact a sale if the deliverable were sold regularly on a stand-alone basis. We consider all reasonably available information including both market data and conditions, as well as entity specific factors. In addition we consider all factors contemplated in negotiating the arrangement with the customer and our own normal pricing practices. These considerations include competitor pricing, customization of the product, profit objectives and cost structures.

Once we have established the selling price of each deliverable, we allocate total arrangement consideration by applying the relative selling price methodology. Prior to the adoption of this guidance, where the fair value of the delivered element could not be determined reliably but the fair value of the undelivered element could be determined reliably, the fair value of the undelivered element was deducted from total consideration and the net amount was allocated to the delivered element based on the “residual value” method. This methodology is no longer permitted under the new guidance and we now allocate revenue for all multiple-element arrangements based on the relative selling price methodology. We recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition.

The adoption of this guidance is not expected to have a material impact on our consolidated financial statements for the year ended December 31, 2011. This is principally due to the fact that although prior to the adoption of this guidance we were unable to meet the criteria to separate the units of accounting for our residential customer arrangements, the Cable Television Topic of the FASB ASC required us to recognize initial hookup revenues to the extent we had incurred direct selling costs. The impact of the adoption of this guidance may be material in future years if we make material changes to product or service offerings, pricing structures, the components of bundled arrangements or if we enter into material new arrangements in our Business segment.

Note 3—Disposal of Equity Investment

On September 30, 2011, we completed the sale to Scripps Network Interactive, Inc. (“Scripps”), of our interest in the UKTV joint venture with BBC Worldwide Limited. The aggregate consideration was £344.6 million, which includes approximately £98.1 million for Scripps’ acquisition of preferred equity, loan stock and other debt. After the inclusion of associated fees, this transaction resulted in a loss on disposal of £8.0 million, in the consolidated statement of operations.

The terms of the sale agreement include working capital adjustments which may be recognized during the fourth quarter and impact the loss on disposal. Other than an insignificant amount of U.S. alternative minimum tax, no income tax is due as a result of this transaction due to our ability to offset net operating losses against taxable income.

Note 4—Long Term Debt

On February 15, 2011, we amended our senior credit facility to increase operational flexibility including, among other things, changing the required level of total net leverage ratio, increasing certain financial indebtedness baskets, and eliminating certain restrictions on the use of proceeds of secured indebtedness. This amendment did not have an impact on the amount of debt included on our consolidated balance sheet as of September 30, 2011 but did serve to modify the amortization schedule by extending £192.5 million of our June 30, 2014 scheduled amortization payment to June 30, 2015.

 

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 4—Long Term Debt (continued)

 

On March 3, 2011, our wholly owned subsidiary, Virgin Media Secured Finance PLC issued $500 million aggregate principal amount of 5.25% senior secured notes due 2021 and £650 million aggregate principal amount of 5.50% senior secured notes due 2021. Interest is payable on January 15 and July 15 each year, beginning on July 15, 2011. The senior secured notes due 2021 rank pari passu with and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility and senior secured notes due 2018.

In March 2011, we used the net proceeds from our senior secured notes due 2021 to prepay £532.5 million of the Tranche A outstanding under our senior credit facility, thus eliminating scheduled amortization in 2011 through 2014, and £367.5 million of the Tranche B outstanding under our senior credit facility that was scheduled for payment in 2015, with the remainder of the proceeds being used for general corporate purposes.

On May 20, 2011, we entered into two new additional facilities under the senior credit facility, comprising an additional revolving facility with total commitments of £450 million, which replaced the previous £250 million revolving facility, and an additional term facility with commitments of £750 million. We used the new term facility of £750 million and £25 million of cash to repay the loan balance from the previous term loan which was comprised of a £467.5 million Tranche A and £307.5 million Tranche B. The maturity date of the facilities remains at June 30, 2015. Further changes to the senior credit facility to increase operational flexibility were also effected on May 27, 2011.

On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash from our balance sheet as part of our 2010 capital structure optimization program. We recognized a loss on extinguishment of £15.5 million as a result of this redemption. Refer to note 8 for additional discussion of the capital structure optimization program.

On September 12, 2011 we borrowed £50 million under the revolving credit facility. This was repaid on October 12, 2011.

If the trading price of our common stock exceeds 120% of the conversion price of the convertible senior notes for 20 out of the last 30 trading days of a calendar quarter, holders of the convertible notes may elect to convert their convertible notes during the following quarter. This condition was achieved in the three months ended September 30, 2011. If conversions of this nature occur, we may deliver cash, common stock, or a combination of both, at our election, to settle our obligations. We have classified this debt as long-term debt in the condensed consolidated balance sheet as of September 30, 2011 because we determined, in accordance with the Derivatives and Hedging Topic of the FASB ASC, that we have the ability to settle the obligations in equity in all circumstances, except in the case of a fundamental change (as defined in the indenture governing the convertible senior notes). This condition must be fulfilled on 20 of the last 30 trading days of each calendar quarter. If the condition is not met during that time period, the notes will not be convertible in the following quarter.

 

10


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 4—Long Term Debt (continued)

 

Long term debt repayments, excluding capital leases, as of September 30, 2011, were due as follows (in millions):

 

Period ending September 30:

      

2012

   £ 50.3   

2013

     0.1   

2014

     0.0   

2015

     750.0   

2016

     1,021.0   

Thereafter

     3,861.8   
  

 

 

 

Total debt payments

   £ 5,683.2   
  

 

 

 

On October 27, 2010, we entered into capped call option transactions, or conversion hedges, with certain counterparties relating to our $1.0 billion 6.50% convertible senior notes due 2016. The conversion hedges are intended to offset a portion of the dilutive effects that could potentially be associated with conversion of the convertible senior notes at maturity and provide us with the option to receive the number of shares of our common stock (or in certain circumstances cash) with a value equal to the excess of (a) the value owed by us (up to the cap price of $35.00 per share) to convertible senior note investors pursuant to the terms of the notes on conversion of up to 90% of the notes over (b) the aggregate face amount of such converted notes upon maturity of the convertible senior notes. The conversion hedges also provide various mechanisms for settlement in our common stock and/or cash in certain circumstances, based primarily on the settlement method elected for the notes. These conversion hedges have an initial strike price of $19.22 per share of our stock, which is the conversion price provided under the terms of our convertible senior notes, and a cap price of $35.00 per share of our stock. We paid £205.4 million in respect of the conversion hedges during 2010. The cost of these transactions was not deductible for U.S. federal income tax purposes, and the proceeds, if any, received upon exercise of the options will not be taxable for U.S. federal income tax purposes.

The conversion hedges do not qualify for equity classification under the authoritative guidance as there are potential circumstances in which cash settlement may be required at the discretion of the counterparties. As such, the fair value of the conversion hedges, which was approximately £156.3 million as of September 30, 2011, has been included as a non-current derivative financial asset in the condensed consolidated balance sheets. Refer to note 5 for additional discussion of the fair value measurement of the conversion hedges.

 

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Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 5—Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

 

Level 1    Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2    Unadjusted quoted prices in active markets for similar assets or liabilities, or
unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
inputs other than quoted prices that are observable for the asset or liability
Level 3    Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The table below presents our assets and liabilities measured at fair value as at September 30, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall (in millions):

 

     Balance at September 30, 2011  
     Level 1      Level 2      Level 3      Total  

Assets

           

Derivative financial instruments, excluding conversion hedges

   £ 0.0       £ 194.9       £ 14.8       £ 209.7   

Conversion hedges

     0.0         0.0         156.3         156.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 194.9       £ 171.1       £ 366.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative financial instruments

   £ 0.0       £ 88.3       £ 0.0       £ 88.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 88.3       £ 0.0       £ 88.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

In estimating the fair value of our financial assets and liabilities, we used the following methods and assumptions:

Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using internal models based on observable inputs, counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. As such, these derivative instruments are classified within level 2 in the fair value hierarchy.

As discussed in note 8 the capped Accelerated Stock Repurchase (ASR) agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. The forward stock purchase contract is classified as a derivative financial instrument in our condensed consolidated balance sheet as of September 30, 2011. The fair value of this contract is determined using an internal model and falls within level 3 of the fair value hierarchy.

The fair values of our derivative financial instruments are disclosed in note 6.

 

12


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 5—Fair Value Measurements (continued)

 

Valuation of conversion hedges: Because the conversion hedges do not qualify for equity classification, the fair values have been included as a non-current derivative financial asset in the consolidated balance sheet. The conversion hedges may only be exercised by us upon maturity of the convertible senior notes. The fair value of these instruments was estimated to be £156.3 million as of September 30, 2011, using the Black-Scholes Merton valuation technique. In accordance with the authoritative guidance, fair value represents an estimate of the exit price that would be received upon disposal of the conversion hedges as of the balance sheet date. The fair values of the conversion hedges are primarily impacted by our stock price but are also impacted by the duration of the options, the strike price ($19.22 per share) of the instrument, the cap price ($35.00 per share) of the instrument, expected volatility of our stock price, the dividend yield on our stock, exchange rates, and counterparty non-performance risk. The table below presents the estimated impact on the September 30, 2011 fair value of a hypothetical 20% increase and decrease in our stock price, holding all other inputs constant (in millions):

 

     September 30,
2011
 

Estimated fair value of conversion hedges as reported

   £ 156.3   
  

 

 

 

Estimated fair value of conversion hedges assuming a 20% increase in our stock price

   £ 187.3   
  

 

 

 

Estimated fair value of conversion hedges assuming a 20% decrease in our stock price

   £ 120.1   
  

 

 

 

Changes in fair values of the conversion hedges are reported as gains (losses) on derivative instruments in the condensed consolidated statements of operations.

We have determined that the overall valuation of the conversion hedges falls within level 3 of the fair value hierarchy as the assumption for the expected volatility of our stock price over the term of the options is based on an unobservable input and is deemed to be significant to the determination of fair value. Non-performance risk is based on quoted credit default spreads for counterparties to the contracts. The inclusion of counterparty non-performance risk resulted in a decrease to the fair values of the conversion hedges of £30.9 million as of September 30, 2011 and an increase in the loss on derivative instruments of £13.0 million in the three months ended September 30, 2011.

 

13


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 5—Fair Value Measurements (continued)

 

The following table presents a reconciliation of the beginning and ending balances of the conversion hedges (in millions):

 

Balance at December 31, 2010

   £  191.9   

Unrealized gain included in gain (loss) on derivative instruments

     10.2   

Unrealized currency translation adjustment included in other comprehensive income

     (4.7
  

 

 

 

Balance at March 31, 2011

   £ 197.4   
  

 

 

 

Unrealized gain included in gain (loss) on derivative instruments

     4.6   

Unrealized currency translation adjustment included in other comprehensive income

     (0.7
  

 

 

 

Balance at June 30, 2011

   £ 201.3   
  

 

 

 

Unrealized loss included in gain (loss) on derivative instruments

     (49.1

Unrealized currency translation adjustment included in other comprehensive income

     4.1   
  

 

 

 

Balance at September 30, 2011

   £ 156.3   
  

 

 

 

Long term debt: The fair values of our senior notes, convertible senior notes and senior secured notes in the following table are based on the quoted market prices in active markets and incorporate non-performance risk. The carrying values of the $500 million 5.25% and £650 million 5.50% senior secured notes due 2021 include adjustments of £40 million and £60 million, respectively, as a result of our application of fair value hedge accounting to these instruments.

The carrying amounts and fair values of our long term debt are as follows (in millions):

 

     September 30,
2011
     December 31,
2010
 
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

9.125% U.S. dollar senior notes due 2016

   £ 0.0       £ 0.0       £ 352.6       £ 380.3   

6.50% U.S. dollar convertible senior notes due 2016

     545.5         991.6         535.4         1,050.8   

9.50% U.S. dollar senior notes due 2016

     845.3         933.6         843.2         990.5   

9.50% euro senior notes due 2016

     150.6         169.2         148.5         182.1   

8.375% U.S. dollar senior notes due 2019

     379.1         410.3         378.8         421.5   

8.875% sterling senior notes due 2019

     345.1         362.3         344.8         397.7   

6.50% U.S. dollar senior secured notes due 2018

     632.9         686.0         632.3         677.5   

7.00% sterling senior secured notes due 2018

     864.0         905.6         863.1         925.3   

5.25% U.S. dollar senior secured notes due 2021

     347.6         321.6         0.0         0.0   

5.50% sterling senior secured notes due 2021

     705.6         705.3         0.0         0.0   

Senior credit facility

     750.0         750.0         1,675.0         1,672.5   

Revolving credit facility

     50.0         50.0         0.0         0.0   

Capital leases and other

     213.7         213.7         246.7         246.7   

 

14


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—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 are required to recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and to 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 and foreign currency forward rate contracts 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 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. We perform, at least quarterly, 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 (losses) on derivative instruments in the statement of operations. As a result of our effectiveness assessment at September 30, 2011, we believe our derivative contracts that are designated and qualify for hedge accounting will continue to be highly effective in offsetting changes in cash flow or fair value attributable to the hedged risk.

The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using internal models based on observable inputs, counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. Non-performance is based on quoted credit default spreads for counterparties to the contracts and swaps. These derivative instruments are classified within level 2 in the fair value hierarchy. Derivative instruments which are subject to master netting arrangements are not offset and we have not provided, nor do we require, cash collateral with any counterparty.

Refer to note 5 for a discussion of the conversion hedges.

 

15


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

The fair values of our derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):

 

     September 30,
2011
     December 31,
2010
 

Included within current assets:

     

Accounting Hedge

     

Foreign currency forward rate contracts

   £ 0.2       £ 0.0   

Economic Hedge

     

Foreign currency forward rate contracts

     2.1         0.8   

Interest rate swaps

     0.9         0.0   

Forward share repurchase contract

     14.8         0.0   
  

 

 

    

 

 

 
   £ 18.0       £ 0.8   
  

 

 

    

 

 

 

Included within non-current assets:

     

Accounting Hedge

     

Interest rate swaps

   £ 62.4       £ 8.0   

Cross-currency interest rate swaps

     80.7         137.9   

Economic Hedge

     

Interest rate swaps

     4.4         3.9   

Cross-currency interest rate swaps

     44.2         52.9   

Conversion hedges

     156.3         191.9   
  

 

 

    

 

 

 
   £ 348.0       £ 394.6   
  

 

 

    

 

 

 

Included within current liabilities:

     

Economic Hedge

     

Interest rate swaps

   £ 11.1       £ 0.0   

Cross-currency interest rate swaps

     13.3         13.3   
  

 

 

    

 

 

 
   £ 24.4       £ 13.3   
  

 

 

    

 

 

 

Included within non-current liabilities:

     

Accounting Hedge

     

Cross-currency interest rate swaps

   £ 8.9       £ 10.3   

Economic Hedge

     

Interest rate swaps

     35.5         32.2   

Cross-currency interest rate swaps

     19.5         19.5   
  

 

 

    

 

 

 
   £ 63.9       £ 62.0   
  

 

 

    

 

 

 

 

16


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

Cross-Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Secured Notes

As of September 30, 2011, we had outstanding 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.

The terms of our outstanding cross-currency interest rate swaps at September 30, 2011, were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional amount
due from
counterparty
     Notional amount
due to
counterparty
     Weighted average
interest rate due
from counterparty
  Weighted average
interest rate due to
counterparty
          (in millions)      (in millions)           

$1,350m senior notes due 2016

             

August 2016

   Accounting    $ 1,350.0       £ 836.0       9.50%   9.99%

$1,000m convertible senior notes due 2016

             

November 2016

   Economic      1,000.0         516.9       6.50%   6.91%

$600m senior notes due 2019

             

October 2019

   Accounting      264.3         159.8       8.38%   9.03%

October 2011

   Economic      335.7         228.0       8.38%   9.23%

October 2011 to October 2019

   Accounting      335.7         203.0       8.38%   9.00%

$1,000m senior secured notes due 2018

             

January 2018

   Accounting      1,000.0         615.7       6.50%   7.02%

$500m senior secured notes due 2021

             

January 2021

   Accounting      500.0         308.9       5.25%   6 month
              LIBOR + 1.94%
     

 

 

    

 

 

      
      $ 4,785.7       £ 2,868.3        
     

 

 

    

 

 

      

€180m senior notes due 2016

             

August 2016

   Accounting    180.0       £ 158.6       9.50%   10.18%
     

 

 

    

 

 

      
      180.0       £ 158.6        
     

 

 

    

 

 

      

Other

             

December 2012

   Economic    56.7       £ 40.3       3 month   3 month
            EURIBOR + 2.38%   LIBOR + 2.69%

December 2013

   Economic      43.3         30.8       3 month   3 month
            EURIBOR + 2.88%   LIBOR + 3.26%
     

 

 

    

 

 

      
      100.0       £ 71.1        
     

 

 

    

 

 

      

December 2012

   Economic    £ 38.8       56.7       3 month   3 month
            LIBOR + 2.40%   EURIBOR + 2.38%

December 2013

   Economic      29.7         43.3       3 month   3 month
            LIBOR + 2.90%   EURIBOR + 2.88%
     

 

 

    

 

 

      
      £ 68.5       100.0        
     

 

 

    

 

 

      

All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in November 2016 hedging the $1,000 million convertible senior notes due 2016.

 

17


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

On July 26, 2011 we settled the cross-currency interest rate swaps hedging the $550 million senior notes due 2016 and received cash of £65.5 million which approximated the fair value of these swaps as of June 30, 2011. The proceeds received upon settlement are classified as a financing activity in the condensed consolidated statement of cash flows.

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

As of September 30, 2011, we had outstanding 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.

The terms of our outstanding interest rate swap contracts at September 30, 2011 were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional
amount
     Weighted average
interest rate due from

counterparty
    Weighted average
interest rate due to
counterparty
 
          (in millions)               

Senior credit facility

          

July 2012 to December 2015

   Economic    £ 200.0         6 month LIBOR        2.91%   

July 2012 to December 2015

   Economic      200.0         6 month LIBOR        2.87%   

July 2012 to December 2015

   Economic      200.0         6 month LIBOR        2.79%   

£650m senior secured notes due 2021

          

January 2021

   Accounting    £ 650.0         5.50%        6 month LIBOR   
             +1.84%   

Other

          

March 2013

   Economic    £ 300.0         3 month LIBOR          3.28%   

October 2013

   Economic      300.0         1.86%        3 month LIBOR   

September 2012

   Economic      600.0         3 month LIBOR          3.09%   

September 2012

   Economic      600.0         1.07%        3 month LIBOR   

Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions

As of September 30, 2011, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at September 30, 2011 were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional
amount due
from
counterparty
     Notional
amount due  to
counterparty
     Weighted
average
exchange rate
 
          (in millions)      (in millions)         

Committed and forecasted purchases

           

October 2011 to December 2011

   Accounting    $ 6.3       £ 3.9         1.6245   

October 2011 to December 2011

   Economic    $ 28.7       £ 17.7         1.6251   

January 2012 to June 2012

   Economic    $ 72.0       £ 44.7         1.6099   

 

18


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow accounting hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. In our consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. Cash flows from derivative contracts that are not designated as accounting hedges are recognized as operating activities in the condensed consolidated statement of cash flows. If we discontinue hedge accounting for an instrument, subsequent cash flows are classified based on the nature of the instrument.

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the condensed consolidated statement of operations in the period in which they occur. During the three and nine months ended September 30, 2011, we recognized no gain or loss relating to ineffectiveness on our cash flow hedges.

The following table presents the effective amount of gain or (loss) recognized in other comprehensive income (loss) and amounts reclassified to earnings during the three and nine months ended September 30, 2011 (in millions):

 

     Total     Interest rate
swaps
    Cross-
currency
interest  rate

swaps
    Forward
foreign
exchange
contracts
    Tax Effect  

Balance at December 31, 2010

   £ (9.2   £ 8.0      £ 16.6      £ 0.1      £ (33.9

Amounts recognized in other comprehensive income (loss)

     (57.0     2.9        (60.3     0.4        0.0   

Amounts reclassified as a result of cash flow hedge discontinuance

     (7.8     (7.6     (23.5     0.0        23.3   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     45.4        0.0        45.4        0.0        0.0   

Interest expense

     1.3        0.0        1.3        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

   £ (27.3   £ 3.3      £ (20.5   £ 0.5      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in other comprehensive income (loss)

     (8.5     0.0        (8.3     (0.2     0.0   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     2.6        0.0        2.6        0.0        0.0   

Interest expense

     0.6        0.0        0.6        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   £ (32.6   £ 3.3      £ (25.6   £ 0.3      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in other comprehensive income (loss)

     41.5        0.0        41.6        (0.1     0.0   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     (40.4     0.0        (40.4     0.0        0.0   

Interest expense

     0.6        0.0        0.6        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ (30.9   £ 3.3      £ (23.8   £ 0.2      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

We reclassified gains of £31.1 million accumulated in other comprehensive income to gain (loss) on derivatives in the condensed consolidated statement of operations for the nine months ended September 30, 2011 because we discontinued hedge accounting for the cross-currency interest rate swaps associated with the $550 million 9.125% senior notes due 2016 and two of the interest rate swaps associated with the senior credit facility. As a result of the recognition of these gains in the condensed consolidated statement of operations, we reclassified tax expense of £23.3 million from other comprehensive income to income from continuing operations in the nine months ended September 30, 2011.

Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax losses that would be reclassified from other comprehensive income (loss) to earnings would be £0.0 million and £2.4 million relating to interest rate swaps and cross-currency interest rate swaps, respectively, and pre-tax gains of £0.2 million relating to forward foreign exchange contracts.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value accounting hedges, the gain or loss on the derivative is reported in earnings along with offsetting changes in the value of the hedged debt obligations due to changes in the hedged risks. In our condensed consolidated balance sheet, changes in the value of the hedged debt obligations due to changes in the hedged risks are included as adjustments to the carrying value of the debt. In our condensed consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the condensed consolidated statement of cash flows.

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the statement of operations in the period in which they occur. During the three and nine months ended September 30, 2011, we recognized ineffectiveness totaling £6.1 million and £7.9 million, respectively.

Note 7—Restructuring and Other Charges

The following tables summarize our historical restructuring accruals, which are comprised of historic restructuring accruals prior to 2006 and the restructuring accruals resulting from the acquisitions made by us during 2006, and the accruals for our restructuring plan announced in 2008 (in millions):

 

     Historical
Restructuring
Accruals
    2008
Restructuring Accruals
       

Three months ended September 30, 2011

   Lease
Exit Costs
    Involuntary
Employee
Termination
and Related
Costs
    Lease and
Contract
Exit Costs
    Total  

Balance at June 30, 2011

   £ 31.9      £ 1.4      £ 13.0      £ 46.3   

Charged to expense

     1.1        5.3        2.9        9.3   

Revisions

     (1.7     (1.4     0.0        (3.1

Utilized

     (11.7     (2.0     (1.2     (14.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ 19.6      £ 3.3      £ 14.7      £ 37.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 7—Restructuring and Other Charges (continued)

 

     Historical
Restructuring
Accruals
    2008
Restructuring Accruals
       

Nine months ended September 30, 2011

   Lease
Exit Costs
    Involuntary
Employee
Termination
and Related
Costs
    Lease and
Contract
Exit Costs
    Total  

Balance at December 31, 2010

   £ 35.8      £ 1.1      £ 20.7      £ 57.6   

Charged to expense

     1.8        9.6        4.1        15.5   

Revisions

     (3.9     (2.0     (1.9     (7.8

Utilized

     (14.1     (5.4     (8.2     (27.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ 19.6      £ 3.3      £ 14.7      £ 37.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

In connection with our 2008 restructuring program, in total we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million.

Note 8—Shareholders’ Equity and Share Based Compensation

During 2010, we announced our intention to undertake a range of capital structure optimization actions, including the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock until August 2011, and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. During the first quarter, we increased the 2010 capital structure optimization program to permit full redemption of the $550 million 9.125% senior notes due 2016, which occurred on July 26, 2011. See note 4 for a discussion of the conversion hedges related to our convertible senior notes, which were entered into as part of the 2010 capital structure optimization program.

On July 27, 2011, we announced a new capital structure optimization program which includes the application of, in aggregate, up to £850 million for purposes of repurchasing our common stock and debt and for effecting associated derivative transactions until December 31, 2012. Our new capital structure optimization program consists of the application of up to £625 million in repurchases of our common stock and up to £225 million for transactions relating to our debt and convertible debt, including related derivative transactions. Our capital structure optimization programs may be effected through open market, privately negotiated, and/or derivative transactions, and may be implemented through arrangements with one or more brokers. Any shares of common stock acquired in connection with these programs will be held in treasury or cancelled.

During the three months ended September 30, 2011, our open market repurchases under the 2011 capital structure optimization program comprised 5.1 million shares of common stock, at an average purchase price per share of $24.85 ($126.9 million in aggregate). The shares of common stock acquired in connection with the 2011 capital structure optimization program were cancelled.

During the nine months ended September 30, 2011, we repurchased 12.0 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $28.83 ($345.5 million in aggregate), through open market repurchases, and we repurchased 5.1 million shares of common stock in connection with the 2011 capital structure optimization program, at an average purchase price per share of $24.85 ($126.9 million in aggregate), through open market repurchases. The shares of common stock acquired in connection with both the 2010 and 2011 capital structure optimization programs were cancelled.

 

21


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 8—Shareholders’ Equity and Share Based Compensation (continued)

 

During the three months ended September 30, 2011, we entered into a capped Accelerated Stock Repurchase (ASR) to purchase $250.0 million (£156.6 million) of our common stock. We received approximately 9.1 million shares of common stock during the quarter and the stock so acquired was cancelled. The specific number of shares that we will ultimately repurchase in the ASR Program will be based generally on the daily volume-weighted average share price of our common stock over the duration of the ASR Program, subject to a provision that establishes a minimum number of repurchased shares. The final settlement of the repurchase contemplated by the ASR Program is to occur no later than December 8, 2011, although the completion date may be accelerated at the option of the counterparty or, under certain circumstances, extended. At settlement, under certain circumstances, we may be entitled to receive additional shares of our common stock from the counterparty, or, under certain limited circumstances, we may be required to deliver shares or make a cash payment (at its option) to the counterparty. As of September 30, 2011, based on the daily volume-weighted average price of our common stock since the effective date of the agreement, the counterparty would be required to deliver approximately 1.3 million shares to us.

The ASR agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. The fair value of the 9.1 million shares of common stock that were received during the quarter was recorded as a reduction to shareholders’ equity. The initial repurchase of shares resulted in an immediate reduction to the number of outstanding shares. The fair value of the forward stock purchase contract is reflected as a derivative asset in the condensed consolidated balance sheet as of September 30, 2011 as we concluded that it is not indexed solely to our own stock.

During the three and nine months ended September 30, 2010, we repurchased 9.3 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $20.78 ($194.0 million in aggregate), through open market repurchases. The shares of common stock acquired in connection with the 2010 capital structure optimization program were held in treasury as of September 30, 2010.

Total share based compensation expense included in selling, general and administrative expenses in the condensed consolidated statements of operations was £2.9 million and £6.2 million for the three months ended September 30, 2011 and 2010, respectively, and £17.2 million and £21.4 million for the nine months ended September 30, 2011 and 2010, respectively.

 

22


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 9—Income (Loss) Per Common Share

 

Basic net income (loss) per common share is computed by dividing the net income (loss) for the three and nine months ended September 30, 2011 and 2010 by the weighted average number of shares outstanding during the respective periods. Diluted net income per common share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method for options, sharesave options, shares of restricted stock held in escrow, restricted stock units and warrants, and the if-converted method for shares potentially issuable under our convertible senior notes.

Basic and diluted income from discontinued operations per share for the three and nine months ended September 30, 2010 was £0.04 and £0.08 respectively.

The weighted average number of shares outstanding for the three and nine months ended September 30, 2011 and 2010 is computed as follows (in millions):

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
     2011     2010     2011     2010  

Number of shares outstanding at start of period

     313.2        331.1        321.3        329.4   

Issue of common stock (average number outstanding during the period)

     1.3        0.2        3.3        1.2   

Purchase of treasury shares

     (4.1     (5.7     (9.1     (1.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding

     310.4        325.6        315.5        328.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth the components of basic and diluted income (loss) per common share (in millions):

 

     Three months  ended
September 30,
     Nine months ended
September 30,
 
     2011     2010      2011      2010  

Numerator for basic income (loss) per common share from continuing operations

   £ (73.8   £ 27.6       £ 28.9       £ (204.2

Interest on senior convertible notes, net of tax

     0.0        0.0         0.0         0.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Numerator for diluted income (loss) per common share from continuing operations

   £ (73.8   £ 27.6       £ 28.9       £ (204.2
  

 

 

   

 

 

    

 

 

    

 

 

 

Weighted average number of shares:

          

Denominator for basic income (loss) per common share

     310.4        325.6         315.5         328.7   

Effect of dilutive securities:

          

Share based awards to employees

     0.0        5.2         4.7         0.0   

Shares issuable under senior convertible notes

     0.0        0.0         0.0         0.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Denominator for diluted income (loss) per common share

     310.4        330.8         320.2         328.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

23


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 9—Income (Loss) Per Common Share (continued)

 

The following table sets forth the number of potential common shares excluded from the calculation of the denominator for diluted income (loss) per common shares (in millions):

 

     Three months  ended
September 30,
     Nine months  ended
September 30,
 
     2011      2010      2011      2010  

Stock options

     10.9         6.8         6.7         17.3   

Sharesave options

     0.8         0.0         0.3         1.4   

Restricted stock held in escrow

     0.6         0.7         0.6         0.7   

Restricted stock units

     3.6         5.2         3.6         5.2   

Warrants

     0.0         25.8         0.0         25.8   

Shares issuable under convertible senior notes

     52.0         52.0         52.0         52.0   

Each of these instruments are excluded from the calculation of diluted net income per common share in periods in which there is a loss, because the inclusion of potential common shares would have an anti-dilutive effect.

In the nine months ended September 30, 2011, certain share based awards to employees have been excluded from the calculation of the diluted weighted average number of shares because their exercise prices exceeded our average share price during the calculation period.

In the nine months ended September 30, 2011, certain restricted stock held in escrow and certain restricted stock units have been excluded from the calculation of the diluted weighted average number of shares because these shares are contingently issuable based on the achievement of performance and/or market conditions that have not been achieved as of September 30, 2011.

In the nine months ended September 30, 2011, the common shares issuable under our convertible notes have been excluded from the calculation of the diluted weighted average number of shares because the effect of their inclusion would be anti-dilutive based on the application of the if-converted method, which assumes that interest charges applicable to the convertible notes, net of the income tax effect, are added to income (loss) for the period and that the common shares issuable upon conversion of the convertible notes are added to the number of weighted average shares outstanding.

Stock Option Grants

All options granted under our stock incentive plans have a ten year term and vest and become fully exercisable within five years of continued employment. We have historically issued new shares upon exercise of the options. For performance-based option grants, the performance objectives are based upon quantitative and qualitative objectives, including earnings and stock price performance, amongst others. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.

Sharesave Option Grants

All options granted under the Virgin Media Inc. Sharesave Plan enable eligible employees to purchase shares of our common stock at a discount. Employees are invited to take out savings contracts that last for three years. At the end of the contract, employees use the proceeds of these savings to exercise the options granted under the plan. We intend to issue new shares upon exercise of the options.

 

24


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 9—Income (Loss) Per Common Share (continued)

 

Restricted Stock Grants

The shares of restricted stock granted under our stock incentive plans have a term of up to three and a half years and vest based on time or performance, subject to continued employment. For performance-based restricted stock grants, the performance objectives are based upon quantitative and qualitative objectives, including earnings, operational performance and achievement of strategic goals, amongst others, and vest after a one to three year period. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.

Restricted Stock Unit Grants

The restricted stock units granted under our stock incentive plans have a term of up to three and a half years and vest based on performance, subject to continued employment. These targets may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range. The final number of restricted stock units vesting will be settled in either common stock or an amount of cash equivalent to the fair market value at the date of vesting.

Convertible Senior Notes

Holders of our U.S. dollar denominated 6.50% convertible senior notes due 2016 may tender their notes for conversion at any time on or after August 15, 2016 through to the second scheduled trading date preceding the maturity date. Prior to August 15, 2016, holders may convert their notes, at their option, only under the following circumstances: (i) in any quarter, if the closing sale price of Virgin Media Inc.’s common stock during at least 20 of the last 30 trading days of the prior quarter was more than 120% of the applicable conversion price per share of common stock on the last day of such prior quarter; (ii) if, for five consecutive trading days, the trading price per $1,000 principal amount of notes was less than 98% of the product of the closing price of our common stock and the then applicable conversion rate; (iii) if a specified corporate event occurs, such as a merger, recapitalization, reclassification, binding share exchange or conveyance of all, or substantially all, of Virgin Media Inc.’s assets; (iv) the declaration by Virgin Media Inc. of the distribution of certain rights, warrants, assets or debt securities to all, or substantially all, holders of Virgin Media Inc.’s common stock; or (v) if Virgin Media Inc. undergoes a fundamental change (as defined in the indenture governing the convertible senior notes), such as a change in control, merger, consolidation, dissolution or delisting.

The initial conversion rate is equal to 52.0291 shares of Virgin Media Inc.’s common stock per $1,000 of convertible senior notes, which represents an initial conversion price of approximately $19.22 per share of common stock. The conversion rate is subject to adjustment for stock splits, stock dividends or distributions, the issuance of certain rights or warrants, certain cash dividends or distributions or stock repurchases where the price exceeds market values.

 

25


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 10—Comprehensive Income (Loss)

 

Comprehensive income (loss) comprises (in millions):

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
     2011     2010     2011     2010  

Net (loss) income for period

   £ (73.8   £ 41.8      £ 27.7      £ (178.5

Currency translation adjustment

     (11.2     (7.3     (11.8     3.3   

Net unrealized gains (losses) on derivatives, net of tax

     41.5        (62.0     (24.0     46.2   

Reclassification of derivative (gains) losses to net income, net of tax

     (39.8     69.2        2.3        (18.2

Pension liability adjustment, net of tax

     (0.5     0.0        (0.5     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 
   £ (83.8   £ 41.7      £ (6.3   £ (147.2
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of accumulated other comprehensive income, net of taxes, were as follows (in millions):

 

     September 30,
2011
    December 31,
2010
 

Foreign currency translation

   £ 150.8      £ 162.6   

Pension liability adjustment

     (67.4     (66.9

Net unrealized losses on derivatives

     (30.9     (9.2
  

 

 

   

 

 

 
   £ 52.5      £ 86.5   
  

 

 

   

 

 

 

Note 11—Contingent Liabilities

We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. In accordance with the Contingencies Topic of the FASB ASC, we recognize a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have adequate provisions for any such matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Additionally, when we believe it is at least reasonably possible that a liability has been incurred in excess of any recorded liabilities we provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us.

Our revenue generating activities are subject to Value Added Tax, or VAT. During the second quarter of 2011, we reached an agreement with the U.K. tax authorities regarding our VAT treatment of certain of these activities. The U.K. tax authorities provided us with a refund of £81.5 million, which was collected during the second quarter of 2011 and £77.6 million of which is included in interest income and other, net in the condensed consolidated statement of operations for the nine months ended September 30, 2011.

Our VAT treatment of certain other revenue generating activities remains subject to challenge by the U.K. tax authorities. As a result, we have estimated contingent losses totaling £26.2 million as of September 30, 2011 that are not accrued for, as we deem them to be reasonably possible, but not probable, of resulting in a liability. We currently expect an initial hearing on these matters to take place in 2012.

 

26


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 12—Industry Segments

 

Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is our chief operating decision maker (CODM), to evaluate segment performance, the availability of separate financial information and overall materiality considerations. We have two reporting segments, Consumer and Business, as described below.

Our Consumer segment is our primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on our cable network, the provision of broadband and fixed line telephone services to residential customers outside of our cable network, and the provision of mobile telephony and mobile broadband to residential customers.

Our Business segment comprises our operations carried out through Virgin Media Business which provides voice, data and internet solutions to businesses, public sector organizations and service providers in the U.K.

Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management’s measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by our Consumer and Business segments.

Segment information for the three and nine month periods ended September 30, 2011 and 2010 was as follows (in millions):

 

     Three months  ended
September 30, 2011
     Three months ended
September 30, 2010
 
     Consumer      Business      Total      Consumer      Business      Total  

Revenue

   £ 846.0       £ 154.0       £ 1,000.0       £ 826.2       £ 152.2       £ 978.4   

Segment contribution

   £ 493.5       £ 90.1       £ 583.6       £ 500.9       £ 89.1       £ 590.0   
     Nine months  ended
September 30, 2011
     Nine months  ended
September 30, 2010
 
     Consumer      Business      Total      Consumer      Business      Total  

Revenue

   £ 2,503.8       £ 464.3       £ 2,968.1       £ 2,427.2       £ 444.8       £ 2,872.0   

Segment contribution

   £ 1,473.0       £ 274.5       £ 1,747.5       £ 1,470.8       £ 252.8       £ 1,723.6   

 

27


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 12—Industry Segments (continued)

 

The reconciliation of total segment contribution to consolidated operating income and net income (loss) is as follows (in millions):

 

     Three months  ended
September 30,
    Nine months  ended
September 30,
 
     2011     2010     2011     2010  

Total segment contribution

   £ 583.6      £ 590.0      £ 1,747.5      £ 1,723.6   

Other operating and corporate costs

     185.3        202.7        581.0        617.0   

Restructuring and other charges

     6.2        4.5        7.7        11.4   

Depreciation

     235.6        244.4        694.6        733.4   

Amortization

     28.1        36.7        90.3        110.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated operating income

     128.4        101.7        373.9        250.9   

Other income (expense)

        

Interest expense

     (107.6     (118.2     (335.3     (359.1

Loss on extinguishment of debt

     (18.3     0.0        (47.2     (70.0

Share of income from equity investments

     3.6        6.7        18.6        21.4   

Loss on disposal of equity investments

     (8.0     0.0        (8.0     0.0   

Loss on derivative instruments

     (59.3     (24.7     (40.5     (52.9

Foreign currency (losses) gains

     (13.0     43.6        0.8        (33.9

Interest income and other, net

     0.5        0.8        83.8        4.7   

Income tax (expense) benefit

     (0.1     17.7        (17.2     34.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (73.8     27.6        28.9        (204.2

Income (loss) from discontinued operations, net of tax

     0.0        14.2        (1.2     25.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (73.8   £ 41.8      £ 27.7      £ (178.5
  

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes

 

We present the following condensed consolidating financial information as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 as required by Rule 3-10(d) of Regulation S-X.

Virgin Media Finance is the issuer of the following senior notes:

 

   

$1,350 million aggregate principal amount of 9.50% senior notes due 2016

 

   

€180 million aggregate principal amount of 9.50% senior notes due 2016

 

   

$600 million aggregate principal amount of 8.375% senior notes due 2019

 

   

£350 million aggregate principal amount of 8.875% senior notes due 2019

Virgin Media Inc. and certain of its subsidiaries, namely Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited, have guaranteed the senior notes on a senior basis. Each of Virgin Media Investment Holdings Limited, or VMIH, and Virgin Media Investments Limited, or VMIL, are conditional guarantors and have guaranteed the senior notes on a senior subordinated basis.

 

     September 30, 2011  

Balance sheets

   Company      Virgin
Media
Finance
    Other
guarantors
    VMIH      VMIL      All  other
subsidiaries
    Adjustments     Total  
     (in millions)  

Cash and cash equivalents

   £ 11.1       £ 1.9      £ 0.4      £ 0.3       £ 0.0       £ 424.6      £ 0.0      £ 438.3   

Restricted cash

     0.0         0.0        0.0        0.0         0.0         2.2        0.0        2.2   

Other current assets

     15.5         0.0        0.0        13.7         0.0         526.8        0.0        556.0   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     26.6         1.9        0.4        14.0         0.0         953.6        0.0        996.5   

Fixed assets, net

     0.0         0.0        0.0        0.0         0.0         4,612.6        0.0        4,612.6   

Goodwill and intangible assets, net

     0.0         0.0        (15.0     0.0         0.0         2,060.6        0.0        2,045.6   

Investments in, and loans to, parent and subsidiary companies

     1,202.1         288.9        (901.1     1,457.1         2,150.9         (3,008.7     (1,189.2     0.0   

Other assets, net

     164.3         0.0        0.0        205.3         0.0         109.1        0.0        478.7   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   £ 1,393.0       £ 290.8      £ (915.7   £ 1,676.4       £ 2,150.9       £ 4,727.2      £ (1,189.2   £ 8,133.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities

   £ 19.4       £ 42.7      £ 7.9      £ 135.7       £ 0.0       £ 2,167.9      £ (1,038.9   £ 1,334.7   

Long-term debt, net of current portion

     545.5         1,720.1        0.0        0.0         0.0         3,452.3        0.0        5,717.9   

Other long-term liabilities

     0.0         0.0        1.1        44.6         0.0         207.0        0.0        252.7   

Shareholders’ equity (deficit)

     828.1         (1,472.0     (924.7     1,496.1         2,150.9         (1,100.0     (150.3     828.1   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   £ 1,393.0       £ 290.8      £ (915.7   £ 1,676.4       £ 2,150.9       £ 4,727.2      £ (1,189.2   £ 8,133.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     December 31, 2010  

Balance sheets

   Company      Virgin
Media
Finance
    Other
guarantors
    VMIH      VMIL      All  other
subsidiaries
    Adjustments     Total  
     (in millions)  

Cash and cash equivalents

   £ 101.3       £ 1.8      £ 0.4      £ 4.5       £ 0.0       £ 371.5      £ 0.0      £ 479.5   

Restricted cash

     0.0         0.0        0.0        0.0         0.0         2.2        0.0        2.2   

Other current assets

     0.4         0.0        0.0        8.7         0.0         538.3        0.0        547.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     101.7         1.8        0.4        13.2         0.0         912.0        0.0        1,029.1   

Fixed assets, net

     0.0         0.0        0.0        0.0         0.0         4,763.1        0.0        4,763.1   

Goodwill and intangible assets, net

     0.0         0.0        (15.0     0.0         0.0         2,150.9        0.0        2,135.9   

Investments in, and loans to, parent and subsidiary companies

     1,506.5         586.0        (988.0     1,288.9         1,764.4         (3,790.6     (8.0     359.2   

Other assets, net

     201.1         0.0        0.0        275.8         0.0         69.0        0.0        545.9   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   £ 1,809.3       £ 587.8      £ (1,002.6   £ 1,577.9       £ 1,764.4       £ 4,104.4      £ (8.0   £ 8,833.2   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities

   £ 9.3       £ 64.2      £ 17.2      £ 127.1       £ 0.0       £ 2,091.2      £ (811.8   £ 1,497.2   

Long-term debt, net of current portion

     535.4         2,068.1        0.0        0.0         0.0         3,194.8        0.0        5,798.3   

Other long-term liabilities

     0.0         0.0        (0.1     42.5         0.0         230.7        0.0        273.1   

Shareholders’ equity (deficit)

     1,264.6         (1,544.5     (1,019.7     1,408.3         1,764.4         (1,412.3     803.8        1,264.6   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   £ 1,809.3       £ 587.8      £ (1,002.6   £ 1,577.9       £ 1,764.4       £ 4,104.4      £ (8.0   £ 8,833.2   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Three months ended September 30, 2011  

Statements of operations

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All other
subsidiaries
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 0.0      £ 0.0      £ 0.0       £ 1,000.0      £ 0.0      £ 1,000.0   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (401.7     0.0        (401.7

Selling, general and administrative expenses

     (1.2     0.0        0.0        0.0        0.0         (198.8     0.0        (200.0

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (6.2     0.0        (6.2

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (263.7     0.0        (263.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1.2     0.0        0.0        0.0        0.0         129.6        0.0        128.4   

Interest expense

     (15.6     (45.4     (7.6     (90.5     0.0         (263.4     314.9        (107.6

Loss on extinguishment of debt

     0.0        (15.5     0.0        18.1        0.0         (20.9     0.0        (18.3

Share of income from equity investments

     0.0        0.0        0.0        0.0        0.0         3.6        0.0        3.6   

Loss on disposal of equity investments

     0.0        0.0        0.0        0.0        0.0         (8.0     0.0        (8.0

Loss on derivative instruments

     (53.6     0.0        0.0        (3.9     0.0         (1.8     0.0        (59.3

Foreign currency (losses) gains

     0.0        1.9        (5.6     9.2        0.0         (18.5     0.0        (13.0

Interest income and other, net

     0.2        44.9        8.5        45.1        0.0         216.7        (314.9     0.5   

Income tax (expense) benefit

     0.0        0.0        (1.2     0.0        0.0         1.1        0.0        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (70.2     (14.1     (5.9     (22.0     0.0         38.4        0.0        (73.8

Equity in net (loss) income of subsidiaries

     (3.6     9.6        2.4        31.7        134.9         0.0        (175.0     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (73.8   £ (4.5   £ (3.5   £ 9.7      £ 134.9       £ 38.4      £ (175.0   £ (73.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Nine months ended September 30, 2011  

Statements of operations

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All other
subsidiaries
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 0.0      £ 0.0      £ 0.0       £ 2,968.1      £ 0.0      £ 2,968.1   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (1,202.7     0.0        (1,202.7

Selling, general and administrative expenses

     (9.4     0.0        0.0        0.0        0.0         (589.5     0.0        (598.9

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (7.7     0.0        (7.7

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (784.9     0.0        (784.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (9.4     0.0        0.0        0.0        0.0         383.3        0.0        373.9   

Interest expense

     (44.9     (142.4     (29.1     (288.1     0.0         (785.1     954.3        (335.3

Loss on extinguishment of debt

     0.0        (15.5     0.0        0.0        0.0         (31.7     0.0        (47.2

Share of income from equity investments

     0.0        0.0        0.0        0.0        0.0         18.6        0.0        18.6   

Loss on disposal of equity investments

     0.0        0.0        0.0        0.0        0.0         (8.0     0.0        (8.0

Loss on derivative instruments

     (38.8     0.0        0.0        0.0        0.0         (1.7     0.0        (40.5

Foreign currency gains (losses)

     (0.3     0.0        0.7        0.0        0.0         0.4        0.0        0.8   

Interest income and other, net

     3.6        142.5        32.1        129.6        0.0         730.3        (954.3     83.8   

Income tax (expense) benefit

     0.0        0.0        (1.2     (23.3     0.0         7.3        0.0        (17.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (89.8     (15.4     2.5        (181.8     0.0         313.4        0.0        28.9   

Loss on discontinued operations, net of tax

     0.0        0.0        0.0        0.0        0.0         (1.2     0.0        (1.2

Equity in net income of subsidiaries

     117.5        110.0        115.1        291.8        408.7         0.0        (1,043.1     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   £ 27.7      £ 94.6      £ 117.6      £ 110.0      £ 408.7       £ 312.2      £ (1,043.1   £ 27.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Three months ended September 30, 2010  

Statements of operations

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All other
subsidiaries
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 0.0      £ 0.0      £ 0.0       £ 978.4      £ 0.0      £ 978.4   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (395.6     0.0        (395.6

Selling, general and administrative expenses

     (5.7     0.0        0.0        0.0        0.0         (189.8     0.0        (195.5

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (4.5     0.0        (4.5

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (281.1     0.0        (281.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5.7     0.0        0.0        0.0        0.0         107.4        0.0        101.7   

Interest expense

     (15.2     (51.6     (25.2     (106.3     0.0         (249.2     329.3        (118.2

Share of income from equity investments

     0.0        0.0        0.0        0.0        0.0         6.7        0.0        6.7   

Loss on derivative instruments

     0.0        0.0        0.0        (24.7     0.0         0.0        0.0        (24.7

Foreign currency gains

     0.5        0.0        0.0        18.6        0.0         24.5        0.0        43.6   

Interest income and other, net

     9.1        51.3        26.4        37.2        0.0         206.1        (329.3     0.8   

Income tax benefit

     0.0        0.0        0.5        0.0        0.0         17.2        0.0        17.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (11.3     (0.3     1.7        (75.2     0.0         112.7        0.0        27.6   

Income on discontinued operations, net of tax

     0.0        0.0        0.0        0.0        0.0         14.2        0.0        14.2   

Equity in net income (loss) of subsidiaries

     53.1        45.2        51.8        120.0        119.3         0.0        (389.4     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   £ 41.8      £ 44.9      £ 53.5      £ 44.8      £ 119.3       £ 126.9      £ (389.4   £ 41.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Nine months ended September 30, 2010  

Statements of operations

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All other
subsidiaries
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 0.0      £ 0.0      £ 0.0       £ 2,872.0      £ 0.0      £ 2,872.0   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (1,166.5     0.0        (1,166.5

Selling, general and administrative expenses

     (15.7     0.0        0.0        0.0        0.0         (583.2     0.0        (598.9

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (11.4     0.0        (11.4

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (844.3     0.0        (844.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (15.7     0.0        0.0        0.0        0.0         266.6        0.0        250.9   

Interest expense

     (45.0     (166.3     (82.7     (321.7     0.0         (688.5     945.1        (359.1

Loss on extinguishment of debt

     0.0        0.0        0.0        (50.6     0.0         (19.4     0.0        (70.0

Share of income from equity investments

     0.0        0.0        0.0        0.0        0.0         21.4        0.0        21.4   

Loss on derivative instruments

     0.0        0.0        0.0        (50.9     0.0         (2.0     0.0        (52.9

Foreign currency (losses) gains

     1.1        (0.3     0.1        (19.1     0.0         (15.7     0.0        (33.9

Interest income and other, net

     30.4        164.3        85.6        102.3        0.0         567.2        (945.1     4.7   

Income tax benefit

     0.0        0.0        0.2        0.0        0.0         34.5        0.0        34.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (29.2     (2.3     3.2        (340.0     0.0         164.1        0.0        (204.2

Income on discontinued operations, net of tax

     0.0        0.0        0.0        0.0        0.0         25.7        0.0        25.7   

Equity in net (loss) income of subsidiaries

     (149.3     (167.9     (152.3     171.9        170.4         0.0        127.2        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (178.5   £ (170.2   £ (149.1   £ (168.1   £ 170.4       £ 189.8      £ 127.2      £ (178.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Nine months ended September 30, 2011  

Statements of cash flows

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All
other
subsidiaries
    Adjustments      Total  
     (in millions)  

Net cash provided by (used in) operating activities

   £ (20.2   £ (16.7   £ 0.3      £ 44.9      £ 0.0       £ 846.4      £ 0.0       £ 854.7   

Investing activities:

                  

Purchase of fixed and intangible assets

     0.0        0.0        0.0        0.0        0.0         (479.3     0.0         (479.3

Proceeds from sale of fixed assets

     0.0        0.0        0.0        0.0        0.0         1.5        0.0         1.5   

Principal repayments on loans to equity investments

     0.0        0.0        0.0        0.0        0.0         108.2        0.0         108.2   

Principal drawdowns (repayments) on loans to group companies

     388.7        357.2        0.1        (104.2     0.0         (641.8     0.0         0.0   

Acquisitions, net of cash

     0.0        0.0        0.0        0.0        0.0         (14.6     0.0         (14.6

Disposal of equity investments, net

     0.0        0.0        0.0        0.0        0.0         241.0        0.0         241.0   

Other

     0.0        0.0        0.0        0.0        0.0         2.5        0.0         2.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     388.7        357.2        0.1        (104.2     0.0         (782.5     0.0         (140.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Financing activities:

                  

New borrowings, net of financing fees

     0.0        0.0        0.0        (10.4     0.0         987.6        0.0         977.2   

Common stock repurchases

     (447.0     0.0        0.0        0.0        0.0         0.0        0.0         (447.0

Proceeds from employee stock option exercises

     14.4        0.0        0.0        0.0        0.0         0.0        0.0         14.4   

Principal payments on long term debt and capital leases

     0.0        (340.4     0.0        0.0        0.0         (988.0     0.0         (1,328.4

Proceeds from settlement of cross currency swaps

     0.0        0.0        0.0        65.5        0.0         0.0        0.0         65.5   

Dividends paid

     (23.7     0.0        0.0        0.0        0.0         0.0        0.0         (23.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (456.3     (340.4     0.0        55.1        0.0         (0.4     0.0         (742.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow from discontinued operations:

                  

Net cash used in operating activities

     0.0        0.0        0.0        0.0        0.0         (10.4     0.0         (10.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash used in discontinued operations

     0.0        0.0        0.0        0.0        0.0         (10.4     0.0         (10.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     (2.4     0.0        (0.4     0.0        0.0         0.0        0.0         (2.8

(Decrease) increase in cash and cash equivalents

     (90.2     0.1        0.0        (4.2     0.0         53.1        0.0         (41.2

Cash and cash equivalents at beginning of period

     101.3        1.8        0.4        4.5        0.0         371.5        0.0         479.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   £ 11.1      £ 1.9      £ 0.4      £ 0.3      £ 0.0       £ 424.6      £ 0.0       £ 438.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

35


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 13—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Nine months ended September 30, 2010  

Statements of cash flows

   Company     Virgin
Media
Finance
    Other
guarantors
    VMIH     VMIL      All
other
subsidiaries
    Adjustments      Total  
     (in millions)  

Net cash provided by (used in) operating activities

   £ (5.3   £ 4.6      £ 5.8      £ 181.4      £ 0.0       £ 585.8      £ 0.0       £ 772.3   

Investing activities:

                  

Purchase of fixed and intangible assets

     0.0        0.0        0.0        0.0        0.0         (478.0     0.0         (478.0

Proceeds from sale of fixed assets

     0.0        0.0        0.0        0.0        0.0         35.8        0.0         35.8   

Principal repayments on loans to equity investments

     0.0        0.0        0.0        0.0        0.0         15.0        0.0         15.0   

Principal drawdowns (repayments) on loans to group companies

     150.8        174.5        (5.8     1,797.4        0.0         (2,116.9     0.0         0.0   

Disposal of businesses, net

     0.0        0.0        0.0        0.0        0.0         160.0        0.0         160.0   

Other

     0.0        0.0        0.0        0.0        0.0         2.3        0.0         2.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     150.8        174.5        (5.8     1,797.4        0.0         (2,381.8     0.0         (264.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Financing activities:

                  

New borrowings, net of financing fees

     0.0        0.0        0.0        (70.9     0.0         3,143.0        0.0         3,072.1   

Common stock repurchases

     (122.5     0.0        0.0        0.0        0.0         0.0        0.0         (122.5

Proceeds from employee stock option exercises

     9.9        0.0        0.0        0.0        0.0         0.0        0.0         9.9   

Principal payments on long term debt and capital leases

     0.0        (179.1     0.0        (1,727.0     0.0         (1,319.8     0.0         (3,225.9

Intercompany funding movements

     3.0        0.0        0.0        (15.9     0.0         12.9        0.0         0.0   

Dividends paid

     (26.0     0.0        0.0        0.0        0.0         0.0        0.0         (26.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (135.6     (179.1     0.0        (1,813.8     0.0         1,836.1        0.0         (292.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash flow from discontinued operations:

                  

Net cash used in operating activities

     0.0        0.0        0.0        0.0        0.0         (37.9     0.0         (37.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash used in discontinued operations

     0.0        0.0        0.0        0.0        0.0         (37.9     0.0         (37.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     2.2        0.0        0.0        0.0        0.0         0.0        0.0         2.2   

Increase in cash and cash equivalents

     12.1        0.0        0.0        165.0        0.0         2.2        0.0         179.3   

Cash and cash equivalents at beginning of period

     12.4        1.9        0.3        292.9        0.0         123.0        0.0         430.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash and cash equivalent sat end of period

   £ 24.5      £ 1.9      £ 0.3      £ 457.9      £ 0.0       £ 125.2      £ 0.0       £ 609.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

36


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes

 

We present the following condensed consolidating financial information as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 as required by Rule 3-10(d) of Regulation S-X. Virgin Media Secured Finance PLC is the issuer of the following senior secured notes:

 

   

£875 million aggregate principal amount of 7.00% senior notes due 2018

 

   

$1,000 million aggregate principal amount of 6.50% senior notes due 2018

 

   

£650 million aggregate principal amount of 5.50% senior notes due 2021

 

   

$500 million aggregate principal amount of 5.25% senior notes due 2021

 

     September 30, 2011  

Balance sheets

   Company      Virgin Media
Secured
Finance
    Guarantors     Non-
Guarantors
     Adjustments     Total  
     (in millions)  

Cash and cash equivalents

   £ 11.1       £ 0.0      £ 63.1      £ 364.1       £ 0.0      £ 438.3   

Restricted cash

     0.0         0.0        1.3        0.9         0.0        2.2   

Other current assets

     15.5         0.0        518.4        22.1         0.0        556.0   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     26.6         0.0        582.8        387.1         0.0        996.5   

Fixed assets, net

     0.0         0.0        3,985.0        627.6         0.0        4,612.6   

Goodwill and intangible assets, net

     0.0         0.0        1,895.2        150.4         0.0        2,045.6   

Investments in, and loans to, parent and subsidiary companies

     1,202.1         2,558.0        (1,241.6     1,062.1         (3,580.6     0.0   

Other assets, net

     164.3         29.6        284.0        0.8         0.0        478.7   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   £ 1,393.0       £ 2,587.6      £ 5,505.4      £ 2,228.0       £ (3,580.6   £ 8,133.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   £ 19.4       £ 41.5      £ 1,608.6      £ 704.1       £ (1,038.9   £ 1,334.7   

Long term debt, net of current portion

     545.5         2,550.1        2,622.3        0.0         0.0        5,717.9   

Other long term liabilities

     0.0         0.0        175.7        77.0         0.0        252.7   

Shareholders’ equity (deficit)

     828.1         (4.0     1,098.8        1,446.9         (2,541.7     828.1   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 1,393.0       £ 2,587.6      £ 5,505.4      £ 2,228.0       £ (3,580.6   £ 8,133.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

37


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     December 31, 2010  

Balance sheets

   Company      Virgin Media
Secured
Finance
     Guarantors     Non-
Guarantors
     Adjustments     Total  
     (in millions)  

Cash and cash equivalents

   £ 101.3       £ 0.0       £ 356.9      £ 21.3       £ 0.0      £ 479.5   

Restricted cash

     0.0         0.0         1.3        0.9         0.0        2.2   

Other current assets

     0.4         0.0         524.7        22.3         0.0        547.4   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     101.7         0.0         882.9        44.5         0.0        1,029.1   

Fixed assets, net

     0.0         0.0         4,070.8        692.3         0.0        4,763.1   

Goodwill and intangible assets, net

     0.0         0.0         1,978.9        157.0         0.0        2,135.9   

Investments in, and loans to, parent and subsidiary companies

     1,506.5         1,501.1         (646.9     1,228.4         (3,229.9     359.2   

Other assets, net

     201.1         0.0         343.3        1.5         0.0        545.9   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   £ 1,809.3       £ 1,501.1       £ 6,629.0      £ 2,123.7       £ (3,229.9   £ 8,833.2   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   £ 9.3       £ 4.6       £ 1,667.0      £ 628.0       £ (811.7   £ 1,497.2   

Long term debt, net of current portion

     535.4         1,495.4         3,767.5        0.0         0.0        5,798.3   

Other long term liabilities

     0.0         0.0         188.9        84.2         0.0        273.1   

Shareholders’ equity

     1,264.6         1.1         1,005.6        1,411.5         (2,418.2     1,264.6   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 1,809.3       £ 1,501.1       £ 6,629.0      £ 2,123.7       £ (3,229.9   £ 8,833.2   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

38


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Three months ended September 30, 2011  

Statements of operations

   Company     Virgin Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 889.6      £ 110.4      £ 0.0      £ 1,000.0   

Operating costs

     0.0        0.0        (336.6     (65.1     0.0        (401.7

Selling, general and administrative expenses

     (1.2     0.0        (170.1     (28.7     0.0        (200.0

Restructuring and other charges

     0.0        0.0        (5.8     (0.4     0.0        (6.2

Depreciation and amortization

     0.0        0.0        (205.0     (58.7     0.0        (263.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1.2     0.0        172.1        (42.5     0.0        128.4   

Interest expense

     (15.6     (40.3     (258.8     (107.7     314.8        (107.6

Loss on extinguishment of debt

     0.0        0.0        (18.3     0.0        0.0        (18.3

Share of income from equity investments

     0.0        0.0        0.0        3.6        0.0        3.6   

Loss on disposal of equity investments

     0.0        0.0        0.0        (8.0     0.0        (8.0

(Loss) gain on derivative instruments

     (53.6     0.0        (5.7     0.0        0.0        (59.3

Foreign currency (losses) gains

     0.0        0.0        20.9        (33.9     0.0        (13.0

Interest and other income, net

     0.2        39.4        164.5        111.2        (314.8     0.5   

Income tax (expense) benefit

     0.0        0.0        1.1        (1.2     0.0        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (70.2     (0.9     75.8        (78.5     0.0        (73.8

Equity in net (loss) income of subsidiaries

     (3.6     0.0        (99.1     74.9        27.8        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (73.8   £ (0.9   £ (23.3   £ (3.6     27.8      £ (73.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Nine months ended September 30, 2011  

Statements of operations

   Company     Virgin  Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 2,627.5      £ 340.6      £ 0.0      £ 2,968.1   

Operating costs

     0.0        0.0        (1,004.6     (198.1     0.0        (1,202.7

Selling, general and administrative expenses

     (9.4     0.0        (510.8     (78.7     0.0        (598.9

Restructuring and other charges

     0.0        0.0        (7.2     (0.5     0.0        (7.7

Depreciation and amortization

     0.0        0.0        (693.3     (91.6     0.0        (784.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (9.4     0.0        411.6        (28.3     0.0        373.9   

Interest expense

     (44.9     (114.5     (793.6     (336.5     954.2        (335.3

Loss on extinguishment of debt

     0.0        0.0        (47.2     0.0        0.0        (47.2

Share of income from equity investments

     0.0        0.0        0.0        18.6        0.0        18.6   

(Loss) gain on disposal of equity investments

     0.0        0.0        0.0        (8.0     0.0        (8.0

Gains on derivative instruments

     (38.8     0.0        (1.7     0.0        0.0        (40.5

Foreign currency gains (losses)

     (0.3     0.0        2.5        (1.4     0.0        0.8   

Interest and other income, net

     3.6        109.4        592.9        332.1        (954.2     83.8   

Income tax (expense) benefit

     0.0        0.0        (18.8     1.6        0.0        (17.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (89.8     (5.1     145.7        (21.9     0.0        28.9   

Loss on discontinued operations, net of tax

     0.0        0.0        0.0        (1.2     0.0        (1.2

Equity in net income (loss) of subsidiaries

     117.5        0.0        (30.3     140.6        (227.8     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 27.7      £ (5.1   £ 115.4      £ 117.5      £ (227.8   £ 27.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

40


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Three months ended September 30, 2010  

Statements of operations

   Company     Virgin Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 891.3      £ 87.1      £ 0.0      £ 978.4   

Operating costs

     0.0        0.0        (348.6     (47.0     0.0        (395.6

Selling, general and administrative expenses

     (5.7     0.0        (164.7     (25.1     0.0        (195.5

Restructuring and other charges

     0.0        0.0        (4.2     (0.3     0.0        (4.5

Depreciation and amortization

     0.0        0.0        (249.8     (31.3     0.0        (281.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5.7     0.0        124.0        (16.6     0.0        101.7   

Interest expense

     (15.2     (26.3     (262.0     (143.4     328.7        (118.2

Share of income from equity investments

     0.0        0.0        0.0        6.7        0.0        6.7   

Losses on derivative instruments

     0.0        0.0        (24.7     0.0        0.0        (24.7

Foreign currency gains

     0.5        0.0        14.7        28.4        0.0        43.6   

Interest and other income, net

     9.1        26.6        166.1        127.7        (328.7     0.8   

Income tax benefit

     0.0        0.0        15.7        2.0        0.0        17.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (11.3     0.3        33.8        4.8        0.0        27.6   

Income on discontinued operations, net of tax

     0.0        0.0        0.0        14.2        0.0        14.2   

Equity in net income (loss) of subsidiaries

     53.1        0.0        8.4        34.1        (95.6     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 41.8      £ 0.3      £ 42.2      £ 53.1      £ (95.6   £ 41.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

41


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Nine months ended September 30, 2010  

Statements of operations

   Company     Virgin  Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments     Total  
     (in millions)  

Revenue

   £ 0.0      £ 0.0      £ 2,573.3      £ 298.7      £ 0.0      £ 2,872.0   

Operating costs

     0.0        0.0        (985.6     (180.9     0.0        (1,166.5

Selling, general and administrative expenses

     (15.7     0.0        (509.6     (73.6     0.0        (598.9

Restructuring and other charges

     0.0        0.0        (10.7     (0.7     0.0        (11.4

Depreciation and amortization

     0.0        0.0        (750.5     (93.8     0.0        (844.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (15.7     0.0        316.9        (50.3     0.0        250.9   

Interest expense

     (45.0     (73.8     (772.3     (413.1     945.1        (359.1

Loss on extinguishment of debt

     0.0        0.0        (70.0     0.0        0.0        (70.0

Share of income from equity investments

     0.0        0.0        0.0        21.4        0.0        21.4   

Losses on derivative instruments

     0.0        0.0        (52.9     0.0        0.0        (52.9

Foreign currency (losses) gains

     1.1        0.0        (20.4     (14.6     0.0        (33.9

Interest and other income, net

     30.4        74.7        472.6        372.1        (945.1     4.7   

Income tax benefit

     0.0        0.0        34.1        0.6        0.0        34.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (29.2     0.9        (92.0     (83.9     0.0        (204.2

Income on discontinued operations, net of tax

     0.0        0.0        0.0        25.7        0.0        25.7   

Equity in net (loss) income of subsidiaries

     (149.3     0.0        (53.9     (91.1     294.3        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   £ (178.5   £ 0.9      £ (145.9   £ (149.3   £ 294.3      £ (178.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Nine months ended September 30, 2011  

Statements of cash flows

   Company     Virgin Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments      Total  
     (in millions)  

Net cash provided by (used in) operating activities

   £ (20.2   £ (11.5   £ 738.2      £ 148.2      £ 0.0       £ 854.7   

Investing activities:

             

Purchase of fixed and intangible assets

     0.0        0.0        (454.0     (25.3     0.0         (479.3

Proceeds from sale of fixed assets

     0.0        0.0        1.5        0.0        0.0         1.5   

Principal repayments on loans to equity investments

     0.0        0.0        0.0        108.2        0.0         108.2   

Principal drawdowns (repayments) on loans to group companies

     388.7        (929.7     647.4        (106.4     0.0         0.0   

Acquisitions, net of cash

     0.0        0.0        0.0        (14.6     0.0         (14.6

Disposal of equity investments, net

     0.0        0.0        0.0        241.0        0.0         241.0   

Other

     0.0        0.0        0.0        2.5        0.0         2.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     388.7        (929.7     194.9        205.4        0.0         (140.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

             

New borrowings, net of financing fees

     0.0        941.2        36.0        0.0        0.0         977.2   

Common stock repurchases

     (447.0     0.0        0.0        0.0        0.0         (447.0

Proceeds from employee stock option exercises

     14.4        0.0        0.0        0.0        0.0         14.4   

Principal payments on long term debt and capital leases

     0.0        0.0        (1,328.4     0.0        0.0         (1,328.4

Proceeds from settlement of cross currency swaps

     0.0        0.0        65.5        0.0        0.0         65.5   

Dividends paid

     (23.7     0.0        0.0        0.0        0.0         (23.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (456.3     941.2        (1,226.9     0.0        0.0         (742.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flow from discontinued operations:

             

Net cash used in operating activities

     0.0        0.0        0.0        (10.4     0.0         (10.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in discontinued operations

     0.0        0.0        0.0        (10.4     0.0         (10.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     (2.4     0.0        0.0        (0.4     0.0         (2.8

(Decrease) increase in cash and cash equivalents

     (90.2     0.0        (293.8     342.8        0.0         (41.2

Cash and cash equivalents at beginning of period

     101.3        0.0        356.9        21.3        0.0         479.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   £ 11.1      £ 0.0      £ 63.1      £ 364.1      £ 0.0       £ 438.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

43


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Nine months ended September 30, 2010  

Statements of cash flows

   Company     Virgin Media
Secured
Finance
    Guarantors     Non-
Guarantors
    Adjustments      Total  
     (in millions)  

Net cash provided by (used in) operating activities

   £ (5.3   £ 0.0      £ 751.7      £ 25.9      £ 0.0       £ 772.3   

Investing activities:

             

Purchase of fixed and intangible assets

     0.0        0.0        (453.4     (24.6     0.0         (478.0

Proceeds from sale of fixed assets

     0.0        0.0        14.4        21.4        0.0         35.8   

Principal repayments on loans to equity investments

     0.0        0.0        0.0        15.0        0.0         15.0   

Principal drawdowns (repayments) on loans to group companies

     150.8        (1,468.0     1,246.7        70.5        0.0         0.0   

Disposal of businesses, net

     0.0        0.0        0.0        160.0        0.0         160.0   

Other

     0.0        0.0        0.7        1.6        0.0         2.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     150.8        (1,468.0     808.4        243.9        0.0         (264.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

             

New borrowings, net of financing fees

     0.0        1,468.0        1,604.1        0.0        0.0         3,072.1   

Common stock repurchases

     (122.5     0.0        0.0        0.0        0.0         (122.5

Proceeds from employee stock option exercises

     9.9        0.0        0.0        0.0        0.0         9.9   

Principal payments on long term debt and capital leases

     0.0        0.0        (2,984.1     (241.8     0.0         (3,225.9

Intercompany funding movements

     3.0        0.0        0.0        (3.0     0.0         0.0   

Dividends paid

     (26.0     0.0        0.0        0.0        0.0         (26.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (135.6     1,468.0        (1,380.0     (244.8     0.0         (292.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash flow from discontinued operations:

             

Net cash used in operating activities

     0.0        0.0        0.0        (37.9     0.0         (37.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash used in discontinued operations

     0.0        0.0        0.0        (37.9     0.0         (37.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     2.2        0.0        0.0        0.0        0.0         2.2   

Increase (decrease) in cash and cash equivalents

     12.1        0.0        180.1        (12.9     0.0         179.3   

Cash and cash equivalents at beginning of period

     12.4        0.0        387.4        30.7        0.0         430.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   £ 24.5      £ 0.0      £ 567.5      £ 17.8      £ 0.0       £ 609.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

44


Table of Contents

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   £ 424.9      £ 376.0   

Restricted cash

     2.2        2.2   

Accounts receivable - trade, less allowances for doubtful accounts of £9.9 (2011) and £6.4 (2010)

     428.4        431.2   

Inventory for resale

     20.1        26.4   

Derivative financial instruments

     3.2        0.8   

Prepaid expenses and other current assets

     88.7        88.6   
  

 

 

   

 

 

 

Total current assets

     967.5        925.2   

Fixed assets, net

     4,508.6        4,651.0   

Goodwill and other indefinite-lived assets

     2,026.6        2,026.6   

Intangible assets, net

     28.1        118.4   

Equity investments

     0.0        359.2   

Derivative financial instruments

     191.7        202.7   

Deferred financing costs, net of accumulated amortization of £34.9 (2011) and £19.6 (2010)

     71.0        89.4   

Other assets

     51.7        52.7   

Due from group companies

     983.3        751.1   
  

 

 

   

 

 

 

Total assets

   £ 8,828.5      £ 9,176.3   
  

 

 

   

 

 

 

Liabilities and shareholder’s equity

    

Current liabilities

    

Accounts payable

   £ 296.1      £ 296.1   

Accrued expenses and other current liabilities

     356.9        376.3   

Derivative financial instruments

     24.4        13.3   

Restructuring liabilities

     36.7        56.4   

VAT and employee taxes payable

     72.8        83.6   

Interest payable

     57.9        59.1   

Interest payable to group companies

     136.5        147.2   

Deferred revenue

     313.8        300.1   

Current portion of long term debt

     175.6        222.1   
  

 

 

   

 

 

 

Total current liabilities

     1,470.7        1,554.2   

Long term debt, net of current portion

     3,452.4        3,195.0   

Long term debt due to group companies, net of current portion

     2,158.7        2,746.4   

Derivative financial instruments

     63.9        62.0   

Deferred revenue and other long term liabilities

     186.7        207.2   

Deferred income taxes

     0.0        3.2   
  

 

 

   

 

 

 

Total liabilities

     7,332.4        7,768.0   
  

 

 

   

 

 

 

Commitments and contingent liabilities

    

Shareholder’s equity

    

Common stock - £0.001 par value; authorized 1,000,000 ordinary shares (2011 and 2010); issued and outstanding 224,552 ordinary shares (2011 and 2010)

     0.0        0.0   

Additional paid-in capital

     4,371.3        4,371.3   

Accumulated other comprehensive loss

     (98.4     (76.2

Accumulated deficit

     (2,776.8     (2,886.8
  

 

 

   

 

 

 

Total shareholder’s equity

     1,496.1        1,408.3   
  

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   £ 8,828.5      £ 9,176.3   
  

 

 

   

 

 

 

See accompanying notes

 

45


Table of Contents

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited) (in millions)

 

     Three months  ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Revenue

   £ 974.4      £ 952.8      £ 2,891.8      £ 2,796.0   

Costs and expenses

        

Operating costs (exclusive of depreciation shown separately below)

     392.5        386.3        1,174.8        1,136.6   

Selling, general and administrative expenses

     192.4        183.1        570.1        563.6   

Restructuring and other charges

     6.1        4.5        7.5        11.1   

Depreciation

     230.0        238.7        678.0        716.6   

Amortization

     28.1        36.7        90.3        110.9   
  

 

 

   

 

 

   

 

 

   

 

 

 
     849.1        849.3        2,520.7        2,538.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     125.3        103.5        371.1        257.2   

Other income (expense)

        

Interest expense

     (49.6     (54.9     (155.0     (160.0

Interest expense to group companies

     (47.9     (63.4     (157.0     (200.4

Loss on extinguishment of debt

     (2.8     0.0        (31.7     (70.0

Share of income from equity investments

     3.6        6.7        18.6        21.4   

Loss on disposal of equity investments

     (8.0     0.0        (8.0     0.0   

Loss on derivative instruments

     (5.7     (24.7     (1.7     (52.9

Foreign currency (losses) gains

     (9.2     43.1        0.4        (34.8

Interest income and other, net

     0.5        0.8        83.8        4.7   

Interest income from group companies

     2.3        2.2        6.7        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     8.5        13.3        127.2        (228.4

Income tax benefit (expense)

     1.1        17.3        (16.0     34.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     9.6        30.6        111.2        (193.8

Discontinued operations

        

Gain on disposal, net of tax

     0.0        14.4        0.0        14.4   

(Loss) income from discontinued operations, net of tax

     0.0        (0.2     (1.2     11.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

     0.0        14.2        (1.2     25.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 9.6      £ 44.8      £ 110.0      £ (168.1
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

46


Table of Contents

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 

     Nine months ended
September 30,
 
     2011     2010  

Operating activities:

    

Net income (loss)

   £ 110.0      £ (168.1

Loss (income) from discontinued operations

     1.2        (25.7
  

 

 

   

 

 

 

Income (loss) from continuing operations

     111.2        (193.8

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

    

Depreciation and amortization

     768.3        827.5   

Non-cash interest

     13.0        53.6   

Non-cash compensation

     15.9        18.4   

Loss on extinguishment of debt, net of prepayment premiums

     31.7        70.1   

Income from equity accounted investments, net of dividends received

     (0.6     (6.8

Unrealized (gains) losses on derivative instruments

     (4.7     124.5   

Foreign currency losses (gains)

     1.2        (85.7

Loss on disposal of equity investments

     8.0        0.0   

Income taxes

     20.6        (13.3

Other

     5.3        0.3   

Changes in operating assets and liabilities, net of effect from business disposals:

     (69.2     0.3   
  

 

 

   

 

 

 

Net cash provided by operating activities

     900.7        795.1   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of fixed and intangible assets

     (471.2     (470.3

Proceeds from sale of fixed assets

     1.4        35.8   

Principal repayments on loans to equity investments

     108.2        15.0   

Investments and loans from parent and subsidiary companies

     (763.2     (358.1

Acquisitions, net of cash acquired

     (14.6     0.0   

Disposal of equity investments, net

     241.0        0.0   

Disposal of businesses, net

     0.0        160.0   

Other

     2.5        2.3   
  

 

 

   

 

 

 

Net cash used in investing activities

     (895.9     (615.3
  

 

 

   

 

 

 

Financing activities:

    

New borrowings, net of financing fees

     977.2        3,072.1   

Principal payments on long term debt and capital leases

     (988.2     (3,046.7

Proceeds from settlement of cross currency interest rate swaps

     65.5        0.0   
  

 

 

   

 

 

 

Net cash provided by financing activities

     54.5        25.4   
  

 

 

   

 

 

 

Cash flow from discontinued operations:

    

Net cash used in operating activities

     (10.4     (37.9
  

 

 

   

 

 

 

Net cash used in discontinued operations

     (10.4     (37.9
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     48.9        167.3   

Cash and cash equivalents, beginning of period

     376.0        415.9   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   £ 424.9      £ 583.2   
  

 

 

   

 

 

 

See accompanying notes

 

47


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VIRGIN MEDIA INVESTMENTS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

 

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   £ 424.9      £ 376.0   

Restricted cash

     2.2        2.2   

Accounts receivable - trade, less allowances for doubtful accounts of £9.9 (2011) and £6.4 (2010)

     428.4        431.2   

Inventory for resale

     20.1        26.4   

Derivative financial instruments

     3.2        0.8   

Prepaid expenses and other current assets

     88.7        88.6   
  

 

 

   

 

 

 

Total current assets

     967.5        925.2   

Fixed assets, net

     4,508.6        4,651.0   

Goodwill and other indefinite-lived assets

     2,026.6        2,026.6   

Intangible assets, net

     28.1        118.4   

Equity investments

     0.0        359.2   

Derivative financial instruments

     191.7        202.7   

Deferred financing costs, net of accumulated amortization of £34.9 (2011) and £19.6 (2010)

     71.0        89.4   

Other assets

     51.7        52.7   

Due from group companies

     983.3        751.1   
  

 

 

   

 

 

 

Total assets

   £ 8,828.5      £ 9,176.3   
  

 

 

   

 

 

 

Liabilities and shareholder’s equity

    

Current liabilities

    

Accounts payable

   £ 296.1      £ 296.1   

Accrued expenses and other current liabilities

     356.9        376.3   

Derivative financial instruments

     24.4        13.3   

Restructuring liabilities

     36.7        56.4   

VAT and employee taxes payable

     72.8        83.6   

Interest payable

     8.3        18.0   

Interest payable to group companies

     186.1        188.3   

Deferred revenue

     313.8        300.1   

Current portion of long term debt

     175.6        222.1   
  

 

 

   

 

 

 

Total current liabilities

     1,470.7        1,554.2   

Long term debt, net of current portion

     233.8        353.7   

Long term debt due to group companies, net of current portion

     5,377.3        5,587.7   

Derivative financial instruments

     63.9        62.0   

Deferred revenue and other long term liabilities

     186.7        207.2   

Deferred income taxes

     0.0        3.2   
  

 

 

   

 

 

 

Total liabilities

     7,332.4        7,768.0   
  

 

 

   

 

 

 

Commitments and contingent liabilities

    

Shareholder’s equity

    

Common stock - £1.0 par value; issued and outstanding 2.5 (2011 and 2010) ordinary shares

     2.5        2.5   

Additional paid-in capital

     4,368.8        4,368.8   

Accumulated other comprehensive loss

     (98.4     (76.2

Accumulated deficit

     (2,776.8     (2,886.8
  

 

 

   

 

 

 

Total shareholder’s equity

     1,496.1        1,408.3   
  

 

 

   

 

 

 

Total liabilities and shareholder’s equity

   £ 8,828.5      £ 9,176.3   
  

 

 

   

 

 

 

See accompanying notes

 

48


Table of Contents

VIRGIN MEDIA INVESTMENTS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited) (in millions)

 

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Revenue

   £ 974.4      £ 952.8      £ 2,891.8      £ 2,796.0   

Costs and expenses

        

Operating costs (exclusive of depreciation shown separately below)

     392.5        386.3        1,174.8        1,136.6   

Selling, general and administrative expenses

     192.4        183.1        570.1        563.6   

Restructuring and other charges

     6.1        4.5        7.5        11.1   

Depreciation

     230.0        238.7        678.0        716.6   

Amortization

     28.1        36.7        90.3        110.9   
  

 

 

   

 

 

   

 

 

   

 

 

 
     849.1        849.3        2,520.7        2,538.8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     125.3        103.5        371.1        257.2   

Other income (expense)

        

Interest expense

     (5.1     (6.1     (14.6     (20.9

Interest expense to group companies

     (92.4     (112.2     (297.4     (339.5

Loss on extinguishment of debt

     (2.8     0.0        (31.7     (70.0

Share of income from equity investments

     3.6        6.7        18.6        21.4   

Loss on disposal of equity investments

     (8.0     0.0        (8.0     0.0   

Loss on derivative instruments

     (5.7     (24.7     (1.7     (52.9

Foreign currency (losses) gains

     (9.2     43.1        0.4        (34.8

Interest income and other, net

     0.5        0.8        83.8        4.7   

Interest income from group companies

     2.3        2.2        6.7        6.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     8.5        13.3        127.2        (228.4

Income tax benefit (expense)

     1.1        17.3        (16.0     34.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     9.6        30.6        111.2        (193.8

Discontinued operations

        

Gain on disposal, net of tax

     0.0        14.4        0.0        14.4   

(Loss) income from discontinued operations, net of tax

     0.0        (0.2     (1.2     11.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

     0.0        14.2        (1.2     25.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 9.6      £ 44.8      £ 110.0      £ (168.1
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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VIRGIN MEDIA INVESTMENTS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(unaudited) (in millions)

 

 

     Nine months ended
September 30,
 
     2011     2010  

Operating activities:

    

Net income (loss)

   £ 110.0      £ (168.1

Loss (income) from discontinued operations

     1.2        (25.7
  

 

 

   

 

 

 

Income (loss) from continuing operations

     111.2        (193.8

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

    

Depreciation and amortization

     768.3        827.5   

Non-cash interest

     13.0        53.6   

Non-cash compensation

     15.9        18.4   

Loss on extinguishment of debt, net of prepayment premiums

     31.7        70.1   

Income from equity accounted investments, net of dividends received

     (0.6     (6.8

Unrealized (gains) losses on derivative instruments

     (4.7     124.5   

Foreign currency losses (gains)

     1.2        (85.7

Loss on disposal of equity investments

     8.0        0.0   

Income taxes

     20.6        (13.3

Other

     5.3        0.3   

Changes in operating assets and liabilities, net of effect from business disposals:

     (69.2     0.3   
  

 

 

   

 

 

 

Net cash provided by operating activities

     900.7        795.1   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of fixed and intangible assets

     (471.2     (470.3

Proceeds from sale of fixed assets

     1.4        35.8   

Principal repayments on loans to equity investments

     108.2        15.0   

Investments and loans from parent and subsidiary companies

     (639.2     884.4   

Acquisitions, net of cash acquired

     (14.6     0.0   

Disposal of equity investments, net

     241.0        0.0   

Disposal of businesses, net

     0.0        160.0   

Other

     2.5        2.3   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (771.9     627.2   
  

 

 

   

 

 

 

Financing activities:

    

New borrowings, net of financing fees

     107.3        108.2   

Principal payments on long term debt and capital leases

     (242.3     (1,325.3

Proceeds from settlement of cross currency interest rate swaps

     65.5        0.0   
  

 

 

   

 

 

 

Net cash used in financing activities

     (69.5     (1,217.1
  

 

 

   

 

 

 

Cash flow from discontinued operations:

    

Net cash used in operating activities

     (10.4     (37.9
  

 

 

   

 

 

 

Net cash used in discontinued operations

     (10.4     (37.9
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     48.9        167.3   

Cash and cash equivalents, beginning of period

     376.0        415.9   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   £ 424.9      £ 583.2   
  

 

 

   

 

 

 

See accompanying notes.

 

50


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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1—Basis of Presentation

 

These combined notes accompany and form an integral part of the separate condensed consolidated financial statements of Virgin Media Investment Holdings Limited and its subsidiaries, or VMIH, and Virgin Media Investments Limited and its subsidiaries, or VMIL. VMIH and VMIL are indirect, wholly owned subsidiaries of Virgin Media Inc. VMIL is a direct, wholly owned subsidiary of VMIH.

Under the terms of the indentures governing the senior notes issued by Virgin Media Finance PLC and the indentures governing the senior secured notes issued by Virgin Media Secured Finance PLC, VMIL was required to grant guarantees that are identical to the guarantees granted by VMIH under the same indentures. Under the terms of the intercreditor deed governing the senior credit facility, VMIL was required to grant a guarantee identical to the guarantee granted by VMIH under the same deed. VMIH is fully dependent on the cash flows of the operating subsidiaries of VMIL to service these debt obligations. As a result, debt obligations, cash required to service debt obligations, derivative financial instruments, and any effects on the consolidated results of operations and cash flows related to the senior notes, senior secured notes and senior credit facility have been reflected in the separate condensed consolidated financial statements of VMIL. As such, the amounts included in the financial statements of VMIL do not necessarily represent items to which VMIL has legal title.

As used in these notes, the terms “we,” “our,” or “companies” refer to VMIH and VMIL and, except as otherwise noted, the information in these combined notes relates to both of the companies.

The accompanying separate unaudited condensed consolidated financial statements of each of the companies have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and notes thereto included in Virgin Media Inc.’s annual report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 22, 2011, or the 2010 Annual Report.

Note 2—Recent Accounting Guidance

In September 2011, the Financial Accounting Standards Board, or FASB, issued guidance permitting companies to first assess qualitative factors as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption is permitted. We adopted this guidance effective October 1, 2011 and will apply it to the performance of our annual goodwill impairment test.

In June 2011, the FASB issued new guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new standard will require companies to retrospectively present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of other comprehensive income in the statement of stockholders’ equity. This new guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2011. The adoption of this standard will not have a material impact on our consolidated financial statements.

 

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Table of Contents

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 2—Recent Accounting Guidance (continued)

 

On January 1, 2011 we adopted new accounting guidance issued by the FASB for revenue arrangements with multiple-elements. We adopted this guidance on a prospective basis applicable for transactions originating or materially modified after the date of adoption. This guidance changed the criteria for separating units of accounting in multiple-element arrangements and the way in which an entity is required to allocate revenue to these units of accounting.

Prior to the adoption of this guidance and with the exception of mobile revenue transactions, bundled revenue arrangements in our Consumer and Business segments generally did not contain separate units of accounting. Subsequent to the adoption of this guidance, these bundled revenue arrangements generally have the following units of accounting: an up-front installation element and an ongoing service provision element. Both prior and subsequent to the adoption of this guidance, mobile revenue transactions involving bundled equipment and service revenue have separate units of accounting.

Revenue is allocated to each unit of accounting based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. Currently, we do not sell installation services or ongoing rental separately on a regular basis and therefore we do not have the evidence to support VSOE for these deliverables. We use evidence of the amounts that third parties charge for similar or identical services, when available, to establish selling price. In some cases, when we are unable to establish VSOE or TPE, we use our best estimate of selling price. Our objective in determining the best estimate of selling price is to establish the price at which we would transact a sale if the deliverable were sold regularly on a stand-alone basis. We consider all reasonably available information including both market data and conditions, as well as entity specific factors. In addition we consider all factors contemplated in negotiating the arrangement with the customer and our own normal pricing practices. These considerations include competitor pricing, customization of the product, profit objectives and cost structures.

Once we have established the selling price of each deliverable, we allocate total arrangement consideration by applying the relative selling price methodology. Prior to the adoption of this guidance, where the fair value of the delivered element could not be determined reliably but the fair value of the undelivered element could be determined reliably, the fair value of the undelivered element was deducted from total consideration and the net amount was allocated to the delivered element based on the “residual value” method. This methodology is no longer permitted under the new guidance and we now allocate revenue for all multiple-element arrangements based on the relative selling price methodology. We recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition.

The adoption of this guidance is not expected to have a material impact on our consolidated financial statements for the year ended December 31, 2011. This is principally due to the fact that although prior to the adoption of this guidance we were unable to meet the criteria to separate the units of accounting for our residential customer arrangements, the Cable Television Topic of the FASB ASC required us to recognize initial hookup revenues to the extent we had incurred direct selling costs. The impact of the adoption of this guidance may be material in future years if we make material changes to product or service offerings, pricing structures, the components of bundled arrangements or if we enter into material new arrangements in our Business segment.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 3—Disposal of Equity Investment

 

On September 30, 2011, we completed the sale to Scripps Network Interactive, Inc. (“Scripps”), of our interest in the UKTV joint venture with BBC Worldwide Limited. The aggregate consideration was £344.6 million, which includes approximately £98.1 million for Scripps’ acquisition of preferred equity, loan stock and other debt. After the inclusion of associated fees, this transaction resulted in a loss on disposal of £8.0 million, in the consolidated statement of operations.

The terms of the sale agreement include working capital adjustments which may be recognized during the fourth quarter and impact the loss on disposal. Other than an insignificant amount of U.S. alternative minimum tax, no income tax is due as a result of this transaction due to our ability to offset net operating losses against taxable income.

Note 4—Long Term Debt

Long term debt reflects our obligations under the terms of the indentures governing the senior notes and senior secured notes as well as the intercreditor deed governing the senior credit facility. As such, these amounts include debt owed directly to third parties by affiliated entities not consolidated by us which have been classified as amounts due to group companies.

On February 15, 2011, we amended our senior credit facility to increase operational flexibility including, among other things, changing the required level of total net leverage ratio, increasing financial indebtedness baskets, and eliminating certain restrictions on the use of proceeds of secured indebtedness. This amendment did not have an impact on the amount of debt included on our consolidated balance sheet as of September 30, 2011 but did serve to modify the amortization schedule by extending £192.5 million of our June 30, 2014 scheduled amortization payment to June 30, 2015.

On March 3, 2011, Virgin Media Secured Finance PLC, a wholly owned subsidiary of VMIH, issued $500 million aggregate principal amount of 5.25% senior secured notes due 2021 and £650 million aggregate principal amount of 5.50% senior secured notes due 2021. Interest is payable on January 15 and July 15 each year, beginning on July 15, 2011. The senior secured notes due 2021 rank pari passu with and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility and senior secured notes due 2018.

In March 2011, we used the net proceeds from our senior secured notes due 2021 to prepay £532.5 million of the Tranche A outstanding under our senior credit facility, thus eliminating scheduled amortization in 2011 through 2014, and £367.5 million of the Tranche B outstanding under our senior credit facility that was scheduled for payment in 2015, with the remainder of the proceeds being used for general corporate purposes.

On May 20, 2011, we entered into two new additional facilities under the senior credit facility, comprising an additional revolving facility with total commitments of £450 million which replaced the previous £250 million revolving facility, and an additional term facility with commitments of £750 million. We used the new term facility of £750 million and £25 million of cash to repay the loan balance from the previous term loan which was comprised of a £467.5 million Tranche A and £307.5 million Tranche B. The maturity date of the facilities remains at June 30, 2015. Further changes to the senior credit facility to increase operational flexibility were also effected on May 27, 2011.

On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash from our balance sheet.

On September 12, 2011 we borrowed £50 million under the revolving credit facility. This was repaid on October 12, 2011.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 4—Long Term Debt (continued)

 

Long term debt repayments, excluding capital leases, as of September 30, 2011, were due as follows (in millions):

 

Period ending September 30:

      

2012

   £ 114.4   

2013

     0.1   

2014

     0.0   

2015

     750.0   

2016

     0.0   

Thereafter

     4,680.6   
  

 

 

 

Total debt payments

   £ 5,545.1   
  

 

 

 

Note 5—Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:

 

Level 1   Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2   Unadjusted quoted prices in active markets for similar assets or liabilities, or
  unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or
  inputs other than quoted prices that are observable for the asset or liability
Level 3   Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

In estimating the fair value of our financial assets and liabilities, we used the following methods and assumptions:

Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using internal models based on observable inputs, counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. As such, these derivative instruments are classified within level 2 in the fair value hierarchy. The fair values of our derivative financial instruments are disclosed in note 6.

Long term debt: The carrying amounts of the senior credit facility, revolving credit facility and other notes due to affiliates approximate their fair value. The fair values of our senior notes and senior secured notes in the following table are based on the quoted market prices in active markets and incorporate non-performance risk. The carrying values of the $500 million 5.25% and £650 million 5.50% senior secured notes due 2021 include adjustments of £40 million and £60 million, respectively, as a result of our application of fair value hedge accounting to these instruments.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 5—Fair Value Measurements (continued)

 

The carrying amounts and fair values of our long term debt are as follows (in millions):

 

     September 30,
2011
     December 31,
2010
 
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

9.125% U.S. dollar senior notes due 2016

   £ 0.0       £ 0.0       £ 352.6       £ 380.3   

6.50% U.S. dollar senior notes due 2016

     0.0         0.0         176.7         346.8   

9.50% U.S. dollar senior notes due 2016

     845.3         933.6         843.2         990.5   

9.50% euro senior notes due 2016

     150.6         169.2         148.5         182.1   

8.375% U.S. dollar senior notes due 2019

     379.1         410.3         378.8         421.5   

8.875% sterling senior notes due 2019

     345.1         362.3         344.8         397.7   

6.50% U.S. dollar senior secured notes due 2018

     632.9         686.0         632.3         677.5   

7.00% sterling senior secured notes due 2018

     864.0         905.6         863.1         925.3   

5.25% U.S. dollar senior secured notes due 2021

     347.6         321.6         0.0         0.0   

5.50% sterling senior secured notes due 2021

     705.6         705.3         0.0         0.0   

Floating rate senior loan note due 2012

     64.1         64.1         64.1         64.1   

Other notes due to affiliates

     438.7         438.7         437.7         437.7   

Senior credit facility

     750.0         750.0         1,675.0         1,672.5   

Revolving credit facility

     50.0         50.0         0.0         0.0   

Capital leases and other

     213.7         213.7         246.7         246.7   

Note 6—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 are required to recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and to 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 and foreign currency forward rate contracts 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 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.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

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. We perform, at least quarterly, 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 (losses) on derivative instruments in the statement of operations. As a result of our effectiveness assessment at September 30, 2011, we believe our derivative contracts that are designated and qualify for hedge accounting will continue to be highly effective in offsetting changes in cash flow or fair value attributable to the hedged risk.

The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using internal models based on observable inputs, counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. Non-performance is based on quoted credit default spreads for counterparties to the contracts and swaps. These derivative instruments are classified within level 2 in the fair value hierarchy. Derivative instruments which are subject to master netting arrangements are not offset and we have not provided, nor do we require, cash collateral with any counterparty.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

The fair values of our derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):

 

     September 30,
2011
     December 31,
2010
 

Included within current assets:

     

Accounting Hedge

     

Foreign currency forward rate contracts

   £ 0.2       £ 0.0   

Economic Hedge

     

Foreign currency forward rate contracts

     2.1         0.8   

Interest rate swaps

     0.9         0.0   
  

 

 

    

 

 

 
   £ 3.2       £ 0.8   
  

 

 

    

 

 

 

Included within non-current assets:

     

Accounting Hedge

     

Interest rate swaps

   £ 62.4       £ 8.0   

Cross-currency interest rate swaps

     80.7         137.9   

Economic Hedge

     

Interest rate swaps

     4.4         3.9   

Cross-currency interest rate swaps

     44.2         52.9   
  

 

 

    

 

 

 
   £ 191.7       £ 202.7   
  

 

 

    

 

 

 

Included within current liabilities:

     

Economic Hedge

     

Interest rate swaps

   £ 11.1       £ 0.0   

Cross-currency interest rate swaps

     13.3         13.3   
  

 

 

    

 

 

 
   £ 24.4       £ 13.3   
  

 

 

    

 

 

 

Included within non-current liabilities:

     

Accounting Hedge

     

Cross-currency interest rate swaps

   £ 8.9       £ 10.3   

Economic Hedge

     

Interest rate swaps

     35.5         32.2   

Cross-currency interest rate swaps

     19.5         19.5   
  

 

 

    

 

 

 
   £ 63.9       £ 62.0   
  

 

 

    

 

 

 

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

Cross-Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Secured Notes

As of September 30, 2011, we had outstanding 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.

The terms of our outstanding cross-currency interest rate swaps at September 30, 2011 were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional amount
due from
counterparty
     Notional amount
due to
counterparty
     Weighted average
interest rate  due

from counterparty
  Weighted average
interest rate due to
counterparty
          (in millions)      (in millions)           

$1,350m senior notes due 2016

             

August 2016

   Accounting    $ 1,350.0       £ 836.0       9.50%   9.99%

$1,000m senior notes due 2016

             

November 2016

   Economic      1,000.0         516.9       6.50%   6.91%

$600m senior notes due 2019

             

October 2019

   Accounting      264.3         159.8       8.38%   9.03%

October 2011

   Economic      335.7         228.0       8.38%   9.23%

October 2011 to October 2019

   Accounting      335.7         203.0       8.38%   9.00%

$1,000m senior secured notes due 2018

             

January 2018

   Accounting      1,000.0         615.7       6.50%   7.02%

$500m senior secured notes due 2021

             

January 2021

   Accounting      500.0         308.9       5.25%   6 month
              LIBOR + 1.94%
     

 

 

    

 

 

      
      $ 4,785.7       £ 2,868.3        
     

 

 

    

 

 

      

€180m senior notes due 2016

             

August 2016

   Accounting    180.0       £ 158.6       9.50%   10.18%
     

 

 

    

 

 

      
      180.0       £ 158.6        
     

 

 

    

 

 

      

Other

             

December 2012

   Economic    56.7       £ 40.3       3 month
EURIBOR + 2.38%
  3 month

LIBOR + 2.69%

December 2013

   Economic      43.3         30.8       3 month
EURIBOR + 2.88%
  3 month

LIBOR + 3.26%

     

 

 

    

 

 

      
      100.0       £ 71.1        
     

 

 

    

 

 

      

December 2012

   Economic    £ 38.8       56.7       3 month

LIBOR + 2.40%

  3 month

EURIBOR + 2.38%

December 2013

   Economic      29.7         43.3       3 month

LIBOR + 2.90%

  3 month

EURIBOR + 2.88%

     

 

 

    

 

 

      
      £ 68.5       100.0        
     

 

 

    

 

 

      

All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in November 2016 hedging the $1,000 million senior notes due 2016.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

On July 26, 2011 we settled the cross-currency interest rate swaps hedging the $550 million senior notes due 2016 and received cash of £65.5 million which approximated the fair value of these swaps as of June 30, 2011. The proceeds received upon settlement are classified as a financing activity in the condensed consolidated statement of cash flows.

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

As of September 30, 2011, we had outstanding 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.

The terms of our outstanding interest rate swap contracts at September 30, 2011 were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional
amount
     Weighted average
interest rate  due from
counterparty
  Weighted average
interest rate  due to
counterparty
          (in millions)           

Senior credit facility

          

July 2012 to December 2015

   Economic    £ 200.0       6 month LIBOR   2.91%

July 2012 to December 2015

   Economic      200.0       6 month LIBOR   2.87%

July 2012 to December 2015

   Economic      200.0       6 month LIBOR   2.79%

£650m senior secured notes due 2021

          

January 2021

   Accounting    £ 650.0       5.50%   6 month LIBOR
           +1.84%

Other

          

March 2013

   Economic    £ 300.0       3 month LIBOR   3.28%

October 2013

   Economic      300.0       1.86%   3 month LIBOR

September 2012

   Economic      600.0       3 month LIBOR   3.09%

September 2012

   Economic      600.0       1.07%   3 month LIBOR

Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions

As of September 30, 2011, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at September 30, 2011 were as follows:

 

Hedged item/Maturity date

   Hedge type    Notional
amount due
from
counterparty
     Notional
amount due  to
counterparty
     Weighted
average
exchange rate
 
          (in millions)      (in millions)         

Committed and forecasted purchases

           

October 2011 to December 2011

   Accounting    $ 6.3       £ 3.9         1.6245   

October 2011 to December 2011

   Economic    $ 28.7       £ 17.7         1.6251   

January 2012 to June 2012

   Economic    $ 72.0       £ 44.7         1.6099   

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow accounting hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. In our consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. Cash flows from derivative contracts that are not designated as accounting hedges are recognized as operating activities in the condensed consolidated statement of cash flows. If we discontinue hedge accounting for an instrument, subsequent cash flows are classified based on the nature of the instrument.

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the condensed consolidated statement of operations in the period in which they occur. During the three and nine months ended September 30, 2011, we recognized no gain or loss relating to ineffectiveness on our cash flow hedges.

The following table presents the effective amount of gain or (loss) recognized in other comprehensive income (loss) and amounts reclassified to earnings during the three and nine months ended September 30, 2011 (in millions):

 

     Total     Interest rate
swaps
    Cross-
currency
interest  rate

swaps
    Forward
foreign
exchange
contracts
    Tax Effect  

Balance at December 31, 2010

   £ (9.2   £ 8.0      £ 16.6      £ 0.1      £ (33.9

Amounts recognized in other comprehensive income (loss)

     (57.0     2.9        (60.3     0.4        0.0   

Amounts reclassified as a result of cash flow hedge discontinuance

     (7.8     (7.6     (23.5     0.0        23.3   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     45.4        0.0        45.4        0.0        0.0   

Interest expense

     1.3        0.0        1.3        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

   £ (27.3   £ 3.3      £ (20.5   £ 0.5      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in other comprehensive income (loss)

     (8.5     0.0        (8.3     (0.2     0.0   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     2.6        0.0        2.6        0.0        0.0   

Interest expense

     0.6        0.0        0.6        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

   £ (32.6   £ 3.3      £ (25.6   £ 0.3      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in other comprehensive income (loss)

     41.5        0.0        41.6        (0.1     0.0   

Amounts reclassified to earnings impacting:

          

Foreign exchange loss

     (40.4     0.0        (40.4     0.0        0.0   

Interest expense

     0.6        0.0        0.6        0.0        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ (30.9   £ 3.3      £ (23.8   £ 0.2      £ (10.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 6—Derivative Financial Instruments and Hedging Activities (continued)

 

We reclassified gains of £31.1 million accumulated in other comprehensive income to gain (loss) on derivatives in the condensed consolidated statement of operations for the nine months ended September 30, 2011 because we discontinued hedge accounting for the cross-currency interest rate swaps associated with the $550 million 9.125% senior notes due 2016 and two of the interest rate swaps associated with the senior credit facility. As a result of the recognition of these gains in the condensed consolidated statement of operations, we reclassified tax expense of £23.3 million from other comprehensive income to income from continuing operations in the nine months ended September 30, 2011.

Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax losses that would be reclassified from other comprehensive income (loss) to earnings would be £0.0 million and £2.4 million relating to interest rate swaps and cross-currency interest rate swaps, respectively, and pre-tax gains of £0.2 million relating to forward foreign exchange contracts.

Fair Value Hedges

For derivative instruments that are designated and qualify as fair value accounting hedges, the gain or loss on the derivative is reported in earnings along with offsetting changes in the value of the hedged debt obligations due to changes in the hedged risks. In our condensed consolidated balance sheet, changes in the value of the hedged debt obligations due to changes in the hedged risks are included as adjustments to the carrying value of the debt. In our condensed consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the condensed consolidated statement of cash flows.

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the statement of operations in the period in which they occur. During the three and nine months ended September 30, 2011, we recognized ineffectiveness totaling £6.1 million and £7.9 million, respectively.

Note 7—Restructuring and Other Charges

The following tables summarize our historical restructuring accruals, which are comprised of historic restructuring accruals prior to 2006 and the restructuring accruals resulting from the acquisitions made by us during 2006, and the accruals for our restructuring plan announced in 2008 (in millions):

 

     Historical
Restructuring
Accruals
    2008
Restructuring Accruals
       

Three months ended September 30, 2011

   Lease
Exit Costs
    Involuntary
Employee
Termination
and Related
Costs
    Lease and
Contract
Exit Costs
    Total  

Balance at June 30, 2011

   £ 31.4      £ 1.4      £ 12.6      £ 45.4   

Charged to expense

     1.1        5.2        2.9        9.2   

Revisions

     (1.7     (1.4     0.0        (3.1

Utilized

     (11.6     (2.0     (1.2     (14.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ 19.2      £ 3.2      £ 14.3      £ 36.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 7—Restructuring and Other Charges (continued)

 

     Historical
Restructuring
Accruals
    2008
Restructuring Accruals
       

Nine months ended September 30, 2011

   Lease
Exit Costs
    Involuntary
Employee
Termination
and Related
Costs
    Lease and
Contract
Exit Costs
    Total  

Balance at December 31, 2010

   £ 35.2      £ 1.1      £ 20.1      £ 56.4   

Charged to expense

     1.8        9.3        4.1        15.2   

Revisions

     (3.8     (2.0     (1.9     (7.7

Utilized

     (14.0     (5.2     (8.0     (27.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

   £ 19.2      £ 3.2      £ 14.3      £ 36.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

In connection with our 2008 restructuring program, we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million.

Note 8—Share Based Compensation

Stock Option Plans

We are indirect, wholly owned subsidiaries of Virgin Media Inc. Accordingly, we have no stock-based compensation plans. As at September 30, 2011, certain of our employees participated in the stock-based compensation plans of Virgin Media, as described in Virgin Media’s 2010 Annual Report.

Note 9—Comprehensive Income (Loss)

Comprehensive income (loss) comprises (in millions):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Net income (loss) for period

   £ 9.6      £ 44.8      £ 110.0      £ (168.1

Currency translation adjustment

     0.0        (0.1     0.0        0.1   

Net unrealized gains (losses) on derivatives, net of tax

     41.5        (62.0     (24.0     46.2   

Reclassification of derivative (gains) losses to net income, net of tax

     (39.8     69.2        2.3        (18.2

Pension liability adjustment, net of tax

     (0.5     0.0        (0.5     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 
   £ 10.8      £ 51.9      £ 87.8      £ (140.0
  

 

 

   

 

 

   

 

 

   

 

 

 

The components of accumulated other comprehensive loss, net of taxes, were as follows (in millions):

 

     September 30,
2011
    December 31,
2010
 

Foreign currency translation

   £ (0.1   £ (0.1

Pension liability adjustment

     (67.4     (66.9

Net unrealized losses on derivatives

     (30.9     (9.2
  

 

 

   

 

 

 
   £ (98.4   £ (76.2
  

 

 

   

 

 

 

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 10—Related Party Transactions

Virgin Media Inc. and its consolidated subsidiaries

We are wholly owned subsidiaries of Virgin Media Inc. We charge Virgin Media Inc. and certain of its group companies for operating costs and selling, general and administrative expenses incurred by us on their behalf. The following information summarizes our significant related party transactions with Virgin Media Inc. and its group companies (in millions):

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2011      2010      2011      2010  

Operating costs

   £ 9.2       £ 9.3       £ 27.9       £ 29.9   

Selling, general and administrative expenses

     7.6         12.4         28.8         35.3   
  

 

 

    

 

 

    

 

 

    

 

 

 
   £ 16.8       £ 21.7       £ 56.7       £ 65.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

The above recharges are recorded in operating costs and selling, general and administrative expenses and offset the respective costs incurred.

Note 11—Contingent Liabilities

We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. In accordance with the Contingencies Topic of the FASB ASC, we recognize a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have adequate provisions for any such matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Additionally, when we believe it is at least reasonably possible that a liability has been incurred in excess of any recorded liabilities we provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us.

Our revenue generating activities are subject to Value Added Tax, or VAT. During the second quarter of 2011, we reached an agreement with the U.K. tax authorities regarding our VAT treatment of certain of these activities. The U.K. tax authorities provided us with a refund of £81.5 million, which was collected during the second quarter of 2011 and £77.6 million of which is included in interest income and other, net in the condensed consolidated statement of operations for the nine months ended September 30, 2011.

Our VAT treatment of certain other revenue generating activities remains subject to challenge by the U.K. tax authorities. As a result, we have estimated contingent losses totaling £26.2 million as of September 30, 2011 that are not accrued for, as we deem them to be reasonably possible, but not probable, of resulting in a liability. We currently expect an initial hearing on these matters to take place in 2012.

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 12—Industry Segments

VMIH and VMIL are not managed separately from Virgin Media and financial information is only prepared and reviewed by the chief operating decision maker (CODM) of Virgin Media, who is also the CODM of VMIH and VMIL, at the consolidated Virgin Media level. Virgin Media’s segments are based on its method of internal reporting along with the criteria used by its chief executive officer, who is its CODM, to evaluate segment performance, the availability of separate financial information and overall materiality considerations. Virgin Media has two reporting segments, Consumer and Business, as described below.

Virgin Media’s Consumer segment is its primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on its cable network, the provision of broadband and fixed line telephone services to residential customers outside of its cable network, and the provision of mobile telephony and broadband to residential customers.

Virgin Media’s Business segment comprises its operations carried out through Virgin Media Business, which provides voice, data and internet solutions to businesses, public sector organizations and service providers in the U.K.

Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management’s measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by Virgin Media’s Consumer and Business segments.

The following segment information is based on the consolidated results of Virgin Media, VMIH and VMIL for the three and nine month periods ended September 30, 2011 and 2010 (in millions):

 

     Three months ended
September 30, 2011
     Three months ended
September 30, 2010
 
     Revenue     Segment
Contribution
     Revenue     Segment
Contribution
 

Consumer

   £ 846.0      £ 493.5       £ 826.2      £ 500.9   

Business

     154.0        90.1         152.2        89.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Subtotal

     1,000.0        583.6         978.4        590.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Companies not consolidated in VMIH and VMIL

     (25.6        (25.6  
  

 

 

      

 

 

   

Total

   £ 974.4         £ 952.8     
  

 

 

      

 

 

   
     Nine months ended
September 30, 2011
     Nine months ended
September 30, 2010
 
     Revenue     Segment
Contribution
     Revenue     Segment
Contribution
 

Consumer

   £ 2,503.8      £ 1,473.0       £ 2,427.2      £ 1,470.8   

Business

     464.3        274.5         444.8        252.8   
  

 

 

   

 

 

    

 

 

   

 

 

 

Subtotal

     2,968.1        1,747.5         2,872.0        1,723.6   
  

 

 

   

 

 

    

 

 

   

 

 

 

Companies not consolidated in VMIH and VMIL

     (76.3        (76.0  
  

 

 

      

 

 

   

Total

   £ 2,891.8         £ 2,796.0     
  

 

 

      

 

 

   

 

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

VIRGIN MEDIA INVESTMENTS LIMITED

COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

 

Note 12—Industry Segments (continued)

 

The reconciliation of total segment contribution to consolidated operating income and net loss for VMIH and VMIL is as follows (in millions):

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2011     2010     2011     2010  

Total segment contribution

   £ 583.6      £ 590.0      £ 1,747.5      £ 1,723.6   

Other operating and corporate costs

     185.3        202.7        581.0        617.0   

Restructuring and other charges

     6.2        4.5        7.7        11.4   

Depreciation

     235.6        244.4        694.6        733.4   

Amortization

     28.1        36.7        90.3        110.9   

Operating profit (loss) of subsidiaries not consolidated in either of the companies

     3.1        (1.8     2.8        (6.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated operating income

     125.3        103.5        371.1        257.2   

Other income (expense)

        

Interest expense (1)

     (97.5     (118.3     (312.0     (360.4

Loss on extinguishment of debt

     (2.8     0.0        (31.7     (70.0

Share of income from equity investments

     3.6        6.7        18.6        21.4   

Loss on disposal of equity investments

     (8.0     0.0        (8.0     0.0   

Loss on derivative instruments

     (5.7     (24.7     (1.7     (52.9

Foreign currency (losses) gains

     (9.2     43.1        0.4        (34.8

Interest income and other, net (2)

     2.8        3.0        90.5        11.1   

Income tax benefit (expense)

     1.1        17.3        (16.0     34.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     9.6        30.6        111.2        (193.8

Income (loss) from discontinued operations, net of tax

     0.0        14.2        (1.2     25.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 9.6      £ 44.8      £ 110.0      £ (168.1
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Interest expense represents the total of interest expense and interest expense to group companies.
(2) Interest income and other, net represents the total of interest income and other, net and interest income from group companies.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this document.

Overview

We are a leading entertainment and communications business, being a “quad-play” provider of broadband internet, television, mobile telephony and fixed line telephony services that offer a variety of entertainment and communications services to residential and commercial customers throughout the U.K. We are one of the U.K.’s largest providers of residential broadband internet, pay television and fixed line telephony services by number of customers. We believe our advanced, deep fiber access network enables us to offer faster and higher quality broadband services than our digital subscriber line, or DSL, competitors. As a result, we provide our customers with a leading next generation broadband service and one of the most advanced television on-demand services available in the U.K. market. We are also one of the U.K.’s largest mobile virtual network operators by number of customers. In addition, we provide a complete portfolio of voice, data and internet solutions to businesses, public sector organizations and service providers in the U.K. through Virgin Media Business (formerly ntl:Telewest Business).

On September 30, 2011, we completed the disposition of our 50% interest in the UKTV companies to a subsidiary of Scripps Networks Interactive, Inc. UKTV is one of the U.K.’s leading multi-channel television programming groups.

Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is our chief operating decision maker (CODM), to evaluate segment performance, the availability of separate financial information and overall materiality considerations. We have two reporting segments, Consumer and Business, as described below.

 

   

Consumer: Our Consumer segment includes the distribution of television programming over our cable network and the provision of broadband and fixed line telephone services to residential consumers, both on and off our cable network. Our Consumer segment also includes our mobile telephony and mobile broadband operations provided through Virgin Mobile.

 

   

Business: Our Business segment includes the voice and data telecommunication and internet solutions services we provide through Virgin Media Business to businesses, public sector organizations and service providers.

Our revenue by segment for the nine months ended September 30, 2011 and 2010 was as follows (in millions):

 

     Nine months ended September 30,  
     2011     2010  

Consumer Segment

   £ 2,503.8         84.4   £ 2,427.2         84.5

Business Segment

     464.3         15.6        444.8         15.5   
  

 

 

    

 

 

   

 

 

    

 

 

 
   £ 2,968.1         100.0   £ 2,872.0         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

For further discussion of our business, please refer to our 2010 Annual Report.

 

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Factors Affecting Our Business

A number of factors affect the performance of our business, at both a general and segment level.

General

Factors that affect both of the segments in which we operate are as follows:

General Macroeconomic Factors. General macroeconomic factors in the U.K. have an impact on our business. For example, during an economic slowdown, potential and existing customers may be less willing or able to purchase our products or upgrade their services. We may also experience increased churn and higher bad debt expense.

Currency Movements. We encounter currency exchange rate risks because substantially all of our revenue and operating costs are earned and paid primarily in U.K. pounds sterling, but we pay interest and principal obligations with respect to a portion of our existing indebtedness in U.S. dollars and euros. We have in place hedging programs that seek to mitigate the risk from these exposures. While the objective of these programs is to reduce the volatility of our cash flows and earnings caused by changes in underlying currency exchange rates, not all of our exposures are hedged, and not all of our hedges are designated as such for accounting purposes. Additionally, we do not hedge the principal portion of our convertible senior notes. We also purchase goods and services in U.S. dollars, euros and South African rand, such as customer premise equipment and network maintenance services and a substantial portion of these exposures are not hedged.

Competition. Our ability to acquire and retain customers and increase revenue depends on our competitive strength. There is significant and increasing competition in the market for our consumer services, including broadband and telephone services offered by BT; resellers or local loop unbundlers, such as BSkyB and Talk Talk; alternative internet access services such as DSL; satellite television services offered by BSkyB and by BBC and ITV through Freesat; free-to-air digital terrestrial television offered through Freeview; internet protocol television offered by BT; and mobile telephone, television and data services offered by other mobile network operators, or MNOs, including Everything Everywhere Limited (the joint venture between T-Mobile (UK) and Orange (UK)), O2, Vodafone and 3 UK, and from other mobile virtual network operators, including Tesco Mobile, Lebara, Carphone Warehouse and ASDA. In addition, certain competitors, such as BT, BSkyB and large MNOs, are dominant in markets in which we compete and may use their dominance in those markets to offer bundled services that compete with our product offerings. As a result of increased competition, we have had to, and may be required to continue to, adjust our pricing and offer discounts to new and existing customers in order to attract and retain customers. There is also significant and increasing competition in the market for our business services, including data and voice services offered by BT, Cable & Wireless, virtual network operators and systems integrators. While BT represents the main competitive threat nationally due to its network reach and product portfolio, we also compete with regional providers, such as COLT Telecom, which have a strong network presence within limited geographic areas.

Integration and Restructuring Activities. In the fourth quarter of 2008, we commenced the implementation of a restructuring plan aimed at driving further improvements in our operational performance and eliminating inefficiencies in order to create a fully-integrated, customer-focused organization. We anticipate significant cost savings from the plan and that savings will exceed the costs incurred in connection with the plan. These costs will include purchases of fixed assets, lease and contract exit costs, employee termination costs and other restructuring and restructuring-related expenses, some of which will be classified as restructuring costs. During the second quarter of 2010, we identified further savings through the expansion of the program and revised the estimated total costs and extended the completion date through the end of 2012. In total, we expect to incur operating expenditures of between £150 million and £170 million and capital expenditures of between £50 million and £60 million in connection with this plan. Our financial performance may be negatively affected if we are unable to implement our restructuring plan successfully and realize the anticipated benefits.

 

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Capital Expenditures. Our business requires substantial capital expenditures on a continuing basis for various purposes, including expanding, maintaining and upgrading our cable network, investing in new customer acquisitions, and offering new services. If we do not continue to invest in our network and in new technologies, our ability to retain and acquire customers may be hindered. Therefore, our liquidity and the availability of cash to fund capital projects are important drivers of our revenue. When our liquidity is restricted, so is our ability to meet our capital expenditure requirements.

Consumer Segment

In our Consumer segment, cable customers account for the majority of our revenue. The number of customers, the number and types of services that each customer uses and the prices we charge for these services drive our revenue. Our profit is driven by the relative margins on the types of services we provide to these customers and by the number of services that we provide to them and, with respect to our fixed and mobile telephone customers, by usage levels of our services. For example, cable broadband internet is more profitable than our television services and, on average, our “triple-play” customers are more profitable than “double-play” or “single-play” customers. Similarly, over the service term, our contract mobile customers are more profitable than our prepay mobile customers, and provide a better opportunity for cross-sell of our cable products. We actively promote “quad-play” services and our packaging of services and our pricing are designed to encourage our customers to use multiple services such as television, fixed and mobile telephone and broadband at a lower price than each stand-alone product on a combined basis. Factors particularly affecting our Consumer segment include average revenue per user, or ARPU, churn, competition, seasonality and distribution.

Cable ARPU. Cable ARPU is a measure we use to evaluate how effectively we are realizing potential revenue from our residential cable customers on our network. We believe that our “triple-play” cable offering of television, broadband and fixed line telephone services is attractive to our existing cable customer base and generally allows us to increase our cable ARPU by facilitating the sale of multiple services to each customer. Cable ARPU excludes any revenue from our mobile and non-cable customers.

Mobile ARPU. Mobile ARPU is a measure we use to evaluate how effectively we are realizing revenue from our mobile customers. The mix of prepay and contract customers and level of usage have a material impact on Mobile ARPU. The mix of our customer base is changing as we focus on acquiring higher lifetime value contract customers, rather than lower lifetime value prepay customers, particularly through cross-selling to our cable customer base. Consequently, the number of prepay customers is expected to continue to decline in the remainder of 2011, along with prepay usage.

Churn. Churn is the proportion of customers who stop subscribing to any of our services. An increase in our churn can lead to increased costs and reduced revenue. We continue to focus on improving our customer service and enhancing and expanding our service offerings to existing customers in order to manage our churn rates. Our ability to reduce our churn rates beyond a base level is limited by factors such as competition, the economy and, in respect of our cable business, customers moving outside our network service area, in particular during the summer season. Managing our churn rates is a significant component of our business plan. Our churn rates may increase if our customer service is seen as unsatisfactory, if we are unable to deliver a service without interruption, if we fail to match offerings by our competitors, if we increase our prices, if there is an improvement in the U.K. housing market or if there is a prolonged economic downturn.

Seasonality. Some of our Consumer revenue streams are subject to seasonal factors. For example, telephone usage revenue by residential customers tends to be slightly lower during summer holiday months. In the fourth quarter of each year, our mobile customer acquisition and retention costs typically increase due to the Christmas holiday period. Our Mobile ARPU generally decreases in the first quarter of each year due to the fewer number of days in February and lower usage after the Christmas holiday period. Our churn rates include persons who disconnect their service because of moves, resulting in a seasonal increase in our churn rates during the summer months when higher levels of U.K. house moves occur and students leave their accommodation between academic years. In addition, our revenue and cost of sales tend to be lower in the first quarter of any year as compared to the immediately preceding fourth quarter of the prior year. Historically, there has been lower telephony usage (including mobile, as noted above) in the first quarter and less spending in a first quarter than in a fourth quarter. These factors, taken with a lesser number of days in the first quarter, have historically contributed to this trend.

 

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Distribution. We rely, to a large extent, upon third parties to distribute our mobile products and services. If any of these distribution partners were to cease to act as distributors for our products and services, or the commissions or other costs charged by the third parties were to increase, our ability to gain new mobile customers or retain existing customers may be adversely affected. We continue to increase the proportion of our products distributed through our own channels including our retail outlets.

Business Segment

Factors particularly affecting our Business segment include competition, pricing, operational effectiveness and changes in government spending.

Pricing. Competition in the U.K. business telecommunications market continues to be based on value for money, the key components of which are quality, reliability and price. Certain of BT’s product pricing is regulated by the U.K. Office of Communications; however, in respect of non-regulated product pricing, the market is increasingly price sensitive, particularly in the current challenging economic conditions.

Operational Effectiveness. The extensive use of optical fiber in our access networks allows us to provide high-speed ethernet services directly to business customers and provide nationwide area networking to these customers via our core networks. Business customers require timely installation services and our ability to meet required timescales and commence providing services may impact our revenues. We regularly rely on third-party suppliers to connect business customers and we have a variety of alternative methods to connect our national telecommunications network to the premises of business customers that are located outside of our cabled areas.

Government Spending. Public sector organizations, in particular local authorities, represent a significant proportion of the customer base in our Business segment. Accordingly, changes to the U.K. government’s allocation of funding and spending levels with respect to certain programs have had, and may continue to have, an effect on our Business segment revenue.

Critical Accounting Policies

Our consolidated financial statements, and related financial information are based on the application of U.S. GAAP. GAAP required the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the amount of assets, liabilities, revenues and expenses reported as well as disclosures about contingencies, risks and financial condition. Actual results may differ from these estimates under different assumptions or conditions.

For a discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our consolidated financial statements, please refer to our 2010 Annual Report.

New Accounting Guidance

In September 2011, the Financial Accounting Standards Board, or FASB, issued guidance permitting companies to first assess qualitative factors as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011; however, early adoption is permitted. We adopted this guidance effective October 1, 2011 and will apply it to the performance of our annual goodwill impairment test.

In June 2011, the FASB issued new guidance to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new standard will require companies to retrospectively present items of net income, items of other comprehensive income and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of other comprehensive income in the statement of stockholders’ equity. This new guidance is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2011. The adoption of this standard will not have a material impact on our consolidated financial statements.

 

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New accounting rules and disclosures can significantly impact our reported results and the comparability of our financial statements. There are new proposals under development regarding revenue and leasing transactions which, if and when enacted, may have a material impact on our financial reporting.

Consolidated Results of Operations

Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

Revenue

For the three months ended September 30, 2011, revenue increased by 2.2% to £1,000.0 million from £978.4 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, revenue increased by 3.3% to £2,968.1 million from £2,872.0 million for the nine months ended September 30, 2010. The amount of revenue recognized in both our Consumer and Business segments increased for both the three and nine months ended September 30, 2011, as more fully described in our segment discussions below.

Operating Costs

Operating costs for the three and nine months ended September, 2011 and 2010 were as follows (in millions):

 

     Three months ended
September 30,
           Nine months ended
September 30,
        
     2011      2010      Increase/
(Decrease)
    2011      2010      Increase/
(Decrease)
 

Operating costs:

                

Consumer cost of sales

   £ 261.4       £ 250.1         4.5   £ 779.1       £ 731.8         6.5

Business cost of sales

     47.2         46.8         0.9        140.7         139.5         0.9   

Network and other operating costs

     93.1         98.7         (5.7     282.9         295.2         (4.2
  

 

 

    

 

 

      

 

 

    

 

 

    

Total operating costs

   £ 401.7       £ 395.6         1.5   £ 1,202.7       £ 1,166.5         3.1
  

 

 

    

 

 

      

 

 

    

 

 

    

For the three months ended September 30, 2011, operating costs increased by 1.5% to £401.7 million from £395.6 million during the same period in 2010. For the nine months ended September 30, 2011, operating costs increased by 3.1% to £1,202.7 million from £1,166.5 million during the same period in 2010. The increase in operating costs for the three and nine months ended September 30, 2011 was primarily attributable to increased Consumer and Business segment cost of sales as a result of increased revenues in both segments, along with other factors described in greater detail in our segment discussions below. Network and other operating costs decreased in the three and nine months ended September 30, 2011 primarily due to a reduction in network related facilities costs of £7.9 million and £16.0 million, respectively, resulting from accrual adjustments in connection with a review of our property portfolio. As a result of these changes, operating costs as a percentage of revenue decreased to 40.2% for the three months ended September 30, 2011 from 40.4% for the three months ended September 30, 2010. Operating costs as a percentage of revenue decreased to 40.5% for the nine months ended September 30, 2011 from 40.6% for the nine months ended September 30, 2010.

 

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three and nine months ended September 30, 2011 and 2010 were as follows (in millions):

 

     Three months ended
September 30,
           Nine months ended
September 30,
        
     2011      2010      Increase/
(Decrease)
    2011      2010      Increase/
(Decrease)
 

Selling, general and administrative expenses:

                

Employee and outsourcing costs

   £ 109.2       £ 112.8         (3.2 )%    £ 343.1       £ 348.8         (1.6 )% 

Marketing costs

     46.4         36.7         26.4        123.8         115.1         7.6   

Facilities

     14.3         15.9         (10.1     42.1         48.8         (13.7

Other

     30.1         30.1         0.0        89.9         86.2         4.3   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total selling, general and administrative expenses

   £ 200.0       £ 195.5         2.3   £ 598.9       £ 598.9         0.0
  

 

 

    

 

 

      

 

 

    

 

 

    

For the three months ended September 30, 2011, selling, general and administrative expenses increased by 2.3% to £200.0 million from £195.5 million for the three months ended September 30, 2010. The increase for the three months ended September 30, 2011 was primarily due to an increase in marketing costs, partially offset by lower employee and outsourcing costs and facilities costs. Marketing costs increased primarily as a result of increased marketing activity in connection with the launch of our TiVo services in the three months ended September 30, 2011. Employee and outsourcing costs decreased primarily as a result of reduced costs in relation to employee incentive programs and facilities costs decreased primarily as a result of a reduction in rent and related property costs resulting from accrual adjustments in connection with a review of our property portfolio.

Selling, general and administrative expenses remained unchanged at £598.9 million for the nine months ended September 30, 2011 and September 30, 2010. Marketing costs for the nine months ended September 30, 2011 increased primarily as a result of increased marketing activity, mainly in connection with the launch of our TiVo services, and other costs increased primarily due to higher bad debt expense. Employee and outsourcing costs for the nine months ended September 30, 2011 decreased primarily as a result of reduced costs in relation to employee incentive programs. The decrease in facilities costs for the nine months ended September 30, 2011 was primarily as a result of a reduction in rent and related property costs resulting from accrual adjustments in connection with a review of our property portfolio.

Restructuring and Other Charges

Restructuring and other charges were £6.2 million and £4.5 million in the three months ended September 30, 2011 and 2010, respectively and £7.7 million and £11.4 million in the nine months ended September 30, 2011 and 2010, respectively. For the three months and nine months ended September 30, 2011 and September 30, 2010 the charge related primarily to involuntary employee termination costs and contract exit costs in connection with the restructuring program initiated in the fourth quarter of 2008.

Depreciation Expense

For the three months ended September 30, 2011, depreciation expense decreased by 3.6% to £235.6 million from £244.4 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, depreciation expense decreased by 5.3% to £694.6 million from £733.4 million for the nine months ended September 30, 2010. The decrease in depreciation expense in both periods was primarily a result of fixed assets becoming fully depreciated, partially offset by depreciation in respect of new fixed assets.

 

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Amortization Expense

For the three months ended September 30, 2011, amortization expense decreased to £28.1 million from £36.7 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, amortization expense decreased to £90.3 million from £110.9 million for the nine months ended September 30, 2010. The decline in amortization expense in both periods was primarily attributable to the cessation of amortization of certain intangible assets that became fully amortized in 2011.

Interest Expense

For the three months ended September 30, 2011, interest expense decreased to £107.6 million from £118.2 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, interest expense decreased to £335.3 million from £359.1 million for the nine months ended September 30, 2010. The decrease in both periods was primarily due to a reduction in the level of debt and lower borrowing costs on our debt along with the effect of interest and cross currency rate swaps designated as accounting hedges.

We paid cash interest of £88.9 million for the three months ended September 30, 2011 and £83.3 million for the three months ended September 30, 2010. This increase was primarily as a result of differences in the timing of interest payments on our senior credit facility and senior notes due to refinancing activity undertaken during the year ended December 31, 2010 and the nine months ended September 30, 2011, partially offset by the lower level of debt at lower average interest rates during the quarter.

We paid cash interest of £324.5 million for the nine months ended September 30, 2011 and £331.4 million for the nine months ended September 30, 2010. This decrease was primarily as a result of a lower level of debt at lower average interest rates during the nine months ended September 30, 2011 along with differences in the timing of interest payments on our senior credit facility and senior notes due to refinancing activity undertaken during the year ended December 31, 2010 and the nine months ended September 30, 2011.

Loss on Extinguishment of Debt

The loss on extinguishment of debt was £18.3 million and £47.2 million for the three and nine months ended September 30, 2011. The loss on extinguishment of debt for the three and nine months ended September 30, 2011 related to the write-off of deferred financing costs resulting from the repayments of our senior credit facility from the net proceeds of the senior secured notes issued on March 3, 2011, the refinancing of our senior credit facility on May 20, 2011 and the redemption of our senior notes on July 26, 2011, along with the redemption premium paid in respect to our senior notes on July 26, 2011.

The loss on extinguishment of debt of £70.0 million for the nine months ended September 30, 2010 primarily related to the write-off of deferred financing costs resulting from repayments of our previous senior credit facility from the net proceeds of the senior secured notes issued on January 19, 2010, and the senior credit facility entered into on April 22, 2010, along with the redemption premium paid in respect to our senior notes redeemed on May 12, 2010.

Share of Income from Equity Investments

For the three and nine months ended September 30, 2011, share of income from equity investments was £3.6 million and £18.6 million, respectively, as compared with income of £6.7 million, and £21.4 million for the same respective periods in 2010. The share of income from equity investments in the three and nine months ended September 30, 2011 and 2010 was our proportionate share of the income earned by UKTV.

Loss on disposal of Equity Investments

For the three and nine months ended September 30, 2011, the loss on disposal of equity investments was £8.0 million. The loss related to the disposal of our share in the UKTV companies.

 

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Loss on Derivative Instruments

The loss on derivative instruments of £59.3 million in the three months ended September 30, 2011 was primarily driven by the loss on the conversion hedges as a result of a decrease in the price of our common stock and an increase in the amount of the counterparty credit risk adjustment used in the calculation of the fair values of the conversion hedges. The loss on derivative instruments of £24.7 million in the three months ended September 30, 2010 was mainly driven by losses on economic hedges resulting from the pound sterling strengthening against the U.S. dollar.

The loss on derivative instruments of £40.5 million in the nine months ended September 30, 2011 was primarily driven by the loss on the conversion hedges as a result of a decrease in the price of our common stock and an increase in the amount of the counterparty credit risk adjustment used in the calculation of the fair values of the conversion hedges, and losses on derivative instruments resulting from a fall in interest rates, partially offset by the reclassification of gains of £31.1 million on derivative instruments previously designated as accounting hedges from accumulated other comprehensive income to earnings in conjunction with the discontinuance of hedge accounting on these instruments. The loss on derivative instruments of £52.9 million in the nine months ended September 30, 2010 was mainly driven by the reclassification of losses on derivative contracts previously designated as accounting hedges from accumulated other comprehensive income to earnings along with payments made to settle euro derivatives in connection with the repayment of our old senior credit facility and senior notes, partially offset by gains on economic hedges resulting from the pound sterling weakening against the U.S. dollar.

Foreign Currency (Losses) Gains

The foreign currency losses of £13.0 million in the three months ended September 30, 2011 were primarily due to the weakening of the pound sterling relative to the U.S. dollar. The foreign currency gains of £0.8 million in the nine months ended September 30, 2011, were primarily due to related remeasurement gains on our convertible senior notes and U.S. dollar denominated senior notes due 2019, offset by the weakening of the pound sterling relative to the U.S. dollar since the issuance of our senior secured notes due 2021 in March 2011.

The foreign currency gains of £43.6 million in the three months ended September 30, 2010 were primarily due to the strengthening of the pound sterling relative to the U.S. dollar and related remeasurement gains on our convertible senior notes and U.S. dollar denominated senior notes due 2019. The foreign currency losses of £33.9 million in the nine months ended September 30, 2010 were primarily due to the weakening of the pound sterling relative to the U.S. dollar and related remeasurement losses on our convertible senior notes and the U.S. dollar denominated tranches under our old senior credit facility, partially offset by remeasurement gains on our U.S. dollar denominated senior notes due 2019.

Interest Income and Other, Net

The interest income and other, net, of £83.8 million in the nine months ended September 30, 2011, was primarily due to the £77.6 million recognized in the consolidated statement of operations during the second quarter following the agreement with the U.K. tax authorities regarding the Value Added Tax, or VAT, treatment of certain of our revenue generating activities and a related refund. The remaining balance of interest income and other, net received in the nine months ended September 30, 2011, is primarily in respect of bank and other external interest income earned on our cash and cash equivalents. The interest income and other, net received in the three months ended September 30, 2011 and the three and nine months ended September 30, 2010, is primarily in respect of bank and other external interest income earned on our cash and cash equivalents.

Income Tax (Expense) Benefit

For the three months ended September 30, 2011 the income tax expense was £0.1 million and for the nine months ended September 30, 2011, the income tax expense was £17.2 million, as compared with income tax benefit of £17.7 million and £34.7 million for the same respective periods in 2010. The income tax expense for the nine months ended September 30, 2011 related primarily to a reclassification of tax effects associated with gains on certain of our hedging instruments from accumulated other comprehensive income, partially offset by consortium tax relief receivable from our joint venture operations. The income tax benefit for the three and nine months ended September 30, 2010 related primarily to amounts recognized in discontinued operations and other comprehensive income along with consortium tax relief receivable from our joint venture operations.

 

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Net (Loss) Income from Continuing Operations

For the three months ended September 30, 2011, the net loss from continuing operations was £73.8 million and for the nine months ended September 30, 2011 the net income from continuing operations was £28.9 million, compared with net income of £27.6 million and a net loss of £204.2 million respectively for the same periods in 2010, due to the factors discussed above.

Basic (Loss) Income from Continuing Operations per Share

Basic loss from continuing operations per share for the three months ended September 30, 2011 was £0.24 compared to £0.08 for the three months ended September 30, 2010. Basic (loss) income from continuing operations per share is computed using a weighted average of 310.4 million shares outstanding in the three months ended September 30, 2011 and a weighted average of 325.6 million shares outstanding for the same period in 2010.

Basic net income from continuing operations per share for the nine months ended September 30, 2011 was £0.09 compared to a basic net loss per share of £0.62 for the nine months ended September 30, 2010. Basic income (loss) from continuing operations per share is computed using a weighted average of 315.5 million shares outstanding in the nine months ended September 30, 2011 and a weighted average of 328.7 million shares outstanding for the same period in 2010.

Segmental Results of Operations from Continuing Operations for the Three and Nine Months Ended September 30, 2011 and 2010

A description of the products and services, as well as financial data, for each segment can be found in note 12 to Virgin Media’s condensed consolidated financial statements.

The reportable segments disclosed in this quarterly report on Form 10-Q are based on our management organizational structure as of September 30, 2011. Future changes to this organizational structure may result in changes to the reportable segments disclosed.

Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management’s measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs, depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure which is shared by our Consumer and Business segments.

Consumer Segment

The summary combined results of operations of our Consumer segment for the three and nine months ended September 30, 2011 and 2010 were as follows (in millions):

 

     Three months  ended
September 30,
           Nine months ended
September 30,
        
                   Increase/
(Decrease)
                  Increase/
(Decrease)
 
     2011      2010        2011      2010     

Revenue

   £ 846.0       £ 826.2         2.4   £ 2,503.8       £ 2,427.2         3.2

Segment contribution

     493.5         500.9         (1.5     1,473.0         1,470.8         0.1   

 

 

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Revenue

Our Consumer segment revenue for the three and nine months ended September 30, 2011 and 2010 was as follows (in millions):

 

     Three months  ended
September 30,
           Nine months ended
September 30,
        
                   Increase/
(Decrease)
                  Increase/
(Decrease)
 
     2011      2010        2011      2010     

Revenue:

                

Cable

   £ 685.0       £ 662.6         3.4   £ 2,033.3       £ 1,959.0         3.8

Mobile(1)

     141.2         143.5         (1.6     410.7         411.7         (0.2

Non-cable

     19.8         20.1         (1.5     59.8         56.5         5.8   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total revenue

   £ 846.0       £ 826.2         2.4   £ 2,503.8       £ 2,427.2         3.2
  

 

 

    

 

 

      

 

 

    

 

 

    

 

(1) Includes equipment revenue stated net of discounts earned through service usage.

For the three months ended September 30, 2011, revenue from our Consumer segment customers increased by 2.4% to £846.0 million from revenue of £826.2 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, revenue from our Consumer segment customers increased by 3.2% to £2,503.8 million from revenue of £2,427.2 million for the nine months ended September 30, 2010. The increase for the three months ended September 30, 2011 was primarily due to an increase in revenue from our cable product offerings, partially offset by lower revenue from our mobile and non-cable product offerings. The increase for the nine months ended September 30, 2011 was primarily due to an increase in revenue from our cable product offerings and, to a lesser extent, increased revenue from our non-cable product offerings.

For the three months ended September 30, 2011, cable revenue increased to £685.0 million from £662.6 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, cable revenue increased to £2,033.3 million from £1,959.0 million for the nine months ended September 30, 2010. The increase in cable revenue for the three and nine months ended September 30, 2011 was primarily due to selective price increases and successful up-selling and cross-selling to our existing customer base, partially offset by a continued decline in fixed line telephony usage along with higher price discounting to stimulate customer activity and retention in light of competitive factors in the marketplace.

Cable ARPU increased to £47.86 for the three months ended September 30, 2011 from £46.38 for the three months ended September 30, 2010. The increase in cable ARPU was due in part to selective price increases and successful up-selling and cross-selling to existing customers, partially offset by declining telephony usage and price discounting. Cable products per customer remained relatively flat at 2.50 at September 30, 2011 as compared to 2.49 at September 30, 2010, and “triple-play” penetration grew to 63.8% at September 30, 2011 from 62.7% at September 30, 2010. A triple-play customer is a customer who subscribes to our cable television, broadband and fixed line telephone services.

For the three months ended September 30, 2011, mobile revenue decreased to £141.2 million from £143.5 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, mobile revenue decreased to £410.7 million from £411.7 million for the nine months ended September 30, 2010. The decrease in revenue for the three and nine months ended September 30, 2011 was primarily attributable to the regulated change in mobile termination rates, which reduced inbound revenue and a decline in the number of prepay customers, partially offset by an increase in service revenues, mainly driven by increased contract revenue.

Mobile ARPU increased to £15.22 for the three months ended September 30, 2011 from £15.01 for the three months ended September 30, 2010. The increase was primarily due to an increased proportion of higher value contract customers relative to the total number of mobile customers, which rose to 47.6% at September 30, 2011 from 37.6% at September 30, 2010, partially offset by a fall in revenue due to the regulated change in mobile termination rates.

 

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Non-cable revenue for the three months ended September 30, 2011 decreased to £19.8 million from £20.1 million for the three months ended September 30, 2010. Non-cable revenue for the nine months ended September 30, 2011 increased to £59.8 million from £56.5 million for the nine months ended September 30, 2010. Revenue for the three months ended September 30, 2011 decreased as a result of a decline in the number of customers primarily due to increased competition. Revenue for the nine months ended September 30, 2011 increased primarily due to the increase in the number of total products taken by customers over the period compared to the three months ended September 30, 2010.

Consumer Segment Contribution

For the three months ended September 30, 2011, Consumer segment contribution decreased to £493.5 million from £500.9 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, Consumer segment contribution increased to £1,473.0 million from £1,470.8 million for the nine months ended September 30, 2010. The decrease for the three months ended September 30, 2011 was primarily due to an increase in the marketing costs incurred by the Consumer segment. The increase for the nine months ended September 30, 2011 was primarily due to the increase in Consumer revenue, as described above, partially offset by higher Consumer cost of sales primarily due to the higher cost of high definition, or HD, content in our TV package as well as higher mobile equipment costs and higher telephony interconnect costs.

 

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Summary Cable Statistics

Selected statistics for our cable customers for the three months ended September 30, 2011 as well as the four prior quarters are set forth in the table below. We believe that the presentation of these statistics is important in understanding trends in our cable operations. Our net additions or disconnections is the difference between our gross customer additions and disconnections for the period. For the three months ended September 30, 2011 we had net additions of 6,300 customers. The reduction to net additions in the three months ended September 30, 2011, from the three months ended September 30, 2010 was primarily the result of higher customer churn, offset by an increase in gross additions. Customer churn increased to 1.7% in the three months ended September 30, 2011 from 1.6% in the three months ended September 30, 2010 primarily due to competitive and economic factors. The total number of cable products grew to 11,976,000 at September 30, 2011 from 11,897,500 at September 30, 2010, representing a net increase in products of 78,500. Between September 30, 2010 and September 30, 2011, the number of cable customers increased by 7,600.

 

     Three months ended  
     September 30,
2011
    June 30,
2011
    March 31,
2011
    December 31,
2010
    September 30,
2010
 

Opening customers

     4,784,300        4,820,300        4,800,100        4,783,000        4,768,900   

Customer additions

     243,700        169,800        191,800        206,600        236,000   

Customer disconnections (1)

     (237,400     (205,800     (171,600     (189,500     (221,900
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net customer additions (disconnections)

     6,300        (36,000     20,200        17,100        14,100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closing customers

     4,790,600        4,784,300        4,820,300        4,800,100        4,783,000   

Cable churn (2)

     1.7     1.4     1.2     1.3     1.6

Cable products:

          

Television

     3,762,100        3,767,700        3,788,900        3,778,800        3,766,700   

DTV (included in Television)

     3,749,600        3,753,900        3,772,300        3,759,600        3,745,900   

ATV (included in Television)

     12,500        13,800        16,600        19,200        20,800   

Telephone

     4,141,000        4,155,000        4,180,900        4,161,700        4,161,000   

Broadband

     4,072,900        4,048,600        4,061,200        4,011,100        3,969,800   

Total cable products

     11,976,000        11,971,300        12,031,000        11,951,600        11,897,500   

Cable products/Customer

     2.50     2.50     2.50     2.49     2.49

Triple-play penetration

     63.8     63.8     63.4     63.0     62.7

Cable Average Revenue Per User (3)

   £ 47.86      £ 47.35      £ 46.16      £ 47.51      £ 46.38   

Cable ARPU calculation:

          

Cable revenue (millions)

   £ 685.0      £ 682.3      £ 666.0      £ 682.8      £ 662.6   

Average customers

     4,771,500        4,802,600        4,809,000        4,790,000        4,763,400   

 

(1) During the second half of 2010, we reviewed our credit and collections reporting processes and aligned the way we measure disconnections with our underlying operational process. As a result, we estimate that reported gross disconnects decreased by 6,300 customers, representing 15,300 products and 4,600 customers, representing 11,000 products, during the third and fourth quarters of 2010, respectively.
(2) Cable churn is calculated by taking the total cable customer disconnects during the month (excluding any data cleanse activity) and dividing them by the average number of cable customers during the month. Average monthly churn during a quarter is the average of the three monthly churn calculations within the quarter. The average number of cable customers during the month is calculated by adding the number of customers at the start of the month and at the end of the month and dividing by two.
(3) The monthly cable average revenue per user, or cable ARPU, is calculated on a quarterly basis by dividing total revenue generated from the provision of telephone, television and internet services to customers who are directly connected to our network in that period together with revenue generated from customers using our virginmedia.com website, by the average number of customers directly connected to our network in that period divided by three. The average number of customers is calculated by adding the number of customers at the start of the quarter and at the end of each month of the quarter and dividing by four.

 

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Summary Mobile Statistics

Selected statistics for our mobile customers for the three months ended September 30, 2011 as well as the four prior quarters are set forth in the table below. We believe that the presentation of these statistics is important in understanding trends in our mobile operations. Between September 30, 2010 and September 30, 2011, the number of mobile customers decreased by a net 78,700. Contract customer gains of 266,700 were offset by net losses of 345,400 prepay customers. The growth in contract customers reflects our strategy of using our own sales channels, migrating prepay customers to contracts and cross-selling mobile contracts to our cable customers. The decline in prepay customers reflects increased competition in the prepay market and our strategy of migrating prepay customers to contracts due to lower churn, higher ARPU and higher overall lifetime value of contract customers.

 

     Three months ended  
     September 30,
2011
    June 30,
2011
    March 31,
2011
    December 31,
2010
    September 30,
2010
 

Contract mobile customers (1):

          

Opening contract mobile customers

     1,346,600        1,263,400        1,210,800        1,154,700        1,097,200   

Net contract mobile customer additions

     74,800        83,200        52,600        56,100        57,500   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closing contract mobile customers

     1,421,400        1,346,600        1,263,400        1,210,800        1,154,700   

Prepay mobile customers (1):

          

Opening prepay mobile customers

     1,705,200        1,737,800        1,858,100        1,912,300        1,976,200   

Net prepay mobile customer disconnections

     (138,300     (32,600     (120,300     (54,200     (63,900
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closing prepay mobile customers

     1,566,900        1,705,200        1,737,800        1,858,100        1,912,300   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total closing mobile customers: (1)

     2,988,300        3,051,800        3,001,200        3,068,900        3,067,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mobile average revenue per user (2)

   £ 15.22      £ 14.27      £ 14.70      £ 15.16      £ 15.01   

Mobile ARPU calculation:

          

Mobile service revenue (millions)

   £ 138.1      £ 129.3      £ 133.4      £ 138.7      £ 138.6   

Average mobile customers

     3,013,000        3,022,500        3,023,800        3,050,000        3,077,700   

 

(1) Mobile customer information is for active customers. Prepay customers are defined as active customers if they have made an outbound call or text in the preceding 30 days. Contract customers are defined as active customers if they have entered into a contract for a minimum 30-day period and have not been disconnected. Contract mobile customers represent the number of contracts relating to either a mobile service or a mobile broadband service.
(2) Mobile monthly average revenue per user, or Mobile ARPU, is calculated on a quarterly basis by dividing mobile service revenue (contract and prepay) for the period by the average number of active customers (contract and prepay) for the period, divided by three. The average number of customers is calculated by adding the number of customers at the start of the quarter and at the end of each month of the quarter and dividing by four.

 

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Summary Non-cable Statistics

Selected statistics for our residential customers that are not connected directly to our cable network, or non-cable customers, for the three months ended September 30, 2011 as well as for the four prior quarters are set forth in the table below. We believe that the presentation of these statistics is important in understanding trends in our non-cable operations. Between September 30, 2010 and September 30, 2011 the total number of non-cable products decreased by 3,900 primarily due to increased competition in the market.

 

     Three months ended  
     September 30,
2011
    June 30,
2011
    March 31,
2011
    December 31,
2010
     September 30,
2010
 

Opening customers

     266,400        272,700        276,700        274,000         272,600   

Net customer (disconnections) additions

     (5,100     (6,300     (4,000     2,700         1,400   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Closing customers

     261,300        266,400        272,700        276,700         274,000   

Opening Non-cable products:

           

Telephone

     169,000        170,700        169,600        161,200         154,400   

Broadband

     265,900        271,400        275,900        273,100         271,800   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     434,900        442,100        445,500        434,300         426,200   

Net Non-cable product (disconnections) additions:

           

Telephone

     700        (1,700     1,100        8,400         6,800   

Broadband

     (5,200     (5,500     (4,500     2,800         1,300   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     (4,500     (7,200     (3,400     11,200         8,100   

Closing Non-cable products:

           

Telephone

     169,700        169,000        170,700        169,600         161,200   

Broadband

     260,700        265,900        271,400        275,900         273,100   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     430,400        434,900        442,100        445,500         434,300   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Business Segment

Revenue

The summary combined results of operations of our Business segment for the three and nine months ended September 30, 2011 and 2010 were as follows (in millions):

 

     Three months ended
September 30,
           Nine months ended
September 30,
        
     2011      2010      Increase/
(Decrease)
    2011      2010      Increase/
(Decrease)
 

Revenue

   £ 154.0       £ 152.2         1.2   £ 464.3       £ 444.8         4.4

Segment contribution

     90.1         89.1         1.2        274.5         252.8         8.6   

Our Business segment revenue for the three and nine months ended September 30, 2011 and 2010 was as follows (in millions):

 

     Three months ended
September 30,
           Nine months ended
September 30,
        
     2011      2010      Increase/
(Decrease)
    2011      2010      Increase/
(Decrease)
 

Revenue:

                

Retail:

                

Data

   £ 69.4       £ 61.1         13.6   £ 203.5       £ 179.1         13.6

Voice

     37.7         41.2         (8.5     114.4         123.6         (7.4

LAN Solutions and other

     9.5         9.3         2.2        27.8         25.2         10.3   
  

 

 

    

 

 

      

 

 

    

 

 

    
   £ 116.6       £ 111.6         4.5      £ 345.7         327.9         5.4   

Wholesale:

                

Data

     33.4         34.9         (4.3     107.6         99.2         8.5   

Voice

     4.0         5.7         (29.8     11.0         17.7         (37.9
  

 

 

    

 

 

      

 

 

    

 

 

    
   £ 37.4       £ 40.6         (7.9   £ 118.6       £ 116.9         1.5   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total revenue

   £ 154.0       £ 152.2         1.2   £ 464.3       £ 444.8         4.4
  

 

 

    

 

 

      

 

 

    

 

 

    

For the three months ended September 30, 2011, revenue from business customers increased by 1.2% to £154.0 million from £152.2 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, revenue from business customers increased by 4.4% to £464.3 million from £444.8 million for the nine months ended September 30, 2010. The increase for the three months ended September 30, 2011 was primarily attributable to an increase in retail data revenue, partially offset by declines in retail voice, wholesale data and wholesale voice revenues. The increase for the nine months ended September 30, 2011 was primarily attributable to an increase in retail and wholesale data revenue along with an increase in LAN solutions and other revenue, partially offset by a fall in retail and wholesale voice revenues.

Retail data revenue represented 59.5% of the retail business revenue for the three months ended September 30, 2011 compared with 54.7% for the three months ended September 30, 2010. Retail data revenue represented 58.9% of the retail business revenue for the nine months ended September 30, 2011 compared with 54.6% for the nine months ended September 30, 2010. Retail data revenue increased in the three and nine months ended September 30, 2011 compared with the same periods in 2010 as a result of increased install activity growing rental revenue and our strategy of focusing on higher margin data revenue and increasing demand for our data products within a growing data market.

 

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Retail voice revenue decreased by 8.5% to £37.7 million in the three months ended September 30, 2011 as compared to £41.2 million in the three months ended September 30, 2010. Retail voice revenue decreased by 7.4% to £114.4 million in the nine months ended September 30, 2011 as compared to £123.6 million in the nine months ended September 30, 2010. The decrease in retail voice revenue is principally as a result of declining telephone usage and, to a lesser extent, a decline in rental and install revenues.

LAN solutions and other revenue increased by 2.2% to £9.5 million in the three months ended September 30, 2011 as compared to £9.3 million in the three months ended September 30, 2010. LAN solutions and other revenue increased by 10.3% to £27.8 million in the nine months ended September 30, 2011 as compared to £25.2 million in the nine months ended September 30, 2010. The increase for the nine months ended September 30, 2011 was primarily due to growth in equipment and LAN project revenues.

Wholesale revenue decreased by 7.9% to £37.4 million in the three months ended September 30, 2011 as compared to £40.6 million in the three months ended September 30, 2010. Wholesale revenue increased by 1.5% to £118.6 million in the nine months ended September 30, 2011 as compared to £116.9 million in the nine months ended September 30, 2010. The decrease in revenue for the three months ended September 30, 2011 was due to the continued decline in wholesale voice revenues, due to reduced rates and usage, and the decline in wholesale data revenue due to circuit disconnections. The increase in wholesale revenue for the nine months ended September 30, 2011 is primarily due to increased usage of our network by wholesale data customers, partially offset by reduced wholesale voice revenues.

Business Segment Contribution

For the three months ended September 30, 2011, Business segment contribution increased to £90.1 million from £89.1 million for the three months ended September 30, 2010. For the nine months ended September 30, 2011, Business segment contribution increased to £274.5 million from £252.8 million for the nine months ended September 30, 2010. The increase in segment contribution for the three months ended September 30, 2011 is primarily due to high margin data revenues replacing lower margin voice revenues, combined with reduced retail voice cost of sales due to a reduction in mobile termination rates. The increase in segment contribution in the nine months ended September 30, 2011 as compared with the same period in 2010 was due primarily to the higher revenue as described above.

Liquidity and Capital Resources

Overview

Our business is capital intensive and we are highly leveraged. We have significant cash requirements for operating costs, capital expenditures and interest expense. We believe that we will be able to meet our current and medium-term liquidity and capital requirements, including fixed charges, through cash on hand, cash from operations, available borrowings under our revolving credit facility, and our ability to obtain future external financing.

On July 28, 2010, we announced our intention to undertake a range of capital structure optimization actions including the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock until August 2011, and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. During the first quarter we increased the 2010 capital optimization program to permit the full redemption of the $550 million 9.125% senior notes due 2016, which occurred on July 26, 2011. On July 27, 2011, we announced a new capital structure optimization program which includes the application of, in aggregate, up to £850 million for purposes of repurchasing our common stock and debt and for effecting associated derivative transactions until December 31, 2012. Our new capital structure optimization program consists of the application of up to £625 million in repurchases of our common stock and up to £225 million for transactions relating to our debt and convertible debt, including related derivative transactions. Our capital structure optimization programs may be effected through open market, privately negotiated and / or derivative transactions, and may be implemented through arrangements with one or more brokers. Any shares of common stock acquired in connection with these programs will be held in treasury or cancelled. In addition, on October 27, 2011, we announced our intention to expend up to a further £250 million on share repurchases from the proceeds from the sale of our UKTV joint venture companies to Southbank Media Limited, an indirect subsidiary of Scripps Networks Interactive, Inc.

 

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During the three months ended September 30, 2011, we repurchased 5.1 million shares of common stock in connection with the 2011 capital structure optimization program, at an average purchase price per share of $24.85 ($126.9 million, or £77.6 million, in aggregate), through open market repurchases. During the three months ended September 30, 2010, we repurchased 9.3 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $20.78 ($194.0 million in aggregate), through open market repurchases.

During the nine months ended September 30, 2011, we repurchased 12.0 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $28.83 ($345.5 million in aggregate), through open market repurchases, and we repurchased 5.1 million shares of common stock in connection with the 2011 capital structure optimization program, at an average purchase price per share of $24.85 ($126.9 million in aggregate), through open market repurchases. During the nine months ended September 30, 2010, we repurchased 9.3 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $20.78 ($194.0 million in aggregate), through open market repurchases.

On September 8, 2011, we entered into an agreement with a counterparty to effect a $250.0 million (£156.6 million) capped accelerated stock repurchase (ASR). We will repurchase shares in the ASR program as part of the 2011 capital structure optimization program. We received approximately 7.3 million shares of common stock on September 13, 2011 and approximately 1.8 million shares of common stock on September 22, 2011, all of which were cancelled. The specific number of shares that we will ultimately repurchase in the ASR program will be based generally on the daily volume-weighted average share price of our common stock over the duration of the ASR program, subject to a cap provision that establishes a minimum number of repurchased shares. The final settlement of the repurchase contemplated by the ASR program is to occur no later than December 8, 2011, although the completion date may be accelerated at the option of the counterparty or, under certain circumstances, extended. At settlement, under certain circumstances, we may be entitled to receive additional shares of our common stock from the counterparty, or, under certain limited circumstances, we may be required to deliver shares or make a cash payment (at our option) to the counterparty. All of the repurchased shares will be held in treasury or cancelled. For further details relating to the ASR Program, please see Form 8-K of Virgin Media Inc., as filed with the SEC on September 8, 2011.

The shares of common stock acquired in connection with both the 2010 and 2011 capital structure optimization programs were cancelled. As at September 30, 2011, the remaining amount authorized for stock repurchases under the 2011 capital structure optimization program was £390.3 million.

On February 15, 2011, we further amended our senior credit facility to increase our operational flexibility. On May 20, 2011, we entered into two new additional facilities under the senior credit facility, including an additional revolving facility with total commitments of £450 million, which replaced the then existing £250 million revolving facility and an additional term facility with commitments of £750 million which was used to prepay in full Tranches A and B under the senior credit facility. Further amendments to increase operational flexibility were also effected on May 27, 2011. The maturity date of the facilities remains at June 30, 2015. For more information, see “-Senior Credit Facility” below.

On March 3, 2011, our wholly owned subsidiary, Virgin Media Secured Finance PLC, issued $500 million aggregate principal amount of 5.25% senior secured notes due 2021 and £650 million aggregate principal amount of 5.50% senior secured notes due 2021. The senior secured notes due 2021 rank pari passu with our senior credit facility and senior secured notes due 2018 and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility and senior secured notes due 2018. We used the net proceeds from the senior secured notes due 2021 to make repayments totaling £900 million under our senior credit facility and for general corporate purposes. On September 8, 2011, we completed an offer to exchange any and all of the then outstanding senior secured notes due 2021 which we originally issued in a U.S. private placement, for an equivalent amount of new senior secured notes due 2021 which have been registered under the U.S. Securities Act of 1933, as amended. In connection with this offer, we exchanged a total of $499,870,000 aggregate principal amount, or 99.9% of the original U.S. dollar denominated outstanding notes and £650,000,000 aggregate principal amount, or 100% of the original sterling denominated outstanding notes, for an equivalent amount of newly issued senior secured notes due 2021. Holders of the original senior secured notes due 2021 who did not tender their notes in compliance with the offer terms will remain subject to restrictions on transfer of these notes. Completion of the exchange offer satisfied our obligations in full under a registration rights agreement entered into in connection with the original notes issuance in March 2011. We did not receive any additional proceeds from the exchange offer. For further details relating to the exchange offer, please see the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on July 20, 2011.

 

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On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash from our balance sheet as part of our 2010 capital structure optimization program. For more information, see “-Senior Notes” below.

We may opportunistically access the loan and debt markets in order to extend debt maturities and seek improved debt terms.

As of September 30, 2011, we had £5,829.4 million of debt outstanding, compared to £6,020.4 million as of December 31, 2010 and £5,983.3 million as of September 30, 2010, and £438.3 million of cash and cash equivalents, compared to £479.5 million as of December 31, 2010 and £609.8 million as of September 30, 2010. The decrease in debt since both September 30, 2010 and December 31, 2010 is principally due to the redemption of the $550 million 9.125% senior notes due 2016 using cash.

Our long term debt was issued by Virgin Media Inc. and certain of its subsidiaries that have no independent operations or significant assets other than investments in their respective subsidiaries and receivables under intercompany loans. As a result, they will depend upon the receipt of sufficient funds from their respective subsidiaries or payments under intercompany loans to meet their obligations. In addition, the terms of our existing and future indebtedness and the laws of the jurisdictions under which our subsidiaries are organized limit the payment of dividends, loan repayments and other distributions from them under many circumstances.

Our debt agreements contain restrictions on our ability to transfer cash between groups of our subsidiaries. As a result of these restrictions, although our overall liquidity may be sufficient to satisfy our obligations, we may be limited by covenants in some of our debt agreements from transferring cash to other subsidiaries that might require funds. In addition, cross default provisions in our other indebtedness may be triggered if we default on any of these debt agreements.

Our cash balance of £438.3 million as of September 30, 2011 is held in a combination of short term bank deposits, money market funds and bank accounts that have a duration to maturity between overnight and up to three months. Our bank accounts are held with major financial institutions and, as part of our cash management process we perform regular evaluations of the credit standing of these institutions using a range of metrics.

Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

For the nine months ended September 30, 2011, cash provided by operating activities increased to £854.7 million from £772.3 million for the nine months ended September 30, 2010. This increase was primarily attributable to the improvement in operating results. For the nine months ended September 30, 2011, cash paid for interest, exclusive of amounts capitalized, decreased to £324.5 million from £331.4 million during the same period in 2010. This decrease was primarily as a result of a lower level of debt at lower average interest rates during the nine months ended September 30, 2011 along with differences in the timing of interest payments on our senior credit facility and senior notes. The change in the timing of the interest payments on our senior notes is as a result of refinancing activity undertaken during the year ended December 31, 2010 and the nine months ended September 30, 2011.

For the nine months ended September 30, 2011, cash used in investing activities was £140.7 million compared with cash used in investing activities of £264.9 million for the nine months ended September 30, 2010. The cash used in investing activities in the nine months ended September 30, 2011 principally represented purchases of fixed assets and the acquisition of the non-controlling interest in a consolidated subsidiary during the period, partially offset by the proceeds received from the sale of our equity accounted investment in the UKTV companies and the related principal repayment on loans to equity investments. The cash used in investing activities in the nine months ended September 30, 2010 principally represented purchases of fixed assets partially offset by the proceeds received from the sale of Virgin Media TV and the proceeds from the disposal of 42 properties. Purchases of fixed and intangible assets increased to £479.3 million for the nine months ended September 30, 2011 from £478.0 million for the same period in 2010 primarily due increased payments in respect to the timing of payments to suppliers partially offset by reduced spend on consumer premise equipment (CPE). As we began the roll-out of our new TiVo service, the initial phase of set top boxes was financed using operating leases from one of our suppliers and as a result the cost of these boxes was not included within purchases of fixed and intangible assets.

 

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Cash used in financing activities for the nine months ended September 30, 2011 was £742.0 million compared to cash used in financing activities of £292.4 million for the nine months ended September 30, 2010. Cash used in financing activities for the nine months ended September 30, 2011 was primarily for principal payments on long term debt and repurchases of common stock, partially offset by new debt issuances and the proceeds from the settlement of cross currency interest rate swaps. Cash used in financing activities for the nine months ended September 30, 2010, was primarily for principal payments on long term debt and repurchases of common stock, partially offset by new debt issuances.

Senior Credit Facility

On March 16, 2010, we entered into a senior facilities agreement (as amended and restated on March 26, 2010, February 15, 2011 and May 27, 2011), or the Senior Facilities Agreement, under which Deutsche Bank AG, London Branch, BNP Paribas London Branch, Bank of America, N.A., Crédit Agricole Corporate and Investment Bank, GE Corporate Finance Bank SAS, Goldman Sachs Lending Partners LLC, J.P. Morgan Chase Bank, N.A. London Branch, Lloyds TSB Bank plc, The Royal Bank of Scotland plc and UBS Limited agreed to make available to certain subsidiaries of the Company a term loan A facility, or Tranche A, and a revolving credit facility, or RCF. On April 12, 2010, a term loan B facility, or Tranche B was added to the Senior Facilities Agreement by way of an accession deed between Virgin Media Investment Holdings Limited and Deutsche Bank AG, London Branch. Tranche B was syndicated to a group of lenders.

On April 19, 2010, we drew down an aggregate principal amount of £1,675.0 million under the senior credit facility and applied the proceeds towards the repayment in full of all amounts outstanding under our previous senior credit facility dated March 3, 2006 (as amended and restated from time to time) as at the draw down date.

On February 15, 2011, we further amended our senior credit facility to, among others, (i) fix the total net leverage ratio to 3.75:1.00 from December 31, 2011 until December 31, 2015; (ii) delete the cap on the amount of cash that can be deducted in calculating consolidated senior net debt and consolidated net debt; (iii) allow the Company to incur debt so long as it remains in compliance with the total net leverage; (iv) change the required level for the ratio of consolidated senior net debt to consolidated operating cashflow from 2.25:1.00 to 3.00:1.00; (v) include sale and leaseback arrangements in certain financial baskets; (vi) increase certain financial baskets to the greater of £250 million plus amounts outstanding as of the original execution date and the amount that could be incurred so that the ratio of consolidated senior net debt to consolidated operating cashflow is equal to, or less than, 3.00:1.00 for the purposes of incurring secured debt; (vii) eliminate the excess cash flow sweep; and (viii) eliminate the restriction on using the proceeds of an additional facility or additional senior secured notes for the payment of any dividends or distributions to the Company and the repayment or prepayment of the 9.125% senior notes due 2016. Certain additional amendments were outlined in the senior credit facility, including the extension of certain lenders’ portion of our June 30, 2014 scheduled amortization payment of £200 million by one year, to June 30, 2015.

In March 2011, we used the proceeds from our senior secured notes due 2021 (as described in “Senior Secured Notes” below) to prepay approximately £532.5 million of the Tranche A outstanding under our senior credit facility, thus eliminating scheduled amortization in 2011 through 2014, and approximately £367.5 million of Tranche B outstanding under our senior credit facility that was scheduled for payment in 2015.

On May 20, 2011, we entered into two new additional facilities under the senior credit facility with Deutsche Bank AG, London Branch, BNP Paribas London Branch, Bank of America, N.A., Credit Agricole Corporate and Investment Bank, Goldman Sachs International Bank, HSBC Bank plc, JP Morgan Chase Bank, N.A. London Branch, Lloyds TSB Bank plc, The Royal Bank of Scotland plc and UBS Limited, including an additional revolving facility with total commitments of £450 million, which replaced the then existing £250 million revolving facility and an additional term facility with commitments of £750 million which was used to prepay in full Tranches A and B. We used £25 million of existing cash on hand to reduce the loan balance. In addition, on May 27, 2011, we effected certain amendments to the senior credit facility including, among other things: (i) amending the definition of additional high yield notes and high yield refinancings to permit high yield notes to be issued or refinanced through the Company, (ii) increasing the number of days in which the Company may elect to increase Lenders’ commitments following the cancellation of other Lenders’ commitments, (iii) amending provisions related to the Company’s ability to add additional facilities under the senior facilities agreement, (iv) shortening the required notice period for utilization requests, (v) require cash cover return to the Company under certain circumstances, (vi) remove the requirement to make mandatory prepayments of net proceeds, excess cash flow and equity proceeds, (vii) removing the prescriptive requirements to hedge particular exposures, (viii) giving greater freedom to obligors to create permitted types of security in favor of third parties over assets which would otherwise be required to be secured in favor of the Lenders, (ix) amending consent provisions to accelerate the time periods for obtaining Lender consents, and (x) removing certain other restrictive covenants.

 

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As at September 30, 2011, our senior credit facility has an aggregate outstanding principal amount of £750 million, and the revolving credit facility has an aggregate outstanding principal amount of £450 million. On September 12, 2011 we borrowed £50 million under the revolving credit facility. This was repaid on October 12, 2011. The proceeds from the senior credit facility may be used for general corporate purposes, while the proceeds from the revolving credit facility are available for the financing of our ongoing working capital requirements and general corporate purposes.

Principal Amortization

The final maturity of the additional revolving facility and the additional term facility is June 30, 2015. There is no scheduled amortization.

Mandatory Prepayments

Our senior credit facility must be repaid and all commitments will be cancelled upon the occurrence of a change of control.

Interest Margins

The annual rate of interest payable under our senior credit facility is the sum of (i) the London Intrabank Offer Rate (LIBOR), plus (ii) the applicable interest margin and (iii) the applicable cost of complying with any mandatory costs requirement.

The applicable interest margin for the additional revolving credit facility and additional term facility under our senior credit facility depends upon the total net leverage ratio of the bank group (which comprises VMIH and certain of its subsidiaries, and certain other operating companies which are subsidiaries of Virgin Media Inc. but not of VMIH) then in effect as set forth below:

 

Leverage Ratio

   Margin  

Additional Revolving Credit Facility Leverage Ratio Margin

  

Greater than 3.50:1.00

     1.825

Equal to or less than 3.50:1.00 but greater than 3.25:1.00

     1.575

Equal to or less than 3.25:1.00

     1.325

Additional Term Credit Facility Leverage Ratio Margin

  

Greater than 3.50:1.00

     2.125

Equal to or less than 3.50:1.00 but greater than 3.25:1.00

     1.875

Equal to or less than 3.25:1.00

     1.625

Leverage ratio is calculated by comparing consolidated net debt at any quarter end date against consolidated operating cash flow on a rolling 12 month basis ending on such quarter date (such defined terms have the same meaning as in the Senior Facilities Agreement).

 

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Guarantees; Security

Our senior credit facility requires that members of the bank group which generate not less than 80% of the consolidated operating cash flow of the bank group (excluding the consolidated net income attributable to any joint venture) in any financial year guarantee the payment of all sums payable under our senior credit facility and such members are required to grant first-ranking security over all or substantially all of their assets to secure the payment of all sums payable under our senior credit facility. Virgin Media Finance PLC has also provided a guarantee for the payment of all sums payable under our senior credit facility and has secured its obligations under that guarantee by granting security over its interest in the intercompany debt owed to it by its direct subsidiary, VMIH and over all of the shares in VMIH.

Financial Maintenance Covenants

Our senior credit facility contains the following financial covenant ratios:

 

   

Consolidated net debt to consolidated operating cashflow, which we refer to as the leverage ratio; and,

 

   

Consolidated operating cashflow to consolidated total net cash interest, which we refer to as the interest coverage ratio.

These covenant ratios are calculated with respect to our bank group companies, pursuant to the definitions contained in our senior credit facility, and are subject to certain adjustments provided therein. The minimum required ratios are outlined below:

 

Quarter Date

   Leverage
Ratio
     Interest
Coverage
Ratio
 

September 30, 2011

     4.35:1.00         2.85:1.00   

December 31, 2011

     3.75:1.00         2.95:1.00   

March 31, 2012

     3.75:1.00         3.00:1.00   

June 30, 2012

     3.75:1.00         3.05:1.00   

September 30, 2012

     3.75:1.00         3.10:1.00   

December 31, 2012

     3.75:1.00         3.10:1.00   

March 31, 2013

     3.75:1.00         3.15:1.00   

June 30, 2013

     3.75:1.00         3.20:1.00   

September 30, 2013

     3.75:1.00         3.25:1.00   

December 31, 2013

     3.75:1.00         3.35:1.00   

March 31, 2014

     3.75:1.00         3.45:1.00   

June 30, 2014

     3.75:1.00         3.55:1.00   

September 30, 2014

     3.75:1.00         3.70:1.00   

December 31, 2014

     3.75:1.00         3.80:1.00   

March 31, 2015

     3.75:1.00         3.95:1.00   

June 30, 2015

     3.75:1.00         4.00:1.00   

September 30, 2015

     3.75:1.00         4.00:1.00   

December 31, 2015

     3.75:1.00         4.00:1.00   

Failure to meet these covenant levels would result in a default under our senior credit facility. As of September 30, 2011, we were in compliance with these covenants.

 

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Restrictions

Our senior credit facility significantly, and in some cases absolutely, restricts the ability of the members of the bank group to, among other things:

 

   

incur or guarantee additional indebtedness;

 

   

pay dividends or make other distributions, or redeem or repurchase equity interests or subordinated obligations;

 

   

make investments;

 

   

sell assets, including the capital stock of subsidiaries;

 

   

create liens;

 

   

enter into agreements that restrict the bank group’s ability to pay dividends or make inter-company loans;

 

   

merge or consolidate or transfer all or substantially all of their assets; and

 

   

enter into transactions with affiliates.

We are also subject to financial maintenance covenants under our senior credit facility.

The senior credit facility also contains certain carve-outs from these limitations.

Events of Default

The occurrence of events of default specified in the Senior Facilities Agreement entitle the lenders, after the expiry of any grace periods, as applicable, to cancel any undrawn portion of the facilities, require the immediate payment of all amounts outstanding under the facilities and enforce or direct the security interests that have been granted. These events of defaults include, among other things:

 

   

failure to make payments of principal or interest when due;

 

   

breaches of representations;

 

   

breaches of obligations and undertakings under the Senior Facilities Agreement or related finance documents, including failure to comply with financial covenants;

 

   

cross-defaults to other indebtedness of any member of the group, subject to certain threshold amounts and other customary exceptions;

 

   

the occurrence of insolvency contingencies affecting the Company, Virgin Media Finance PLC, any borrower under the Senior Facilities Agreement or any guarantor that is a material subsidiary;

 

   

repudiation of the Senior Facilities Agreement or related finance documents;

 

   

illegality; and

 

   

the occurrence of any event or circumstance which would have a material adverse effect in (i) the financial condition, assets or business of the obligors (taken as a whole) under the Senior Facilities Agreement, and (ii) the ability of obligors (taken together) under the Senior Facilities Agreement to perform and comply with their payment or other material obligations under the Senior Facilities Agreement or related finance documents (taking into account the resources available to the obligors from any other member of the bank group).

 

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The foregoing description of our senior credit facility does not purport to be complete and is qualified in its entirety by reference to the full text of the Senior Facilities Agreement which is filed as Exhibit 10.1 in Virgin Media Inc.’s current report on Form 8-K, as filed with the SEC on May 23, 2011, and is incorporated herein by reference.

Senior Notes

In July 2006, Virgin Media Finance issued U.S. dollar denominated 9.125% senior notes due 2016, or the 9.125% senior notes due 2016, with a principal amount outstanding of $550 million. The 9.125% senior notes due 2016 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance’s outstanding 9.50% senior notes due 2016 and its senior notes due 2014 and 2019. Interest on the 9.125% senior notes due 2016 is payable on February 15 and August 15 of each year. The 9.125% senior notes due 2016 mature on August 15, 2016 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL. On July 26, 2011, we fully redeemed the 9.125% senior notes due 2016 by paying £355.8 million of cash.

In June 2009, Virgin Media Finance issued U.S. dollar denominated 9.50% senior notes due 2016 with a principal amount outstanding of $750 million and euro denominated 9.50% senior notes due 2016 with a principal amount outstanding of €180 million. In July 2009, Virgin Media Finance issued additional U.S. dollar denominated 9.50% senior notes due 2016 with a principal amount outstanding of $600 million. The U.S. dollar denominated senior notes issued in June 2009 and July 2009, respectively, are treated as a single issuance of the same notes under the indenture for these notes, collectively, the 9.50% senior notes due 2016. Interest on the 9.50% senior notes due 2016 is payable on February 15 and August 15 of each year. The 9.50% senior notes due 2016 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance’s outstanding senior notes due 2014 and 2019 and its 9.125% senior notes due 2016. The 9.50% senior notes due 2016 mature on August 15, 2016 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL.

In November 2009, Virgin Media Finance issued U.S. dollar denominated 8.375% senior notes due 2019 with a principal amount outstanding of $600 million and sterling denominated 8.875% senior notes due 2019 with a principal amount outstanding of £350 million, collectively, the senior notes due 2019. Interest on the senior notes due 2019 is payable on April 15 and October 15 of each year. The senior notes due 2019 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance’s outstanding senior notes due 2014 and 2016. The senior notes due 2019 mature on October 15, 2019 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and Virgin Media Investments Limited.

Senior Secured Notes

On January 19, 2010, our wholly owned subsidiary Virgin Media Secured Finance PLC issued U.S. dollar denominated 6.50% senior secured notes due 2018 with a principal amount outstanding of $1.0 billion and sterling denominated 7.00% senior secured notes due 2018 with a principal amount outstanding of £875 million, collectively, the senior secured notes due 2018. Interest is payable on the senior secured notes due 2018 on June 15 and December 15 each year, beginning on June 15, 2010.

On August 5, 2010, we completed an offer to exchange any and all of the then outstanding senior secured notes due 2018, which we originally issued in a U.S. private placement, for an equivalent amount of new senior secured notes due 2018 which have been registered under the U.S. Securities Act of 1933, as amended. In connection with this offer, we exchanged a total of $999,369,000 aggregate principal amount, or 99.9% of the original U.S. dollar denominated notes, and £867,373,000 aggregate principal amount, or 99.1% of the original sterling denominated notes, for an equivalent amount of newly issued senior secured notes due 2018. Holders of the original senior secured notes due 2018 who did not tender their notes in compliance with the offer terms and continue to hold the original senior secured notes will remain subject to restrictions on transfer of these notes. Completion of the exchange offer satisfied our obligations in full under a registration rights agreement entered into in connection with the original note issuance in January 2010. We did not receive any additional proceeds from the exchange offer. For further details relating to the exchange offer, please see Amendment No.1 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on June 30, 2010.

 

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On March 3, 2011, Virgin Media Secured Finance PLC issued U.S. dollar denominated 5.25% senior secured notes due 2021 with a principal amount outstanding of $500 million and sterling denominated 5.50% senior secured notes due 2021 with a principal amount outstanding of £650 million, collectively, the senior secured notes due 2021. Interest is payable on the senior secured notes due 2021 on January 15 and July 15 each year, beginning on July 15, 2011. The net proceeds from the senior secured notes due 2021 were partly applied towards the prepayment of £532.5 million of the Tranche A outstanding under our senior credit facility and £367.5 million of the Tranche B Facility outstanding under our senior credit facility. The remainder of the net proceeds are being used for general corporate purposes. For further details relating to the senior secured notes due 2021, please see Virgin Media Inc.’s current report on Form 8-K, as filed with the SEC on March 3, 2011, which is incorporated herein by reference.

On September 8, 2011, we completed an offer to exchange any and all of the then outstanding senior secured notes due 2021 which we originally issued in a U.S. private placement, for an equivalent amount of new senior secured notes due 2021 which have been registered under the U.S. Securities Act of 1933, as amended. In connection with this offer, we exchanged a total of $499,870,000 aggregate principal amount, or 99.9% of the original U.S. dollar denominated outstanding notes and £650,000,000 aggregate principal amount, or 100% of the original sterling denominated outstanding notes, for an equivalent amount of newly issued senior secured notes due 2021. Holders of the original senior secured notes due 2021 who did not tender their notes in compliance with the offer terms will remain subject to restrictions on transfer of these notes. Completion of the exchange offer satisfied our obligations in full under a registration rights agreement entered into in connection with the original notes issuance in March 2011. We did not receive any additional proceeds from the exchange offer. For further details relating to the exchange offer, please see the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on July 20, 2011.

The senior secured notes due 2018 and the senior secured notes due 2021 rank pari passu with and, subject to certain exceptions, share in the same guarantees and security which has been granted in favor of our senior credit facility. See “Senior Credit Facility—Guarantees: Security”.

Convertible Senior Notes

In April 2008, Virgin Media Inc. issued U.S. denominated 6.50% convertible senior notes due 2016 with a principal amount outstanding of $1.0 billion. The convertible senior notes are unsecured senior obligations of Virgin Media Inc. and, consequently, are subordinated to our obligations under our senior credit facility and rank equally with Virgin Media Inc.’s guarantees of the senior notes. The convertible senior notes bear interest at an annual rate of 6.50% payable semi-annually on May 15 and November 15 of each year, beginning November 15, 2008. The convertible senior notes mature on November 15, 2016 and may not be redeemed by us prior to the maturity date. Upon conversion, we may elect to settle in cash, shares of common stock or a combination of cash and shares of our common stock. Our current report on Form 8-K, as filed with the SEC on April 16, 2008 contains a more detailed description of the terms of our convertible senior notes.

Holders of convertible senior notes may tender their notes for conversion at any time on or after August 15, 2016 through to the second scheduled trading date preceding the maturity date. Prior to August 15, 2016, holders may convert their notes, at their option, only under the following circumstances: (i) in any quarter, if the closing sale price of Virgin Media Inc.’s common stock during at least 20 of the last 30 trading days of the prior quarter was more than 120% of the applicable conversion price per share of common stock on the last day of such prior quarter; (ii) if, for five consecutive trading days, the trading price per $1,000 principal amount of notes was less than 98% of the product of the closing price of our common stock and the then applicable conversion rate; (iii) if a specified corporate event occurs, such as a merger, recapitalization, reclassification, binding share exchange or conveyance of all, or substantially all, of Virgin Media Inc.’s assets; (iv) the declaration by Virgin Media Inc. of the distribution of certain rights, warrants, assets or debt securities to all, or substantially all, holders of Virgin Media Inc.’s common stock; or (v) if Virgin Media Inc. undergoes a fundamental change (as defined in the indenture governing the convertible senior notes), such as a change in control, merger, consolidation, dissolution or delisting.

The initial conversion rate of the convertible senior notes represents an initial conversion price of approximately $19.22 per share of common stock. The conversion rate is subject to adjustment for stock splits, stock dividends or distributions, the issuance of certain rights or warrants, certain cash dividends or distributions or stock repurchases where the price exceeds market values. In the event of specified fundamental changes relating to Virgin Media Inc., referred to as “make whole” fundamental changes, the conversion rate will be increased as provided by a formula set forth in the indenture governing the convertible senior notes.

 

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Holders may also require us to repurchase the convertible senior notes for cash in the event of a fundamental change (as defined in the indenture governing the convertible senior notes), such as a change in control, merger, consolidation, dissolution or delisting (including involuntary delisting for failure to continue to comply with the NASDAQ listing criteria), for a purchase price equal to 100% of the principal amount, plus accrued but unpaid interest to the purchase date.

If the trading price of our common stock exceeds 120% of the conversion price of the convertible notes for 20 out of the last 30 trading days of a calendar quarter, holders of the convertible notes may elect to convert their convertible notes during the following quarter. This condition was met in the three months ended September 30, 2011. If conversions of this nature occur, we may deliver cash, common stock, or a combination of both, at our election, to settle our obligations. We have classified this debt as long-term debt in the consolidated balance sheet as of September 30, 2011 because we determined, in accordance with the Derivatives and Hedging Topic of the FASB ASC, that we have the ability to settle the obligations in equity in all circumstances, except in the case of a fundamental change (as defined in the indenture governing the convertible senior notes). This condition must be fulfilled on 20 of the last 30 trading days of each calendar quarter. If the condition is not met during that time period, the notes will not be convertible in the following quarter.

Cash Dividends

During the year ended December 31, 2010 and the nine months ended September 30, 2011, we paid the following dividends:

 

Board Declaration Date

   Per Share      Record Date      Payment Date      Total
Amount
 
                          (in millions)  

Year ended December 31, 2010:

           

March 2, 2010

   $ 0.04         March 12, 2010         March 22, 2010       £ 8.8   

May 27, 2010

     0.04         June 11, 2010         June 21, 2010         9.0   

July 23, 2010

     0.04         September 13, 2010         September 23, 2010         8.2   

November 23, 2010

     0.04         December 13, 2010         December 23, 2010         8.1   

Nine months ended September 30, 2011:

           

March 4, 2011

   $ 0.04         March 14, 2011         March 24, 2011       £ 8.0   

May 16, 2011

     0.04         June 13, 2011         June 23, 2011         7.8   

August 31, 2011

     0.04         September 12, 2011         September 22, 2011         7.9   

Future payments of regular quarterly dividends by us are at the discretion of the Board of Directors and will be subject to our future needs and uses of cash, which could include investments in operations, the repayment of debt, and share repurchase programs. In addition, the terms of our and our subsidiaries’ existing and future indebtedness and the laws of jurisdictions under which those subsidiaries are organized limit the payment of dividends, loan repayments and other distributions to us under many circumstances.

Off-Balance Sheet Arrangements

As of September 30, 2011 and 2010, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K under the U.S. Securities Exchange Act of 1934, as amended.

Contractual Obligations and Commercial Commitments

Other than the changes to our long term debt obligations, described in the Liquidity and Capital Resources section above, our contractual obligations and commercial commitments as of September 30, 2011 were not materially different to the contractual obligations disclosed in our 2010 Annual Report.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. As some of our indebtedness accrues interest at variable rates, we have exposure to volatility in future cash flows and earnings associated with variable interest rate payments.

Also, substantially all of our revenues, operating costs and selling, general and administrative expenses are earned and paid in pounds sterling but we pay interest and principal obligations on some of our indebtedness in U.S. dollars and euros. As of September 30, 2011, £2,852.0 million, or 48.4%, of our indebtedness based upon contractual obligations, was denominated in U.S. dollars and £155.8 million, or 2.6%, of our indebtedness based upon contractual obligations, was denominated in euros. As a result, we have exposure to volatility in future cash flows and earnings associated with changes in foreign exchange rates on payments of principal and interest on a portion of our indebtedness. We also have committed and forecasted purchases of goods and services in U.S. dollars, euros and South African rand.

To mitigate the risk from these exposures, we have implemented a hedging program. The objective of this program is to reduce, but not eliminate, the volatility of our cash flows and earnings caused by changes in underlying rates. To achieve this objective we have entered into a number of derivative instruments. The derivative instruments utilized comprise interest rate swaps, cross-currency interest rate swaps and foreign currency forward contracts. We do not enter into derivative instruments for trading or speculative purposes. See note 6 to the consolidated financial statements of Virgin Media Inc.

The fair market value of long term fixed interest rate debt and the amount of future interest payments on variable interest rate debt are subject to interest rate risk.

 

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The following table provides information as of September 30, 2011 about our long term fixed and variable interest rate debt that are sensitive to changes in interest rates and foreign currency exchange rates (in millions):

 

    Year ended December 31,                 Fair Value
September 30,

2011
 
    2011     2012     2013     2014     2015     Thereafter     Total    

Long term debt
(including current portion)

               

U.S. Dollars

               

Fixed rate

    —          —          —          —          —        $ 4,450.0      $ 4,450.0      $ 5,127.3   

Average interest rate

              7.522    

Average forward exchange rate

              0.65       

Euros

               

Fixed rate

    —          —          —          —          —        180.0      180.0      192.6   

Average interest rate

              9.500    

Average forward exchange rate

              0.88       

Pounds Sterling

               

Fixed rate

    —          —          —          —          —        £ 1,875.0      £ 1,875.0      £ 1,973.1   

Average interest rate

              6.830    

Variable rate

  £ 50.0        —          —          —        £ 750.0        £ 800.0      £ 800.0   

Average interest rate

    LIBOR              LIBOR         
    plus              plus         
    1.325%-1.825           1.625%-2.125      

Currency swap agreements related to long term debt

               

Receipt of U.S.Dollars (interest and principal)

               

Notional amount

    —          —            —          —        $ 2,950.0      $ 2,950.0      £ 32.0   

Average forward exchange rate

              0.61       

Average sterling interest rate paid

              8.79    

Receipt of U.S.Dollars (interest and principal)

               

Notional amount

    —          —            —          —        $ 500.0      $ 500.0      £ 34.8   

Average contract exchange rate

              0.62       

Average sterling interest rate paid

              LIBOR+1.94    

Receipt of U.S.Dollars (interest only)

               

Notional amount

    —          —            —          —        $ 1,000.0      $ 1,000.0      £ 27.9   

Average contract exchange rate

              0.52       

Average sterling interest rate paid

              6.91    

Receipt of Euros (interest and principal)

               

Notional amount

    —          —            —          —        180.0      180.0      £ (8.3

Average contract exchange rate

              0.88       

Average sterling interest rate paid

              10.18    

Interest rate derivative financial instruments related to long term debt

               

Sterling Interest Rate Swaps

               

Notional amount

    —          —          —          —        £ 600.0      £ 650.0      £ 1,250.0      £ 38.3   

Average sterling interest rate paid

            2.86     LIBOR+1.84    

Sterling interest rate received

            LIBOR        5.50    

 

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ITEM 4. CONTROLS AND PROCEDURES

 

(a) Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, these controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. For instance, the U.K. tax authorities have continued to challenge our VAT treatment of certain of our activities. Any challenge made could become subject to court proceedings. We currently expect an initial hearing on this matter to take place in 2012.

While we do not believe any of the litigation matters alone or in the aggregate will have a material adverse effect on our financial position or results of operation, any adverse outcome in one or more of these matters could be material to our consolidated financial statements for any one period.

 

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors discussed under “Risk Factors” and elsewhere in our 2010 Annual Report.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a) Not applicable.

 

(b) Not applicable.

 

(c) Share Repurchases

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid Per Share
(in U.S. dollars)
     Total Number of
Share Purchases
as Part of Publicly
Announced Plans
or Programs
     Approximate Value
of Shares that May
Yet be Purchased
under the 2010
Program (in
Pounds Sterling
millions) (1)
     Approximate Value
of Shares that May
Yet be Purchased
under the 2011
Program (in
Pounds Sterling
millions) (2)
     Approximate
Value of Shares
that May Yet be
Purchased  under
the 2010 and 2011
Programs (in
Pounds Sterling
millions) (1) (2)
 

January 1-31, 2011

     —         $ —           —         £ 213.5       £ —         £ 213.5   

February 1-28, 2011

     350,000       $ 27.26         350,000         207.6         —           207.6   

March 1-31, 2011

     6,825,074       $ 27.09        
6,825,074
  
     93.5         —           93.5   

April 1-30, 2011

     —         $ —           —           93.5         —           93.5   

May 1-31, 2011

     2,294,400       $ 31.43         2,294,400         49.3         —           49.3   

June 1-30, 2011

     2,515,000       $ 31.38         2,515,000         0.6         —           0.6   

July 1-31, 2011

     —         $ —           —           0.6         625.0         625.6   

August 1-31, 2011

     4,583,400       $ 24.85         4,583,400         0.6         555.7         556.3   

September 1-30, 2011 (3)

     9,613,614       $ 24.26         9,613,614         0.6         390.8         391.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     26,181,488       $ 26.45         26,181,488       £ 0.6       £ 390.8       £ 391.4   

 

(1) On July 28, 2010, we announced a capital structure optimization program expected to include the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock until August 2011 and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. On March 4, 2011, we increased the capital optimization program to permit the full redemption of the 9.125% senior notes due 2016 on or before August 15, 2011. In the first half of 2011, the repurchases were made through open market transactions. The 2010 capital structure optimization program was completed in June 2011.
(2) On July 27, 2011, we announced a new capital structure optimization program expected to include the application of, in aggregate, up to £850 million, in part towards repurchases of up to £625 million of our common stock until December 31, 2012 and in part towards transactions relating to our debt, including related derivative transactions. In addition, on October 27, 2011, we announced our intention to expend up to a further £250 million on share repurchases from the proceeds from the sale of our UKTV joint venture companies. In the third quarter of 2011, the repurchases were made through open market transactions and accelerated stock repurchase programs.
(3) In September 2011 we paid $250 million under the ASR program as a part of our 2011 capital optimization program and received an initial delivery of 9.1 million shares. The average price paid per share is based on the fair market value of the shares that had been delivered at September 30, 2011. See note 8 to the condensed consolidated financial statements for further information.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. (REMOVED AND RESERVED)

 

ITEM 5. OTHER INFORMATION

None.

 

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EXHIBIT INDEX

 

Exhibit
No.
    
3.1    Second Restated Articles of Incorporation of Virgin Media Inc. (Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on March 1, 2007).
3.2    Restated by-laws of Virgin Media Inc. (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on March 1, 2007).
3.3    Memorandum and Articles of Association of Virgin Media Investment Holdings Limited (Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 26, 2010).
3.4    Memorandum and Articles of Association of Virgin Media Investments Limited (Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
4.1    Fourth Supplemental Indenture, dated as of February 18, 2011, among VMWH Limited, Virgin Media Secured Finance PLC and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.23 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
4.2    Indenture, dated as of March 3, 2011, among Virgin Media Secured Finance PLC, the guarantors party thereto, The Bank of New York Mellon as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A. as Luxembourg paying agent (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on March 3, 2011).
4.3    Release of Note Guarantee, dated as of February 15, 2011, among Virgin Media Secured Finance PLC, the companies listed in schedule 1 thereto and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.27 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
4.4    Release of Note Guarantee, dated as of February 18, 2011, among Virgin Media Secured Finance PLC, Telewest Communications Holdings Limited and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.28 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
4.5    Composite Debenture, dated as of February 18, 2011, made between VMWH Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.6 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).

 

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4.6    Scottish Confirmation Deed, dated as of March 3, 2011, among Virgin Media Investment Holdings Limited, each of its subsidiaries listed on the signature pages thereto, Deutsche Bank AG, London Branch and The Bank of New York Mellon (Incorporated by reference to Exhibit 4.7 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
4.7    English Confirmation Deed, dated as of March 3, 2011, among Virgin Media Investment Holdings Limited, each of its subsidiaries listed on the signature pages thereto, Deutsche Bank AG, London Branch and The Bank of New York Mellon (Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
4.8    Reaffirmation Agreement, dated as of March 3, 2011, among Virgin Media Inc., each of its subsidiaries listed on the signature pages thereto, Deutsche Bank AG, London Branch and The Bank of New York Mellon (Incorporated by reference to Exhibit 4.9 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
4.9    Senior Facilities Agreement, dated March 16, 2010, as amended and restated on March 26, 2010, February 15, 2011 and May 20, 2011 among Virgin Media Inc. as Ultimate Parent, Virgin Media Finance PLC as Parent, Virgin Media Investment Holdings Limited, Virgin Media Limited, Virgin Media Wholesale Limited, VMIH Sub Limited and Virgin Media SFA Finance Limited as Original Borrowers, BNP Paribas London Branch, Deutsche Bank AG, London Branch, Crédit Agricole Corporate and Investment Bank, Goldman Sachs International, J.P. Morgan PLC, Lloyds TSB Corporate Markets, HSBC Bank plc, The Royal Bank of Scotland plc and UBS Limited as Bookrunners and Mandated Lead Arrangers, Deutsche Bank AG, London Branch as Facility Agent, Deutsche Bank AG, London Branch as Security Trustee and the financial and other institutions named in it as Lenders (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 23, 2011).
4.10    Additional Facility Accession Deed (Term Facility), dated May 20, 2011, among Deutsche Bank AG, London Branch as Facility Agent, the financial and other institutions named in it as Additional Facility Lenders, Virgin Media Investment Holdings Limited, and, inter alia, Virgin Media Inc. as Ultimate Parent, Virgin Media Finance PLC as Parent, Virgin Media Investment Holdings Limited, Virgin Media Limited, Virgin Media Wholesale Limited, VMIH Sub Limited and Virgin Media SFA Finance Limited as Original Borrowers (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 23, 2011).
4.11   

Additional Facility Accession Deed (Revolving Facility), dated May 20, 2011, among Deutsche Bank AG, London Branch as Facility Agent, the financial and other institutions named in it as Additional Facility Lenders, Virgin Media Investment Holdings Limited, and, inter alia, Virgin Media Inc. as Ultimate Parent, Virgin Media Finance PLC as Parent, Virgin Media Investment Holdings Limited, Virgin Media Limited, Virgin Media Wholesale Limited, VMIH Sub Limited and Virgin Media SFA Finance Limited as Original Borrowers (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 23, 2011).

 

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10.1    Description of the 2011-2013 Virgin Media Inc. Long Term Incentive Plan (Incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.2    JSOP Trust Agreement dated as of January 28, 2011 between Virgin Media Inc. as grantor and Christiana Trust, a division of Wilmington Savings Fund Society, as trustee (Incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.3    Trustee Joint Ownership Agreement relating to the Virgin Media Inc. 2010 Stock Incentive Plan dated as of January 28, 2011 between Virgin Media Inc. and Christiana Trust, a division of Wilmington Savings Fund Society (Incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.4    Form of Employee Joint Ownership Agreement relating to the Virgin Media Inc. 2010 Stock Incentive Plan (Incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.5    Form of Restricted Stock Unit Agreement (JSOP Supplementary Award) used for grants made under the Virgin Media Inc. Joint Share Ownership Plan (Incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.6    Form of Restricted Stock Unit Agreement used for grants made under the Virgin Media Inc. 2011-2013 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.39 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.7    Form of Non-qualified Stock Option Notice used for grants made under the Virgin Media Inc. 2011-2013 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.8    Form of Incentive Stock Option Notice used for grants made under the Virgin Media Inc. 2011-2013 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.9    Form of Performance Share Agreement used for grants made under the Virgin Media Inc. 2011-2013 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.10    Form of Company Share Option Plan (CSOP) Option Certificate used for grants made under the Virgin Media Inc. 2011-2013 Long Term Incentive Plan and under the Joint Share Ownership Plan (Incorporated by reference to Exhibit 10.43 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the

 

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   Securities and Exchange Commission on February 22, 2011).
10.11    Description of the Virgin Media Inc. 2011 Bonus Scheme (Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.12    Amendment Letter, dated December 8, 2010, between Virgin Media Inc. and Neil A. Berkett relating to the Service Agreement, dated as of July 3, 2009 (Incorporated by reference to Exhibit 10.58 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.13    Amendment Letter, dated as of April 1, 2011, relating to the Service Agreement, dated as of July 10, 2009, between Virgin Media Limited and Andrew Barron. (Incorporated by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
10.14    Amendment Letter, dated as of April 1, 2011, relating to the Service Agreement, dated as of July 31, 2009, between Virgin Media Limited and Paul Buttery (Incorporated by reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
10.15    Form of Supplemental Incentive Stock Option Notice (to be used for Bryan H. Hall) (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on January 18, 2011).
10.16    Release Agreement, dated as of March 12, 2011, between Virgin Media Inc. and Bryan H. Hall. (Incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q of Virgin Media Inc. as filed with the Securities and Exchange Commission on May 5, 2011).
10.17    Service Agreement dated as of December 21, 2010 between Virgin Media Limited and Scott G. Dresser (Incorporated by reference to Exhibit 10.89 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 22, 2011).
10.18*    Agreement dated August 12, 2011 between Flextech Broadband Limited and Virgin Media Investment Holdings Limited and Southbank Limited and Scripps Networks Interactive, Inc. relating to the sale and purchase of 50 per cent. of the issued ordinary share capital of each of UK Channel Management Limited, UK Gold Holdings Limited, UKTV New Ventures Limited and 7.3 per cent of the issued ordinary share capital of UK Programme Distribution Limited.
31.1*    Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
31.2*    Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

 

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32.1*    Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†101.INS    XBRL Instance Document
†101.SCH    XBRL Taxonomy Extension Schema Document
†101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
†101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
†101.LAB    XBRL Taxonomy Extension Label Linkbase Document
†101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

 

      VIRGIN MEDIA INC.
Date: November 4, 2011       By:  

/s/ NEIL A. BERKETT

Neil A. Berkett

Chief Executive Officer

Date: November 4, 2011       By:  

/s/ EAMONN O’HARE

Eamonn O’Hare

Chief Financial Officer

     

VIRGIN MEDIA INVESTMENT

HOLDINGS LIMITED

Date: November 4, 2011       By:  

/s/ NEIL A. BERKETT

Neil A. Berkett

Chief Executive Officer

Date: November 4, 2011       By:  

/s/ EAMONN O’HARE

Eamonn O’Hare

Chief Financial Officer

      VIRGIN MEDIA INVESTMENTS LIMITED
Date: November 4, 2011       By:  

/s/ NEIL A. BERKETT

Neil A. Berkett

Chief Executive Officer

Date: November 4, 2011       By:  

/s/ EAMONN O’HARE

Eamonn O’Hare

Chief Financial Officer

 

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