XLON:VMED Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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 March 31, 2012

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 May 2, 2012, there were 277,766,072 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 Virgin Media Investment Holdings Limited and Virgin Media Investments Limited” in this Form 10-Q.

 

 

 


Table of Contents

VIRGIN MEDIA INC.

FORM 10-Q

QUARTER ENDED March 31, 2012

INDEX

 

      Page  

PART I—FINANCIAL INFORMATION

     5   

Item 1. Financial Statements

     5   

Virgin Media Inc.

  

Condensed Consolidated Balance Sheets—March 31, 2012 and December 31, 2011

     5   

Condensed Consolidated Statements of Comprehensive Income—Three Months ended March  31, 2012 and 2011

     6   

Condensed Consolidated Statements of Cash Flows— Three Months ended March 31, 2012 and 2011

     7   

Notes to Condensed Consolidated Financial Statements

     8   

Virgin Media Investment Holdings Limited

  

Condensed Consolidated Balance Sheets—March 31, 2012 and December 31, 2011

     37   

Condensed Consolidated Statements of Comprehensive Income—Three Months ended March  31, 2012 and 2011

     38   

Condensed Consolidated Statements of Cash Flows— Three Months ended March 31, 2012 and 2011

     39   

Virgin Media Investments Limited

  

Condensed Consolidated Balance Sheets—March 31, 2012 and December 31, 2011

     40   

Condensed Consolidated Statements of Comprehensive Income—Three Months ended March  31, 2012 and 2011

     41   

Condensed Consolidated Statements of Cash Flows— Three Months ended March 31, 2012 and 2011

     42   

Virgin Media Investment Holdings Limited and Virgin Media Investments Limited

  

Combined Notes to Condensed Consolidated Financial Statements

     43   

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

     55   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     72   

Item 4. Controls and Procedures

     74   

PART II—OTHER INFORMATION

     75   

Item 1. Legal Proceedings

     75   

Item 1A. Risk Factors

     75   

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

     76   

Item 3. Defaults Upon Senior Securities

     76   

Item 4. Mine Safety Disclosures

     76   

Item 5. Other Information

     76   

Item 6. Exhibits

     76   

SIGNATURES

  

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:

 

   

We operate in highly competitive markets which may lead to a decrease in our revenue, increased costs, customer churn or a reduction in the rate of customer acquisition;

 

   

The sectors in which we compete are subject to rapid and significant changes in technology, and the effect of technological changes on our businesses cannot be predicted;

 

   

Our fixed line telephony revenue is declining and unlikely to improve;

 

   

A failure in our network and information systems could significantly disrupt our operations, which could have a material adverse effect on those operations, our business, our results of operations and financial conditions;

 

   

Unauthorized access to our network resulting in piracy could result in a loss of revenue;

 

   

We rely on third-party suppliers and contractors to provide necessary hardware, software or operational support and are sometimes reliant on them in a way which could economically disadvantage us;

 

   

The “Virgin” brand is not under our control and the activities of the Virgin Group and other licensees could have a material adverse effect on the goodwill of customers towards us as a licensee;

 

   

Our inability to provide popular programming or to obtain it at a reasonable cost could potentially have a material adverse effect of the number of customers or reduce margins;

 

   

Adverse economic developments could reduce customer spending for our TV, broadband, and telephony services and could therefore have a material adverse effect on our revenue;

 

   

We are subject to currency and interest rate risks;

 

   

We are subject to tax in more than one tax jurisdiction and our structure poses various tax risks;

 

   

Virgin Mobile relies on Everything Everywhere’s network to carry its communications traffic;

 

   

We do not insure the underground portion of our cable network and various pavement-based electronics associated with our cable network;

 

   

We are subject to significant regulation, and changes in the U.K. and EU laws, regulations or governmental policy affecting the conduct of our business may have a material adverse effect on our ability to set prices, enter new markets or control our costs;

 

   

We may experience difficulties in providing our services efficiently to our customers whilst the London 2012 Olympic Games are taking place which may have a material adverse effect on our reputation and ability to retain our customers;

 

   

We have substantial indebtedness which may have a material adverse effect on our available cash flow, our ability to obtain additional financing if necessary in the future, our flexibility in reacting to competitive and technological changes and our operations;

 

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We may not be able to fund our debt service obligations in future; and

 

   

The covenants under our debt agreements place certain limitations on our ability to finance future operations and how we manage our business.

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, 2011, or the 2011 Annual Report, as filed with the U.S. Securities and Exchange Commission, or SEC, on February 21, 2012. 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 Virgin Media Investment Holdings Limited and Virgin Media Investments Limited

VMIH is a company incorporated in England and Wales, with its registered office at Media House, Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UP, England. VMIH is a wholly-owned subsidiary of Virgin Media Finance PLC, or Virgin Media Finance, and a wholly-owned indirect subsidiary of Virgin Media. VMIH is not an accelerated filer. VMIH is one of the guarantors of the unsecured senior notes issued by Virgin Media Finance. VMIH’s guarantees of these notes are not deemed to be unconditional. Separate condensed financial statements for VMIH have been included in this quarterly report on Form 10-Q pursuant to the rules and regulations of the SEC. VMIH is also one of the guarantors of the senior secured notes issued by Virgin Media Secured Finance PLC, or Virgin Media Secured Finance. VMIH carries on the same business as Virgin Media, and is the principal borrower under Virgin Media’s senior credit facility.

VMIL was formed on December 18, 2009, as a wholly-owned subsidiary of VMIH. On December 30, 2009, VMIL acceded as a senior subordinated guarantor of the unsecured senior notes issued by Virgin Media Finance, on the same terms as VMIH. As VMIL’s guarantees are not deemed to be unconditional, separate condensed financial statements for VMIL have been included in this quarterly report on Form 10-Q pursuant to the rules and regulations of the SEC. VMIL is also one of the guarantors of the senior secured notes issued by Virgin Media Secured Finance.

Unless otherwise indicated, the discussion contained in this report applies to VMIH and VMIL as well as Virgin Media.

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)

 

     March 31,
2012
    December 31,
2011
 
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   £ 141.1      £ 300.4   

Restricted cash

     1.9        1.9   

Accounts receivable - trade, less allowances for doubtful accounts of £8.6 (2012) and £10.9 (2011)

     425.3        435.4   

Derivative financial instruments

     7.6        9.5   

Prepaid expenses and other current assets

     92.7        97.0   
  

 

 

   

 

 

 

Total current assets

     668.6        844.2   

Fixed assets, net

     4,597.6        4,602.7   

Goodwill and other indefinite-lived assets

     2,017.5        2,017.5   

Derivative financial instruments

     313.8        347.9   

Deferred financing costs, net of accumulated amortization of £51.1 (2012) and £44.0 (2011)

     71.4        75.7   

Other assets

     51.1        50.8   
  

 

 

   

 

 

 

Total assets

   £ 7,720.0      £ 7,938.8   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Current liabilities

    

Accounts payable

   £ 300.6      £ 304.4   

Accrued expenses and other current liabilities

     357.2        373.1   

Derivative financial instruments

     20.9        16.7   

VAT and employee taxes payable

     110.9        88.4   

Interest payable

     109.8        106.8   

Deferred revenue

     309.3        311.8   

Current portion of long term debt

     78.3        76.6   
  

 

 

   

 

 

 

Total current liabilities

     1,287.0        1,277.8   

Long term debt, net of current portion

     5,702.4        5,778.5   

Derivative financial instruments

     61.6        53.6   

Deferred revenue and other long term liabilities

     182.9        190.0   
  

 

 

   

 

 

 

Total liabilities

     7,233.9        7,299.9   
  

 

 

   

 

 

 

Commitments and contingent liabilities

    

Shareholders’ equity

    

Common stock - $0.01 par value; authorized 1,000.0 (2012 and 2011) shares; issued and outstanding 277.7 (2012) and 286.7 (2011) shares

     1.5        1.6   

Additional paid-in capital

     3,737.4        3,866.6   

Accumulated other comprehensive income

     34.9        30.0   

Accumulated deficit

     (3,287.7     (3,259.3
  

 

 

   

 

 

 

Total shareholders’ equity

     486.1        638.9   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 7,720.0      £ 7,938.8   
  

 

 

   

 

 

 

See accompanying notes.

 

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

     Three months ended
March 31,
 
     2012     2011  

Revenue

   £ 1,006.2      £ 982.3   

Costs and expenses

    

Operating costs (exclusive of depreciation shown separately below)

     416.9        411.1   

Selling, general and administrative expenses

     212.8        195.1   

Restructuring and other charges

     5.4        2.6   

Depreciation

     240.2        228.8   

Amortization

     0.0        34.1   
  

 

 

   

 

 

 
     875.3        871.7   
  

 

 

   

 

 

 

Operating income

     130.9        110.6   

Other income (expense)

    

Interest expense

     (105.6     (114.6

Loss on extinguishment of debt

     (58.6     (18.1

Share of income from equity investments

     0.0        8.2   

Gain on derivative instruments

     44.5        28.0   

Foreign currency (losses) gains

     (4.4     7.9   

Interest income and other, net

     0.3        1.7   
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     7.1        23.7   

Income tax expense

     (0.1     (19.2
  

 

 

   

 

 

 

Income from continuing operations

     7.0        4.5   

Loss from discontinued operations, net of tax

     0.0        (1.2
  

 

 

   

 

 

 

Net income

   £ 7.0      £ 3.3   
  

 

 

   

 

 

 

Per share amounts

    

Income from continuing operations

    

Basic earnings per share

   £ 0.02      £ 0.01   
  

 

 

   

 

 

 

Diluted earnings per share

   £ 0.02      £ 0.01   
  

 

 

   

 

 

 

Net income

    

Basic earnings per share

   £ 0.02      £ 0.01   
  

 

 

   

 

 

 

Diluted earnings per share

   £ 0.02      £ 0.01   
  

 

 

   

 

 

 

Dividends per share (in U.S. dollars)

   $ 0.04      $ 0.04   
  

 

 

   

 

 

 

Total comprehensive income (loss)

   £ 11.9      £ (14.7
  

 

 

   

 

 

 

See accompanying notes.

 

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 

     Three months ended
March 31,
 
     2012     2011  

Operating activities:

    

Net income

   £ 7.0      £ 3.3   

Loss from discontinued operations

     0.0        1.2   
  

 

 

   

 

 

 

Income from continuing operations

     7.0        4.5   

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

    

Depreciation and amortization

     240.2        262.9   

Non-cash interest

     17.9        2.4   

Share-based compensation

     7.6        7.0   

Loss on extinguishment of debt, net of cash prepayment premiums

     10.5        18.1   

Income from equity accounted investments, net of dividends received

     0.0        (1.7

Unrealized gains on derivative instruments, net of cash settlements

     (46.5     (30.1

Foreign currency gains

     (0.7     (6.7

Income taxes

     1.4        20.9   

Other

     0.0        (0.1

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

     (25.3     (5.6
  

 

 

   

 

 

 

Net cash provided by operating activities

     212.1        271.6   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of fixed and intangible assets

     (184.1     (163.3

Proceeds from sale of fixed assets

     0.9        0.7   

Principal repayments on loans to equity investments

     0.0        8.4   

Acquisitions, net of cash acquired

     (0.6     0.0   

Disposal of equity investments, net

     (2.5     0.0   

Other

     0.0        0.2   
  

 

 

   

 

 

 

Net cash used in investing activities

     (186.3     (154.0
  

 

 

   

 

 

 

Financing activities:

    

New borrowings, net of financing fees

     315.9        937.7   

Repurchase of common stock

     (157.3     (120.0

Proceeds from employee stock option exercises, net of taxes reimbursed

     (2.1     1.4   

Principal payments on long term debt

     (314.1     (900.0

Principal payments on capital leases

     (21.3     (15.5

Proceeds from settlement of cross-currency interest rate swaps

     2.3        0.0   

Dividends paid

     (7.0     (8.0
  

 

 

   

 

 

 

Net cash used in financing activities

     (183.6     (104.4
  

 

 

   

 

 

 

Cash flow from discontinued operations:

    

Net cash used in operating activities

     0.0        (6.5
  

 

 

   

 

 

 

Net cash used in discontinued operations

     0.0        (6.5
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1.5     (3.5

(Decrease) increase in cash and cash equivalents

     (159.3     3.2   

Cash and cash equivalents, beginning of period

     300.4        479.5   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   £ 141.1      £ 482.7   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid during the period for interest exclusive of amounts capitalized

   £ 86.6      £ 112.4   

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 months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 2011, as filed with the SEC on February 21, 2012, or the 2011 Annual Report.

Note 2—Recent Accounting Guidance

We adopted new guidance regarding the presentation of comprehensive income on January 1, 2012 and have presented total comprehensive income in the condensed consolidated statements of comprehensive income for the current and prior periods.

We adopted new guidance regarding fair value measurement disclosure requirements on January 1, 2012 and applied it on a prospective basis. This guidance did not have a material impact on our financial statements.

Note 3—Long Term Debt

On March 13, 2012, our wholly owned subsidiary, Virgin Media Finance PLC issued $500 million aggregate principal amount of 5.25% senior notes due 2022 at par. The proceeds of $495.5 million, net of fees, were received on March 13, 2012. Interest is payable on February 15 and August 15 each year, beginning on August 15, 2012. The senior notes due 2022 rank pari passu with Virgin Media Finance PLC’s outstanding senior notes due 2016 and 2019. On March 28, 2012, we used the net proceeds from these new senior notes, and cash on our balance sheet, to redeem $500 million of the principal amount of the $1,350 million 9.50% senior notes due 2016. We recognized a loss on extinguishment of debt of £58.6 million as a result of this redemption, which represented the difference between the consideration paid to redeem $500 million of the 9.50% senior notes due 2016 and the carrying value of those notes, and the write-off of associated deferred finance costs.

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 March 31, 2012. 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 March 31, 2012 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).

 

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 3—Long Term Debt (continued)

 

Long term debt repayments, excluding capital leases, as of March 31, 2012, were due as follows (in millions):

 

Year ending March 31:

      

2013

   £ 0.3   

2014

     0.0   

2015

     0.0   

2016

     750.0   

2017

     1,304.9   

Thereafter

     3,498.0   
  

 

 

 

Total debt payments

   £ 5,553.2   
  

 

 

 

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. 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 U.S. GAAP 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 estimated to be £178.6 million as of March 31, 2012, has been included as a non-current derivative financial asset in the condensed consolidated balance sheets. Refer to note 4 for additional discussion of the fair value measurement of the conversion hedges.

Note 4—Fair Value Measurements

Fair value is defined 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. The types of 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.

 

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 4—Fair Value Measurements (continued)

 

The tables below present our assets and liabilities measured at fair value as at March 31, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy into which they fall (in millions):

 

     March 31, 2012  
     Level 1      Level 2      Level 3      Total  

Assets

        

Derivative financial instruments, excluding conversion hedges

   £ 0.0       £ 142.8       £ 0.0       £ 142.8   

Conversion hedges

     0.0         0.0         178.6         178.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 142.8       £ 178.6       £ 321.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative financial instruments

   £ 0.0       £ 82.5       £ 0.0       £ 82.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 82.5       £ 0.0       £ 82.5   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Level 1      Level 2      Level 3      Total  

Assets

           

Derivative financial instruments, excluding conversion hedges

   £ 0.0       £ 219.2       £ 0.0       £ 219.2   

Conversion hedges

     0.0         0.0         138.2         138.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 219.2       £ 138.2       £ 357.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Derivative financial instruments

   £ 0.0       £ 70.3       £ 0.0       £ 70.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   £ 0.0       £ 70.3       £ 0.0       £ 70.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 such as, foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps. These contracts 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 5.

 

10


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 4—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 condensed consolidated balance sheets. The conversion hedges may only be exercised by us upon maturity of the convertible senior notes. As of March 31, 2012, the fair value of these instruments was estimated to be £178.6 million using the Black-Scholes Merton valuation technique. The fair values of the conversion hedges are primarily impacted by our stock price on the measurement date and the expected volatility of our stock price, but are also impacted by the remaining duration of the options, the strike price ($19.22 per share) of the instrument, the cap price ($35.00 per share) of the instrument, the dividend yield on our stock, exchange rates, and counterparty non-performance risk. The table below presents the estimated impact on the March 31, 2012 fair value of a hypothetical 20% increase and decrease in our stock price, holding all other inputs constant (in millions):

 

     March 31,
2012
 

Estimated fair value of conversion hedges as reported

   £ 178.6   
  

 

 

 

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

   £ 222.1   
  

 

 

 

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

   £ 120.7   
  

 

 

 

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. Other impacts are not significant or are observable. We utilized expected volatility assumptions of 26% and 34% in the valuation of each component of the conversion hedges as of March 31, 2012. An increase in this input in isolation would generally result in a higher value of the conversion hedges while a decrease in this input would result in a lower value of the conversion hedges. Non-performance risk is based on quoted credit default swaps 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 £19.6 million and £16.5 million as of March 31, 2012 and 2011, respectively.

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

 

Balance at December 31, 2011

   £  138.2   

Unrealized gain included in gain on derivative instruments

     45.3   

Unrealized currency translation adjustment included in other comprehensive income

     (4.9
  

 

 

 

Balance at March 31, 2012

   £ 178.6   
  

 

 

 

Future changes in fair values of the conversion hedges will be reported as gains (losses) on derivative instruments in the condensed consolidated statements of comprehensive income.

 

11


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 4—Fair Value Measurements (continued)

 

Long term debt: The carrying value of our senior credit facility approximates its fair value. The fair values of our senior notes, convertible senior notes and senior secured notes in the following table are based on the market prices in active markets which incorporate non-performance risk. As such, these measurements are classified within level 1 in the fair value hierarchy.

The carrying values of the $500 million 5.25% and £650 million 5.50% senior secured notes due 2021 include adjustments of £34.2 million and £72.0 million at March 31, 2012, and £45.7 million and £77.9 million at December 31, 2011, 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):

 

     March 31,
2012
     December 31,
2011
 
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

6.5% U.S. dollar convertible senior notes due 2016

   £ 538.4       £ 930.9       £ 551.1       £ 869.1   

9.50% U.S. dollar senior notes due 2016

     519.4         607.0         849.2         966.4   

9.50% euro senior notes due 2016

     145.4         169.7         145.3         170.1   

8.375% U.S. dollar senior notes due 2019

     369.5         424.3         380.6         416.9   

8.875% sterling senior notes due 2019

     345.3         388.5         345.2         378.9   

5.25% U.S. dollar senior notes due 2022

     312.1         313.8         0.0         0.0   

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

     616.9         688.4         635.4         663.5   

7.00% sterling senior secured notes due 2018

     864.7         935.2         864.5         923.1   

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

     341.7         333.9         353.1         321.8   

5.50% sterling senior secured notes due 2021

     716.7         695.5         722.4         640.3   

Note 5—Derivative Financial Instruments and Hedging Activities

Strategies and Objectives for Holding Derivative Instruments

Our operations 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 recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets and certain changes in the fair value of derivative instruments in our condensed consolidated statements of comprehensive income.

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 and South African rand forward rate contracts to manage our foreign exchange rate currency exposures related to certain committed and forecasted purchases.

 

12


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

 

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 relationships are referred to as “Accounting Hedges” below. When a derivative contract is not designated as an Accounting Hedge, the derivative is treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains (losses) on derivative instruments in the condensed consolidated statements of comprehensive income. These derivatives are referred to as “Economic Hedges” below. We do not enter into derivatives for speculative or trading purposes.

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.

We believe that those relationships designated as Accounting Hedges will be highly effective throughout 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 immediately reclassify any amounts accumulated in other comprehensive income to income. 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 hedging relationship 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 condensed consolidated statements of comprehensive income. As a result of our effectiveness assessment at March 31, 2012, 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 swap spreads for counterparties to the contracts and swaps. These derivative instruments are classified within level 2 in the fair value hierarchy, because we consider all of the significant inputs are observable. 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 4 for a discussion of the conversion hedges.

 

13


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—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):

 

     March 31,
2012
     December 31,
2011
 

Included within current assets:

     

Accounting Hedges

     

Foreign currency forward rate contracts

   £ 0.1       £ 0.1   

Economic Hedges

     

Foreign currency forward rate contracts

     0.1         1.6   

Interest rate swaps

     0.3         0.2   

Cross-currency interest rate swaps

     7.1         7.6   
  

 

 

    

 

 

 
   £ 7.6       £ 9.5   
  

 

 

    

 

 

 

Included within non-current assets:

     

Accounting Hedges

     

Interest rate swaps

   £ 72.4       £ 78.0   

Cross-currency interest rate swaps

     33.0         94.3   

Economic Hedges

     

Interest rate swaps

     2.7         3.1   

Cross-currency interest rate swaps

     27.1         34.3   

Conversion hedges

     178.6         138.2   
  

 

 

    

 

 

 
   £ 313.8       £ 347.9   
  

 

 

    

 

 

 

Included within current liabilities:

     

Economic Hedges

     

Interest rate swaps

   £ 12.2       £ 7.5   

Cross-currency interest rate swaps

     8.7         9.2   
  

 

 

    

 

 

 
   £ 20.9       £ 16.7   
  

 

 

    

 

 

 

Included within non-current liabilities:

     

Accounting Hedges

     

Cross-currency interest rate swaps

   £ 23.6       £ 7.3   

Economic Hedges

     

Foreign currency forward rate contracts

     0.8         0.0   

Interest rate swaps

     30.3         38.4   

Cross-currency interest rate swaps

     6.9         7.9   
  

 

 

    

 

 

 
   £ 61.6       £ 53.6   
  

 

 

    

 

 

 

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

During the three months ended March 31, 2012, we terminated the cross-currency interest rate swaps on the $500 million 9.50% senior notes due 2016 that were redeemed in the quarter. We also entered into new cross-currency interest rate swaps to mitigate the foreign exchange rate risk associated with the $500 million 5.25% senior notes due 2022.

As of March 31, 2012, 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.

 

14


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

 

The terms of our outstanding cross-currency interest rate swaps at March 31, 2012 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)           

$850m senior notes due 2016

             

August 2016

   Accounting    $ 850.0       £ 526.7       9.50%   9.98%

$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 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%

$500m senior notes due 2022

             

February 2022

   Accounting      500.0         313.6       5.25%   5.80%
     

 

 

    

 

 

      
      $ 4,450.0       £ 2,644.7        
     

 

 

    

 

 

      

€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 convertible senior notes due 2016.

 

15


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

 

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

As of March 31, 2012, 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 March 31, 2012 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 March 31, 2012, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars and South African rand to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at March 31, 2012 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

           

April 2012 to June 2012

   Accounting    ZAR 19.5       £ 1.5         12.9234   

April 2012 to December 2012

   Economic    $ 108.0       £ 68.1         1.5862   

 

16


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—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 comprehensive income in the period in which they occur. During the three months ended March 31, 2012 and 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 months ended March 31, 2012 (in millions):

 

     Total     Interest rate
swaps
     Cross-
currency
interest  rate

swaps
    Forward
foreign
exchange
contracts
     Tax Effect  

Balance at December 31, 2011

   £ (32.4   £ 3.3       £ (25.2   £ 0.1       £ (10.6

Amounts recognized in other comprehensive income (loss)

     (66.4     0.0         (66.4     0.0         0.0   

Amounts reclassified to earnings impacting:

            

Foreign exchange loss

     60.4        0.0         60.4        0.0         0.0   

Interest expense

     1.4        0.0         1.4        0.0         0.0   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance at March 31, 2012

   £ (37.0   £ 3.3       £ (29.8   £ 0.1       £ (10.6
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax income or losses that would be reclassified from other comprehensive income (loss) to earnings would be income of £0.1 million relating to interest rate swaps, losses of £7.8 million relating to cross-currency interest rate swaps, and income of £0.1 million relating to forward foreign exchange contracts.

During the three months ended March 31, 2012, we recognized gains on derivative instruments of £45.5 million relating to derivative instruments that were not designated or qualifying cash flow hedges.

 

17


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

 

Fair Value Hedges

For derivative instruments that are designated and qualify in fair value Accounting Hedge relationships, 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 condensed consolidated statements of comprehensive income in the period in which they occur. During the three months ended March 31, 2012 and 2011, we recognized ineffectiveness totaling £1.7 million and £1.8 million, respectively.

Note 6—Shareholders’ Equity and Share Based Compensation

On July 27, 2011, we announced a second phase 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 second phase 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. 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 a subsidiary of Scripps Network Interactive Inc. 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 March 31, 2012, we entered into a capped Accelerated Stock Repurchase (ASR) to purchase $250.0 million (£157.3 million) of our common stock. We received 10.2 million shares of common stock during the quarter at an average purchase price per share of $24.58. The shares of common stock so acquired were held in treasury as of March 31, 2012 and cancelled in April 2012.

During the three months ended March 31, 2011, we repurchased 7.2 million shares of common stock in connection with the 2010 capital structure optimization program, at an average purchase price per share of $27.10 ($194.4 million in aggregate), through open market repurchases. The shares of common stock acquired in connection with this program were cancelled.

Total share based compensation expense included within selling, general and administrative expenses in the condensed consolidated statements of comprehensive income was £7.6 million and £7.0 million for the three months ended March 31, 2012 and 2011, respectively.

 

18


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 7—Income Per Common Share

Basic net income per common share is computed by dividing the net income for the three months ended March 31, 2012 and 2011 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 and restricted stock units, and the if-converted method for shares potentially issuable under our convertible senior notes.

The weighted average number of shares outstanding for the three months ended March 31, 2012 and 2011 is computed as follows (in millions):

 

     Three months ended
March 31,
 
     2012     2011  

Number of shares outstanding at start of period

     286.4        321.3   

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

     0.5        0.9   

Purchase of treasury shares (weighted average)

     (4.6     (1.7
  

 

 

   

 

 

 

Weighted average number of shares outstanding

     282.3        320.5   
  

 

 

   

 

 

 

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

 

     Three months ended
March 31,
 
     2012      2011  

Numerator for basic income per common share from continuing operations

   £ 7.0       £ 4.5   

Interest on senior convertible notes, net of tax

     0.0         0.0   
  

 

 

    

 

 

 

Numerator for diluted income per common share from continuing operations

   £ 7.0       £ 4.5   
  

 

 

    

 

 

 

Weighted average number of shares:

     

Denominator for basic income per common share

     282.3         320.5   

Effect of dilutive securities:

     

Share based awards to employees

     4.5         6.5   

Shares issuable under senior convertible notes

     0.0         0.0   
  

 

 

    

 

 

 

Denominator for diluted income per common share

     286.8         327.0   
  

 

 

    

 

 

 

 

19


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 7—Income 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
March 31,
 
     2012      2011  

Stock options

     4.1         2.1   

Sharesave options

     0.0         0.0   

Restricted stock held in escrow

     0.6         0.6   

Restricted stock units

     3.2         4.5   

Shares issuable under convertible senior notes

     52.0         52.0   

In the three months ended March 31, 2012, certain share based awards to employees have been excluded from the calculation of the diluted weighted average number of shares because generally their exercise prices exceeded our average share price during the calculation period.

In the three months ended March 31, 2012, 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 March 31, 2012.

In the three months ended March 31, 2012, 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 outstanding 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 and expect to continue to do so. For performance-based option grants, the performance objectives are based upon both 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.

 

20


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 7—Income 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 and Performance Share Grants

The restricted stock units and performance shares 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.

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.

 

21


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 8—Comprehensive Income (Loss)

Comprehensive income (loss) comprises (in millions):

 

     Three months ended
March 31,
 
     2012     2011  

Net income for period

   £ 7.0      £ 3.3   

Currency translation adjustment

     9.5        0.1   

Net unrealized losses on derivatives, net of tax

     (66.4     (57.0

Reclassification of derivative losses to net income, net of tax

     61.8        38.9   
  

 

 

   

 

 

 
   £ 11.9      £ (14.7
  

 

 

   

 

 

 

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

 

     March 31,
2012
    December 31,
2011
 

Foreign currency translation

   £ 159.4      £ 149.9   

Pension liability adjustment

     (87.5     (87.5

Net unrealized losses on derivatives

     (37.0     (32.4
  

 

 

   

 

 

 
   £ 34.9      £ 30.0   
  

 

 

   

 

 

 

Note 9—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. The U.K. tax authorities have challenged our VAT treatment of certain of these activities. As a result, we have estimated contingent losses totaling £28.6 million as of March 31, 2012 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 late 2012.

 

22


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 10—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 month periods ended March 31, 2012 and 2011 was as follows (in millions):

 

     Three months ended
March  31, 2012
     Three months ended
March  31, 2011
 
     Consumer      Business      Total      Consumer      Business      Total  

Revenue

   £ 835.8       £ 170.4       £ 1,006.2       £ 823.2       £ 159.1       £ 982.3   

Segment contribution

   £ 486.7       £ 91.2       £ 577.9       £ 485.0       £ 92.6       £ 577.6   

 

23


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 10—Industry Segments (continued)

 

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

 

     Three months ended
March 31,
 
     2012     2011  

Total segment contribution

   £ 577.9      £ 577.6   

Other operating and corporate costs

     201.4        201.5   

Restructuring and other charges

     5.4        2.6   

Depreciation

     240.2        228.8   

Amortization

     0.0        34.1   
  

 

 

   

 

 

 

Consolidated operating income

     130.9        110.6   

Other income (expense)

    

Interest expense

     (105.6     (114.6

Loss on extinguishment of debt

     (58.6     (18.1

Share of income from equity investments

     0.0        8.2   

Gain on derivative instruments

     44.5        28.0   

Foreign currency (losses) gains

     (4.4     7.9   

Interest income and other, net

     0.3        1.7   

Income tax expense

     (0.1     (19.2
  

 

 

   

 

 

 

Income from continuing operations

     7.0        4.5   

Loss from discontinued operations, net of tax

     0.0        (1.2
  

 

 

   

 

 

 

Net income

   £ 7.0      £ 3.3   
  

 

 

   

 

 

 

 

24


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes

 

We present the following condensed consolidating financial information as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 as required by Rule 3-10(d) of Regulation S-X.

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

 

   

$850 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

 

   

$500 million aggregate principal amount of 5.25% senior notes due 2022

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.

 

     March 31, 2012  

Balance sheets

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

Cash and cash equivalents

   £ 20.3       £ 1.9      £ 0.5      £ 0.0       £ 0.0       £ 118.4      £ 0.0      £ 141.1   

Restricted cash

     0.0         0.0        0.0        0.0         0.0         1.9        0.0        1.9   

Other current assets

     1.2         0.0        0.0        8.1         0.0         516.3        0.0        525.6   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     21.5         1.9        0.5        8.1         0.0         636.6        0.0        668.6   

Fixed assets, net

     0.0         0.0        0.0        0.0         0.0         4,597.6        0.0        4,597.6   

Goodwill and intangible assets, net

     0.0         0.0        (15.0     0.0         0.0         2,032.5        0.0        2,017.5   

Investments in, and loans to, parent and subsidiary companies

     841.8         265.5        (871.3     1,581.6         2,303.6         (2,527.0     (1,594.2     0.0   

Other assets, net

     185.6         21.9        1.1        134.4         0.0         93.3        0.0        436.3   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   £ 1,048.9       £ 289.3      £ (884.7   £ 1,724.1       £ 2,303.6       £ 4,833.0      £ (1,594.2   £ 7,720.0   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities

   £ 24.2       £ 39.0      £ 2.8      £ 97.4       £ 0.0       £ 2,040.6      £ (917.0   £ 1,287.0   

Long-term debt, net of current portion

     538.4         1,691.6        0.0        0.0         0.0         3,472.4        0.0        5,702.4   

Other long-term liabilities

     0.2         0.0        0.1        54.6         0.0         189.6        0.0        244.5   

Shareholders’ equity (deficit)

     486.1         (1,441.3     (887.6     1,572.1         2,303.6         (869.6     (677.2     486.1   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   £ 1,048.9       £ 289.3      £ (884.7   £ 1,724.1       £ 2,303.6       £ 4,833.0      £ (1,594.2   £ 7,720.0   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     December 31, 2011  

Balance sheets

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

Cash and cash equivalents

   £ 16.2       £ 1.9      £ 0.3      £ 0.1       £ 0.0       £ 281.9      £ 0.0      £ 300.4   

Restricted cash

     0.0         0.0        0.0        0.0         0.0         1.9        0.0        1.9   

Other current assets

     0.3         0.0        1.0        16.3         0.0         524.3        0.0        541.9   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     16.5         1.9        1.3        16.4         0.0         808.1        0.0        844.2   

Fixed assets, net

     0.0         0.0        0.0        0.0         0.0         4,602.7        0.0        4,602.7   

Goodwill and intangible assets, net

     0.0         0.0        (15.0     0.0         0.0         2,032.5        0.0        2,017.5   

Investments in, and loans to, parent and subsidiary companies

     1,042.2         330.2        (841.2     1,474.5         2,217.5         (2,902.6     (1,320.6     0.0   

Other assets, net

     146.1         23.5        0.0        208.4         0.0         96.4        0.0        474.4   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   £ 1,204.8       £ 355.6      £ (854.9   £ 1,699.3       £ 2,217.5       £ 4,637.1      £ (1,320.6   £ 7,938.8   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities

   £ 14.6       £ 52.2      £ 13.6      £ 101.2       £ 0.0       £ 1,897.8      £ (801.6   £ 1,277.8   

Long-term debt, net of current portion

     551.1         1,720.3        0.0        0.0         0.0         3,507.1        0.0        5,778.5   

Other long-term liabilities

     0.2         0.0        0.0        45.8         0.0         197.6        0.0        243.6   

Shareholders’ equity (deficit)

     638.9         (1,416.9     (868.5     1,552.3         2,217.5         (965.4     (519.0     638.9   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity (deficit)

   £ 1,204.8       £ 355.6      £ (854.9   £ 1,699.3       £ 2,217.5       £ 4,637.1      £ (1,320.6   £ 7,938.8   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Three months ended March 31, 2012  

Statements of comprehensive income

   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       £ 1,006.2      £ 0.0      £ 1,006.2   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (416.9     0.0        (416.9

Selling, general and administrative expenses

     (3.8     0.0        0.0        0.0        0.0         (209.0     0.0        (212.8

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (5.4     0.0        (5.4

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (240.2     0.0        (240.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (3.8     0.0        0.0        0.0        0.0         134.7        0.0        130.9   

Interest expense

     (25.5     (43.7     (2.7     (91.6     0.0         (249.9     307.8        (105.6

Loss on extinguishment of debt

     0.0        (58.6     0.0        0.0        0.0         0.0        0.0        (58.6

Gain (loss) on derivative instruments

     50.6        0.0        0.0        (6.1     0.0         0.0        0.0        44.5   

Foreign currency (losses) gains

     (0.3     (7.3     (0.1     (19.4     0.0         4.4        18.3        (4.4

Interest income and other, net

     0.0        47.2        3.9        50.1        0.0         206.9        (307.8     0.3   

Income tax expense

     0.0        0.0        0.0        0.0        0.0         (0.1     0.0        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     21.0        (62.4     1.1        (67.0     0.0         96.0        18.3        7.0   

Equity in net income (loss) of subsidiaries

     (14.0     42.5        (15.1     91.1        90.6         0.0        (195.1     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 7.0      £ (19.9   £ (14.0   £ 24.1      £ 90.6       £ 96.0      £ (176.8   £ 7.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   £ 33.3      £ (19.9   £ (12.5   £ 19.5      £ 90.6       £ 96.0      £ (195.1   £ 11.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Three months ended March 31, 2011  

Statements of comprehensive income

   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       £ 982.3      £ 0.0      £ 982.3   

Operating costs

     0.0        0.0        0.0        0.0        0.0         (411.1     0.0        (411.1

Selling, general and administrative expenses

     (3.8     0.0        0.0        0.0        0.0         (191.3     0.0        (195.1

Restructuring and other charges

     0.0        0.0        0.0        0.0        0.0         (2.6     0.0        (2.6

Depreciation and amortization

     0.0        0.0        0.0        0.0        0.0         (262.9     0.0        (262.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (3.8     0.0        0.0        0.0        0.0         114.4        0.0        110.6   

Interest expense

     (14.7     (48.5     (12.5     (99.9     0.0         (256.0     317.0        (114.6

Loss on extinguishment of debt

     0.0        0.0        0.0        (18.1     0.0         0.0        0.0        (18.1

Share of income from equity investments

     0.0        0.0        0.0        0.0        0.0         8.2        0.0        8.2   

Gain on derivative instruments

     10.3        0.0        0.0        17.7        0.0         0.0        0.0        28.0   

Foreign currency gains

     0.2        0.0        0.8        1.3        0.0         5.6        0.0        7.9   

Interest income and other, net

     2.8        49.1        13.6        41.1        0.0         212.1        (317.0     1.7   

Income tax (expense) benefit

     0.0        0.0        0.0        (23.3     0.0         4.1        0.0        (19.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (5.2     0.6        1.9        (81.2     0.0         88.4        0.0        4.5   

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 (loss) of subsidiaries

     8.5        (0.5     6.6        80.7        109.8         0.0        (205.1     0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   £ 3.3      £ 0.1      £ 8.5      £ (0.5   £ 109.8       £ 87.2      £ (205.1   £ 3.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   £ 4.1      £ 0.1      £ 9.7      £ (41.9   £ 109.8       £ 110.5      £ (207.0   £ (14.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

 

     Three months ended March 31,2012  

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

   £ (10.9   £ (51.0   £ (1.2   £ (67.9   £ 0.0       £ 343.1      £ 0.0       £ 212.1   

Investing activities:

                  

Purchase of fixed and intangible assets

     0.0        0.0        0.0        0.0        0.0         (184.1     0.0         (184.1

Proceeds from sale of fixed assets

     0.0        0.0        0.0        0.0        0.0         0.9        0.0         0.9   

Principal drawdowns (repayments) on loans to group companies

     182.9        49.0        1.4        65.5        0.0         (298.8     0.0         0.0   

Acquisitions, net of cash

     0.0        0.0        0.0        0.0        0.0         (0.6     0.0         (0.6

Disposal of equity investments, net

     0.0        0.0        0.0        0.0        0.0         (2.5     0.0         (2.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by investing activities

     182.9        49.0        1.4        65.5        0.0         (485.1     0.0         (186.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Financing activities:

                  

New borrowings, net of financing fees

     0.0        316.0        0.0        0.0        0.0         (0.1     0.0         315.9   

Repurchase of common stock

     (157.3     0.0        0.0        0.0        0.0         0.0        0.0         (157.3

Proceeds from employee stock option exercises, net of taxes reimbursed

     (2.1     0.0        0.0        0.0        0.0         0.0        0.0         (2.1

Principal payments on long term debt and capital leases

     0.0        (314.0     0.0        0.0        0.0         (21.4     0.0         (335.4

Proceeds from settlement of cross currency swaps

     0.0        0.0        0.0        2.3        0.0         0.0        0.0         2.3   

Dividends paid

     (7.0     0.0        0.0        0.0        0.0         0.0        0.0         (7.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (166.4     2.0        0.0        2.3        0.0         (21.5     0.0         (183.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Effect of exchange rates on cash and cash equivalents

     (1.5     0.0        0.0        0.0        0.0         0.0        0.0         (1.5

(Decrease) increase in cash and cash equivalents

     4.1        0.0        0.2        (0.1     0.0         (163.5     0.0         (159.3

Cash and cash equivalents at beginning of period

     16.2        1.9        0.3        0.1        0.0         281.9        0.0         300.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Cash and cash equivalents at end of period

   £ 20.3      £ 1.9      £ 0.5      £ 0.0      £ 0.0       £ 118.4      £ 0.0       £ 141.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

29


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

 

    Three months ended March 31,2011  

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

  £ (2.3   £ (34.4   £ (0.1   £ (66.2   £ 0.0      £ 374.6      £ 0.0      £ 271.6   

Investing activities:

               

Purchase of fixed and intangible assets

    0.0        0.0        0.0        0.0        0.0        (163.3     0.0        (163.3

Proceeds from sale of fixed assets

    0.0        0.0        0.0        0.0        0.0        0.7        0.0        0.7   

Principal repayments on loans to equity investments

    0.0        0.0        0.0        0.0        0.0        8.4        0.0        8.4   

Principal drawdowns (repayments) on loans to group companies

    76.7        33.6        (0.3     66.6        0.0        (176.6     0.0        0.0   

Other

    0.0        0.0        0.0        0.0        0.0        0.2        0.0        0.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

    76.7        33.6        (0.3     66.6        0.0        (330.6     0.0        (154.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities:

               

New borrowings, net of financing fees

    0.0        0.0        0.0        (4.4     0.0        942.1        0.0        937.7   

Repurchase of common stock

    (120.0     0.0        0.0        0.0        0.0        0.0        0.0        (120.0

Proceeds from employee stock option exercises, net of taxes reimbursed

    1.4        0.0        0.0        0.0        0.0        0.0        0.0        1.4   

Principal payments on long term debt and capital leases

    0.0        0.0        0.0        0.0        0.0        (915.5     0.0        (915.5

Dividends paid

    (8.0     0.0        0.0        0.0        0.0        0.0        0.0        (8.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (126.6     0.0        0.0        (4.4     0.0        26.6        0.0        (104.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from discontinued operations:

               

Net cash used in operating activities

    0.0        0.0        0.0        0.0        0.0        (6.5     0.0        (6.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in

               

discontinued operations

    0.0        0.0        0.0        0.0        0.0        (6.5     0.0        (6.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rates on cash and cash equivalents

    (3.5     0.0        0.0        0.0        0.0        0.0        0.0        (3.5

Increase in cash and cash equivalents

    (55.7     (0.8     (0.4     (4.0     0.0        64.1        0.0        3.2   

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

  £ 45.6      £ 1.0      £ 0.0      £ 0.5      £ 0.0      £ 435.6      £ 0.0      £ 482.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 12—Condensed Consolidating Financial Information—Senior Secured Notes

 

We present the following condensed consolidating financial information as of March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 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

 

     March 31, 2012  

Balance sheets

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

Cash and cash equivalents

   £ 20.3       £ 0.0       £ 116.9      £ 3.9       £ 0.0      £ 141.1   

Restricted cash

     0.0         0.0         1.0        0.9         0.0      £ 1.9   

Other current assets

     1.2         0.0         524.3        0.1         0.0        525.6   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     21.5         0.0         642.2        4.9         0.0        668.6   

Fixed assets, net

     0.0         0.0         3,990.6        607.0         0.0        4,597.6   

Goodwill and intangible assets, net

     0.0         0.0         1,869.2        148.3         0.0        2,017.5   

Investments in, and loans to, parent and subsidiary companies

     841.8         2,556.4         (1,265.2     1,388.3         (3,521.3     0.0   

Other assets, net

     185.6         27.8         221.8        1.1         0.0        436.3   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   £ 1,048.9       £ 2,584.2       £ 5,458.6      £ 2,149.6       £ (3,521.3   £ 7,720.0   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   £ 24.2       £ 41.1       £ 1,480.8      £ 657.9       £ (917.0   £ 1,287.0   

Long term debt, net of current portion

     538.4         2,540.1         2,623.9        0.0         0.0        5,702.4   

Other long term liabilities

     0.2         0.0         225.9        18.4         0.0        244.5   

Shareholders’ equity (deficit)

     486.1         3.0         1,128.0        1,473.3         (2,604.3     486.1   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 1,048.9       £ 2,584.2       £ 5,458.6      £ 2,149.6       £ (3,521.3   £ 7,720.0   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

31


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 12—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     December 31, 2011  

Balance sheets

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

Cash and cash equivalents

   £ 16.2       £ 0.0       £ 263.8      £ 20.4       £ 0.0      £ 300.4   

Restricted cash

     0.0         0.0         1.0        0.9         0.0        1.9   

Other current assets

     0.3         0.0         521.4        20.2         0.0        541.9   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     16.5         0.0         786.2        41.5         0.0        844.2   

Fixed assets, net

     0.0         0.0         3,986.8        615.9         0.0        4,602.7   

Goodwill and intangible assets, net

     0.0         0.0         1,869.2        148.3         0.0        2,017.5   

Investments in, and loans to, parent and subsidiary companies

     1,042.2         2,578.1         (1,521.3     1,389.7         (3,488.7     0.0   

Other assets, net

     146.1         28.8         298.9        0.6         0.0        474.4   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   £ 1,204.8       £ 2,606.9       £ 5,419.8      £ 2,196.0       £ (3,488.7   £ 7,938.8   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Current liabilities

   £ 14.6       £ 28.9       £ 1,386.9      £ 649.0       £ (801.6   £ 1,277.8   

Long term debt, net of current portion

     551.1         2,575.4         2,652.0        0.0         0.0        5,778.5   

Other long term liabilities

     0.2         0.0         211.2        32.2         0.0        243.6   

Shareholders’ equity (deficit)

     638.9         2.6         1,169.7        1,514.8         (2,687.1     638.9   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   £ 1,204.8       £ 2,606.9       £ 5,419.8      £ 2,196.0       £ (3,488.7   £ 7,938.8   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

32


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 12—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Three months ended March 31, 2012  

Statements of

comprehensive income

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

Revenue

   £ 0.0      £ 0.0      £ 947.2      £ 59.0      £ 0.0      £ 1,006.2   

Operating costs

     0.0        0.0        (398.6     (18.3     0.0        (416.9

Selling, general and administrative expenses

     (3.8     0.0        (195.8     (13.2     0.0        (212.8

Restructuring and other charges

     0.0        0.0        (3.0     (2.4     0.0        (5.4

Depreciation and amortization

     0.0        0.0        (218.8     (21.4     0.0        (240.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (3.8     0.0        131.0        3.7        0.0        130.9   

Interest expense

     (25.5     (40.8     (254.1     (100.6     315.4        (105.6

Loss on extinguishment of debt

     0.0        0.0        (58.6     0.0        0.0        (58.6

Gain (loss) on derivative instruments

     50.6        0.0        (6.1     0.0        0.0        44.5   

Foreign currency (losses) gains

     (0.3     0.0        (33.0     10.6        18.3        (4.4

Interest and other income, net

     0.0        41.1        166.7        107.9        (315.4     0.3   

Income tax expense

     0.0        0.0        (0.1     0.0        0.0        (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     21.0        0.3        (54.2     21.6        18.3        7.0   

Equity in net income (loss) of subsidiaries

     (14.0     0.0        17.0        (35.6     32.6        0.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   £ 7.0      £ 0.3      £ (37.2   £ (14.0   £ 50.9      £ 7.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

   £ 33.3      £ 0.3      £ (37.2   £ (17.1   £ 32.6      £ 11.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Note 12—Condensed Consolidating Financial Information—Senior Secured Notes (continued)

 

     Three months ended March 31, 2011  

Statements of

comprehensive income

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

Revenue

   £ 0.0      £ 0.0      £ 868.6      £ 113.7      £ 0.0      £ 982.3   

Operating costs

     0.0        0.0        (343.8     (67.3     0.0        (411.1

Selling, general and administrative expenses

     (3.8     0.0        (165.2     (26.1     0.0        (195.1

Restructuring and other charges

     0.0        0.0        (2.4     (0.2     0.0        (2.6

Depreciation and amortization

     0.0        0.0        (232.1     (30.8     0.0        (262.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (3.8     0.0        125.1        (10.7     0.0        110.6   

Interest expense

     (14.7     (34.0     (263.8     (119.1     317.0        (114.6

Loss on extinguishment of debt

     0.0        0.0        (18.1     0.0        0.0        (18.1

Share of income from equity investments

     0.0        0.0        0.0        8.2        0.0        8.2   

Gain on derivative instruments

     10.3        0.0        17.7        0.0        0.0        28.0   

Foreign currency gains (losses)

     0.2        0.0        (13.4     21.1        0.0        7.9   

Interest and other income, net

     2.8        30.6