UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2010 | ||
or | ||
o | 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 (State or other jurisdiction of incorporation or organization) | 59-3778247 (I.R.S. Employer Identification No.) | |
909 Third Avenue, Suite 2863 New York, New York (Address of principal executive offices) | 10022 (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 ý No o
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 ý No o
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 ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of November 2, 2010, there were 322,656,356 shares of the registrant's common stock, par value $0.01 per share, outstanding.
The Additional Registrants meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this report with the reduced disclosure format. See "Note Concerning the Additional Registrants" in this Form 10-Q.
VIRGIN MEDIA INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2010
INDEX
| Page | ||
---|---|---|---|
PART I—FINANCIAL INFORMATION | 4 | ||
Item 1. Financial Statements | 4 | ||
Virgin Media Inc. | |||
Condensed Consolidated Balance Sheets—September 30, 2010 and December 31, 2009 | 4 | ||
Condensed Consolidated Statements of Operations—Three and Nine Months ended September 30, 2010 and 2009 | 5 | ||
Condensed Consolidated Statements of Cash Flows—Nine Months ended September 30, 2010 and 2009 | 6 | ||
Notes to Condensed Consolidated Financial Statements | 7 | ||
Virgin Media Investment Holdings Limited | |||
Condensed Consolidated Balance Sheets—September 30, 2010 and December 31, 2009 | 44 | ||
Condensed Consolidated Statements of Operations—Three and Nine Months ended September 30, 2010 and 2009 | 45 | ||
Condensed Consolidated Statements of Cash Flows—Nine Months ended September 30, 2010 and 2009 | 46 | ||
Virgin Media Investments Limited | |||
Condensed Consolidated Balance Sheets—September 30, 2010 and December 31, 2009 | 47 | ||
Condensed Consolidated Statements of Operations—Three and Nine Months ended September 30, 2010 and 2009 | 48 | ||
Condensed Consolidated Statements of Cash Flows—Nine Months ended September 30, 2010 and 2009 | 49 | ||
Virgin Media Investment Holdings Limited and Virgin Media Investments Limited | |||
Combined Notes to Condensed Consolidated Financial Statements | 50 | ||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 68 | ||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 91 | ||
Item 4. Controls and Procedures | 93 | ||
PART II—OTHER INFORMATION | 94 | ||
Item 1. Legal Proceedings | 94 | ||
Item 1A. Risk Factors | 94 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 94 | ||
Item 3. Defaults Upon Senior Securities | 94 | ||
Item 4. (Removed and Reserved) | 94 | ||
Item 5. Other Information | 94 | ||
Item 6. Exhibits | 95 | ||
SIGNATURES | 101 |
In this quarterly report on Form 10-Q, unless we have indicated otherwise, or the context otherwise requires, references to "Virgin Media," "the Company," "we," "us," "our" and similar terms refer to the consolidated business of Virgin Media Inc. and its subsidiaries (including Virgin Media Investment Holdings Limited, or VMIH, Virgin Media Investments Limited, or VMIL, and their respective subsidiaries).
1
"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," "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 ability to compete with a range of other communications and content providers;
- •
- the effect of technological changes on our businesses;
- •
- the ability to maintain and upgrade our networks in a cost-effective and timely manner;
- •
- possible losses of revenues or customers due to systems failures;
- •
- the ability to control unauthorized access to our network;
- •
- our reliance on third-party suppliers and contractors to provide necessary hardware, software or operational support;
- •
- the continued right to use the Virgin name and logo;
- •
- the ability to manage customer churn;
- •
- general economic conditions;
- •
- the ability to provide attractive programming at a reasonable cost;
- •
- the ability to implement our restructuring plan successfully and realize the anticipated benefits;
- •
- currency and interest rate fluctuations;
- •
- the ability to fund debt service obligations and refinance our debt obligations;
- •
- the ability to obtain additional financing in the future; and
- •
- the ability to comply with restrictive covenants in our indebtedness agreements.
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, 2009, or the 2009 Annual Report, as filed with the U.S. Securities and Exchange Commission, or SEC, on February 26, 2010. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.
Note Concerning the Additional Registrants
VMIH is a wholly owned subsidiary of Virgin Media Finance PLC, or Virgin Media Finance, and a wholly owned indirect subsidiary of Virgin Media Inc. VMIH is a guarantor of the unsecured senior notes issued by Virgin Media Finance. VMIH is also a guarantor of the senior secured notes issued by Virgin Media Secured Finance PLC. VMIH carries on the same business as Virgin Media, and is the principal borrower under Virgin Media's senior credit facility.
VMIL is a wholly owned subsidiary of VMIH and a wholly owned indirect subsidiary of Virgin Media Inc. VMIL is also a guarantor of the unsecured senior notes issued by Virgin Media Finance and the senior secured notes issued by Virgin Media Secured Finance PLC. VMIL carries on the same business as Virgin Media.
2
As the guarantees granted by VMIH and VMIL are not deemed to be unconditional, separate financial statements for these wholly owned indirect subsidiaries of Virgin Media Inc. have been included in this quarterly report pursuant to the rules and regulations of the SEC. Unless otherwise indicated, the discussion contained in this report applies to Virgin Media as well as VMIH and VMIL. Both VMIH and VMIL are incorporated in England and Wales, with their respective registered offices at 160 Great Portland Street, London W1W 5QA, United Kingdom. Neither VMIH nor VMIL is an accelerated filer.
Financial Information and Currency of Financial Statements
All of the financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The reporting currency of our consolidated financial statements is U.K. pounds sterling.
3
VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except par value)
| September 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
| | (Adjusted) | |||||||
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | £ | 609.8 | £ | 430.5 | |||||
Restricted cash | 4.6 | 6.0 | |||||||
Accounts receivable—trade, less allowances for doubtful accounts of £6.3 (2010) and £9.0 (2009) | 426.2 | 403.1 | |||||||
Inventory for resale | 19.2 | 12.9 | |||||||
Derivative financial instruments | 1.8 | 2.2 | |||||||
Prepaid expenses and other current assets | 107.0 | 95.0 | |||||||
Current assets held for sale | — | 152.8 | |||||||
Total current assets | 1,168.6 | 1,102.5 | |||||||
Fixed assets, net | 4,879.4 | 5,045.8 | |||||||
Goodwill and other indefinite-lived assets | 2,017.5 | 2,017.8 | |||||||
Intangible assets, net | 155.1 | 265.9 | |||||||
Equity investments | 348.9 | 359.9 | |||||||
Derivative financial instruments | 167.6 | 235.1 | |||||||
Deferred financing costs, net of accumulated amortization of £18.6 (2010) and £136.1 (2009) | 103.5 | 112.2 | |||||||
Other assets | 51.1 | 50.8 | |||||||
Total assets | £ | 8,891.7 | £ | 9,190.0 | |||||
Liabilities and shareholders' equity | |||||||||
Current liabilities | |||||||||
Accounts payable | £ | 296.8 | £ | 312.5 | |||||
Accrued expenses and other current liabilities | 396.2 | 404.4 | |||||||
Derivative financial instruments | — | 17.8 | |||||||
Restructuring liabilities | 45.2 | 57.3 | |||||||
VAT and employee taxes payable | 94.2 | 67.0 | |||||||
Interest payable | 126.8 | 126.6 | |||||||
Deferred revenue | 298.8 | 282.8 | |||||||
Current portion of long term debt | 218.0 | 41.2 | |||||||
Current liabilities held for sale | — | 83.8 | |||||||
Total current liabilities | 1,476.0 | 1,393.4 | |||||||
Long term debt, net of current portion | 5,765.3 | 5,933.5 | |||||||
Derivative financial instruments | 89.7 | 106.8 | |||||||
Deferred revenue and other long term liabilities | 251.2 | 182.0 | |||||||
Deferred income taxes | 82.6 | 83.0 | |||||||
Total liabilities | 7,664.8 | 7,698.7 | |||||||
Commitments and contingent liabilities | |||||||||
Shareholders' equity | |||||||||
Common stock—$0.01 par value; authorized 1,000.0 (2010 and 2009) shares; issued 332.3 (2010) and 330.8 (2009) and outstanding 322.3 (2010) and 330.8 (2009) shares | 1.8 | 1.8 | |||||||
Treasury stock (at cost) | (122.5 | ) | — | ||||||
Additional paid-in capital | 4,514.5 | 4,483.2 | |||||||
Accumulated other comprehensive income | 53.8 | 22.5 | |||||||
Accumulated deficit | (3,220.7 | ) | (3,016.2 | ) | |||||
Total shareholders' equity | 1,226.9 | 1,491.3 | |||||||
Total liabilities and shareholders' equity | £ | 8,891.7 | £ | 9,190.0 | |||||
See accompanying notes.
4
VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Revenue | £ | 978.4 | £ | 919.4 | £ | 2,872.0 | £ | 2,722.6 | ||||||
Costs and expenses | ||||||||||||||
Operating costs (exclusive of depreciation shown separately below) | 395.6 | 374.6 | 1,166.5 | 1,149.1 | ||||||||||
Selling, general and administrative expenses | 195.5 | 195.8 | 598.9 | 591.7 | ||||||||||
Restructuring and other charges | 4.5 | 1.6 | 11.4 | 30.6 | ||||||||||
Depreciation | 244.4 | 235.3 | 733.4 | 700.9 | ||||||||||
Amortization | 36.7 | 61.0 | 110.9 | 183.3 | ||||||||||
876.7 | 868.3 | 2,621.1 | 2,655.6 | |||||||||||
Operating income | 101.7 | 51.1 | 250.9 | 67.0 | ||||||||||
Other income (expense) | ||||||||||||||
Interest expense | (118.2 | ) | (120.0 | ) | (359.1 | ) | (331.3 | ) | ||||||
Loss on extinguishment of debt | — | (9.4 | ) | (70.0 | ) | (16.7 | ) | |||||||
Share of income from equity investments | 6.7 | 5.1 | 21.4 | 7.2 | ||||||||||
(Loss) gain on derivative instruments | (24.7 | ) | 43.6 | (52.9 | ) | (104.1 | ) | |||||||
Foreign currency gains (losses) | 43.6 | (49.8 | ) | (33.9 | ) | 107.6 | ||||||||
Interest income and other, net | 0.8 | 1.3 | 4.7 | 6.6 | ||||||||||
Income (loss) from continuing operations before | ||||||||||||||
income taxes | 9.9 | (78.1 | ) | (238.9 | ) | (263.7 | ) | |||||||
Income tax benefit | 17.7 | 14.8 | 34.7 | 2.4 | ||||||||||
Income (loss) from continuing operations | 27.6 | (63.3 | ) | (204.2 | ) | (261.3 | ) | |||||||
Discontinued operations | ||||||||||||||
Gain on disposal, net of tax of £13.2 | 14.4 | — | 14.4 | — | ||||||||||
(Loss) income from discontinued operations, net of tax | (0.2 | ) | 3.2 | 11.3 | (2.1 | ) | ||||||||
Income (loss) from discontinued operations | 14.2 | 3.2 | 25.7 | (2.1 | ) | |||||||||
Net income (loss) | £ | 41.8 | £ | (60.1 | ) | £ | (178.5 | ) | £ | (263.4 | ) | |||
Basic and diluted income (loss) from continuing operations per common share | £ | 0.08 | £ | (0.19 | ) | £ | (0.62 | ) | £ | (0.79 | ) | |||
Basic and diluted income (loss) from discontinued operations per common share | £ | 0.04 | £ | 0.01 | £ | 0.08 | £ | (0.01 | ) | |||||
Basic and diluted net income (loss) per common share | £ | 0.13 | £ | (0.18 | ) | £ | (0.54 | ) | £ | (0.80 | ) | |||
Dividends per share (in U.S. dollars) | $ | 0.04 | $ | 0.04 | $ | 0.12 | $ | 0.12 | ||||||
See accompanying notes.
5
VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
| Nine months ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| | (Adjusted) | |||||||
Operating activities: | |||||||||
Net loss | £ | (178.5 | ) | £ | (263.4 | ) | |||
(Income) loss from discontinued operations | (25.7 | ) | 2.1 | ||||||
Loss from continuing operations | (204.2 | ) | (261.3 | ) | |||||
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 844.3 | 884.2 | |||||||
Non-cash interest | 16.1 | 43.3 | |||||||
Non-cash compensation | 21.4 | 12.0 | |||||||
Loss on extinguishment of debt | 70.1 | 15.8 | |||||||
Income from equity accounted investments, net of dividends received | (6.8 | ) | (5.5 | ) | |||||
Unrealized losses on derivative instruments | 124.5 | 113.9 | |||||||
Unrealized foreign currency gains | (87.9 | ) | (130.7 | ) | |||||
Income taxes | (13.9 | ) | 0.4 | ||||||
Amortization of original issue discount and deferred finance costs | 15.5 | 25.8 | |||||||
Other | 0.3 | (1.0 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business disposals | (7.1 | ) | (43.2 | ) | |||||
Net cash provided by operating activities | 772.3 | 653.7 | |||||||
Investing activities: | |||||||||
Purchase of fixed and intangible assets | (478.0 | ) | (412.5 | ) | |||||
Principal repayments on loans to equity investments | 15.0 | 8.9 | |||||||
Decrease in restricted cash | 1.4 | — | |||||||
Proceeds from sale of fixed assets | 35.8 | 2.9 | |||||||
Disposal of sit-up, net | — | (17.5 | ) | ||||||
Disposal of Virgin Media TV, net | 160.0 | — | |||||||
Other | 0.9 | (2.5 | ) | ||||||
Net cash used in investing activities | (264.9 | ) | (420.7 | ) | |||||
Financing activities: | |||||||||
New borrowings, net of financing fees | 3,072.1 | 928.8 | |||||||
Repurchase of common stock | (122.5 | ) | — | ||||||
Proceeds from employee stock option exercises | 9.9 | 0.7 | |||||||
Principal payments on long term debt, including redemption premiums, and capital leases | (3,225.9 | ) | (1,035.1 | ) | |||||
Dividends paid | (26.0 | ) | (25.1 | ) | |||||
Realized gain on derivatives | — | 88.3 | |||||||
Net cash used in financing activities | (292.4 | ) | (42.4 | ) | |||||
Cash flow from discontinued operations: | |||||||||
Net cash used in operating activities | (37.9 | ) | (18.5 | ) | |||||
Net cash used in investing activities | — | (0.7 | ) | ||||||
Net cash used in discontinued operations | (37.9 | ) | (19.2 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 2.2 | (1.4 | ) | ||||||
Increase in cash and cash equivalents | 179.3 | 170.0 | |||||||
Cash and cash equivalents, beginning of period | 430.5 | 181.6 | |||||||
Cash and cash equivalents, end of period | £ | 609.8 | £ | 351.6 | |||||
Supplemental disclosure of cash flow information | |||||||||
Cash paid during the period for interest exclusive of amounts capitalized | £ | 331.4 | £ | 253.2 |
See accompanying notes.
6
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009, as filed with the SEC on February 26, 2010, or the 2009 Annual Report.
Note 2—Recent Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board, or FASB, ratified new accounting guidance for existing multiple-element revenue arrangements. The revised multiple-element revenue arrangements guidance will be effective for the first annual reporting period beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. We will prospectively apply the new requirements beginning on January 1, 2011 and are currently evaluating the impact on our consolidated financial statements.
In January 2010, the FASB issued new guidance for fair value measurements and disclosures. The guidance improves disclosures about fair value measurements by requiring a greater level of disaggregated information and more robust disclosures about valuation techniques and inputs to fair value measurements. In addition, the guidance requires separate disclosure of amounts of significant transfers in and out of Levels 1 and 2 of the fair value hierarchy and a reconciliation of fair value measurements using significant unobservable inputs (Level 3 of the fair value hierarchy). We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.
In February 2010, the FASB issued new guidance for the disclosure of subsequent events. As a result of this guidance, we are no longer required to disclose the date through which we have evaluated subsequent events in the financial statements. We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.
In April 2010, the FASB issued new guidance for employee share-based payment awards. The guidance clarifies that share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of an entity's equity securities trades, should not be classified as a liability if they otherwise qualify as equity. The new guidance is effective for fiscal years and interim periods beginning on or after December 15, 2010. While we are still evaluating the impact of the adoption of this guidance, we do not expect it to have a material impact on our consolidated financial statements.
7
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3—Disposals
On June 4, 2010, we announced the sale to British Sky Broadcasting Limited, or BSkyB, of our television channel business known as Virgin Media TV. Virgin Media TV's operations comprised our former Content segment. We determined that as of June 30, 2010 the planned sale met the requirements for Virgin Media TV to be reflected as assets and liabilities held for sale and discontinued operations in both the current and prior periods, and accordingly, we adjusted the balance sheet as of December 31, 2009 and statement of operations and cash flows for the three and nine months ended September 30, 2009.
We have also entered into a number of agreements providing for the carriage by us of certain of BSkyB's standard and high-definition channels along with the former Virgin Media TV channels sold. The agreements in respect to the sale of Virgin Media TV and the carriage of these channels were negotiated concurrently. We have determined that these agreements are separate units of account as described by the fair value measurements guidance issued by the FASB. We have performed a review of the fair value of the services received and the business disposed of to determine the appropriate values to attribute to each unit of account. As a result, £33.6 million of the gain on disposal of Virgin Media TV has been deferred on the balance sheet and will be treated as a reduction in operating costs over the contractual terms of the carriage arrangements, which range from 3 to 7 years.
The fair value of Virgin Media TV was determined utilizing the market approach along with other third party bids we received for the business. The market approach utilized market multiples for similar businesses along with indicative earnings before interest, tax, depreciation and amortization, or EBITDA, levels for the business. The fair value of the carriage agreements was estimated utilizing an analysis of the cost of carriage agreements with other suppliers of content, prices proposed or established by U.K. regulators and audience viewing data. Along with this, we utilized a discount rate of 9.5%. These fair value measurements utilize significant unobservable inputs and fall with Level 3 of the fair value hierarchy.
The results of operations of Virgin Media TV have been included as discontinued operations in the condensed consolidated statements of operations through July 12, 2010, which is the date the sale was completed following approval from regulators in Ireland. On that date, consideration was received totaling £105.0 million. On September 17, 2010, additional consideration of £55.0 million was received upon full approval of the transaction by U.K. regulators. The terms of the sale and purchase agreement include certain customary warranties and working capital adjustments which may impact the amount recognized in future periods.
8
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3—Disposals (Continued)
The revenue and costs of Virgin Media TV, including intersegment transactions, reported in discontinued operations for the three and nine months ended September 30, 2010 and 2009 were as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
Revenue | £ | 7.3 | £ | 41.0 | £ | 96.2 | £ | 122.5 | ||||||
Costs and expenses | ||||||||||||||
Operating costs (exclusive of depreciation shown separately below) | (3.5 | ) | (36.1 | ) | (64.5 | ) | (93.1 | ) | ||||||
Selling, general and administrative expenses | (3.6 | ) | (5.4 | ) | (12.5 | ) | (16.6 | ) | ||||||
Depreciation | (0.3 | ) | (0.4 | ) | (1.1 | ) | (1.4 | ) | ||||||
Foreign currency (losses) gains | (0.1 | ) | 4.0 | (2.4 | ) | 9.2 | ||||||||
(Loss) income from discontinued operations | (0.2 | ) | 3.1 | 15.7 | 20.6 | |||||||||
Income tax expense | — | — | (4.4 | ) | — | |||||||||
(Loss) income from discontinued operations net of tax | £ | (0.2 | ) | £ | 3.1 | £ | 11.3 | £ | 20.6 | |||||
Income from discontinued operations for the nine months ended September 30, 2009 also includes the results of operation of our former sit-up reporting unit which was disposed of on April 1, 2009. Intercompany costs related to the carriage of the Virgin Media TV channels by our Consumer segment that had previously been eliminated for consolidation purposes and now have been recognized in our income from continuing operations for the three and nine months ended September 30, 2010 were nil and £14.3 million, respectively, and for the three and nine months ended September 30, 2009 were £7.0 million and £20.2 million, respectively.
9
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3—Disposals (Continued)
The assets and liabilities of Virgin Media TV reported as held for sale as of December 31, 2009 comprised (in millions):
| December 31, 2009 | |||||
---|---|---|---|---|---|---|
Current assets held for sale | ||||||
Accounts receivable, net | £ | 27.4 | ||||
Programming inventory | 62.1 | |||||
Prepaid expenses | 5.8 | |||||
Fixed assets | 3.5 | |||||
Trademark licenses | 11.3 | |||||
Goodwill | 42.7 | |||||
Current assets held for sale | £ | 152.8 | ||||
Current liabilities held for sale | ||||||
Accounts payable | £ | 63.2 | ||||
Accrued expenses | 17.9 | |||||
Deferred revenue and other liabilities | 2.7 | |||||
Current liabilities held for sale | £ | 83.8 | ||||
10
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4—Long Term Debt
Long term debt consisted of (in millions):
| September 30, 2010 | December 31, 2009 | ||||||
---|---|---|---|---|---|---|---|---|
Secured Obligation | ||||||||
U.S. Dollar | ||||||||
6.50% senior secured notes due 2018 | £ | 626.7 | £ | — | ||||
Senior credit facility | — | 275.3 | ||||||
Euro | ||||||||
Senior credit facility | — | 356.5 | ||||||
Sterling | ||||||||
7.00% senior secured notes due 2018 | 862.8 | — | ||||||
Senior credit facility | 1,675.0 | 2,481.0 | ||||||
Unsecured Obligation | ||||||||
U.S. Dollar | ||||||||
8.75% senior notes due 2014 | — | 55.3 | ||||||
9.125% senior notes due 2016 | 349.6 | 340.2 | ||||||
6.50% convertible senior notes due 2016 | 527.7 | 504.5 | ||||||
9.50% senior notes due 2016 | 835.4 | 810.9 | ||||||
8.375% senior notes due 2019 | 375.5 | 365.1 | ||||||
Euro | ||||||||
8.75% senior notes due 2014 | — | 41.9 | ||||||
9.50% senior notes due 2016 | 149.7 | 152.9 | ||||||
Sterling | ||||||||
9.75% senior notes due 2014 | — | 78.8 | ||||||
8.875% senior notes due 2019 | 344.7 | 344.5 | ||||||
Other Secured Obligation | ||||||||
Capital leases | 235.5 | 166.6 | ||||||
Other | 0.7 | 1.2 | ||||||
5,983.3 | 5,974.7 | |||||||
Less current portion | (218.0 | ) | (41.2 | ) | ||||
£ | 5,765.3 | £ | 5,933.5 | |||||
The effective interest rate on the senior credit facility was 4.3% and 5.3% as at September 30, 2010 and December 31, 2009, respectively.
On January 19, 2010, our wholly owned subsidiary Virgin Media Secured Finance PLC issued $1.0 billion aggregate principal amount of 6.50% senior secured notes due 2018 and £875 million aggregate principal amount of 7.00% senior secured notes due 2018. Interest is payable on June 15 and December 15 each year, beginning on June 15, 2010. The senior secured notes due 2018 rank pari passu with our senior credit facility and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility. We used the net proceeds to make repayments totaling £1,453.0 million under our old senior credit facility.
11
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4—Long Term Debt (Continued)
On April 19, 2010, we drew down an aggregate principal amount of £1,675.0 million under our new senior credit facility dated March 16, 2010, as amended and restated, or the new senior credit facility, and applied the proceeds towards the repayment of all amounts outstanding under our old senior credit facility and for general corporate purposes. The new senior credit facility comprises a term loan A facility in an aggregate principal amount of £1,000 million, a term loan B facility in an aggregate principal amount of £675 million and a revolving credit facility in aggregate principal amount of £250 million. As at September 30, 2010, we had utilized £15.8 million of the revolving credit facility for bank guarantees and standby letters of credit.
On May 12, 2010, we redeemed in full the outstanding balance of our senior notes due 2014 using cash from our balance sheet. The total cost to redeem these notes was £192.3 million, inclusive of the cost to settle derivative contracts entered into as economic hedges of these notes.
Long term debt repayments, excluding capital leases, as of September 30, 2010, were due as follows (in millions):
Period ending September 30: | | |||
---|---|---|---|---|
2011 | £ | 150.3 | ||
2012 | 175.3 | |||
2013 | 200.1 | |||
2014 | 200.0 | |||
2015 | 275.0 | |||
Thereafter | 4,916.2 | |||
Total debt payments | £ | 5,916.9 | ||
On October 27, 2010, we entered into capped call transactions with certain counterparties relating to our $1.0 billion 6.50% convertible senior notes due 2016. The capped call transactions 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. The capped call transactions relate to 90% of the aggregate principal amount of the convertible senior notes and are intended to offset a portion of the dilutive effects that could potentially be associated with conversion of the convertible senior notes at maturity. The cost of the capped call transactions in pounds sterling, which will be paid in the fourth quarter, will depend on the market price of our common stock during a hedge period and foreign exchange rate movements.
During the quarter, we sold 42 properties for proceeds of £35.8 million in cash. These properties were immediately leased back for a term of up to 50 years and are classified as capital leases. The gain on disposal of these properties has been deferred and will be recognized over the term of the leases.
12
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5—Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities | |
Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or | |
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or | ||
Inputs other than quoted prices that are observable for the asset or liability | ||
Level 3 | Unobservable inputs for the asset or liability |
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We have determined that all of our financial assets and liabilities that are stated at fair value fall in levels 1 and 2 in the fair value hierarchy described above. In estimating the fair value of our financial assets and liabilities, we used the following methods and assumptions:
Cash and cash equivalents, and restricted cash: The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short maturity and nature of these financial instruments.
Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using 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 carrying amounts of our derivative financial instruments are disclosed in note 6.
Long term debt: In the following table the fair value of our senior credit facility is based upon quoted trading prices in inactive markets for this debt, which incorporates non-performance risk, and is classified within level 2 of the fair value hierarchy. The fair values of our other debt in the following table are based on the quoted market prices in active markets and incorporate non-performance risk. Accordingly, the inputs used to value these debt instruments are classified within level 1 of the fair value hierarchy.
13
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5—Fair Value Measurements (Continued)
The carrying amounts and fair values of our long term debt are as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
Senior credit facility | £1,675.0 | £1,648.2 | £3,112.8 | £3,043.5 | |||||||||
8.75% U.S. dollar senior notes due 2014 | — | — | 55.3 | 57.7 | |||||||||
9.75% sterling senior notes due 2014 | — | — | 78.8 | 81.6 | |||||||||
8.75% euro senior notes due 2014 | — | — | 41.9 | 43.7 | |||||||||
9.125% U.S. dollar senior notes due 2016 | 349.6 | 374.3 | 340.2 | 359.4 | |||||||||
6.50% U.S. dollar convertible senior notes due 2016 | 527.7 | 940.1 | 504.5 | 737.0 | |||||||||
9.50% U.S. dollar senior notes due 2016 | 835.4 | 971.5 | 810.9 | 895.8 | |||||||||
9.50% euro senior notes due 2016 | 149.7 | 186.3 | 152.9 | 173.5 | |||||||||
8.375% U.S. dollar senior notes due 2019 | 375.5 | 422.8 | 365.1 | 377.0 | |||||||||
8.875% sterling senior notes due 2019 | 344.7 | 395.9 | 344.5 | 355.3 | |||||||||
6.50% U.S. dollar senior secured notes due 2018 | 626.7 | 672.8 | — | — | |||||||||
7.00% sterling senior secured notes due 2018 | 862.8 | 927.5 | — | — |
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade receivables and derivative contracts.
At September 30, 2010 and December 31, 2009, we had £609.8 million and £430.5 million, respectively, in cash and cash equivalents. These cash and cash equivalents are on deposit with major financial institutions and, as part of our cash management process, we perform regular evaluations of the credit standing of these institutions using a range of metrics. We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash balances.
Concentrations of credit risk with respect to trade receivables are limited because of the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our Business segment customers' financial condition and generally do not require collateral. No single group or customer represents greater than 10% of total accounts receivable.
Concentrations of credit risk with respect to derivative contracts are focused within a limited number of international financial institutions with whom we operate and relate only to derivatives with recorded asset balances at September 30, 2010. We perform regular reviews of the financial institutions with which we operate as to their credit worthiness and financial condition. We have not experienced non-performance by any of our derivative counterparties nor do we expect there to be non-performance risks associated with our counterparties. At September 30, 2010, based on market values, we had 58.5% of our derivative contracts with four financial institutions, each with more than 10% of our total exposure. At December 31, 2009, based on market values, we had 68.2% of our derivative contracts with three financial institutions, each with more than 10% of our total exposure.
14
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities
Strategies and Objectives for Holding Derivative Instruments
Our results could be materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. We are required to recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and to recognize certain changes in the fair value of derivative instruments in our consolidated statements of operations.
We have entered into cross-currency interest rate swaps and foreign currency forward rate contracts to manage interest rate and foreign exchange rate currency exposures with respect to our U.S. dollar ($) and euro (€) denominated debt obligations. Additionally, we have entered into interest rate swaps to manage interest rate exposures resulting from variable rates of interest we pay on our U.K. pound sterling (£) denominated debt obligations. We have also entered into U.S. dollar, euro and South African rand (ZAR) forward rate contracts to manage our foreign exchange rate currency exposures related to certain committed and forecasted purchases.
When practical, we designate a derivative contract as either a cash flow or fair value hedge for accounting purposes. These derivatives are referred to as "Accounting Hedges" below. When a derivative contract is not designated as an Accounting Hedge, the derivative will be treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains (losses) on derivative instruments in the statements of operations. These derivatives are referred to as "Economic Hedges" below. We do not enter into derivatives for speculative trading purposes.
With respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in cash flow or fair value attributable to the hedged risk. We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge contracts, including assessing the possibility of counterparty default. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the derivative in gains or losses on derivative instruments in the statement of operations. As a result of our effectiveness assessment at September 30, 2010, 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 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. 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.
15
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
The fair values of our derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
Included within current assets: | |||||||||
Accounting Hedge | |||||||||
Foreign currency forward rate contracts | £ | 0.2 | £ | 0.3 | |||||
Economic Hedge | |||||||||
Foreign currency forward rate contracts | 1.6 | 1.9 | |||||||
£ | 1.8 | £ | 2.2 | ||||||
Included within non-current assets: | |||||||||
Accounting Hedge | |||||||||
Cross-currency interest rate swaps | £ | 107.6 | £ | 63.7 | |||||
Economic Hedge | |||||||||
Interest rate swaps | 7.0 | — | |||||||
Cross-currency interest rate swaps | 53.0 | 169.5 | |||||||
Other | — | 1.9 | |||||||
£ | 167.6 | £ | 235.1 | ||||||
Included within current liabilities: | |||||||||
Accounting Hedge | |||||||||
Foreign currency forward rate contracts | £ | — | £ | 0.3 | |||||
Interest rate swaps | — | 12.0 | |||||||
Economic Hedge | |||||||||
Foreign currency forward rate contracts | — | 2.4 | |||||||
Interest rate swaps | — | 3.1 | |||||||
£ | — | £ | 17.8 | ||||||
Included within non-current liabilities: | |||||||||
Accounting Hedge | |||||||||
Interest rate swaps | £ | 4.6 | £ | 21.0 | |||||
Cross-currency interest rate swaps | 8.1 | 27.6 | |||||||
Economic Hedge | |||||||||
Interest rate swaps | 39.7 | — | |||||||
Cross-currency interest rate swaps | 37.3 | 58.2 | |||||||
£ | 89.7 | £ | 106.8 | ||||||
Cross-Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Secured Notes
As of September 30, 2010, 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 payments on the U.S. dollar and euro denominated senior notes and senior secured notes.
16
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
The terms of our outstanding cross-currency interest rate swaps at September 30, 2010 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) | | | ||||||||
$550m senior notes due 2016 | |||||||||||||
August 2016 | Accounting | $ | 550.0 | £ | 301.2 | 9.13% | 8.54% | ||||||
$1,350m senior notes due 2016 | |||||||||||||
August 2016 | Accounting | 1,350.0 | 835.5 | 9.50% | 9.98% | ||||||||
$1,000m convertible senior notes due 2016 | |||||||||||||
November 2016 | Economic | 1,000.0 | 505.6 | 6.50% | 6.95% | ||||||||
$600m senior notes due 2019 | |||||||||||||
October 2019 | Accounting | 264.3 | 159.8 | 8.38% | 9.03% | ||||||||
October 2011 | Economic | 335.7 | 228.0 | 8.38% | 9.23% | ||||||||
October 2011 to October 2019 | Accounting | 335.7 | 203.0 | 8.38% | 9.00% | ||||||||
$1,000m senior secured notes due 2018 | |||||||||||||
January 2018 | Accounting | 1,000.0 | 615.4 | 6.50% | 7.01% | ||||||||
$ | 4,835.7 | £ | 2,848.5 | ||||||||||
€180m senior notes due 2016 | |||||||||||||
August 2016 | Accounting | € | 180.0 | £ | 158.6 | 9.50% | 10.18% | ||||||
€ | 180.0 | £ | 158.6 | ||||||||||
Other | |||||||||||||
December 2012 | Economic | € | 56.7 | £ | 40.3 | 3 month | 3 month | ||||||
EURIBOR + 2.38% | LIBOR + 2.69% | ||||||||||||
December 2013 | Economic | 43.3 | 30.8 | 3 month | 3 month | ||||||||
EURIBOR + 2.88% | LIBOR + 3.26% | ||||||||||||
€ | 100.0 | £ | 71.1 | ||||||||||
December 2012 | Economic | £ | 38.8 | € | 56.7 | 3 month | 3 month | ||||||
LIBOR + 2.40% | EURIBOR + 2.38% | ||||||||||||
December 2013 | Economic | 29.7 | 43.3 | 3 month | 3 month | ||||||||
LIBOR + 2.90% | EURIBOR + 2.88% | ||||||||||||
£ | 68.5 | € | 100.0 | ||||||||||
All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in November 2016 hedging the $1,000 million convertible senior notes due 2016.
17
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations
As of September 30, 2010, 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. The terms of our outstanding interest rate swap contracts at September 30, 2010 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 | Accounting | £ | 600.0 | 6 month LIBOR | 2.86% | |||||
Other | ||||||||||
March 2013 | Economic | £ | 300.0 | 3 month LIBOR | 3.28% | |||||
March 2013 | Economic | 300.0 | 1.86% | 3 month LIBOR | ||||||
September 2012 | Economic | 600.0 | 3 month LIBOR | 3.09% | ||||||
September 2012 | Economic | 600.0 | 1.07% | 3 month LIBOR |
Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions
As of September 30, 2010, 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 September 30, 2010 were as follows:
Hedged item/Maturity date | Hedge type | Notional amount due from counterparty | Notional amount due to counterparty | Weighted average exchange rate | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (in millions) | (in millions) | | |||||||||
Committed and forecasted purchases | |||||||||||||
October 2010 to June 2011 | Economic | $ | 102.8 | £ | 63.8 | 1.6112 | |||||||
September 2010 to December 2010 | Accounting | $ | 2.8 | £ | 1.7 | 1.6688 | |||||||
July 2010 to December 2010 | Accounting | ZAR 16.5 | £ | 1.4 | 11.6940 |
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. All other cash flows from derivative contracts are recognized as operating activities in the consolidated statement of cash flows.
18
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the statement of operations in the period in which they occur. During the three and nine months ended September 30, 2010, there were no ineffectiveness losses recognized.
The following tables present the effective amount of gain or (loss) recognized in other comprehensive income (loss) and amounts reclassified to earnings during the three and nine months ended September 30, 2010 (in millions):
| Total | Interest rate swaps | Cross-currency interest rate swaps | Forward foreign exchange contracts | Tax Effect | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2009 | £ | (55.3 | ) | £ | (32.4 | ) | £ | (6.9 | ) | £ | — | £ | (16.0 | ) | |||
Amounts recognized in other comprehensive income (loss) | 95.8 | — | 95.1 | 0.7 | — | ||||||||||||
Amounts reclassified as a result of cash flow hedge discontinuance | 32.4 | 32.4 | — | — | — | ||||||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange loss | (127.9 | ) | — | (127.9 | ) | — | — | ||||||||||
Interest expense | (2.7 | ) | — | (2.7 | ) | — | — | ||||||||||
Operating costs | (0.2 | ) | — | — | (0.2 | ) | — | ||||||||||
�� | |||||||||||||||||
Balance at March 31, 2010 | £ | (57.9 | ) | £ | — | £ | (42.4 | ) | £ | 0.5 | £ | (16.0 | ) | ||||
Amounts recognized in other comprehensive income (loss) | 54.5 | — | 54.5 | — | — | ||||||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange loss | (20.9 | ) | — | (20.9 | ) | — | — | ||||||||||
Interest expense | (2.0 | ) | — | (2.0 | ) | — | — | ||||||||||
Operating costs | (0.1 | ) | — | — | (0.1 | ) | — | ||||||||||
Tax effect recognized | (8.1 | ) | — | — | — | (8.1 | ) | ||||||||||
Balance at June 30, 2010 | £ | (34.5 | ) | £ | — | £ | (10.8 | ) | £ | 0.4 | £ | (24.1 | ) | ||||
Amounts recognized in other comprehensive income (loss) | (86.1 | ) | (4.6 | ) | (81.4 | ) | (0.1 | ) | — | ||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange gains | 96.6 | — | 96.6 | — | — | ||||||||||||
Interest expense | (0.3 | ) | — | (0.3 | ) | — | — | ||||||||||
Operating costs | (0.1 | ) | — | — | (0.1 | ) | — | ||||||||||
Tax effect recognized | (2.9 | ) | — | — | — | (2.9 | ) | ||||||||||
Balance at September 30, 2010 | £ | (27.3 | ) | £ | (4.6 | ) | £ | 4.1 | £ | 0.2 | £ | (27.0 | ) | ||||
Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax gains that would be reclassified from other comprehensive income (loss) to earnings would be nil, £1.6 million and £0.2 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.
19
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 7—Restructuring and Other Charges
Restructuring and other charges of £4.5 million and £11.4 million for the three and nine months ended September 30, 2010, respectively, related primarily to involuntary employee termination and related costs and lease and contract exit costs in connection with the restructuring program initiated in the last quarter of 2008. Restructuring and other charges of £1.6 million for the three months ended September 30, 2009 related primarily to lease exit costs in relation to our historic restructuring activities. Restructuring and other charges of £30.6 million for the nine months ended September 30, 2009 related primarily to employee termination and lease exit costs in connection with the restructuring program initiated in the last quarter of 2008.
During the second quarter of 2010, we identified further savings through the expansion of the 2008 restructuring program and revised the estimated total costs and extended the completion date through the end of 2012. In connection with our 2008 restructuring program, in total we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million.
The following table summarizes our historical restructuring accruals, the restructuring accruals resulting from the acquisitions made by us during 2006 and the accruals for our restructuring plan announced in 2008 (in millions):
| Historical Restructuring Accruals | 2006 Acquisition Restructuring Accruals | 2008 Restructuring Accruals | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30, 2010 | Lease Exit Costs | Lease Exit Costs | Involuntary Employee Termination and Related Costs | Lease and Contract Exit Costs | Total | |||||||||||
Balance, June 30, 2010 | £ | 10.8 | £ | 18.9 | £ | 4.9 | £ | 14.0 | £ | 48.6 | ||||||
Charged to expense | 0.3 | 0.4 | 1.1 | 0.6 | 2.4 | |||||||||||
Revisions | 0.9 | 0.6 | (0.1 | ) | 0.7 | 2.1 | ||||||||||
Utilized | (1.4 | ) | (1.1 | ) | (3.8 | ) | (1.6 | ) | (7.9 | ) | ||||||
Balance, September 30, 2010 | £ | 10.6 | £ | 18.8 | £ | 2.1 | £ | 13.7 | £ | 45.2 | ||||||
20
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 7—Restructuring and Other Charges (Continued)
| Historical Restructuring Accruals | 2006 Acquisition Restructuring Accruals | 2008 Restructuring Accruals | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine months ended September 30, 2010 | Lease Exit Costs | Lease Exit Costs | Involuntary Employee Termination and Related Costs | Lease and Contract Exit Costs | Total | |||||||||||
Balance, December 31, 2009 | £ | 12.6 | £ | 27.4 | £ | 1.8 | £ | 15.5 | £ | 57.3 | ||||||
Amendments offset against goodwill | — | (0.3 | ) | — | — | (0.3 | ) | |||||||||
Charged to expense | 1.1 | 1.0 | 6.7 | 2.8 | 11.6 | |||||||||||
Revisions | 0.5 | (0.7 | ) | (0.7 | ) | 0.7 | (0.2 | ) | ||||||||
Utilized | (3.6 | ) | (8.6 | ) | (5.7 | ) | (5.3 | ) | (23.2 | ) | ||||||
Balance, September 30, 2010 | £ | 10.6 | £ | 18.8 | £ | 2.1 | £ | 13.7 | £ | 45.2 | ||||||
Note 8—Shareholders' Equity and Share Based Compensation
On July 28, 2010, we announced our intention to undertake a range of capital structure optimization actions. This capital structure optimization program is expected to include the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock until August 2011, and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. This program 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 this program will be held in treasury or cancelled. During the three and nine months ended September 30, 2010, we repurchased 9.3 million shares of common stock in connection with this program, at an average purchase price per share of $20.78 (£122.5 million in aggregate), through an accelerated stock repurchase program. The shares of common stock acquired in connection with this program were held in treasury as of September 30, 2010. No shares of common stock were repurchased in the three and nine months ended September 30, 2009.
Total share based compensation expense included in selling, general and administrative expenses in the statements of operations was £6.2 million and £6.1 million for the three months ended September 30, 2010 and 2009, respectively, and £21.4 million and £12.0 million for the nine months ended September 30, 2010 and 2009, respectively.
Note 9—Income (Loss) Per Common Share
Basic net income (loss) per common share attributable to Virgin Media Inc. is computed by dividing the net income (loss) for the three and nine months ended September 30, 2010 and 2009 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,
21
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 9—Income (Loss) Per Common Share (Continued)
restricted stock units, and warrants and the if-converted method for shares potentially issuable under our convertible senior notes.
The weighted average number of shares outstanding for the three and nine months ended September 30, 2010 and 2009 is computed as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
Number of shares outstanding at start of period | 331.1 | 328.9 | 329.4 | 328.1 | |||||||||
Issues of common stock (average number outstanding during the period) | 0.2 | 0.1 | 1.2 | 0.5 | |||||||||
Purchase of treasury shares | (5.7 | ) | — | (1.9 | ) | — | |||||||
Weighted average number of shares outstanding | 325.6 | 329.0 | 328.7 | 328.6 | |||||||||
The following table sets forth the components of basic and diluted income (loss) per common share (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Numerator for basic and diluted income (loss) per common share from continuing operations | £ | 27.6 | £ | (63.3 | ) | £ | (204.2 | ) | £ | (261.3 | ) | |||
Weighted average number of shares: | ||||||||||||||
Denominator for basic income (loss) per common share | 325.6 | 329.0 | 328.7 | 328.6 | ||||||||||
Effect of dilutive securities: | ||||||||||||||
Share based awards to employees | 5.2 | — | — | — | ||||||||||
Denominator for diluted income (loss) per common share | 330.8 | 329.0 | 328.7 | 328.6 | ||||||||||
The following table sets forth the number of potential common shares excluded from the calculation of the denominator for diluted income (loss) per common share (in millions):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
Stock options | 6.8 | 17.2 | 17.3 | 17.2 | |||||||||
Sharesave options | — | 0.7 | 1.4 | 0.7 | |||||||||
Restricted stock held in escrow | 0.7 | 1.3 | 0.7 | 1.3 | |||||||||
Restricted stock units | 5.2 | 4.3 | 5.2 | 4.4 | |||||||||
Warrants | 25.8 | 25.8 | 25.8 | 25.8 | |||||||||
Shares issuable under convertible senior notes | 52.0 | 52.0 | 52.0 | 52.0 |
22
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 9—Income (Loss) Per Common Share (Continued)
Each of these instruments are excluded from the calculation of diluted net income per common share in periods in which there is a loss, because the inclusion of potential common shares would have an anti-dilutive effect.
In the three months ended September 30, 2010, certain share based awards to employees have been excluded from the calculation of the diluted weighted average number of shares because their exercise prices exceeded our average share price during the calculation period.
In the three months ended September 30, 2010, certain restricted stock held in escrow and certain restricted stock units have been excluded from the calculation of the diluted weighted average number of shares because these shares are contingently issuable based on the achievement of performance and/or market conditions that have not been achieved as of September 30, 2010.
In the three months ended September 30, 2010, warrants have been excluded from the calculation of the diluted weighted average number of shares because their exercise prices exceeded our average share price during the calculation period.
In the three months ended September 30, 2010, 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 calculated based on the application of the if-converted method, which assumes that interest charges applicable to the convertible notes, net of the income tax effect, are added to income (loss) for the period and that the common shares issuable upon conversion of the convertible notes are added to the number of weighted average shares outstanding.
Stock Option Grants
All options granted under our stock incentive plans have a ten year term and vest and become fully exercisable within five years of continued employment. We have historically issued new shares upon exercise of the options. For performance-based option grants, the performance objectives are based upon quantitative and qualitative objectives, including earnings and stock price performance, amongst others. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.
Sharesave Option Grants
All options granted under the Virgin Media Inc. Sharesave Plan enable eligible employees to purchase shares of our common stock at a discount. Employees are invited to take out savings contracts that last for three years. At the end of the contract, employees use the proceeds of these savings to exercise the options granted under the plan. We intend to issue new shares upon exercise of the options.
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
23
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 9—Income (Loss) Per Common Share (Continued)
qualitative objectives, including earnings, operational performance and achievement of strategic goals, amongst others, which vest after a one to three year period. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.
Restricted Stock Unit Grants
The restricted stock units granted under our stock incentive plans have a term of up to three and a half years and vest based on performance, subject to continued employment. These targets may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range. The final number of restricted stock units vesting will be settled in either common stock or an amount of cash equivalent to the fair market value at the date of vesting.
Series A Warrants
The series A warrants are exercisable for a total of 25,769,060 shares of our common stock at an exercise price of $105.17 per share and expire on January 10, 2011.
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.
24
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 10—Comprehensive Income (Loss)
Comprehensive income (loss) comprises (in millions):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
| | (Adjusted) | | (Adjusted) | |||||||||
Net income (loss) for period | £ | 41.8 | £ | (60.1 | ) | £ | (178.5 | ) | £ | (263.4 | ) | ||
Currency translation adjustment | (7.3 | ) | 4.0 | 3.3 | (10.9 | ) | |||||||
Net unrealized (losses) gains on derivatives, net of tax | (62.0 | ) | 41.8 | 46.2 | (100.8 | ) | |||||||
Reclassification of derivative losses (gains) to net income, net of tax | 69.2 | (77.5 | ) | (18.2 | ) | 32.2 | |||||||
Comprehensive income (loss) | £ | 41.7 | £ | (91.8 | ) | £ | (147.2 | ) | £ | (342.9 | ) | ||
The components of accumulated other comprehensive income, net of taxes, were as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||
---|---|---|---|---|---|---|---|
Foreign currency translation | £ | 163.4 | £ | 160.1 | |||
Pension liability adjustment | (82.3 | ) | (82.3 | ) | |||
Net unrealized losses on derivatives | (27.3 | ) | (55.3 | ) | |||
£ | 53.8 | £ | 22.5 | ||||
Note 11—Contingent Liabilities
We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. 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. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us. Nevertheless, it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies, or because of the diversion of management's attention and the creation of significant expenses.
Our revenue generating activities are subject to Value Added Tax, or VAT. The U.K. tax authorities are seeking to challenge our VAT treatment of certain of these activities. As a result, we have estimated contingent losses totaling £52.4 million as of September 30, 2010 that are not accrued for, as we do not deem them to be probable of resulting in a liability. We continue to evaluate the likelihood of the contingent losses as additional information becomes available and, to the extent an accrual becomes necessary, it will be recognized in earnings in the period when such amount becomes probable. Any challenge made could be subject to court proceedings before any settlement would be
25
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11—Contingent Liabilities (Continued)
required and therefore the timescale for resolution is not expected to occur within the next financial year.
Note 12—Industry Segments
Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is our chief operating decision maker (CODM), to evaluate segment performance, the availability of separate financial information and overall materiality considerations. Our internal reporting structure and the related financial information used by management and the CODM reflect changes we have made after the announcement of the sale of Virgin Media TV, which comprised our Content segment, to BSkyB in June 2010. Following this announcement we have two reporting segments, Consumer and Business, as described below.
Our Consumer segment is our primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on our cable network, the provision of broadband and fixed line telephone services to residential customers outside of our cable network, and the provision of mobile telephony and mobile broadband to residential customers.
Our Business segment comprises our operations carried out through Virgin Media Business which provides voice, data and internet solutions to businesses, public sector organizations and service providers in the U.K.
Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management's measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by our Consumer and Business segments.
Segment information for the three and nine month periods ended September 30, 2010 and 2009 was as follows (in millions):
| Three months ended September 30, 2010 | Three months ended September 30, 2009 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | (Adjusted) | | |||||||||||||
| Consumer | Business | Total | Consumer | Business | Total | |||||||||||||
Revenue | £ | 826.2 | £ | 152.2 | £ | 978.4 | £ | 776.1 | £ | 143.3 | £ | 919.4 | |||||||
Segment contribution | £ | 500.9 | £ | 89.1 | £ | 590.0 | £ | 466.4 | £ | 86.3 | £ | 552.7 |
26
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 12—Industry Segments (Continued)
| Nine months ended September 30, 2010 | Nine months ended September 30, 2009 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | (Adjusted) | | |||||||||||||
| Consumer | Business | Total | Consumer | Business | Total | |||||||||||||
Revenue | £ | 2,427.2 | £ | 444.8 | £ | 2,872.0 | £ | 2,287.0 | £ | 435.6 | £ | 2,722.6 | |||||||
Segment contribution | £ | 1,470.8 | £ | 252.8 | £ | 1,723.6 | £ | 1,358.6 | £ | 252.6 | £ | 1,611.2 |
The reconciliation of total segment contribution to consolidated operating income is as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Total segment contribution | £ | 590.0 | £ | 552.7 | £ | 1,723.6 | £ | 1,611.2 | ||||||
Other operating and corporate costs | 202.7 | 203.7 | 617.0 | 629.4 | ||||||||||
Restructuring and other charges | 4.5 | 1.6 | 11.4 | 30.6 | ||||||||||
Depreciation | 244.4 | 235.3 | 733.4 | 700.9 | ||||||||||
Amortization | 36.7 | 61.0 | 110.9 | 183.3 | ||||||||||
Consolidated operating income | £ | 101.7 | £ | 51.1 | £ | 250.9 | £ | 67.0 | ||||||
Note 13—Condensed Consolidating Financial Information—Senior Notes
We present the following condensed consolidating financial information as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009 as required by Rule 3-10(d) of Regulation S-X.
Virgin Media Finance is the issuer of the following senior notes:
- •
- £375 million aggregate principal amount of 9.75% senior notes due 2014
- •
- $425 million aggregate principal amount of 8.75% senior notes due 2014
- •
- €225 million aggregate principal amount of 8.75% senior notes due 2014
- •
- $550 million aggregate principal amount of 9.125% senior notes due 2016
- •
- $1,350 million aggregate principal amount of 9.50% senior notes due 2016
- •
- €180 million aggregate principal amount of 9.50% senior notes due 2016
- •
- $600 million aggregate principal amount of 8.375% senior notes due 2019
- •
- £350 million aggregate principal amount of 8.875% senior notes due 2019
27
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
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. VMIL is included as a conditional guarantor as at December 31, 2009 following its accession on December 30, 2009 as a senior subordinated guarantor of the senior notes issued by Virgin Media Finance.
| September 30, 2010 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Finance | Other guarantors | VMIH | VMIL | All other subsidiaries | Adjustments | Total | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
Cash and cash equivalents | £ | 24.5 | £ | 1.9 | £ | 0.3 | £ | 457.9 | £ | — | £ | 125.2 | £ | — | £ | 609.8 | ||||||||||
Restricted cash | — | — | — | — | — | 4.6 | — | 4.6 | ||||||||||||||||||
Other current assets | 4.8 | — | — | 11.0 | — | 538.4 | — | 554.2 | ||||||||||||||||||
Total current assets | 29.3 | 1.9 | 0.3 | 468.9 | — | 668.2 | — | 1,168.6 | ||||||||||||||||||
Fixed assets, net | — | — | — | — | — | 4,879.4 | — | 4,879.4 | ||||||||||||||||||
Goodwill and intangible assets, net | — | — | (15.0 | ) | — | — | 2,187.6 | — | 2,172.6 | |||||||||||||||||
Investments in, and loans to, parent and subsidiary companies | 1,735.2 | 454.7 | (1,076.4 | ) | 782.5 | 1,646.7 | (3,362.6 | ) | 168.8 | 348.9 | ||||||||||||||||
Other assets, net | 9.5 | — | — | 245.0 | — | 67.7 | — | 322.2 | ||||||||||||||||||
Total assets | £ | 1,774.0 | £ | 456.6 | £ | (1,091.1 | ) | £ | 1,496.4 | £ | 1,646.7 | £ | 4,440.3 | £ | 168.8 | £ | 8,891.7 | |||||||||
Current liabilities | £ | 19.4 | £ | 47.4 | £ | 32.9 | £ | 118.3 | £ | — | £ | 2,407.4 | £ | (1,149.4 | ) | £ | 1,476.0 | |||||||||
Long term debt, net of current portion | 527.7 | 2,055.0 | — | — | — | 3,182.6 | — | 5,765.3 | ||||||||||||||||||
Other long term liabilities | — | — | 0.2 | 69.9 | — | 353.4 | — | 423.5 | ||||||||||||||||||
Shareholders' equity (deficit) | 1,226.9 | (1,645.8 | ) | (1,124.2 | ) | 1,308.2 | 1,646.7 | (1,503.1 | ) | 1,318.2 | 1,226.9 | |||||||||||||||
Total liabilities and shareholders' equity | £ | 1,774.0 | £ | 456.6 | £ | (1,091.1 | ) | £ | 1,496.4 | £ | 1,646.7 | £ | 4,440.3 | £ | 168.8 | £ | 8,891.7 | |||||||||
28
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| December 31, 2009 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Finance | Other guarantors | VMIH | VMIL | All other subsidiaries | Adjustments | Total | ||||||||||||||||||
| (Adjusted) (in millions) | |||||||||||||||||||||||||
Cash and cash equivalents | £ | 12.4 | £ | 1.9 | £ | 0.3 | £ | 292.9 | £ | — | £ | 123.0 | £ | — | £ | 430.5 | ||||||||||
Restricted cash | — | — | — | — | — | 6.0 | — | 6.0 | ||||||||||||||||||
Other current assets | 4.3 | — | 0.1 | 9.9 | — | 498.9 | — | 513.2 | ||||||||||||||||||
Current assets held for sale | — | — | — | — | — | 152.8 | — | 152.8 | ||||||||||||||||||
Total current assets | 16.7 | 1.9 | 0.4 | 302.8 | — | 780.7 | — | 1,102.5 | ||||||||||||||||||
Fixed assets, net | — | — | — | — | — | 5,045.8 | — | 5,045.8 | ||||||||||||||||||
Goodwill and intangible assets, net | — | — | (15.0 | ) | — | — | 2,298.7 | — | 2,283.7 | |||||||||||||||||
Investments in, and loans to, parent and subsidiary companies | 1,977.8 | 766.8 | (962.1 | ) | 2,859.9 | — | (6,316.6 | ) | 2,034.1 | 359.9 | ||||||||||||||||
Other assets, net | 10.4 | — | — | 295.5 | — | 92.2 | — | 398.1 | ||||||||||||||||||
Total assets | £ | 2,004.9 | £ | 768.7 | £ | (976.7 | ) | £ | 3,458.2 | £ | — | £ | 1,900.8 | £ | 2,034.1 | £ | 9,190.0 | |||||||||
Current liabilities | £ | 9.1 | £ | 82.9 | £ | 25.2 | £ | 127.3 | £ | — | £ | 1,781.9 | £ | (716.8 | ) | £ | 1,309.6 | |||||||||
Current liabilities held for sale | — | — | — | — | — | 83.8 | — | £ | 83.8 | |||||||||||||||||
Total current liabilities | 9.1 | 82.9 | 25.2 | 127.3 | — | 1,865.7 | (716.8 | ) | £ | 1,393.4 | ||||||||||||||||
Long term debt, net of current portion | 504.5 | 2,189.5 | — | 1,798.9 | — | 1,440.6 | — | 5,933.5 | ||||||||||||||||||
Other long term liabilities | — | — | 0.1 | 83.8 | — | 287.9 | — | 371.8 | ||||||||||||||||||
Shareholders' equity (deficit) | 1,491.3 | (1,503.7 | ) | (1,002.0 | ) | 1,448.2 | — | (1,693.4 | ) | 2,750.9 | 1,491.3 | |||||||||||||||
Total liabilities and shareholders' equity | £ | 2,004.9 | £ | 768.7 | £ | (976.7 | ) | £ | 3,458.2 | £ | — | £ | 1,900.8 | £ | 2,034.1 | £ | 9,190.0 | |||||||||
29
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Three months ended September 30, 2010 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance | Other guarantors | VMIH | VMIL | All other subsidiaries | Adjustments | Total | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Revenue | £ | — | £ | — | £ | — | £ | — | £ | — | £ | 978.4 | £ | — | £ | 978.4 | |||||||||
Operating costs | — | — | — | — | — | (395.6 | ) | — | (395.6 | ) | |||||||||||||||
Selling, general and administrative expenses | (5.7 | ) | — | — | — | — | (189.8 | ) | — | (195.5 | ) | ||||||||||||||
Restructuring and other charges | — | — | — | — | — | (4.5 | ) | — | (4.5 | ) | |||||||||||||||
Depreciation and amortization | — | — | — | — | — | (281.1 | ) | — | (281.1 | ) | |||||||||||||||
Operating income (loss) | (5.7 | ) | — | — | — | — | 107.4 | — | 101.7 | ||||||||||||||||
Interest expense | (15.2 | ) | (51.6 | ) | (25.2 | ) | (106.3 | ) | — | (249.2 | ) | 329.3 | (118.2 | ) | |||||||||||
Share of income from equity investments | — | — | — | — | — | 6.7 | — | 6.7 | |||||||||||||||||
Loss on derivative instruments | — | — | — | (24.7 | ) | — | — | — | (24.7 | ) | |||||||||||||||
Foreign currency gains | 0.5 | — | — | 18.6 | — | 24.5 | — | 43.6 | |||||||||||||||||
Interest income and other, net | 9.1 | 51.3 | 26.4 | 37.2 | — | 206.1 | (329.3 | ) | 0.8 | ||||||||||||||||
Income tax benefit (expense) | — | — | 0.5 | — | — | 17.2 | — | 17.7 | |||||||||||||||||
(Loss) income from continuing operations | (11.3 | ) | (0.3 | ) | 1.7 | (75.2 | ) | — | 112.7 | — | 27.6 | ||||||||||||||
Gain on disposal, net of tax | — | — | — | — | — | 14.4 | — | 14.4 | |||||||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | — | — | — | (0.2 | ) | — | (0.2 | ) | |||||||||||||||
Equity in net income of subsidiaries | 53.1 | 45.2 | 51.8 | 120.0 | 119.3 | — | (389.4 | ) | — | ||||||||||||||||
Net income | £ | 41.8 | £ | 44.9 | £ | 53.5 | £ | 44.8 | £ | 119.3 | £ | 126.9 | £ | (389.4 | ) | £ | 41.8 | ||||||||
30
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Nine months ended September 30, 2010 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance | Other guarantors | VMIH | VMIL | All other subsidiaries | Adjustments | Total | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Revenue | £ | — | £ | — | £ | — | £ | — | £ | — | £ | 2,872.0 | £ | — | £ | 2,872.0 | |||||||||
Operating costs | — | — | — | — | — | (1,166.5 | ) | — | (1,166.5 | ) | |||||||||||||||
Selling, general and administrative expenses | (15.7 | ) | — | — | — | — | (583.2 | ) | — | (598.9 | ) | ||||||||||||||
Restructuring and other charges | — | — | — | — | — | (11.4 | ) | — | (11.4 | ) | |||||||||||||||
Depreciation and amortization | — | — | — | — | — | (844.3 | ) | — | (844.3 | ) | |||||||||||||||
Operating income (loss) | (15.7 | ) | — | — | — | — | 266.6 | — | 250.9 | ||||||||||||||||
Interest expense | (45.0 | ) | (166.3 | ) | (82.7 | ) | (321.7 | ) | — | (688.5 | ) | 945.1 | (359.1 | ) | |||||||||||
Loss on extinguishment of debt | — | — | — | (50.6 | ) | — | (19.4 | ) | — | (70.0 | ) | ||||||||||||||
Share of income from equity investments | — | — | — | — | — | 21.4 | — | 21.4 | |||||||||||||||||
Loss on derivative instruments | — | — | — | (50.9 | ) | — | (2.0 | ) | — | (52.9 | ) | ||||||||||||||
Foreign currency (losses) gains | 1.1 | (0.3 | ) | 0.1 | (19.1 | ) | — | (15.7 | ) | — | (33.9 | ) | |||||||||||||
Interest income and other, net | 30.4 | 164.3 | 85.6 | 102.3 | — | 567.2 | (945.1 | ) | 4.7 | ||||||||||||||||
Income tax benefit | — | — | 0.2 | — | — | 34.5 | — | 34.7 | |||||||||||||||||
(Loss) income from continuing operations | (29.2 | ) | (2.3 | ) | 3.2 | (340.0 | ) | — | 164.1 | — | (204.2 | ) | |||||||||||||
Gain on disposal, net of tax | — | — | — | — | — | 14.4 | — | 14.4 | |||||||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | — | — | — | 11.3 | — | 11.3 | |||||||||||||||||
Equity in net (loss) income of subsidiaries | (149.3 | ) | (167.9 | ) | (152.3 | ) | 171.9 | 170.4 | — | 127.2 | — | ||||||||||||||
Net (loss) income | £ | (178.5 | ) | £ | (170.2 | ) | £ | (149.1 | ) | £ | (168.1 | ) | £ | 170.4 | £ | 189.8 | £ | 127.2 | £ | (178.5 | ) | ||||
31
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Three months ended September 30, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance | Other guarantors | VMIH | All other subsidiaries | Adjustments | Total | |||||||||||||||
| (Adjusted) (in millions) | |||||||||||||||||||||
Revenue | £ | — | £ | — | £ | — | £ | — | £ | 919.4 | £ | — | £ | 919.4 | ||||||||
Operating costs | — | — | — | — | (374.6 | ) | — | (374.6 | ) | |||||||||||||
Selling, general and administrative expenses | (7.3 | ) | — | (0.6 | ) | — | (187.9 | ) | — | (195.8 | ) | |||||||||||
Restructuring and other charges | — | — | — | — | (1.6 | ) | — | (1.6 | ) | |||||||||||||
Depreciation and amortization | — | — | — | — | (296.3 | ) | — | (296.3 | ) | |||||||||||||
Operating income (loss) | (7.3 | ) | — | (0.6 | ) | — | 59.0 | — | 51.1 | |||||||||||||
Interest expense | (13.5 | ) | (52.9 | ) | (26.9 | ) | (96.6 | ) | (161.2 | ) | 231.1 | (120.0 | ) | |||||||||
Loss on extinguishment of debt | — | — | — | (4.0 | ) | (5.4 | ) | — | (9.4 | ) | ||||||||||||
Share of income from equity investments | — | — | — | — | 5.1 | — | 5.1 | |||||||||||||||
Gains on derivative instruments | — | — | — | 43.6 | — | — | 43.6 | |||||||||||||||
Foreign currency losses | (0.3 | ) | (1.6 | ) | — | (45.2 | ) | (2.7 | ) | — | (49.8 | ) | ||||||||||
Interest and other income, net | 9.8 | 53.5 | 33.1 | 16.6 | 119.4 | (231.1 | ) | 1.3 | ||||||||||||||
Income tax benefit (expense) | 1.5 | — | 0.6 | 14.2 | (1.5 | ) | — | 14.8 | ||||||||||||||
(Loss) income from continuing operations | (9.8 | ) | (1.0 | ) | 6.2 | (71.4 | ) | 12.7 | — | (63.3 | ) | |||||||||||
Gain on discontinued operations, net of tax | — | — | — | — | 3.2 | — | 3.2 | |||||||||||||||
Equity in net (loss) income of subsidiaries | (50.3 | ) | (59.5 | ) | (56.4 | ) | 11.7 | — | 154.5 | — | ||||||||||||
Net (loss) income | £ | (60.1 | ) | £ | (60.5 | ) | £ | (50.2 | ) | £ | (59.7 | ) | £ | 15.9 | £ | 154.5 | £ | (60.1 | ) | |||
32
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Nine months ended September 30, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance | Other guarantors | VMIH | All other subsidiaries | Adjustments | Total | |||||||||||||||
| (Adjusted) (in millions) | |||||||||||||||||||||
Revenue | £ | — | £ | — | £ | — | £ | — | £ | 2,722.6 | £ | — | £ | 2,722.6 | ||||||||
Operating costs | — | — | — | — | (1,149.1 | ) | — | (1,149.1 | ) | |||||||||||||
Selling, general and administrative expenses | (13.9 | ) | — | (1.9 | ) | (0.1 | ) | (575.8 | ) | — | (591.7 | ) | ||||||||||
Restructuring and other charges | — | — | — | — | (30.6 | ) | — | (30.6 | ) | |||||||||||||
Depreciation and amortization | — | — | — | — | (884.2 | ) | — | (884.2 | ) | |||||||||||||
Operating income (loss) | (13.9 | ) | — | (1.9 | ) | (0.1 | ) | 82.9 | — | 67.0 | ||||||||||||
Interest expense | (43.2 | ) | (131.1 | ) | (84.7 | ) | (259.3 | ) | (495.4 | ) | 682.4 | (331.3 | ) | |||||||||
Loss on extinguishment of debt | — | — | — | (8.2 | ) | (8.5 | ) | — | (16.7 | ) | ||||||||||||
Share of income from equity investments | — | — | — | — | 7.2 | — | 7.2 | |||||||||||||||
(Losses) gains on derivative instruments | — | — | — | (104.3 | ) | 0.2 | — | (104.1 | ) | |||||||||||||
Foreign currency gains (losses) | 0.6 | (0.5 | ) | (0.5 | ) | 89.5 | 18.5 | — | 107.6 | |||||||||||||
Interest income and other, net | 31.6 | 132.8 | 103.1 | 53.8 | 367.7 | (682.4 | ) | 6.6 | ||||||||||||||
Income tax benefit (expense) | 1.4 | — | 0.5 | 4.1 | (3.6 | ) | — | 2.4 | ||||||||||||||
(Loss) income from continuing operations | (23.5 | ) | 1.2 | 16.5 | (224.5 | ) | (31.0 | ) | — | (261.3 | ) | |||||||||||
Loss from discontinued operations, net of tax | — | — | — | — | (2.1 | ) | — | (2.1 | ) | |||||||||||||
Equity in net loss of subsidiaries | (239.9 | ) | (265.9 | ) | (256.9 | ) | (41.4 | ) | — | 804.1 | — | |||||||||||
Net (loss) income | £ | (263.4 | ) | £ | (264.7 | ) | £ | (240.4 | ) | £ | (265.9 | ) | £ | (33.1 | ) | £ | 804.1 | £ | (263.4 | ) | ||
33
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Nine months ended September 30, 2010 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of cash flows | Company | Virgin Media Finance | Other guarantors | VMIH | VMIL | All other subsidiaries | Adjustments | Total | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Net cash provided by (used in) operating activities | £ | (5.3 | ) | £ | 4.6 | £ | 5.8 | £ | 181.4 | £ | — | £ | 585.8 | £ | — | £ | 772.3 | ||||||||
Investing activities: | |||||||||||||||||||||||||
Purchase of fixed and intangible assets | — | — | — | — | — | (478.0 | ) | — | (478.0 | ) | |||||||||||||||
Principal repayments on loans to equity investments | — | — | — | — | — | 15.0 | — | 15.0 | |||||||||||||||||
Principal drawdowns (repayments) on loans to group companies | 150.8 | 174.5 | (5.8 | ) | 1,797.4 | — | (2,116.9 | ) | — | — | |||||||||||||||
Decrease in restricted cash | — | — | — | — | — | 1.4 | — | 1.4 | |||||||||||||||||
Proceeds from sale of fixed assets | — | — | — | — | — | 35.8 | — | 35.8 | |||||||||||||||||
Disposal of Virgin Media TV, net | — | — | — | — | — | 160.0 | — | 160.0 | |||||||||||||||||
Other | — | — | — | — | — | 0.9 | — | 0.9 | |||||||||||||||||
Net cash (used in) provided by investing activities | 150.8 | 174.5 | (5.8 | ) | 1,797.4 | — | (2,381.8 | ) | — | (264.9 | ) | ||||||||||||||
Financing activities: | |||||||||||||||||||||||||
New borrowings, net of financing fees | — | — | — | (70.9 | ) | — | 3,143.0 | — | 3,072.1 | ||||||||||||||||
Common stock repurchases | (122.5 | ) | — | — | — | — | — | — | (122.5 | ) | |||||||||||||||
Proceeds from employee stock option exercises | 9.9 | — | — | — | — | — | — | 9.9 | |||||||||||||||||
Principal payments on long term debt and capital leases | — | (179.1 | ) | — | (1,727.0 | ) | — | (1,319.8 | ) | — | (3,225.9 | ) | |||||||||||||
Intercompany funding movements | 3.0 | — | — | (15.9 | ) | — | 12.9 | — | — | ||||||||||||||||
Dividends paid | (26.0 | ) | — | — | — | — | — | — | (26.0 | ) | |||||||||||||||
Net cash (used in) provided by financing activities | (135.6 | ) | (179.1 | ) | — | (1,813.8 | ) | — | 1,836.1 | — | (292.4 | ) | |||||||||||||
Cash flow from discontinued operations | |||||||||||||||||||||||||
Net cash used in operating activities | — | — | — | — | — | (37.9 | ) | — | (37.9 | ) | |||||||||||||||
Net cash used in discontinued operations | — | — | — | — | — | (37.9 | ) | — | (37.9 | ) | |||||||||||||||
Effect of exchange rates on cash and cash equivalents | 2.2 | — | — | — | — | — | — | 2.2 | |||||||||||||||||
Increase in cash and cash equivalents | 12.1 | — | — | 165.0 | — | 2.2 | — | 179.3 | |||||||||||||||||
Cash and cash equivalents at beginning of period | 12.4 | 1.9 | 0.3 | 292.9 | — | 123.0 | — | 430.5 | |||||||||||||||||
Cash and cash equivalents at end of period | £ | 24.5 | £ | 1.9 | £ | 0.3 | £ | 457.9 | £ | — | £ | 125.2 | £ | — | £ | 609.8 | |||||||||
34
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 13—Condensed Consolidating Financial Information—Senior Notes (Continued)
| Nine months ended September 30, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of cash flows | Company | Virgin Media Finance | Other Guarantors | VMIH | All other subsidiaries | Adjustments | Total | |||||||||||||||
| (Adjusted) (in millions) | |||||||||||||||||||||
Net cash provided by (used in) operating activities | £ | (6.7 | ) | £ | — | £ | (1.6 | ) | £ | (106.1 | ) | £ | 768.1 | £ | — | £ | 653.7 | |||||
Investing activities: | ||||||||||||||||||||||
Purchase of fixed and intangible assets | — | — | — | — | (412.5 | ) | — | (412.5 | ) | |||||||||||||
Principal repayments on loans to equity investments | — | — | — | — | 8.9 | — | 8.9 | |||||||||||||||
Principal (drawdowns) repayments on loans to group companies | — | (961.5 | ) | 1.2 | 591.9 | 368.4 | — | — | ||||||||||||||
Disposal of sit-up, net | — | — | — | — | (17.5 | ) | — | (17.5 | ) | |||||||||||||
Other | — | — | — | — | 0.4 | — | 0.4 | |||||||||||||||
Net cash (used in) provided by investing activities | — | (961.5 | ) | 1.2 | 591.9 | (52.3 | ) | — | (420.7 | ) | ||||||||||||
Financing activities: | ||||||||||||||||||||||
New borrowings, net of financing activities | — | 961.5 | — | (22.8 | ) | (9.9 | ) | — | 928.8 | |||||||||||||
Proceeds from employee stock options | 1.0 | — | — | — | — | — | 1.0 | |||||||||||||||
Principal payments on long term debt and capital leases | — | — | — | (233.5 | ) | (801.6 | ) | — | (1,035.1 | ) | ||||||||||||
Intercompany funding movements | 35.0 | — | — | (29.9 | ) | (5.1 | ) | — | — | |||||||||||||
Dividends paid | (25.1 | ) | — | — | — | — | — | (25.1 | ) | |||||||||||||
Gain on derivatives | — | — | — | 88.3 | — | — | 88.3 | |||||||||||||||
Other | (0.3 | ) | — | — | — | — | — | (0.3 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 10.6 | 961.5 | — | (197.9 | ) | (816.6 | ) | — | (42.4 | ) | ||||||||||||
Cash flow from discontinued operations | ||||||||||||||||||||||
Net cash used in operating activities | — | — | — | — | (18.5 | ) | — | (18.5 | ) | |||||||||||||
Net cash used in investing activities | — | — | — | — | (0.7 | ) | — | (0.7 | ) | |||||||||||||
Net cash used in discontinued operations | — | — | — | — | (19.2 | ) | — | (19.2 | ) | |||||||||||||
Effect of exchange rates on cash and cash equivalents | (1.4 | ) | — | — | — | — | — | (1.4 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents | 2.5 | — | (0.4 | ) | 287.9 | (120.0 | ) | — | 170.0 | |||||||||||||
Cash and cash equivalents at beginning of period | 9.9 | — | 1.2 | 0.4 | 170.1 | — | 181.6 | |||||||||||||||
Cash and cash equivalents at end of period | £ | 12.4 | £ | — | £ | 0.8 | £ | 288.3 | £ | 50.1 | £ | — | £ | 351.6 | ||||||||
35
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes
We present the following condensed consolidating financial information as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009 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 secured notes due 2018
- •
- $1,000 million aggregate principal amount of 6.50% senior secured notes due 2018
| September 30, 2010 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | ||||||||||||||
| (in millions) | |||||||||||||||||||
Cash and cash equivalents | £ | 24.5 | £ | — | £ | 580.1 | £ | 5.2 | £ | — | £ | 609.8 | ||||||||
Restricted cash | — | — | 4.6 | — | — | 4.6 | ||||||||||||||
Other current assets | 4.8 | — | 548.0 | 1.4 | — | 554.2 | ||||||||||||||
Total current assets | 29.3 | — | 1,132.7 | 6.6 | — | 1,168.6 | ||||||||||||||
Fixed assets, net | — | — | 4,851.6 | 27.8 | — | 4,879.4 | ||||||||||||||
Goodwill and intangible assets, net | — | — | 2,180.3 | (7.7 | ) | — | 2,172.6 | |||||||||||||
Investments in, and loans to, parent and subsidiary companies. | 1,735.2 | 1,520.6 | (888.8 | ) | 1,310.1 | (3,328.2 | ) | 348.9 | ||||||||||||
Other assets, net | 9.5 | — | 312.7 | — | — | 322.2 | ||||||||||||||
Total assets | £ | 1,774.0 | £ | 1,520.6 | £ | 7,588.5 | £ | 1,336.8 | £ | (3,328.2 | ) | £ | 8,891.7 | |||||||
Current liabilities | £ | 19.4 | £ | 30.2 | £ | 2,537.4 | £ | 38.2 | £ | (1,149.2 | ) | £ | 1,476.0 | |||||||
Long term debt, net of current portion | 527.7 | 1,489.5 | 3,748.1 | — | — | 5,765.3 | ||||||||||||||
Other long term liabilities | — | — | 417.2 | 6.3 | — | 423.5 | ||||||||||||||
Shareholders' equity | 1,226.9 | 0.9 | 885.8 | 1,292.3 | (2,179.0 | ) | 1,226.9 | |||||||||||||
Total liabilities and shareholders' equity | £ | 1,774.0 | £ | 1,520.6 | £ | 7,588.5 | £ | 1,336.8 | £ | (3,328.2 | ) | £ | 8,891.7 | |||||||
36
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| December 31, 2009 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | ||||||||||||||
| (Adjusted) (in millions) | |||||||||||||||||||
Cash and cash equivalents | £ | 12.4 | £ | — | £ | 413.3 | £ | 4.8 | £ | — | £ | 430.5 | ||||||||
Restricted cash | — | — | 6.0 | — | — | 6.0 | ||||||||||||||
Other current assets | 4.3 | — | 507.6 | 1.3 | — | 513.2 | ||||||||||||||
Current assets held for sale | — | — | 13.2 | 139.6 | — | 152.8 | ||||||||||||||
Total current assets | 16.7 | — | 940.1 | 145.7 | — | 1,102.5 | ||||||||||||||
Fixed assets, net | — | — | 5,017.1 | 28.7 | — | 5,045.8 | ||||||||||||||
Goodwill and intangible assets, net | — | — | 2,290.8 | (7.1 | ) | — | 2,283.7 | |||||||||||||
Investments in, and loans to, parent and subsidiary companies | 1,977.8 | — | (41.2 | ) | 1,570.8 | (3,147.5 | ) | 359.9 | ||||||||||||
Other assets, net | 10.4 | — | 386.4 | 1.3 | — | 398.1 | ||||||||||||||
Total assets | £ | 2,004.9 | £ | — | £ | 8,593.2 | £ | 1,739.4 | £ | (3,147.5 | ) | £ | 9,190.0 | |||||||
Other current liabilities | £ | 9.1 | £ | — | £ | 1,988.9 | £ | 28.4 | £ | (716.8 | ) | £ | 1,309.6 | |||||||
Current liabilities held for sale | — | — | 69.3 | 14.5 | — | 83.8 | ||||||||||||||
Total current liabilities | 9.1 | — | 2,058.2 | 42.9 | (716.8 | ) | 1,393.4 | |||||||||||||
Long term debt, net of current portion | 504.5 | — | 5,153.7 | 275.3 | — | 5,933.5 | ||||||||||||||
Other long term liabilities | — | — | 367.8 | 4.0 | — | 371.8 | ||||||||||||||
Shareholders' equity | 1,491.3 | — | 1,013.5 | 1,417.2 | (2,430.7 | ) | 1,491.3 | |||||||||||||
Total liabilities and shareholders' equity | £ | 2,004.9 | £ | — | £ | 8,593.2 | £ | 1,739.4 | £ | (3,147.5 | ) | £ | 9,190.0 | |||||||
37
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Three months ended September 30, 2010 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (in millions) | ||||||||||||||||||
Revenue | £ | — | £ | — | £ | 973.7 | £ | 4.7 | £ | — | £ | 978.4 | |||||||
Operating costs | — | — | (394.6 | ) | (1.0 | ) | — | (395.6 | ) | ||||||||||
Selling, general and administrative expenses | (5.7 | ) | — | (189.8 | ) | — | — | (195.5 | ) | ||||||||||
Restructuring and other charges | — | — | (4.5 | ) | — | — | (4.5 | ) | |||||||||||
Depreciation and amortization | — | — | (280.6 | ) | (0.5 | ) | — | (281.1 | ) | ||||||||||
Operating income (loss) | (5.7 | ) | — | 104.2 | 3.2 | — | 101.7 | ||||||||||||
Interest expense | (15.2 | ) | (26.2 | ) | (380.6 | ) | (25.5 | ) | 329.3 | (118.2 | ) | ||||||||
Share of income from equity investments | — | — | 6.7 | — | — | 6.7 | |||||||||||||
Losses on derivative instruments | — | — | (24.7 | ) | — | — | (24.7 | ) | |||||||||||
Foreign currency gains | 0.5 | — | 43.1 | — | — | 43.6 | |||||||||||||
Interest and other income, net | 9.1 | 26.6 | 268.0 | 26.4 | (329.3 | ) | 0.8 | ||||||||||||
Income tax benefit | — | — | 17.2 | 0.5 | — | 17.7 | |||||||||||||
Income (loss) from continuing operations | (11.3 | ) | 0.4 | 33.9 | 4.6 | — | 27.6 | ||||||||||||
Gain on disposal, net of tax | — | — | 14.4 | — | — | 14.4 | |||||||||||||
(Loss) income from discontinued operations, net of tax | — | — | (111.9 | ) | 111.7 | — | (0.2 | ) | |||||||||||
Equity in net income of subsidiaries | 53.1 | — | 95.7 | (63.2 | ) | (85.6 | ) | — | |||||||||||
Net income | £ | 41.8 | £ | 0.4 | £ | 32.1 | £ | 53.1 | £ | (85.6 | ) | £ | 41.8 | ||||||
38
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Nine months ended September 30, 2010 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (in millions) | ||||||||||||||||||
Revenue | £ | — | £ | — | £ | 2,858.2 | £ | 13.8 | £ | — | £ | 2,872.0 | |||||||
Operating costs | — | — | (1,163.8 | ) | (2.7 | ) | — | (1,166.5 | ) | ||||||||||
Selling, general and administrative expenses | (15.7 | ) | — | (583.3 | ) | 0.1 | — | (598.9 | ) | ||||||||||
Restructuring and other charges | — | — | (11.4 | ) | — | — | (11.4 | ) | |||||||||||
Depreciation and amortization | — | — | (842.9 | ) | (1.4 | ) | — | (844.3 | ) | ||||||||||
Operating income (loss) | (15.7 | ) | — | 256.8 | 9.8 | — | 250.9 | ||||||||||||
Interest expense | (45.0 | ) | (73.7 | ) | (1,100.5 | ) | (85.0 | ) | 945.1 | (359.1 | ) | ||||||||
Loss on extinguishment of debt | — | — | (70.0 | ) | — | — | (70.0 | ) | |||||||||||
Share of income from equity investments | — | — | 21.4 | — | — | 21.4 | |||||||||||||
Losses on derivative instruments | — | — | (52.9 | ) | — | — | (52.9 | ) | |||||||||||
Foreign currency (losses) gains | 1.1 | — | (35.0 | ) | — | — | (33.9 | ) | |||||||||||
Interest and other income, net | 30.4 | 74.7 | 758.1 | 86.6 | (945.1 | ) | 4.7 | ||||||||||||
Income tax benefit (expense) | — | — | 34.5 | 0.2 | — | 34.7 | |||||||||||||
(Loss) income from continuing operations | (29.2 | ) | 1.0 | (187.6 | ) | 11.6 | — | (204.2 | ) | ||||||||||
Gain on disposal, net of tax | — | — | 14.4 | — | — | 14.4 | |||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | (64.7 | ) | 76.0 | — | 11.3 | ||||||||||||
Equity in net (loss) income of subsidiaries | (149.3 | ) | — | 82.2 | (236.9 | ) | 304.0 | — | |||||||||||
Net (loss) income | £ | (178.5 | ) | £ | 1.0 | £ | (155.7 | ) | £ | (149.3 | ) | £ | 304.0 | £ | (178.5 | ) | |||
39
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Three months ended September 30, 2009 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (Adjusted) (in millions) | ||||||||||||||||||
Revenue | £ | — | £ | — | £ | 928.2 | £ | (8.8 | ) | £ | — | £ | 919.4 | ||||||
Operating costs | — | — | (374.1 | ) | (0.5 | ) | — | (374.6 | ) | ||||||||||
Selling, general and administrative expenses | (7.3 | ) | — | (187.9 | ) | (0.6 | ) | — | (195.8 | ) | |||||||||
Restructuring and other charges | — | — | (1.6 | ) | — | — | (1.6 | ) | |||||||||||
Depreciation and amortization | — | — | (294.0 | ) | (2.3 | ) | — | (296.3 | ) | ||||||||||
Operating income (loss) | (7.3 | ) | — | 70.6 | (12.2 | ) | — | 51.1 | |||||||||||
Interest expense | (13.5 | ) | — | (308.0 | ) | (29.6 | ) | 231.1 | (120.0 | ) | |||||||||
(Loss) gain on extinguishment of debt | — | — | (10.0 | ) | 0.6 | — | (9.4 | ) | |||||||||||
Share of income from equity investments | — | — | 5.1 | — | — | 5.1 | |||||||||||||
Gains on derivative instruments | — | — | 43.6 | — | — | 43.6 | |||||||||||||
Foreign currency losses | (0.3 | ) | — | (49.5 | ) | — | — | (49.8 | ) | ||||||||||
Interest and other income, net | 9.8 | — | 187.1 | 35.5 | (231.1 | ) | 1.3 | ||||||||||||
Income tax benefit | 1.5 | — | 12.7 | 0.6 | — | 14.8 | |||||||||||||
Loss from continuing operations | (9.8 | ) | — | (48.4 | ) | (5.1 | ) | — | (63.3 | ) | |||||||||
Income (loss) from discontinued operations, net of tax | — | — | 8.5 | (5.3 | ) | — | 3.2 | ||||||||||||
Equity in net (loss) income of subsidiaries | (50.3 | ) | — | (27.1 | ) | (39.9 | ) | 117.3 | — | ||||||||||
Net loss | £ | (60.1 | ) | £ | — | £ | (67.0 | ) | £ | (50.3 | ) | £ | 117.3 | £ | (60.1 | ) | |||
40
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Nine months ended September 30, 2009 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (Adjusted) (in millions) | ||||||||||||||||||
Revenue | £ | — | £ | — | £ | 2,714.2 | £ | 8.4 | £ | — | £ | 2,722.6 | |||||||
Operating costs | — | — | (1,148.0 | ) | (1.1 | ) | — | (1,149.1 | ) | ||||||||||
Selling, general and administrative expenses | (13.9 | ) | — | (575.9 | ) | (1.9 | ) | — | (591.7 | ) | |||||||||
Restructuring and other charges | — | — | (30.6 | ) | — | — | (30.6 | ) | |||||||||||
Depreciation and amortization | — | — | (878.1 | ) | (6.1 | ) | — | (884.2 | ) | ||||||||||
Operating income (loss) | (13.9 | ) | — | 81.6 | (0.7 | ) | — | 67.0 | |||||||||||
Interest expense | (43.2 | ) | — | (875.3 | ) | (95.2 | ) | 682.4 | (331.3 | ) | |||||||||
(Loss) gain on extinguishment of debt | — | — | (16.8 | ) | 0.1 | — | (16.7 | ) | |||||||||||
Share of income from equity investments | — | — | 7.2 | — | — | 7.2 | |||||||||||||
Losses on derivative instruments | — | — | (104.1 | ) | — | — | (104.1 | ) | |||||||||||
Foreign currency gains | 0.6 | — | 107.0 | — | — | 107.6 | |||||||||||||
Interest and other income, net | 31.6 | — | 544.0 | 113.4 | (682.4 | ) | 6.6 | ||||||||||||
Income tax benefit | 1.4 | — | 0.5 | 0.5 | — | 2.4 | |||||||||||||
(Loss) income from continuing operations | (23.5 | ) | — | (255.9 | ) | 18.1 | — | (261.3 | ) | ||||||||||
Loss from discontinued operations, net of tax | — | — | (0.7 | ) | (1.4 | ) | — | (2.1 | ) | ||||||||||
Equity in net loss of subsidiaries | (239.9 | ) | — | (10.5 | ) | (256.6 | ) | 507.0 | — | ||||||||||
Net (loss) income | £ | (263.4 | ) | £ | — | £ | (267.1 | ) | £ | (239.9 | ) | £ | 507.0 | £ | (263.4 | ) | |||
41
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Nine months ended September 30, 2010 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of cash flows | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (in millions) | ||||||||||||||||||
Net cash provided by (used in) operating activities | £ | (5.3 | ) | £ | — | £ | 774.4 | £ | 3.2 | £ | — | £ | 772.3 | ||||||
Investing activities: | |||||||||||||||||||
Purchase of fixed and intangible assets | — | — | (477.4 | ) | (0.6 | ) | — | (478.0 | ) | ||||||||||
Principal repayments on loans to equity investments | — | — | 15.0 | — | — | 15.0 | |||||||||||||
Principal drawdowns (repayments) on loans to group companies | 150.8 | (1,468.0 | ) | 1,040.0 | 277.2 | — | — | ||||||||||||
Decrease in restricted cash | — | — | 1.4 | — | — | 1.4 | |||||||||||||
Proceeds from sale of fixed assets | — | — | 35.8 | — | — | 35.8 | |||||||||||||
Disposal of Virgin Media TV, net | — | — | 160.0 | — | — | 160.0 | |||||||||||||
Other | — | — | 0.9 | — | — | 0.9 | |||||||||||||
Net cash (used in) provided by investing activities | 150.8 | (1,468.0 | ) | 775.7 | 276.6 | — | (264.9 | ) | |||||||||||
Financing activities: | |||||||||||||||||||
New borrowings, net of financing fees | — | 1,468.0 | 1,604.1 | — | — | 3,072.1 | |||||||||||||
Common stock repurchases | (122.5 | ) | — | — | — | — | (122.5 | ) | |||||||||||
Proceeds from employee stock option exercises | 9.9 | — | — | — | — | 9.9 | |||||||||||||
Principal payments on long term debt including redemption premiums, and capital leases | — | — | (2,984.4 | ) | (241.5 | ) | — | (3,225.9 | ) | ||||||||||
Intercompany funding movements | 3.0 | — | (3.0 | ) | — | — | — | ||||||||||||
Dividends paid | (26.0 | ) | — | — | — | — | (26.0 | ) | |||||||||||
Net cash (used in) provided by financing activities | (135.6 | ) | 1,468.0 | (1,383.3 | ) | (241.5 | ) | — | (292.4 | ) | |||||||||
Cash flow from discontinued operations | |||||||||||||||||||
Net cash used in operating activities | — | — | — | (37.9 | ) | — | (37.9 | ) | |||||||||||
Net cash used in discontinued operations | — | — | — | (37.9 | ) | — | (37.9 | ) | |||||||||||
Effect of exchange rates on cash and cash equivalents | 2.2 | — | — | — | — | 2.2 | |||||||||||||
Increase in cash and cash equivalents | 12.1 | — | 166.8 | 0.4 | — | 179.3 | |||||||||||||
Cash and cash equivalents at beginning of period | 12.4 | — | 413.3 | 4.8 | — | 430.5 | |||||||||||||
Cash and cash equivalents at end of period | £ | 24.5 | £ | — | £ | 580.1 | £ | 5.2 | £ | — | £ | 609.8 | |||||||
42
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 14—Condensed Consolidating Financial Information—Senior Secured Notes (Continued)
| Nine months ended September 30, 2009 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of cash flows | Company | Virgin Media Secured Finance PLC | Guarantors | Non- Guarantors | Adjustments | Total | |||||||||||||
| (Adjusted) (in millions) | ||||||||||||||||||
Net cash provided by (used in) operating activities | £ | (6.7 | ) | £ | — | £ | 636.7 | £ | 23.7 | £ | — | £ | 653.7 | ||||||
Investing activities: | |||||||||||||||||||
Purchase of fixed and intangible assets | — | — | (412.2 | ) | (0.3 | ) | — | (412.5 | ) | ||||||||||
Principal repayments on loans to equity investments | — | — | 8.9 | — | — | 8.9 | |||||||||||||
Principal drawdowns (repayments) on loans to group companies | — | — | (1.2 | ) | 1.2 | — | — | ||||||||||||
Proceeds from the sales of fixed assets | — | — | 2.9 | — | — | 2.9 | |||||||||||||
Disposal of sit-up, net | — | — | (17.5 | ) | — | — | (17.5 | ) | |||||||||||
Other | — | — | (2.5 | ) | — | — | (2.5 | ) | |||||||||||
Net cash (used in) provided by investing activities | — | — | (421.6 | ) | 0.9 | — | (420.7 | ) | |||||||||||
Financing activities: | |||||||||||||||||||
New borrowings, net of financing fees | — | — | 928.8 | — | — | 928.8 | |||||||||||||
Proceeds from employee stock option exercises | 0.7 | — | — | — | — | 0.7 | |||||||||||||
Principal payments on long term debt and capital leases | — | — | (1,035.1 | ) | — | — | (1,035.1 | ) | |||||||||||
Intercompany funding movements | 35.0 | — | (29.9 | ) | (5.1 | ) | — | — | |||||||||||
Dividends paid | (25.1 | ) | — | — | — | — | (25.1 | ) | |||||||||||
Realized gain on derivatives | — | — | 88.3 | — | — | 88.3 | |||||||||||||
Net cash (used in) provided by financing activities | 10.6 | — | (47.9 | ) | (5.1 | ) | — | (42.4 | ) | ||||||||||
Cash flow from discontinued operations | |||||||||||||||||||
Net cash used in operating activities | — | — | — | (18.5 | ) | — | (18.5 | ) | |||||||||||
Net cash used in investing activities | — | — | — | (0.7 | ) | — | (0.7 | ) | |||||||||||
Net cash used in discontinued operations | — | — | — | (19.2 | ) | — | (19.2 | ) | |||||||||||
Effect of exchange rates on cash and cash equivalents | (1.4 | ) | — | — | — | — | (1.4 | ) | |||||||||||
Increase in cash and cash equivalents | 2.5 | — | 167.2 | 0.3 | — | 170.0 | |||||||||||||
Cash and cash equivalents at beginning of period | 9.9 | — | 166.5 | 5.2 | — | 181.6 | |||||||||||||
Cash and cash equivalents at end of period | £ | 12.4 | £ | — | £ | 333.7 | £ | 5.5 | £ | — | £ | 351.6 | |||||||
43
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
| September 30, 2010 | December 31, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| | (Adjusted) | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | £ | 583.2 | £ | 415.9 | ||||||
Restricted cash | 3.8 | 5.3 | ||||||||
Accounts receivable—trade, less allowances for doubtful accounts of £6.3 (2010) and £9.0 (2009) | 426.2 | 403.1 | ||||||||
Inventory for resale | 19.2 | 12.9 | ||||||||
Derivative financial instruments | 1.8 | 2.2 | ||||||||
Prepaid expenses and other current assets | 102.2 | 90.6 | ||||||||
Current assets held for sale | — | 152.8 | ||||||||
Total current assets | 1,136.4 | 1,082.8 | ||||||||
Fixed assets, net | 4,764.4 | 4,921.8 | ||||||||
Goodwill and other indefinite-lived assets | 2,026.6 | 2,027.0 | ||||||||
Intangible assets, net | 155.1 | 265.9 | ||||||||
Equity investments | 348.9 | 359.9 | ||||||||
Derivative financial instruments | 167.6 | 235.1 | ||||||||
Deferred financing costs, net of accumulated amortization of £14.9 (2010) and £133.6 (2009) | 94.0 | 101.8 | ||||||||
Other assets | 51.1 | 50.8 | ||||||||
Due from group companies | 787.8 | 781.6 | ||||||||
Total assets | £ | 9,531.9 | £ | 9,826.7 | ||||||
Liabilities and shareholders' equity | ||||||||||
Current liabilities | ||||||||||
Accounts payable | £ | 296.6 | £ | 312.4 | ||||||
Accrued expenses and other current liabilities | 382.8 | 391.9 | ||||||||
Derivative financial instruments | — | 17.8 | ||||||||
Restructuring liabilities | 44.1 | 55.9 | ||||||||
VAT and employee taxes payable | 90.0 | 61.1 | ||||||||
Interest payable | 65.6 | 42.7 | ||||||||
Interest payable to group companies | 165.8 | 165.9 | ||||||||
Deferred revenue | 297.2 | 274.8 | ||||||||
Current portion of long term debt | 218.0 | 41.2 | ||||||||
Current liabilities held for sale | — | 83.8 | ||||||||
Total current liabilities | 1,560.1 | 1,447.5 | ||||||||
Long term debt, net of current portion | 3,182.6 | 3,239.4 | ||||||||
Long term debt due to group companies | 3,059.0 | 3,321.1 | ||||||||
Derivative financial instruments | 89.7 | 106.8 | ||||||||
Deferred revenue and other long term liabilities | 249.7 | 180.7 | ||||||||
Deferred income taxes | 82.6 | 83.0 | ||||||||
Total liabilities | 8,223.7 | 8,378.5 | ||||||||
Commitments and contingent liabilities | ||||||||||
Shareholders' equity | ||||||||||
Common stock—£0.001 par value; authorized 1,000,000 ordinary shares (2010 and 2009); issued and outstanding 224,552 ordinary shares (2010 and 2009) | — | — | ||||||||
Additional paid-in capital | 4,371.3 | 4,371.3 | ||||||||
Accumulated other comprehensive loss | (109.7 | ) | (137.8 | ) | ||||||
Accumulated deficit | (2,953.4 | ) | (2,785.3 | ) | ||||||
Total shareholders' equity | 1,308.2 | 1,448.2 | ||||||||
Total liabilities and shareholders' equity | £ | 9,531.9 | £ | 9,826.7 | ||||||
See accompanying notes
44
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Revenue | £ | 952.8 | £ | 892.7 | £ | 2,796.0 | £ | 2,640.7 | ||||||
Costs and expenses | ||||||||||||||
Operating costs (exclusive of depreciation shown separately below) | 386.3 | 364.2 | 1,136.6 | 1,112.6 | ||||||||||
Selling, general and administrative expenses | 183.1 | 181.4 | 563.6 | 556.3 | ||||||||||
Restructuring and other charges | 4.5 | 1.6 | 11.1 | 29.5 | ||||||||||
Depreciation | 238.7 | 230.1 | 716.6 | 685.3 | ||||||||||
Amortization | 36.7 | 61.0 | 110.9 | 183.3 | ||||||||||
849.3 | 838.3 | 2,538.8 | 2,567.0 | |||||||||||
Operating income | 103.5 | 54.4 | 257.2 | 73.7 | ||||||||||
Other income (expense) | ||||||||||||||
Interest expense | (54.9 | ) | (58.0 | ) | (160.0 | ) | (180.8 | ) | ||||||
Interest expense to group companies | (63.4 | ) | (66.6 | ) | (200.4 | ) | (164.1 | ) | ||||||
Loss on extinguishment of debt | — | (9.4 | ) | (70.0 | ) | (16.7 | ) | |||||||
Share of income from equity investments | 6.7 | 5.1 | 21.4 | 7.2 | ||||||||||
(Loss) gain on derivative instruments | (24.7 | ) | 43.6 | (52.9 | ) | (104.1 | ) | |||||||
Foreign currency gains (losses) | 43.1 | (47.9 | ) | (34.8 | ) | 108.0 | ||||||||
Interest income and other, net | 0.8 | 1.2 | 4.7 | 6.5 | ||||||||||
Interest income from group companies | 2.2 | 2.0 | 6.4 | 6.0 | ||||||||||
Income (loss) from continuing operations before income taxes | 13.3 | (75.6 | ) | (228.4 | ) | (264.3 | ) | |||||||
Income tax benefit | 17.3 | 12.7 | 34.6 | 0.5 | ||||||||||
Income (loss) from continuing operations | 30.6 | (62.9 | ) | (193.8 | ) | (263.8 | ) | |||||||
Discontinued operations | ||||||||||||||
Gain on disposal, net of tax of £13.2 | 14.4 | — | 14.4 | — | ||||||||||
(Loss) income from discontinued operations, net of tax | (0.2 | ) | 3.2 | 11.3 | (2.1 | ) | ||||||||
Income (loss) from discontinued operations | 14.2 | 3.2 | 25.7 | (2.1 | ) | |||||||||
Net income (loss) | £ | 44.8 | £ | (59.7 | ) | £ | (168.1 | ) | £ | (265.9 | ) | |||
See accompanying notes.
45
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
| Nine months ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| | (Adjusted) | |||||||
Operating activities | |||||||||
Net loss | £ | (168.1 | ) | £ | (265.9 | ) | |||
(Income) loss from discontinued operations | (25.7 | ) | 2.1 | ||||||
Loss from continuing operations | (193.8 | ) | (263.8 | ) | |||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 827.5 | 868.6 | |||||||
Non-cash interest | 39.3 | 32.5 | |||||||
Non-cash compensation | 18.4 | 9.4 | |||||||
Loss on extinguishment of debt | 70.1 | 15.8 | |||||||
Income from equity accounted investments, net of dividends received | (6.8 | ) | (5.5 | ) | |||||
Unrealized losses on derivative instruments | 124.5 | 113.9 | |||||||
Unrealized foreign currency gains | (85.7 | ) | (131.8 | ) | |||||
Income taxes | (13.3 | ) | 2.2 | ||||||
Amortization of original issue discount and deferred finance costs | 14.3 | 24.6 | |||||||
Other | 0.3 | (1.0 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business disposals | 0.3 | (46.7 | ) | ||||||
Net cash provided by operating activities | 795.1 | 618.2 | |||||||
Investing activities: | |||||||||
Purchase of fixed and intangible assets | (470.3 | ) | (405.1 | ) | |||||
Principal repayments on loans to equity investments | 15.0 | 8.9 | |||||||
Decrease in restricted cash | 1.4 | — | |||||||
Proceeds from the sale of fixed assets | 35.8 | 2.9 | |||||||
Disposal of sit-up, net | — | (17.5 | ) | ||||||
Disposal of Virgin Media TV, net | 160.0 | — | |||||||
Investments and loans from parent and subsidiary companies | (358.1 | ) | 961.5 | ||||||
Other | 0.9 | (2.5 | ) | ||||||
Net cash (used in) provided by investing activities | (615.3 | ) | 548.2 | ||||||
Financing activities: | |||||||||
New borrowings, net of financing fees | 3,072.1 | (32.7 | ) | ||||||
Principal payments on long term debt, including redemption premiums, and capital leases | (3,046.7 | ) | (1,035.1 | ) | |||||
Realized gain on derivatives | — | 88.3 | |||||||
Net cash provided by (used in) financing activities | 25.4 | (979.5 | ) | ||||||
Cash flow from discontinued operations: | |||||||||
Net cash used in operating activities | (37.9 | ) | (18.5 | ) | |||||
Net cash used in investing activities | — | (0.7 | ) | ||||||
Net cash used in discontinued operations | (37.9 | ) | (19.2 | ) | |||||
Increase in cash and cash equivalents | 167.3 | 167.7 | |||||||
Cash and cash equivalents, beginning of period | 415.9 | 170.7 | |||||||
Cash and cash equivalents, end of period | £ | 583.2 | £ | 338.4 | |||||
See accompanying notes
46
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except par value)
| September 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
| | (Adjusted) | |||||||
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | £ | 583.2 | £ | 415.9 | |||||
Restricted cash | 3.8 | 5.3 | |||||||
Accounts receivable—trade, less allowances for doubtful accounts of £6.3 (2010) and £9.0 (2009) | 426.2 | 403.1 | |||||||
Inventory for resale | 19.2 | 12.9 | |||||||
Derivative financial instruments | 1.8 | 2.2 | |||||||
Prepaid expenses and other current assets | 102.2 | 90.6 | |||||||
Current assets held for sale | — | 152.8 | |||||||
Total current assets | 1,136.4 | 1,082.8 | |||||||
Fixed assets, net | 4,764.4 | 4,921.8 | |||||||
Goodwill and other indefinite-lived assets | 2,026.6 | 2,027.0 | |||||||
Intangible assets, net | 155.1 | 265.9 | |||||||
Equity investments | 348.9 | 359.9 | |||||||
Derivative financial instruments | 167.6 | 235.1 | |||||||
Deferred financing costs, net of accumulated amortization of £14.9 (2010) and £133.6 (2009) | 94.0 | 101.8 | |||||||
Other assets | 51.1 | 50.8 | |||||||
Due from group companies | 787.8 | 781.6 | |||||||
Total assets | £ | 9,531.9 | £ | 9,826.7 | |||||
Liabilities and shareholders' equity | |||||||||
Current liabilities | |||||||||
Accounts payable | £ | 296.6 | £ | 312.4 | |||||
Accrued expenses and other current liabilities | 382.8 | 391.9 | |||||||
Derivative financial instruments | — | 17.8 | |||||||
Restructuring liabilities | 44.1 | 55.9 | |||||||
VAT and employee taxes payable | 90.0 | 61.1 | |||||||
Interest payable | 15.3 | 18.9 | |||||||
Interest payable to group companies | 216.1 | 189.7 | |||||||
Deferred revenue | 297.2 | 274.8 | |||||||
Current portion of long term debt | 218.0 | 41.2 | |||||||
Current liabilities held for sale | — | 83.8 | |||||||
Total current liabilities | 1,560.1 | 1,447.5 | |||||||
Long term debt, net of current portion | 347.2 | 1,440.5 | |||||||
Long term debt due to group companies | 5,894.4 | 5,120.0 | |||||||
Derivative financial instruments | 89.7 | 106.8 | |||||||
Deferred revenue and other long term liabilities | 249.7 | 180.7 | |||||||
Deferred income taxes | 82.6 | 83.0 | |||||||
Total liabilities | 8,223.7 | 8,378.5 | |||||||
Commitments and contingent liabilities | |||||||||
Shareholder's equity | |||||||||
Common stock—£1.0 par value; issued and outstanding 1.0 (2010 and 2009) ordinary shares | 1.0 | 1.0 | |||||||
Additional paid-in capital | 4,370.3 | 4,370.3 | |||||||
Accumulated other comprehensive loss | (109.7 | ) | (137.8 | ) | |||||
Accumulated deficit | (2,953.4 | ) | (2,785.3 | ) | |||||
Total shareholders' equity | 1,308.2 | 1,448.2 | |||||||
Total liabilities and shareholders' equity | £ | 9,531.9 | £ | 9,826.7 | |||||
See accompanying notes
47
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Revenue | £ | 952.8 | £ | 892.7 | £ | 2,796.0 | £ | 2,640.7 | ||||||
Costs and expenses | ||||||||||||||
Operating costs (exclusive of depreciation shown separately below) | 386.3 | 364.2 | 1,136.6 | 1,112.6 | ||||||||||
Selling, general and administrative expenses | 183.1 | 181.4 | 563.6 | 556.3 | ||||||||||
Restructuring and other charges | 4.5 | 1.6 | 11.1 | 29.5 | ||||||||||
Depreciation | 238.7 | 230.1 | 716.6 | 685.3 | ||||||||||
Amortization | 36.7 | 61.0 | 110.9 | 183.3 | ||||||||||
849.3 | 838.3 | 2,538.8 | 2,567.0 | |||||||||||
Operating income | 103.5 | 54.4 | 257.2 | 73.7 | ||||||||||
Other income (expense) | ||||||||||||||
Interest expense | (6.1 | ) | (20.8 | ) | (20.9 | ) | (74.6 | ) | ||||||
Interest expense to group companies | (112.2 | ) | (103.8 | ) | (339.5 | ) | (270.3 | ) | ||||||
Loss on extinguishment of debt | — | (9.4 | ) | (70.0 | ) | (16.7 | ) | |||||||
Share of income from equity investments | 6.7 | 5.1 | 21.4 | 7.2 | ||||||||||
(Loss) gain on derivative instruments | (24.7 | ) | 43.6 | (52.9 | ) | (104.1 | ) | |||||||
Foreign currency gains (losses) | 43.1 | (47.9 | ) | (34.8 | ) | 108.0 | ||||||||
Interest income and other, net | 0.8 | 1.2 | 4.7 | 6.5 | ||||||||||
Interest income from group companies | 2.2 | 2.0 | 6.4 | 6.0 | ||||||||||
Income (loss) from continuing operations before income taxes | 13.3 | (75.6 | ) | (228.4 | ) | (264.3 | ) | |||||||
Income tax benefit | 17.3 | 12.7 | 34.6 | 0.5 | ||||||||||
Income (loss) from continuing operations | 30.6 | (62.9 | ) | (193.8 | ) | (263.8 | ) | |||||||
Discontinued operations | ||||||||||||||
Gain on disposal, net of tax of £13.2 | 14.4 | — | 14.4 | — | ||||||||||
(Loss) income from discontinued operations, net of tax | (0.2 | ) | 3.2 | 11.3 | (2.1 | ) | ||||||||
Income (loss) from discontinued operations | 14.2 | 3.2 | 25.7 | (2.1 | ) | |||||||||
Net income (loss) | £ | 44.8 | £ | (59.7 | ) | £ | (168.1 | ) | £ | (265.9 | ) | |||
See accompanying notes.
48
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
| Nine months ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| | (Adjusted) | |||||||
Operating activities | |||||||||
Net loss | £ | (168.1 | ) | £ | (265.9 | ) | |||
(Income) loss from discontinued operations | (25.7 | ) | 2.1 | ||||||
Loss from continuing operations | (193.8 | ) | (263.8 | ) | |||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 827.5 | 868.6 | |||||||
Non-cash interest | 39.3 | 32.5 | |||||||
Non-cash compensation | 18.4 | 9.4 | |||||||
Loss on extinguishment of debt | 70.1 | 15.8 | |||||||
Income from equity accounted investments, net of dividends received | (6.8 | ) | (5.5 | ) | |||||
Unrealized losses on derivative instruments | 124.5 | 113.9 | |||||||
Unrealized foreign currency gains | (85.7 | ) | (131.8 | ) | |||||
Income taxes | (13.3 | ) | 2.2 | ||||||
Amortization of original issue discount and deferred finance costs | 14.3 | 24.6 | |||||||
Other | 0.3 | (1.0 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business disposals | 0.3 | (46.7 | ) | ||||||
Net cash provided by operating activities | 795.1 | 618.2 | |||||||
Investing activities: | |||||||||
Purchase of fixed and intangible assets | (470.3 | ) | (405.1 | ) | |||||
Principal repayments on loans to equity investments | 15.0 | 8.9 | |||||||
Decrease in restricted cash | 1.4 | — | |||||||
Proceeds from the sale of fixed assets | 35.8 | 2.9 | |||||||
Disposal of sit-up, net | — | (17.5 | ) | ||||||
Disposal of Virgin Media TV, net | 160.0 | — | |||||||
Investments and loans from parent and subsidiary companies | 884.4 | 728.0 | |||||||
Other | 0.9 | (2.5 | ) | ||||||
Net cash provided by investing activities | 627.2 | 314.7 | |||||||
Financing activities: | |||||||||
New borrowings, net of financing fees | 108.2 | (32.7 | ) | ||||||
Principal payments on long term debt, including redemption premiums, and capital leases | (1,325.3 | ) | (801.6 | ) | |||||
Realized gain on derivatives | — | 88.3 | |||||||
Net cash used in financing activities | (1,217.1 | ) | (746.0 | ) | |||||
Cash flow from discontinued operations: | |||||||||
Net cash used in operating activities | (37.9 | ) | (18.5 | ) | |||||
Net cash used in investing activities | — | (0.7 | ) | ||||||
Net cash used in discontinued operations | (37.9 | ) | (19.2 | ) | |||||
Increase in cash and cash equivalents | 167.3 | 167.7 | |||||||
Cash and cash equivalents, beginning of period | 415.9 | 170.7 | |||||||
Cash and cash equivalents, end of period | £ | 583.2 | £ | 338.4 | |||||
See accompanying notes.
49
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Basis of Presentation
These combined notes accompany and form an integral part of the separate condensed consolidated financial statements of Virgin Media Investment Holdings Limited and its subsidiaries, or VMIH, and Virgin Media Investments Limited and its subsidiaries, or VMIL. VMIH and VMIL are indirect, wholly owned subsidiaries of Virgin Media Inc. VMIL is a direct, wholly owned subsidiary of VMIH.
On January 1, 2010, VMIL acquired VMIH's shareholdings in its wholly owned subsidiaries other than Virgin Media Secured Finance PLC, which remains a subsidiary of VMIH. VMIL issued 1,000,141 shares to VMIH as part of this internal reorganization with an additional issuance of shares from VMIL to VMIH due to occur following the filing of the 2009 audited financial statements of VMIH with the appropriate authorities in England and Wales. As a result of the reorganization, it was determined that a change in reporting entity had occurred for VMIL and accordingly the comparative separate financial statements for VMIL have been adjusted to consist of the combined historical balance sheet, results of operations, and cash flows of the wholly owned subsidiaries of VMIH that were contributed to VMIL as part of the group reorganization. These comparative financial statements have been prepared in accordance with the guidance permissible for reorganizations between wholly owned subsidiaries such that the historic values of all assets and liabilities acquired in the reorganization have been carried over with no new purchase accounting considered. The effect of the issuance of common stock to VMIH has been retrospectively applied to the shareholder's equity amounts in the consolidated balance sheet as at December 31, 2009 to reflect these amounts as if the transaction had occurred at the beginning of the periods presented. The retrospective application had no material effect on other amounts. Intercompany accounts and transactions have been eliminated on consolidation.
Under the terms of the indentures governing the senior notes issued by Virgin Media Finance PLC and the indentures governing the senior secured notes issued by Virgin Media Secured Finance PLC, VMIL was required to grant guarantees that are identical to the guarantees granted by VMIH under the same indentures. Under the terms of the intercreditor deed governing the senior credit facility, VMIL was required to grant a guarantee identical to the guarantee granted by VMIH under the same deed. VMIH is fully dependent on the cash flows of the operating subsidiaries of VMIL to service these debt obligations. As a result, debt obligations, cash required to service debt obligations, derivative financial instruments, and any effects on the consolidated results of operations and cash flows related to the senior notes, senior secured notes and senior credit facility have been reflected in the separate condensed consolidated financial statements of VMIL. As such, the amounts included in the financial statements of VMIL do not necessarily represent items to which VMIL has legal title.
As used in these notes, the terms "we", "our", or "companies" refer to VMIH and VMIL and, except as otherwise noted, the information in these combined notes relates to both of the companies.
The accompanying separate unaudited condensed consolidated financial statements of each of the companies have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all
50
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 1—Basis of Presentation (Continued)
adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009, as filed with the SEC on February 26, 2010, or the 2009 Annual Report.
Note 2—Recent Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board, or FASB, ratified new accounting guidance for existing multiple-element revenue arrangements. The revised multiple-element revenue arrangements guidance will be effective for the first annual reporting period beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. We will prospectively apply the new requirements beginning on January 1, 2011 and are currently evaluating the impact on our consolidated financial statements.
In January 2010, the FASB issued new guidance for fair value measurements and disclosures. The guidance improves disclosures about fair value measurements by requiring a greater level of disaggregated information and more robust disclosures about valuation techniques and inputs to fair value measurements. In addition, the guidance requires separate disclosure of amounts of significant transfers in and out of Levels 1 and 2 of the fair value hierarchy and a reconciliation of fair value measurements using significant unobservable inputs (Level 3 of the fair value hierarchy). We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.
In February 2010, the FASB issued new guidance for the disclosure of subsequent events. As a result of this guidance, we are no longer required to disclose the date through which we have evaluated subsequent events in the financial statements. We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.
Note 3—Disposals
On June 4, 2010, we announced the sale to British Sky Broadcasting Limited, or BSkyB, of our television channel business known as Virgin Media TV. Virgin Media TV's operations comprised our former Content segment. We determined that as of June 30, 2010 the planned sale met the requirements for Virgin Media TV to be reflected as assets and liabilities held for sale and discontinued operations in both the current and prior periods. Accordingly, we adjusted the balance sheet as of December 31, 2009 and statement of operations and cash flows for the three and nine months ended September 30, 2009.
We have also entered into a number of agreements providing for the carriage by us of certain of BSkyB's standard and high-definition channels along with the former Virgin Media TV channels sold. The agreements in respect to the sale of Virgin Media TV and the carriage of these channels were negotiated concurrently. We have determined that these agreements are separate units of account as
51
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3—Disposals (Continued)
described by the fair value measurements guidance issued by the FASB. We have performed a review of the fair value of the services received and the business disposed of to determine the appropriate values to attribute to each unit of account. As a result, £33.6 million of the gain on disposal of Virgin Media TV has been deferred on the balance sheet and will be treated as a reduction in operating costs over the contractual terms of the carriage arrangements, which range from 3 to 7 years.
The fair value of Virgin Media TV was determined utilizing the market approach along with other third party bids we received for the business. The market approach utilized market multiples for similar businesses along with indicative earnings before interest, tax, depreciation and amortization, or EBITDA, levels for the business. The fair value of the carriage agreements was estimated utilizing an analysis of the cost of carriage agreements with other suppliers of content, prices proposed or established by U.K. regulators and audience viewing data. Along with this, we utilized a discount rate of 9.5%. These fair value measurements utilize significant unobservable inputs and fall with Level 3 of the fair value hierarchy.
The results of operations of Virgin Media TV have been included as discontinued operations in the condensed consolidated statements of operations through July 12, 2010, which is the date the sale was completed following approval from regulators in Ireland. On that date, consideration was received totaling £105.0 million. On September 17, 2010, additional consideration of £55.0 million was received upon full approval of the transaction by U.K. regulators. The terms of the sale and purchase agreement includes certain customary warranties and working capital adjustments which may impact the amount recognized in future periods.
Revenue of Virgin Media TV, including intersegment revenue, reported in discontinued operations, for the three and nine months ended September 30, 2010 was £7.3 million and £96.2 million, respectively, and for the three and nine months ended September 30, 2009 was £41.0 million and £122.5 million, respectively. Virgin Media TV's pre-tax loss, reported within discontinued operations, for the three months ended September 30, 2010 was £0.2 million and for the nine months ended September 30, 2010 pre-tax profit, was £15.7 million. For the three and nine months ended September 30, 2009 pre-tax profit was £3.1 million and £20.6 million, respectively.
Income from discontinued operations for the nine months ended September 30, 2009 also includes the results of operation of our former sit-up reporting unit which was disposed of on April 1, 2009. Intercompany costs related to the carriage of the Virgin Media TV channels by our Consumer segment that had previously been eliminated for consolidation purposes and now have been recognized in our income from continuing operations for the three and nine months ended September 30, 2010 were nil and £14.3 million, respectively, and for the three and nine months ended September 30, 2009 were £7.0 million and £20.2 million, respectively.
52
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3—Disposals (Continued)
The assets and liabilities of Virgin Media TV reported as held for sale as of December 31, 2009 comprised (in millions):
| December 31, 2009 | |||||
---|---|---|---|---|---|---|
Current assets held for sale | ||||||
Accounts receivable, net | £ | 27.4 | ||||
Programming inventory | 62.1 | |||||
Prepaid expenses | 5.8 | |||||
Fixed assets | 3.5 | |||||
Trademark licenses | 11.3 | |||||
Goodwill | 42.7 | |||||
Current assets held for sale | £ | 152.8 | ||||
Current liabilities held for sale | ||||||
Accounts payable | £ | 63.2 | ||||
Accrued expenses | 17.9 | |||||
Deferred revenue and other liabilities | 2.7 | |||||
Current liabilities held for sale | £ | 83.8 | ||||
Note 4—Long Term Debt
Long term debt reflects our obligations under the terms of the indentures governing the senior notes and senior secured notes as well as the intercreditor deed governing the senior credit facility. As such, these amounts include debt owed directly to third parties by affiliated entities not consolidated by us which have been classified as amounts due to group companies.
53
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4—Long Term Debt (Continued)
Long term debt consisted of (in millions):
| September 30, 2010 | December 31, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| VMIH | VMIL | VMIH | VMIL | ||||||||||
Amounts due to third parties | ||||||||||||||
U.S. Dollar | ||||||||||||||
6.50% senior secured notes due 2018 | £ | 626.7 | £ | — | £ | — | £ | — | ||||||
Senior credit facility | — | — | 275.3 | 275.3 | ||||||||||
Euro | ||||||||||||||
Senior credit facility | — | — | 356.5 | — | ||||||||||
Sterling | ||||||||||||||
7.00% senior secured notes due 2018 | 862.8 | — | — | — | ||||||||||
Senior credit facility | 1,675.0 | 179.1 | 2,481.0 | 1,038.6 | ||||||||||
Capital leases | 235.4 | 235.4 | 166.6 | 166.6 | ||||||||||
Other | 0.7 | 0.7 | 1.2 | 1.2 | ||||||||||
3,400.6 | 415.2 | 3,280.6 | 1,481.7 | |||||||||||
Less current portion | (218.0 | ) | (68.0 | ) | (41.2 | ) | (41.2 | ) | ||||||
Long term debt due to third parties | £ | 3,182.6 | £ | 347.2 | £ | 3,239.4 | £ | 1,440.5 | ||||||
Amounts due to group companies | ||||||||||||||
U.S. Dollar | ||||||||||||||
8.75% senior notes due 2014 | £ | — | £ | — | £ | 55.3 | £ | 55.3 | ||||||
9.125% senior notes due 2016 | 349.6 | 349.6 | 340.2 | 340.2 | ||||||||||
6.50% senior notes due 2016 | 501.9 | 501.9 | 606.8 | 606.8 | ||||||||||
9.50% senior notes due 2016 | 835.4 | 835.4 | 810.9 | 810.9 | ||||||||||
8.375% senior notes due 2019 | 375.5 | 375.5 | 365.1 | 365.1 | ||||||||||
6.50% senior secured notes due 2018 | — | 626.7 | — | — | ||||||||||
Floating rate senior loan notes due 2012 | 63.6 | 63.6 | 61.9 | 61.9 | ||||||||||
Euro | ||||||||||||||
8.75% senior notes due 2014 | — | — | 41.9 | 41.9 | ||||||||||
9.50% senior notes due 2016 | 149.7 | 149.7 | 152.9 | 152.9 | ||||||||||
Senior credit facility | — | — | — | 356.5 | ||||||||||
Sterling | ||||||||||||||
9.75% senior notes due 2014 | — | — | 78.8 | 78.8 | ||||||||||
8.875% senior notes due 2019 | 344.7 | 344.7 | 344.5 | 344.5 | ||||||||||
7.00% senior secured notes due 2018 | — | 862.8 | — | — | ||||||||||
Senior credit facility | — | 1,495.9 | — | 1,442.4 | ||||||||||
Other amounts due to group companies | ||||||||||||||
Other notes due to affiliates | 438.6 | 438.6 | 462.8 | 462.8 | ||||||||||
3,059.0 | 6,044.4 | 3,321.1 | 5,120.0 | |||||||||||
Less current portion | — | (150.0 | ) | — | — | |||||||||
Long term debt due to group companies | £ | 3,059.0 | £ | 5,894.4 | £ | 3,321.1 | £ | 5,120.0 | ||||||
54
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4—Long Term Debt (Continued)
The effective interest rate on the senior credit facility was 4.3% and 5.3% as at September 30, 2010 and December 31, 2009, respectively.
On January 19, 2010, Virgin Media Secured Finance PLC, a wholly owned subsidiary of VMIH, issued $1.0 billion aggregate principal amount of 6.50% senior secured notes due 2018 and £875 million aggregate principal amount of 7.00% senior secured notes due 2018. Interest is payable on June 15 and December 15 each year, beginning on June 15, 2010. The senior secured notes due 2018 rank pari passu with our senior credit facility and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility. We used the net proceeds to make repayments totaling £1,453.0 million under our old senior credit facility.
On April 19, 2010, we drew down an aggregate principal amount of £1,675.0 million under our new senior credit facility dated March 16, 2010, as amended and restated, or the new senior credit facility, and applied the proceeds towards the repayment of all amounts outstanding under our old senior credit facility and for general corporate purposes. The new senior credit facility comprises a term loan A facility in an aggregate principal amount of £1,000 million, a term loan B facility in an aggregate principal amount of £675 million and a revolving credit facility in aggregate principal amount of £250 million. As at September 30, 2010, we had utilized £15.8 million of the revolving credit facility for bank guarantees and standby letters of credit.
On May 12, 2010, we redeemed in full the outstanding balance of our senior notes due 2014 using cash from our balance sheet. The total cost to redeem these notes was £192.3 million, inclusive of the cost to settle derivative contracts entered into as economic hedges of these notes.
Long term debt repayments, excluding capital leases, as of September 30, 2010, were due as follows (in millions):
Period ending September 30: | | |||
---|---|---|---|---|
2011 | £ | 150.3 | ||
2012 | 238.9 | |||
2013 | 200.1 | |||
2014 | 200.0 | |||
2015 | 275.0 | |||
Thereafter | 5,221.0 | |||
Total debt payments | £ | 6,285.3 | ||
55
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5—Fair Value Measurements
U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities | |
Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities, or | |
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or | ||
Inputs other than quoted prices that are observable for the asset or liability | ||
Level 3 | Unobservable inputs for the asset or liability |
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We have determined that all of our financial assets and liabilities that are stated at fair value fall in levels 1 and 2 in the fair value hierarchy described above. In estimating the fair value of our financial assets and liabilities, we used the following methods and assumptions:
Cash and cash equivalents, and restricted cash: The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short maturity and nature of these financial instruments.
Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments. The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using 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 carrying amounts of our derivative financial instruments are disclosed in note 6.
Long term debt: In the following table the fair value of our senior credit facility is based upon quoted trading prices in inactive markets for this debt, which incorporates non-performance risk, and is classified within level 2 of the fair value hierarchy. The fair values of our other debt in the following table are based on the quoted market prices in active markets and incorporate non-performance risk. Accordingly, the inputs used to value these debt instruments are classified within level 1 of the fair value hierarchy.
56
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5—Fair Value Measurements (Continued)
The carrying amounts and fair values of our long term debt are as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
Senior credit facility | £ | 1,675.0 | £ | 1,648.2 | £ | 3,112.8 | £ | 3,043.5 | |||||
8.75% U.S. dollar senior notes due 2014 | — | — | 55.3 | 57.7 | |||||||||
9.75% sterling senior notes due 2014 | — | — | 78.8 | 81.6 | |||||||||
8.75% euro senior notes due 2014 | — | — | 41.9 | 43.7 | |||||||||
9.125% U.S. dollar senior notes due 2016 | 349.6 | 374.3 | 340.2 | 359.4 | |||||||||
6.50% U.S. dollar senior notes due 2016 | 501.9 | 940.1 | 606.8 | 723.1 | |||||||||
9.50% U.S. dollar senior notes due 2016 | 835.4 | 971.5 | 810.9 | 895.8 | |||||||||
9.50% euro senior notes due 2016 | 149.7 | 186.3 | 152.9 | 173.5 | |||||||||
8.375% U.S. dollar senior notes due 2019 | 375.5 | 422.8 | 365.1 | 377.0 | |||||||||
8.875% sterling senior notes due 2019 | 344.7 | 395.9 | 344.5 | 355.3 | |||||||||
6.50% U.S. dollar senior secured notes due 2018 | 626.7 | 672.8 | — | — | |||||||||
7.00% sterling senior secured notes due 2018 | 862.8 | 927.5 | — | — | |||||||||
Floating rate senior loan note due 2012 | 63.6 | 63.6 | 61.9 | 61.9 | |||||||||
Other notes due to affiliates | 438.6 | 438.6 | 462.8 | 462.8 |
Concentrations of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade receivables and derivative contracts.
At September 30, 2010 and December 31, 2009, we had £583.2 million and £415.9 million, respectively, in cash and cash equivalents. These cash and cash equivalents are on deposit with major financial institutions and, as part of our cash management process, we perform regular evaluations of the credit standing of these institutions using a range of metrics. We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash balances.
Concentrations of credit risk with respect to trade receivables are limited because of the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our Business segment customers' financial condition and generally do not require collateral. No single group or customer represents greater than 10% of total accounts receivable.
�� Concentrations of credit risk with respect to derivative contracts are focused within a limited number of international financial institutions with whom we operate and relate only to derivatives with recorded asset balances at September 30, 2010. We perform regular reviews of the financial institutions with which we operate as to their credit worthiness and financial condition. We have not experienced non-performance by any of our derivative counterparties nor do we expect there to be non-performance risks associated with our counterparties. At September 30, 2010, based on market values, we had 58.5% of our derivative contracts with four financial institutions, each with more than 10% of our total exposure. At December 31, 2009, based on market values, we had 68.2% of our derivative contracts with three financial institutions, each with more than 10% of our total exposure.
57
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities
Strategies and Objectives for Holding Derivative Instruments
Our results could be materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. We are required to recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and to recognize certain changes in the fair value of derivative instruments in our consolidated statements of operations.
We have entered into cross-currency interest rate swaps and foreign currency forward rate contracts to manage interest rate and foreign exchange rate currency exposures with respect to our U.S. dollar ($) and euro (€) denominated debt obligations. Additionally, we have entered into interest rate swaps to manage interest rate exposures resulting from variable rates of interest we pay on our U.K. pound sterling (£) denominated debt obligations. We have also entered into U.S. dollar, euro and South African rand (ZAR) forward rate contracts to manage our foreign exchange rate currency exposures related to certain committed and forecasted purchases.
When practical, we designate a derivative contract as either a cash flow or fair value hedge for accounting purposes. These derivatives are referred to as "Accounting Hedges" below. When a derivative contract is not designated as an Accounting Hedge, the derivative will be treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains (losses) on derivative instruments in the statements of operations. These derivatives are referred to as "Economic Hedges" below. We do not enter into derivatives for speculative trading purposes.
With respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in cash flow or fair value attributable to the hedged risk. We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge contracts, including assessing the possibility of counterparty default. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the derivative in gains or losses on derivative instruments in the statement of operations. As a result of our effectiveness assessment at September 30, 2010, 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 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. 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.
58
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
The fair values of these derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
Included within current assets: | |||||||||
Accounting Hedge | |||||||||
Foreign currency forward rate contracts | £ | 0.2 | £ | 0.3 | |||||
Economic Hedge | |||||||||
Foreign currency forward rate contracts | 1.6 | 1.9 | |||||||
£ | 1.8 | £ | 2.2 | ||||||
Included within non-current assets: | |||||||||
Accounting Hedge | |||||||||
Cross-currency interest rate swaps | £ | 107.6 | £ | 63.7 | |||||
Economic Hedge | |||||||||
Interest rate swaps | 7.0 | — | |||||||
Cross-currency interest rate swaps | 53.0 | 169.5 | |||||||
Other | — | 1.9 | |||||||
£ | 167.6 | £ | 235.1 | ||||||
Included within current liabilities: | |||||||||
Accounting Hedge | |||||||||
Foreign currency forward rate contracts | £ | — | £ | 0.3 | |||||
Interest rate swaps | — | 12.0 | |||||||
Economic Hedge | |||||||||
Foreign currency forward rate contracts | — | 2.4 | |||||||
Interest rate swaps | — | 3.1 | |||||||
£ | — | £ | 17.8 | ||||||
Included within non-current liabilities: | |||||||||
Accounting Hedge | |||||||||
Interest rate swaps | £ | 4.6 | £ | 21.0 | |||||
Cross-currency interest rate swaps | 8.1 | 27.6 | |||||||
Economic Hedge | |||||||||
Interest rate swaps | 39.7 | — | |||||||
Cross-currency interest rate swaps | 37.3 | 58.2 | |||||||
£ | 89.7 | £ | 106.8 | ||||||
59
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
Cross-Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Secured Notes
As of September 30, 2010, 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 payments on the U.S. dollar and euro denominated senior notes and senior secured notes.
The terms of our outstanding cross-currency interest rate swaps at September 30, 2010 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) | | | ||||||||
$550m senior notes due 2016 | |||||||||||||
August 2016 | Accounting | $ | 550.0 | £301.2 | 9.13% | 8.54% | |||||||
$1,350m senior notes due 2016 | |||||||||||||
August 2016 | Accounting | 1,350.0 | 835.5 | 9.50% | 9.98% | ||||||||
$1,000m senior notes due 2016 | |||||||||||||
November 2016 | Economic | 1,000.0 | 505.6 | 6.50% | 6.95% | ||||||||
$600m senior notes due 2019 | |||||||||||||
October 2019 | Accounting | 264.3 | 159.8 | 8.38% | 9.03% | ||||||||
October 2011 | Economic | 335.7 | 228.0 | 8.38% | 9.23% | ||||||||
October 2011 to October 2019 | Accounting | 335.7 | 203.0 | 8.38% | 9.00% | ||||||||
$1,000m senior secured notes due 2018 | |||||||||||||
January 2018 | Accounting | 1,000.0 | 615.4 | 6.50% | 7.01% | ||||||||
$ | 4,835.7 | £2,848.5 | |||||||||||
€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 | ||||||||||
60
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in November 2016 hedging the $1,000 million senior notes due 2016.
Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations
As of September 30, 2010, 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. The terms of our outstanding interest rate swap contracts at September 30, 2010 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 | Accounting | £600.0 | 6 month LIBOR | 2.86% | ||||||
Other | ||||||||||
March 2013 | Economic | £300.0 | 3 month LIBOR | 3.28% | ||||||
March 2013 | Economic | 300.0 | 1.86% | 3 month LIBOR | ||||||
September 2012 | Economic | 600.0 | 3 month LIBOR | 3.09% | ||||||
September 2012 | Economic | 600.0 | 1.07% | 3 month LIBOR |
Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions
As of September 30, 2010, 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 September 30, 2010 were as follows:
Hedged item/Maturity date | Hedge type | Notional amount due from counterparty | Notional amount due to counterparty | Weighted average exchange rate | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (in millions) | (in millions) | | |||||||||
Committed and forecasted purchases | |||||||||||||
October 2010 to June 2011 | Economic | $ | 102.8 | £ | 63.8 | 1.6112 | |||||||
September 2010 to December 2010 | Accounting | $ | 2.8 | £ | 1.7 | 1.6688 | |||||||
July 2010 to December 2010 | Accounting | ZAR 16.5 | £ | 1.4 | 11.6940 |
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
61
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the consolidated statement of cash flows.
Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the statement of operations in the period in which they occur. During the three and nine months ended September 30, 2010, there were no ineffectiveness losses recognized.
The following tables present the effective amount of gain or (loss) recognized in other comprehensive income (loss) and amounts reclassified to earnings during the three and nine months ended September 30, 2010 (in millions):
| Total | Interest rate swaps | Cross- currency interest rate swaps | Forward foreign exchange contracts | Tax Effect | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2009 | £ | (55.3 | ) | £ | (32.4 | ) | £ | (6.9 | ) | £ | — | £ | (16.0 | ) | |||
Amounts recognized in other comprehensive income (loss) | 95.8 | — | 95.1 | 0.7 | — | ||||||||||||
Amounts reclassified as a result of cash flow hedge discontinuance | 32.4 | 32.4 | — | — | — | ||||||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange loss | (127.9 | ) | — | (127.9 | ) | — | — | ||||||||||
Interest expense | (2.7 | ) | — | (2.7 | ) | — | — | ||||||||||
Operating costs | (0.2 | ) | — | — | (0.2 | ) | — | ||||||||||
Balance at March 31, 2010 | £ | (57.9 | ) | £ | — | £ | (42.4 | ) | £ | 0.5 | £ | (16.0 | ) | ||||
Amounts recognized in other comprehensive income (loss) | 54.5 | — | 54.5 | — | — | ||||||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange loss | (20.9 | ) | — | (20.9 | ) | — | — | ||||||||||
Interest expense | (2.0 | ) | — | (2.0 | ) | — | — | ||||||||||
Operating costs | (0.1 | ) | — | — | (0.1 | ) | — | ||||||||||
Tax effect recognized | (8.1 | ) | — | — | — | (8.1 | ) | ||||||||||
Balance at June 30, 2010 | £ | (34.5 | ) | £ | — | £ | (10.8 | ) | £ | 0.4 | £ | (24.1 | ) | ||||
Amounts recognized in other comprehensive income (loss) | (86.1 | ) | (4.6 | ) | (81.4 | ) | (0.1 | ) | — | ||||||||
Amounts reclassified to earnings impacting: | |||||||||||||||||
Foreign exchange gains | 96.6 | — | 96.6 | — | — | ||||||||||||
Interest expense | (0.3 | ) | — | (0.3 | ) | — | — | ||||||||||
Operating costs | (0.1 | ) | — | — | (0.1 | ) | — | ||||||||||
Tax effect recognized | (2.9 | ) | — | — | — | (2.9 | ) | ||||||||||
Balance at September 30, 2010 | £ | (27.3 | ) | £ | (4.6 | ) | £ | 4.1 | £ | 0.2 | £ | (27.0 | ) | ||||
62
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6—Derivative Financial Instruments and Hedging Activities (Continued)
Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax gains that would be reclassified from other comprehensive income (loss) to earnings would be nil, £1.6 million and £0.2 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.
Note 7—Restructuring and Other Charges
Restructuring and other charges of £4.5 million and £11.1 million for the three and nine months ended September 30, 2010, respectively, related primarily to involuntary employee termination and related costs and lease and contract exit costs in connection with the restructuring program initiated in the last quarter of 2008. Restructuring and other charges of £1.6 million for the three months ended September 30, 2009 related primarily to lease exit costs in relation to our historic restructuring activities. Restructuring and other charges of £29.5 million for the nine months ended September 30, 2009 related primarily to employee termination and lease exit costs in connection with the restructuring program initiated in the last quarter of 2008.
During the second quarter of 2010, we identified further savings through the expansion of the 2008 restructuring program and revised the estimated total costs and extended the completion date through the end of 2012. In connection with our 2008 restructuring program, in total we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million.
The following table summarizes our historical restructuring accruals, the restructuring accruals resulting from the acquisitions made by us during 2006 and the accruals for the restructuring plan announced in 2008 by Virgin Media (in millions):
| Historical Restructuring Accruals | 2006 Acquisition Restructuring Accruals | 2008 Restructuring Accruals | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three months ended September 30, 2010 | Lease Exit Costs | Lease Exit Costs | Involuntary Employee Termination and Related Costs | Lease and Contract Exit Costs | Total | |||||||||||
Balance, June 30, 2010 | £ | 10.5 | £ | 18.6 | £ | 4.8 | £ | 13.6 | £ | 47.5 | ||||||
Charged to expense | 0.3 | 0.4 | 1.1 | 0.6 | 2.4 | |||||||||||
Revisions | 0.9 | 0.6 | (0.1 | ) | 0.7 | 2.1 | ||||||||||
Utilized | (1.4 | ) | (1.1 | ) | (3.8 | ) | (1.6 | ) | (7.9 | ) | ||||||
Balance, September 30, 2010 | £ | 10.3 | £ | 18.5 | £ | 2.0 | £ | 13.3 | £ | 44.1 | ||||||
63
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 7—Restructuring and Other Charges (Continued)
| Historical Restructuring Accruals | 2006 Acquisition Restructuring Accruals | 2008 Restructuring Accruals | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nine months ended September 30, 2010 | Lease Exit Costs | Lease Exit Costs | Involuntary Employee Termination and Related Costs | Lease and Contract Exit Costs | Total | |||||||||||
Balance, December 31, 2009 | £ | 12.2 | £ | 27.0 | £ | 1.7 | £ | 15.0 | £ | 55.9 | ||||||
Amendments offset against goodwill | — | (0.3 | ) | — | — | (0.3 | ) | |||||||||
Charged to expense | 1.1 | 1.0 | 6.5 | 2.7 | 11.3 | |||||||||||
Revisions | 0.5 | (0.7 | ) | (0.7 | ) | 0.7 | (0.2 | ) | ||||||||
Utilized | (3.5 | ) | (8.5 | ) | (5.5 | ) | (5.1 | ) | (22.6 | ) | ||||||
Balance, September 30, 2010 | £ | 10.3 | £ | 18.5 | £ | 2.0 | £ | 13.3 | £ | 44.1 | ||||||
Note 8—Share Based Compensation
Stock Option Plans
We are indirect, wholly owned subsidiaries of Virgin Media Inc. Accordingly, we have no stock-based compensation plans. As at September 30, 2010, certain of our employees participated in the stock-based compensation plans of Virgin Media, as described in Virgin Media's 2009 Annual Report.
Note 9—Comprehensive Income (Loss)
Comprehensive income (loss) comprises (in millions):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
| | (Adjusted) | | (Adjusted) | |||||||||
Net income (loss) for period | £ | 44.8 | £ | (59.7 | ) | £ | (168.1 | ) | £ | (265.9 | ) | ||
Currency translation adjustment | (0.1 | ) | (0.1 | ) | 0.1 | (0.6 | ) | ||||||
Net unrealized (losses) gains on derivatives, net of tax | (62.0 | ) | 41.8 | 46.2 | (100.8 | ) | |||||||
Reclassification of derivative losses (gains) to net income, net of tax | 69.2 | (77.5 | ) | (18.2 | ) | 32.2 | |||||||
Comprehensive income (loss) | £ | 51.9 | £ | (95.5 | ) | £ | (140.0 | ) | £ | (335.1 | ) | ||
64
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 9—Comprehensive Income (Loss) (Continued)
The components of accumulated other comprehensive loss, net of taxes, were as follows (in millions):
| September 30, 2010 | December 31, 2009 | |||||
---|---|---|---|---|---|---|---|
Foreign currency translation | £ | (0.1 | ) | £ | (0.2 | ) | |
Pension liability adjustment | (82.3 | ) | (82.3 | ) | |||
Net unrealized losses on derivatives | (27.3 | ) | (55.3 | ) | |||
£ | (109.7 | ) | £ | (137.8 | ) | ||
Note 10—Related Party Transactions
Virgin Media Inc. and its consolidated subsidiaries
We are wholly owned subsidiaries of Virgin Media Inc. We charge Virgin Media Inc. and certain of its group companies for operating costs and selling, general and administrative expenses incurred by us on their behalf. The following information summarizes our significant related party transactions with Virgin Media Inc. and its group companies (in millions):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |||||||||
Operating Costs | £ | 9.3 | £ | 10.5 | £ | 29.9 | £ | 36.5 | |||||
Selling, general and administrative expenses | £ | 12.4 | £ | 14.4 | £ | 35.3 | £ | 35.4 |
The above recharges are recorded in operating costs and selling, general and administrative expenses and offset the respective costs incurred.
Note 11—Contingent Liabilities
We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. 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. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us. Nevertheless, it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies, or because of the diversion of management's attention and the creation of significant expenses.
Our revenue generating activities are subject to Value Added Tax, or VAT. The U.K. tax authorities are seeking to challenge our VAT treatment of certain of these activities. As a result, we have
65
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11—Contingent Liabilities (Continued)
estimated contingent losses totaling £52.4 million as of September 30, 2010 that are not accrued for, as we do not deem them to be probable of resulting in a liability. We continue to evaluate the likelihood of the contingent losses as additional information becomes available and, to the extent an accrual becomes necessary, it will be recognized in earnings in the period when such amount becomes probable. Any challenge made could be subject to court proceedings before any settlement would be required and therefore the timescale for resolution is not expected to occur within the next financial year.
Note 12—Industry Segments
Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is our chief operating decision maker (CODM), to evaluate segment performance, the availability of separate financial information and overall materiality considerations. Virgin Media's internal reporting structure and the related financial information used by management and the CODM reflect changes we have made after the announcement of the sale of Virgin Media TV, which comprised our Content segment, to BSkyB in June 2010. Following this announcement we have two reporting segments, Consumer and Business, as described below.
While both companies have operating segments, consisting of Consumer and Business, which are consistent with Virgin Media's operating segments, financial information is only prepared and reviewed by the CODM at the consolidated level. As such, there are no separable reportable segments for either of the companies.
Virgin Media's Consumer segment, is its primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on its cable network, the provision of broadband and fixed line telephone services to residential customers outside of its cable network, and the provision of mobile telephony and broadband to residential customers.
Virgin Media's Business segment comprises its operations carried out through Virgin Media Business, which provides a complete portfolio of voice, data and internet solutions to leading businesses, public sector organizations and service providers in the U.K.
Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management's measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by Virgin Media's Consumer and Business segments.
66
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 12—Industry Segments (Continued)
The following segment information is based on the consolidated results of Virgin Media for the three and nine month periods ended September 30, 2010 and 2009 (in millions):
| Three months ended September 30, 2010 | Three months ended September 30, 2009 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | (Adjusted) | | |||||||||||||
| Consumer | Business | Total | Consumer | Business | Total | |||||||||||||
Revenue | £ | 826.2 | £ | 152.2 | £ | 978.4 | £ | 776.1 | £ | 143.3 | £ | 919.4 | |||||||
Segment contribution | £ | 500.9 | £ | 89.1 | £ | 590.0 | £ | 466.4 | £ | 86.3 | £ | 552.7 |
| Nine months ended September 30, 2010 | Nine months ended September 30, 2009 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | (Adjusted) | | |||||||||||||
| Consumer | Business | Total | Consumer | Business | Total | |||||||||||||
Revenue | £ | 2,427.2 | £ | 444.8 | £ | 2,872.0 | £ | 2,287.0 | £ | 435.6 | £ | 2,722.6 | |||||||
Segment contribution | £ | 1,470.8 | £ | 252.8 | £ | 1,723.6 | £ | 1,358.6 | £ | 252.6 | £ | 1,611.2 |
Revenue in the table above includes £25.6 million and £76.0 million for the three and nine months ended September 30, 2010, respectively, related to subsidiaries of Virgin Media that are not consolidated in either of the companies. Revenue in the table above includes £26.7 million and £81.9 million for the three and nine months ended September 30, 2009, respectively, related to subsidiaries of Virgin Media that are not consolidated in either of the companies. The reconciliation of total segment contribution to our consolidated operating income is as follows (in millions):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||||||||||
| | (Adjusted) | | (Adjusted) | ||||||||||
Total segment contribution | £ | 590.0 | £ | 552.7 | £ | 1,723.6 | £ | 1,611.2 | ||||||
Other operating and corporate costs | 202.7 | 203.7 | 617.0 | 629.4 | ||||||||||
Restructuring and other charges | 4.5 | 1.6 | 11.4 | 30.6 | ||||||||||
Depreciation | 244.4 | 235.3 | 733.4 | 700.9 | ||||||||||
Amortization | 36.7 | 61.0 | 110.9 | 183.3 | ||||||||||
Operating loss of subsidiaries not consolidated in either of the companies | (1.8 | ) | (3.3 | ) | (6.3 | ) | (6.7 | ) | ||||||
Consolidated operating income | £ | 103.5 | £ | 54.4 | £ | 257.2 | £ | 73.7 | ||||||
67
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this document.
Overview
We are a leading provider of entertainment and communications services in the U.K., offering "quad-play" broadband internet, television, mobile telephony and fixed line telephony services. We are one of the U.K.'s largest providers of residential broadband internet, pay television and fixed line telephony services by number of customers. We believe our advanced, deep fiber access network enables us to offer faster and higher quality broadband services than our digital subscriber line, or DSL, competitors. As a result, we provide our customers with a leading next generation broadband service and one of the most advanced TV on-demand services available in the U.K. market. We are also one of the U.K.'s largest mobile virtual network operators by number of customers. In addition, we provide a complete portfolio of voice, data and internet solutions to leading businesses, public sector organizations and service providers in the U.K. through Virgin Media Business (formerly ntl:Telewest Business). We also have an interest in the UKTV television channels through our joint ventures with BBC Worldwide.
On June 4, 2010, we announced the sale to British Sky Broadcasting Limited, or BSkyB, of our television channel business known as Virgin Media TV. Virgin Media TV's operations comprised our former Content segment and has been treated in the condensed consolidated financial statements as discontinued operations. Our internal reporting structure and the related financial information used by management and the chief operating decision maker reflect changes we have made after the announcement of the sale of Virgin Media TV. Following this announcement, we have two reporting segments, Consumer and Business, as described below.
- •
- Consumer: Our Consumer segment includes the distribution of television programming over our cable network and the provision of broadband and fixed line telephone services to residential consumers, both on and off our cable network. Our Consumer segment also includes our mobile telephony and mobile broadband operations, provided through Virgin Mobile.
- •
- Business: Our Business segment includes the voice and data telecommunication and internet solutions services we provide through Virgin Media Business to businesses, public sector organizations and service providers.
Our revenue by segment for the nine months ended September 30, 2010 and 2009 was as follows (in millions):
| Nine months ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||||||
Consumer Segment | £ | 2,427.2 | 84.5 | % | £ | 2,287.0 | 84.0 | % | |||||
Business Segment | 444.8 | 15.5 | 435.6 | 16.0 | |||||||||
£ | 2,872.0 | 100.0 | % | £ | 2,722.6 | 100.0 | % | ||||||
For further discussion of our business, please refer to our 2009 Annual Report.
Factors Affecting Our Business
A number of factors affect the performance of our business, at both a general and segment level.
68
General
Factors that affect both of the segments in which we operate are as follows:
General Macroeconomic Factors. General macroeconomic factors in the U.K. have an impact on our business. For example, during an economic slowdown, potential and existing customers may be less willing or able to purchase our products or upgrade their services. We may also experience increased churn and higher bad debt expense.
Currency Movements. We encounter currency exchange rate risks because substantially all of our revenue and operating costs are earned and paid primarily in U.K. pounds sterling, but we pay interest and principal obligations with respect to a portion of our existing indebtedness in U.S. dollars and euros. We have in place hedging programs that seek to mitigate the risk from these exposures. While the objective of these programs is to reduce the volatility of our cash flows and earnings caused by changes in underlying currency exchange rates, not all of our exposures are hedged, and not all of our hedges are designated as such for accounting purposes. Additionally, we do not hedge the principal portion of our convertible senior notes. We also purchase goods and services in U.S. dollars, euros and South African rand, such as customer premise equipment and network maintenance services and some of these exposures are not hedged.
Integration and Restructuring Activities. In the fourth quarter of 2008, we commenced the implementation of a restructuring plan aimed at driving further improvements in our operational performance and eliminating inefficiencies in order to create a fully-integrated, customer-focused organization. We anticipate significant cost savings from the plan and that the annual savings from and after 2010 will exceed the annual costs incurred in connection with the plan. These costs will include purchases of fixed assets, lease and contract exit costs, employee termination costs and other restructuring and restructuring-related expenses, some of which will be classified as restructuring costs. During the second quarter, we identified further savings through the expansion of the program and revised the estimated total costs and extended the completion date through the end of 2012. In total, we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million in connection with this plan. Our financial performance may be negatively affected if we are unable to implement our restructuring plan successfully and realize the anticipated benefits.
Capital Expenditures. Our business requires substantial capital expenditures on a continuing basis for various purposes, including expanding, maintaining and upgrading our cable network, investing in new customer acquisitions, and offering new services. If we do not continue to invest in our network and in new technologies, our ability to retain and acquire customers may be hindered. Therefore, our liquidity and the availability of cash to fund capital projects are important drivers of our revenue. When our liquidity is restricted, so is our ability to meet our capital expenditure requirements.
Consumer Segment
In our Consumer segment, cable customers account for the majority of our revenue. The number of customers, the number and types of services that each customer uses and the prices we charge for these services drive our revenue. Our profit is driven by the relative margins on the types of services we provide to these customers and by the number of services that we provide to them and, with respect to our fixed and mobile telephone customers, by usage levels of our services. For example, cable broadband internet is more profitable than our television services and, on average, our "triple-play" customers are more profitable than "double-play" or "single-play" customers. Similarly, over the service term our contract mobile customers are more profitable than our prepay mobile customers, and provide a better opportunity for cross-sell of our cable products. We actively promote "quad-play" services and our packaging of services and our pricing are designed to encourage our customers to use
69
multiple services such as television, fixed and mobile telephone and broadband at a lower price than each stand-alone product on a combined basis. Factors particularly affecting our Consumer segment include average revenue per user, or ARPU, churn, competition, seasonality and distribution.
Cable ARPU. Cable ARPU is a measure we use to evaluate how effectively we are realizing potential revenue from our residential cable customers on our network. We believe that our "triple-play" cable offering of television, broadband and fixed line telephone services is attractive to our existing cable customer base and generally allows us to increase our cable ARPU by facilitating the sale of multiple services to each customer. Cable ARPU excludes any revenue from our mobile and non-cable customers.
Mobile ARPU. Mobile ARPU is a measure we use to evaluate how effectively we are realizing revenue from our mobile customers. The mix of prepay and contract customers and level of usage have a material impact on Mobile ARPU. The mix of our customer base is changing as we focus on acquiring higher lifetime value contract customers, rather than lower lifetime value prepay customers, particularly through cross-selling to our cable customer base. Consequently, the number of prepay customers is expected to continue to decline in 2010, along with prepay usage.
Churn. Churn is the proportion of customers who stop subscribing to any of our services. An increase in our churn can lead to increased costs and reduced revenue. We continue to focus on improving our customer service and enhancing and expanding our service offerings to existing customers in order to manage our churn rates. Our ability to reduce our churn rates beyond a base level is limited by factors such as competition, the economy and, in respect of our cable business, customers moving outside our network service area, in particular during the summer season. Managing our churn rates is a significant component of our business plan. Our churn rates may increase if our customer service is seen as unsatisfactory, if we are unable to deliver a service without interruption, if we fail to match offerings by our competitors, if we increase our prices, if there is an improvement in the U.K. housing market or if there is a prolonged economic downturn.
Competition. Our ability to acquire and retain customers and increase revenue depends on our competitive strength. There is significant and increasing competition in the market for our consumer services, including broadband and telephone services offered by BT Group plc, or BT; resellers or local loop unbundlers, such as BSkyB and Talk Talk Telecom Group PLC; alternative internet access services such as DSL; satellite television services offered by BSkyB and by BBC and ITV through Freesat; free-to-air digital terrestrial television offered through Freeview; internet protocol television offered by BT; and mobile telephone, television and data services offered by other mobile network operators, or MNOs, including Everything Everywhere Limited (the joint venture between T-Mobile(UK) and Orange(UK)), O2, Vodafone and 3 UK, and from other mobile virtual network operators, including Tesco Mobile, Lebara, Carphone Warehouse and ASDA. In addition, certain competitors, such as BT, BSkyB and large MNOs are dominant in markets in which we compete and may use their dominance in those markets to offer bundled services that compete with our product offerings. As a result of increased competition, we have had to, and may be required to continue to, adjust our pricing and offer discounts to new and existing customers in order to attract and retain customers.
Seasonality. Some of our Consumer revenue streams are subject to seasonal factors. For example, telephone usage revenue by residential customers tends to be slightly lower during summer holiday months. In the fourth quarter of each year, our mobile customer acquisition and retention costs typically increase due to the Christmas holiday period. Our Mobile ARPU generally decreases in the first quarter of each year due to the fewer number of days in February and lower usage after the Christmas holiday period. Our churn rates include persons who disconnect their service because of moves, resulting in a seasonal increase in our churn rates during the summer months when higher levels of U.K. house moves occur and students leave their accommodation between academic years.
70
Distribution. We rely, to a large extent, upon third parties to distribute our mobile products and services. If any of these distribution partners were to cease to act as distributors for our products and services, or the commissions or other costs charged by the third parties were to increase, our ability to gain new mobile customers or retain existing customers may be adversely affected. We continue to increase the proportion of our products distributed through our own channels including our retail outlets.
Business Segment
Factors particularly affecting our Business segment include competition, pricing, operational effectiveness and changes in government spending.
Competition. Our ability to acquire and retain business customers and increase revenue depends on our competitive strength. There is significant and increasing competition in the market for our business services, including data and voice services offered by BT, Cable & Wireless plc, virtual network operators and systems integrators. While BT represents the main competitive threat nationally due to its network reach and product portfolio, we also compete with regional providers, such as COLT Telecom Group plc, which have a strong network presence within limited geographic areas. Recently we have also faced increasing competition from the launch of business services by MNOs.
Pricing. Competition in the U.K. business telecommunications market continues to be based on value for money, the key components of which are quality, reliability and price. Certain of BT's product pricing is regulated by the U.K. Office of Communications; however, in respect of non-regulated product pricing, the market is increasingly price sensitive, particularly in the current challenging economic conditions.
Operational Effectiveness. Because of the extensive use of optical fiber in our access networks, we are also able to provide high-speed ethernet services directly to business customers and provide nationwide area networking to these customers via our core networks. Business customers require timely installation services and our ability to meet required timescales and commence providing services may impact our revenues. We regularly rely on third-party suppliers to connect business customers and we have a variety of alternative methods to connect our national telecommunications network to the premises of business customers that are located outside of our cabled areas.
Government Spending. Public sector organizations, in particular local authorities, represent a significant proportion of the customer base in our Business segment. Accordingly, changes to the U.K. government's allocation of funding and spending levels with respect to certain programs have had, and may continue to have, an effect on our Business segment revenue.
Critical Accounting Policies
The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and contingent liabilities. We base our judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our consolidated financial statements, please refer to our 2009 Annual Report.
71
New Accounting Guidance
New accounting rules and disclosures can significantly impact our reported results and the comparability of our financial statements. We will prospectively apply the new requirements related to multiple-element revenue arrangements beginning on January 1, 2011 and are currently evaluating the impact on our financial statements. There are certain other new proposals under development which, if and when enacted, may have a material impact on our financial reporting.
Consolidated Results of Operations
Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
Revenue
For the three months ended September 30, 2010, revenue increased by 6.4% to £978.4 million from £919.4 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, revenue increased by 5.5% to £2,872.0 million from £2,722.6 million for the nine months ended September 30, 2009. The amount of revenue recognized in both our Consumer and Business segments increased over both periods as more fully described in our segment discussions below.
Operating Costs
Operating costs for the three and nine months ended September 30, 2010 and 2009 were as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Operating costs: | ||||||||||||||||||||
Consumer cost of sales | £ | 250.1 | £ | 238.5 | 4.9 | % | £ | 731.8 | £ | 721.3 | 1.5 | % | ||||||||
Business cost of sales | 46.8 | 40.6 | 15.3 | 139.5 | 138.0 | 1.1 | ||||||||||||||
Network and other operating costs | 98.7 | 95.5 | 3.4 | 295.2 | 289.8 | 1.9 | ||||||||||||||
Total operating costs | £ | 395.6 | £ | 374.6 | 5.6 | % | £ | 1,166.5 | £ | 1,149.1 | 1.5 | % | ||||||||
For the three months ended September 30, 2010, operating costs increased by 5.6% to £395.6 million from £374.6 million during the same period in 2009. This increase was primarily attributable to increased Consumer and Business segment cost of sales as a result of increased revenues in both segments. Network and other operating costs also increased primarily due to higher employee and outsourcing costs as a result of greater install activity caused by greater gross customer additions during the period. As a result of these changes, operating costs as a percentage of revenue decreased to 40.4% for the three months ended September 30, 2010 from 40.7% for the three months ended September 30, 2009.
For the nine months ended September 30, 2010, operating costs increased by 1.5% to £1,166.5 million from £1,149.1 million during the same period in 2009. This increase was attributable to increases in Consumer segment and Business segment cost of sales, together with increased network and other operating costs. Consumer cost of sales increased primarily as a result of increased revenues, largely offset by lower fixed line telephony interconnect costs as a result of lower usage along with lower mobile telephony interconnect costs as a result of lower wholesale rates. Business cost of sales increased as the impact on costs of higher retail data and wholesale revenues was only partially offset by the impact on costs of lower LAN solutions and retail voice revenues. Network and other operating costs increased mainly due to greater install activity resulting from customer additions during the period partially offset by lower facilities costs primarily due to refunds received of local authority taxes relating to our network property. As a result of these changes, operating costs as a percentage of revenue decreased to 40.6% for the nine months ended September 30, 2010 from 42.2% for the nine months ended September 30, 2009.
72
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine months ended September 30, 2010 and 2009 were as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
| | (Adjusted) | | | (Adjusted) | | ||||||||||||||
Selling, general and administrative expenses: | ||||||||||||||||||||
Employee and outsourcing costs | £ | 112.8 | £ | 111.1 | 1.5 | % | £ | 348.8 | £ | 331.5 | 5.2 | % | ||||||||
Marketing costs | 36.7 | 33.9 | 8.3 | 115.1 | 93.2 | 23.5 | ||||||||||||||
Facilities | 15.9 | 16.3 | (2.5 | ) | 48.8 | 52.6 | (7.2 | ) | ||||||||||||
Other | 30.1 | 34.5 | (12.8 | ) | 86.2 | 114.4 | (24.7 | ) | ||||||||||||
Total selling, general and administrative expenses | £ | 195.5 | £ | 195.8 | (0.2 | )% | £ | 598.9 | £ | 591.7 | 1.2 | % | ||||||||
For the three months ended September 30, 2010, selling, general and administrative expenses decreased slightly to £195.5 million from £195.8 million for the three months ended September 30, 2009. This decrease was primarily due to lower facilities and other costs, largely offset by higher marketing and employee and outsourcing costs. Lower facilities costs were mainly due to reduced power costs. Lower other costs were primarily due to a reduction in legal and professional expenses as compared to the prior period. Marketing costs were higher primarily due to increased marketing activity to drive growth in our Consumer customer base. Higher employee and outsourcing costs were mainly due to salary increases.
For the nine months ended September 30, 2010, selling, general and administrative expenses increased by 1.2% to £598.9 million from £591.7 million for the nine months ended September 30, 2009. This increase was primarily due to higher marketing and employee and outsourcing costs, partially offset by lower facilities and other costs. Marketing costs were higher primarily due to increased marketing activity in our Consumer segment and the cost of rebranding our Business segment to Virgin Media Business. Higher employee and outsourcing costs were mainly due to an increase in share based compensation and pension costs, along with salary increases. Lower facilities costs were mainly due to lower operating costs resulting from site closures in prior periods together with reduced power costs and refunds of local authority property taxes. Lower other costs were due to a reduction in IT and legal and professional expenses as compared to the prior period.
Restructuring and Other Charges
Restructuring and other charges were £4.5 million in the three months ended September 30, 2010 which included £2.3 million in respect of involuntary employee termination costs and lease exit costs in connection with the restructuring program initiated in the fourth quarter of 2008. Restructuring and other charges of £1.6 million in the three months ended September 30, 2009 included £0.6 million in respect of involuntary employee termination costs and lease exit costs in connection with the restructuring program initiated in the fourth quarter of 2008.
Restructuring and other charges were £11.4 million in the nine months ended September 30, 2010 which included £9.5 million in respect of involuntary employee termination costs and lease exit costs in connection with the restructuring program initiated in the fourth quarter of 2008. Restructuring and other charges of £30.6 million in the nine months ended September 30, 2009 was comprised mainly of £32.7 million in respect of involuntary employee termination costs and lease exit costs in connection with the restructuring program initiated in the fourth quarter of 2008, partially offset by a £2.1 million
73
reduction in the accruals for lease exit costs in connection with our historical and acquisition restructuring programs.
Depreciation Expense
For the three months ended September 30, 2010, depreciation expense increased by 3.9% to £244.4 million from £235.3 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, depreciation expense increased by 4.6% to £733.4 million from £700.9 million for the nine months ended September 30, 2009. The increase in depreciation expense in both periods was primarily a result of depreciation in respect of new fixed assets, partially offset by fixed assets becoming fully depreciated.
Amortization Expense
For the three months ended September 30, 2010, amortization expense decreased to £36.7 million from £61.0 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, amortization expense decreased to £110.9 million from £183.3 million for the nine months ended September 30, 2009. The decline in amortization expense in both periods was primarily attributable to the cessation of amortization of certain intangible assets that became fully amortized in 2009.
Interest Expense
For the three months ended September 30, 2010, interest expense decreased slightly to £118.2 million from £120.0 million for the three months ended September 30, 2009. We paid cash interest of £83.3 million for the three months ended September 30, 2010 and £24.9 million for the three months ended September 30, 2009. The increase in cash interest payments was primarily due to differences in the timing of interest payments on our new senior credit facility and senior notes.
For the nine months ended September 30, 2010, interest expense increased to £359.1 million from £331.3 million for the nine months ended September 30, 2009, primarily as a result of refinancing lower cost bank debt with higher cost bond debt. We paid cash interest of £331.4 million for the nine months ended September 30, 2010 and £253.2 million for the nine months ended September 30, 2009. The increase in cash interest payments was primarily due to differences in the timing of interest payments on our new senior credit facility and senior notes.
Loss on Extinguishment of Debt
The loss on extinguishment of debt was nil and £70.0 million for the three and nine months ended September 30, 2010, respectively. The loss on extinguishment of debt for the nine months ended September 30, 2010 primarily related to the write-off of deferred financing costs resulting from repayments of our old senior credit facility from the net proceeds of the senior secured bond issuance on January 19, 2010 and the new senior credit facility on April 22, 2010 along with the redemption premium paid in respect to our senior notes due 2014 redeemed on May 12, 2010.
The loss on extinguishment of debt of £9.4 million and £16.7 million in the three and nine months ended September 30, 2009, respectively, related to the write-off of deferred financing costs resulting from repayments of our old senior credit facility.
Share of Income From Equity Investments
We own 50% of the companies that comprise UKTV, a group of joint ventures formed with BBC Worldwide. UKTV produces a portfolio of television channels based on the BBC's program library and
74
other acquired programming and which are carried on Virgin Media's cable platform and also satellite. Some channels are also available on Freeview.
For the three months ended September 30, 2010, share of income from equity investments was £6.7 million as compared with income of £5.1 million for the same period in 2009. The share of income from equity investments in the three months ended September 30, 2010 and 2009 was our proportionate share of the income earned by UKTV.
For the nine months ended September 30, 2010, share of income from equity investments was £21.4 million as compared with income of £7.2 million for the same period in 2009. The share of income from equity investments in the nine months ended September 30, 2010 was primarily our proportionate share of the income earned by UKTV. The share of income from equity investments in the nine months ended September 30, 2009 was largely comprised of our proportionate share of the income earned by UKTV, partially offset by our share of losses incurred by Setanta Sports News which ceased broadcasting on June 23, 2009.
At September 30, 2010, our investment in UKTV was carried on the balance sheet at £348.9 million, which includes outstanding loans totaling £112.7 million. These loans effectively act as a revolving facility for UKTV. We received cash payments from UKTV in the form of loan capital repayments of £2.6 million and £15.0 million during the three and nine months ended September 30, 2010, respectively. We also received dividends, interest payments and payments for consortium tax relief from UKTV totaling £9.1 million and £23.9 million for the three and nine months ended September 30, 2010, respectively.
(Loss) Gain on Derivative Instruments
The loss on derivative instruments of £24.7 million in the three months ended September 30, 2010 was mainly driven by losses on economic hedges resulting from the pound sterling strengthening against the U.S. dollar. The gain on derivative instruments of £43.6 million in the three months ended September 30, 2009 was mainly driven by the pound sterling weakening against the U.S. dollar and euro in the quarter, which resulted in an increase in the fair value of U.S. dollar and euro denominated cross-currency interest rate swaps not designated as hedges for accounting purposes.
The loss on derivative instruments of £52.9 million in the nine months ended September 30, 2010 was mainly driven by the reclassification of losses on derivative contracts previously designated as accounting hedges from accumulated other comprehensive income to earnings along with payments made to settle euro derivative contracts in connection with the repayment of our old senior credit facility and senior notes, partially offset by gains on economic hedges resulting from the pound sterling weakening against the U.S. dollar. The loss from derivative instruments of £104.1 million in the nine months ended September 30, 2009 was mainly driven by the U.S. dollar and euro weakening against the pound sterling in the first six months of the year, which resulted in a reduction in the fair value of U.S. dollar and euro denominated cross-currency interest rate swaps not designated as hedges for accounting purposes.
Foreign Currency Gains (Losses)
The foreign currency gains of £43.6 million in the three months ended September 30, 2010 were primarily due to strengthening of the pound sterling relative to the U.S. dollar and related remeasurement gains on our convertible senior notes and U.S. dollar denominated senior notes due 2019. The foreign currency losses of £33.9 million in the nine months ended September 30, 2010 were primarily due to the weakening of the pound sterling relative to the U.S. dollar and related remeasurement losses on our convertible senior notes and the U.S. dollar denominated tranches of our old senior credit facility, partially offset by remeasurement gains on our U.S. dollar denominated senior notes due 2019. The foreign currency losses of £49.8 million in the three months ended September 30,
75
2009 were primarily due to the strengthening of the U.S. dollar and euro relative to the pound sterling and related remeasurement losses on the convertible senior notes and the U.S. dollar and euro denominated tranches of the senior credit facility. The foreign currency gains of £107.6 million in the nine months ended September 30, 2009 were primarily due to the strengthening of the pound sterling which occurred in the first six months of the year relative to the U.S. dollar and euro and related remeasurement gains on the convertible senior notes, which are unhedged, and the U.S. dollar and euro denominated tranches of the senior credit facility.
Income Tax Benefit
For the three and nine months ended September 30, 2010, income tax benefit was £17.7 million and £34.7 million, respectively, as compared with income tax benefit of £14.8 million and £2.4 million for the same periods in 2009. The income tax benefit related primarily to amounts recognized in discontinued operations and other comprehensive income along with consortium tax relief receivable from our joint venture operations. The income tax benefit in the prior periods primarily related to an increase in our deferred tax asset valuation allowance as a result of a reduction in certain deferred tax liabilities relating to amounts recognized in the statement of other comprehensive income.
Net Income (Loss) from Continuing Operations
For the three months ended September 30, 2010, net income from continuing operations was £27.6 million and for the nine months ended September 30, 2010, net loss from continuing operations decreased to £204.2 million, compared with a net loss of £63.3 million and £261.3 million for the same periods in 2009, respectively, due to the factors discussed above.
Gain on Disposal
For the three and nine months ended September 30, 2010, the gain on disposal, net of tax, was £14.4 million due to the completion of the sale of our television channel business known as Virgin Media TV to BSkyB on July 12, 2010. Virgin Media TV's operations comprised our former Content segment.
(Loss) Income From Discontinued Operations
For the three months ended September 30, 2010, net loss from discontinued operations was £0.2 million and for the nine months ended September 30, 2010, net income from discontinued operations was £11.3 million, relating to our former Content segment operations, compared with an income of £3.2 million in the three months ended September 30, 2009 and a loss of £2.1 million for the nine months ended September 30, 2009 which related to our former sit-up and content operations.
Net Income (Loss) from Continuing Operations per Share
Basic and diluted net income from continuing operations per common share for the three months ended September 30, 2010 was £0.08 compared to a loss of £0.19 for the three months ended September 30, 2009. Basic net income (loss) from continuing operations per share was computed using a weighted average of 325.6 million shares outstanding in the three months ended September 30, 2010 and a weighted average of 329.0 million shares outstanding for the same period in 2009. Diluted net income (loss) from continuing operations per share was computed using a weighted average of 330.8 million shares outstanding in the three months ended September 30, 2010 and a weighted average of 329.0 million shares outstanding for the same period in 2009.
Basic and diluted net loss from continuing operations per common share for the nine months ended September 30, 2010 was £0.62 compared to £0.79 for the nine months ended September 30, 2009. Basic and diluted net loss from continuing operations per share is computed using a weighted
76
average of 328.7 million shares outstanding in the nine months ended September 30, 2010 and a weighted average of 328.6 million shares outstanding for the same period in 2009.
Segmental Results of Operations from Continuing Operations for the Three and Nine Months Ended September 30, 2010 and 2009
A description of the products and services, as well as financial data, for each segment can be found in note 12 to Virgin Media's condensed consolidated financial statements.
The reportable segments disclosed in this quarterly report on Form 10-Q are based on our management organizational structure as of September 30, 2010. Future changes to this organizational structure may result in changes to the reportable segments disclosed.
Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management's measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs, depreciation and amortization. Restructuring and other charges and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure which is shared by our Consumer and Business segments.
Consumer Segment
The summary combined results of operations of our Consumer segment for the three and nine months ended September 30, 2010 and 2009 were as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | |||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||
Revenue | £ | 826.2 | £ | 776.1 | 6.5 | % | £ | 2,427.2 | £ | 2,287.0 | 6.1 | % | |||||||
Segment contribution | £ | 500.9 | £ | 466.4 | 7.4 | % | £ | 1,470.8 | £ | 1,358.6 | 8.3 | % |
Revenue
Our Consumer segment revenue for the three and nine months ended September 30, 2010 and 2009 was as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Cable | £ | 662.6 | £ | 627.6 | 5.6 | % | £ | 1,959.0 | £ | 1,848.4 | 6.0 | % | ||||||||
Mobile(1) | 143.5 | 134.1 | 7.0 | 411.7 | 396.9 | 3.7 | ||||||||||||||
Non-cable | 20.1 | 14.4 | 39.6 | 56.5 | 41.7 | 35.5 | ||||||||||||||
Total revenue | £ | 826.2 | £ | 776.1 | 6.5 | % | £ | 2,427.2 | £ | 2,287.0 | 6.1 | % | ||||||||
- (1)
- Includes equipment revenue stated net of discounts earned through service usage.
For the three months ended September 30, 2010, revenue from our Consumer segment customers increased by 6.5% to £826.2 million from revenue of £776.1 million for the three months ended
77
September 30, 2009. For the nine months ended September 30, 2010, revenue from our Consumer segment customers increased by 6.1% to £2,427.2 million from revenue of £2,287.0 million for the nine months ended September 30, 2009. These increases were primarily due to an increase in revenues from our cable product offerings and, to a lesser extent, increased revenue from our mobile and non-cable product offerings.
For the three months ended September 30, 2010, cable revenue increased to £662.6 million from £627.6 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, cable revenue increased to £1,959.0 million from £1,848.4 million for the nine months ended September 30, 2009. These increases in cable revenue were primarily due to selective price increases as well as additional cable customers subscribing to our services, partially offset by continued decline in fixed line telephony usage and higher price discounting to stimulate customer activity and retention in light of competitive factors in the marketplace.
Cable ARPU increased to £46.38 for the three months ended September 30, 2010 from £44.71 for the three months ended September 30, 2009. The increase in cable ARPU was mainly due to the selective price increases and successful up-selling and cross-selling to existing customers, partially offset by declining telephony usage and price discounting. Our focus on acquiring new bundled customers and on cross-selling to existing customers is demonstrated by cable products per customer increasing to 2.49 at September 30, 2010 from 2.46 at September 30, 2009, and by "triple-play" penetration growing to 62.7% at September 30, 2010 from 60.1% at September 30, 2009. A triple-play customer is a customer who subscribes to our cable television, broadband and fixed line telephone services.
For the three months ended September 30, 2010, mobile revenue increased to £143.5 million from £134.1 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, mobile revenue increased to £411.7 million from £396.9 million for the nine months ended September 30, 2009. These increases were attributable to an increase in service revenues, mainly driven by increased contract revenue, partially offset by the declining base of prepay mobile subscribers together with lower mobile termination rates that came into force following regulatory changes in April 2009.
Mobile ARPU increased to £15.01 for the three months ended September 30, 2010 from £13.41 for the three months ended September 30, 2009. The increase was primarily due to the increased proportion of our higher value contract customers relative to the total number of mobile customers, which rose to 37.6% at September 30, 2010 from 27.3% at September 30, 2009, together with increased usage of voice and texts, partially offset by declining rates for those services and lower mobile termination rates as described above.
Non-cable revenue for the three months ended September 30, 2010 increased to £20.1 million from £14.4 million for the three months ended September 30, 2009. Non-cable revenue for the nine months ended September, 30, 2010 increased to £56.5 million from £41.7 million for the nine months ended September 30, 2009. Revenue increased as a result of the launch of wholesale line rental in August 2009 as discussed further in Summary Non-cable Statistics below.
Consumer Segment Contribution
For the three months ended September 30, 2010, Consumer segment contribution increased to £500.9 million from £466.4 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, Consumer segment contribution increased to £1,470.8 million from £1,358.6 million for the nine months ended September 30, 2009. These increases were primarily due to the increase in Consumer revenue, as described above.
78
Summary Cable Statistics
Selected statistics for our cable customers for the three months ended September 30, 2010 as well as the four prior quarters are set forth in the table below. Our net customer movement for the three months ended September 30, 2010 was an increase of 14,100 customers, being the net of gross additions and disconnections (net additions). The increase in net additions compared with the three months ended September 30, 2009 was primarily the result of higher gross additions which we believe is the result of improved product propositions in recent periods. Customer churn increased slightly to 1.6% in the three months ended September 30, 2010 from 1.5% in the three months ended September 30, 2009 due to competitive factors in the marketplace. The total number of cable products grew to 11,897,500 at September 30, 2010 from 11,553,900 at September 30, 2009, representing a net increase in products of 343,600.
| Three months ended | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2010 | June 30, 2010 | March 31, 2010 | December 31, 2009 | September 30, 2009 | |||||||||||||
Opening customers(1) | 4,768,900 | 4,761,800 | 4,723,500 | 4,694,900 | 4,686,800 | |||||||||||||
Customer additions | 236,000 | 188,600 | 193,100 | 198,600 | 213,800 | |||||||||||||
Customer disconnects | (221,900 | ) | (181,500 | ) | (154,800 | ) | (170,000 | ) | (205,700 | ) | ||||||||
Net customer movement | 14,100 | 7,100 | 38,300 | 28,600 | 8,100 | |||||||||||||
Closing customers(1) | 4,783,000 | 4,768,900 | 4,761,800 | 4,723,500 | 4,694,900 | |||||||||||||
Cable churn(1)(2) | 1.6 | % | 1.3 | % | 1.1 | % | 1.2 | % | 1.5 | % | ||||||||
Cable products: | ||||||||||||||||||
Television(1) | 3,766,700 | 3,751,900 | 3,729,600 | 3,693,900 | 3,659,700 | |||||||||||||
DTV (included in Television) | 3,745,900 | 3,728,700 | 3,702,800 | 3,656,200 | 3,599,300 | |||||||||||||
ATV (included in Television)(1) | 20,800 | 23,200 | 26,800 | 37,700 | 60,400 | |||||||||||||
Telephone | 4,161,000 | 4,175,300 | 4,178,000 | 4,146,600 | 4,120,000 | |||||||||||||
Broadband | 3,969,800 | 3,936,000 | 3,910,100 | 3,837,800 | 3,774,200 | |||||||||||||
Total cable products | 11,897,500 | 11,863,200 | 11,817,700 | 11,678,300 | 11,553,900 | |||||||||||||
Cable products/Customer(1) | 2.49 | x | 2.49 | x | 2.48 | x | 2.47 | x | 2.46 | x | ||||||||
Triple-play penetration(1) | 62.7 | % | 62.4 | % | 61.9 | % | 61.1 | % | 60.1 | % | ||||||||
Cable Average Revenue Per User(1)(3) | £ | 46.38 | £ | 45.88 | £ | 45.01 | £ | 45.28 | £ | 44.71 | ||||||||
Cable ARPU calculation: | ||||||||||||||||||
Cable revenue (millions) | £ | 662.6 | £ | 656.4 | £ | 640.0 | £ | 640.1 | £ | 627.6 | ||||||||
Average customers(1) | 4,763,400 | 4,768,800 | 4,739,500 | 4,712,600 | 4,679,000 |
- (1)
- As part of our analog switch off program during the first quarter of 2010 we identified 49,300 analog customers as of December 31, 2009 that we do not expect to convert to digital products and services. These customers were previously reflected in our Summary Cable Statistics as both customers and ATV products. As they do not receive any directly billable services from us they will not be included in our Summary Cable Statistics in future periods. To ensure our statistics are presented on a comparable basis, we have removed 49,300 customers from our customer and ATV product numbers for all previously reported periods. The following statistics have been recalculated: Opening and Closing customers, Cable churn, Cable products—Television and ATV, Cable products/Customer, Triple-play penetration, Cable ARPU, Average customers.
79
- (2)
- Cable churn is calculated by taking the total cable customer disconnects during the month (excluding any data cleanse activity) and dividing them by the average number of cable customers during the month. Average monthly churn during a quarter is the average of the three monthly churn calculations within the quarter.
- (3)
- The monthly cable average revenue per user, or cable ARPU, is calculated on a quarterly basis by dividing total revenue generated from the provision of telephone, television and internet services to customers who are directly connected to our network in that period together with revenue generated from customers using our virginmedia.com website, by the average number of customers directly connected to our network in that period divided by three.
Summary Mobile Statistics
Selected statistics for our mobile customers for the three months ended September 30, 2010 as well as the four prior quarters are set forth in the table below. Between September 30, 2010 and September 30, 2009, the number of mobile customers decreased by a net 128,900. Contract customer gains of 282,100 were offset by net losses of 411,000 prepay customers. The growth in contract customers reflects our strategy of using our own sales channels and cross-selling mobile contracts to our cable customers. The decline in prepay customers reflects increased competition in the prepay market and our strategy not to focus heavily on retaining market share in the prepay market due to higher churn, low tariffs and lower overall lifetime value.
| Three months ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2010 | June 30, 2010 | March 31, 2010 | December 31, 2009 | September 30, 2009 | |||||||||||
Contract mobile customers(1): | ||||||||||||||||
Opening contract mobile customers | 1,097,200 | 1,030,900 | 949,700 | 872,600 | 784,600 | |||||||||||
Net contract mobile customer additions(2) | 57,500 | 66,300 | 81,200 | 77,100 | 88,000 | |||||||||||
Closing contract mobile customers | 1,154,700 | 1,097,200 | 1,030,900 | 949,700 | 872,600 | |||||||||||
Prepay mobile customers(1): | ||||||||||||||||
Opening prepay mobile customers | 1,976,200 | 2,028,900 | 2,225,000 | 2,323,300 | 2,449,500 | |||||||||||
Net prepay mobile customer disconnections(2) | (63,900 | ) | (52,700 | ) | (196,100 | ) | (98,300 | ) | (126,200 | ) | ||||||
Closing prepay mobile customers | 1,912,300 | 1,976,200 | 2,028,900 | 2,225,000 | 2,323,300 | |||||||||||
Total closing mobile customers:(1) | 3,067,000 | 3,073,400 | 3,059,800 | 3,174,700 | 3,195,900 | |||||||||||
Mobile average revenue per user(3) | £ | 15.01 | £ | 14.36 | £ | 13.70 | £ | 14.00 | £ | 13.41 | ||||||
Mobile ARPU calculation: | ||||||||||||||||
Mobile service revenue (millions) | £ | 138.6 | £ | 131.9 | £ | 127.7 | £ | 132.9 | £ | 129.3 | ||||||
Average mobile customers | 3,077,700 | 3,061,800 | 3,106,300 | 3,164,400 | 3,213,600 |
- (1)
- Mobile customer information is for active customers. Prepay customers are defined as active customers if they have made an outbound call or text in the preceding 30 days. Contract customers are defined as active customers if they have entered into a contract for a minimum 30-day period and have not been disconnected. Contract mobile customers represent the number of contracts relating to either a mobile service or a mobile broadband service.
- (2)
- Contract net adds in the three months ended June 30, 2010 includes 9,300 customers who have been taking contract services since joining but had previously been recorded as prepay customers. A corresponding reduction is included in prepay net adds in the same quarter.
80
- (3)
- Mobile monthly average revenue per user, or Mobile ARPU, is calculated on a quarterly basis by dividing mobile service revenue (contract and prepay) for the period by the average number of active customers (contract and prepay) for the period, divided by three.
Summary Non-cable Statistics
Selected statistics for our residential customers that are not connected directly through our cable network, or non-cable customers, for the three months ended September 30, 2010 as well as for the four prior quarters are set forth in the table below. Total non-cable products increased by 8,100 during the three months ended September 30, 2010 as compared to an increase of 19,900 non-cable products during the three months ended September 30, 2009.
| Three months ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2010 | June 30, 2010 | March 31, 2010 | December 31, 2009 | September 30, 2009 | ||||||||||||
Opening customers | 272,600 | 270,600 | 267,200 | 255,200 | 245,500 | ||||||||||||
Net customer movements | 1,400 | 2,000 | 3,400 | 12,000 | 9,700 | ||||||||||||
Closing customers | 274,000 | 272,600 | 270,600 | 267,200 | 255,200 | ||||||||||||
Opening Non-cable products: | |||||||||||||||||
Telephone | 154,400 | 147,600 | 139,800 | 124,900 | 112,500 | ||||||||||||
Broadband | 271,800 | 269,600 | 265,700 | 253,200 | 245,700 | ||||||||||||
426,200 | 417,200 | 405,500 | 378,100 | 358,200 | |||||||||||||
Net Non-cable product additions: | |||||||||||||||||
Telephone | 6,800 | 6,800 | 7,800 | 14,900 | 12,400 | ||||||||||||
Broadband | 1,300 | 2,200 | 3,900 | 12,500 | 7,500 | ||||||||||||
8,100 | 9,000 | 11,700 | 27,400 | 19,900 | |||||||||||||
Closing Non-cable products: | |||||||||||||||||
Telephone | 161,200 | 154,400 | 147,600 | 139,800 | 124,900 | ||||||||||||
Broadband | 273,100 | 271,800 | 269,600 | 265,700 | 253,200 | ||||||||||||
434,300 | 426,200 | 417,200 | 405,500 | 378,100 | |||||||||||||
Business Segment
Revenue
The summary combined results of operations of our Business segment for the three and nine months ended September 30, 2010 and 2009 were as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | |||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||
Revenue | £152.2 | £143.3 | 6.2 | % | £444.8 | £435.6 | 2.1 | % | |||||||||||
Segment contribution | £ | 89.1 | £ | 86.3 | 3.2 | % | £ | 252.8 | £ | 252.6 | 0.1 | % |
81
Our Business segment revenue for the three and nine months ended September 30, 2010 and 2009 was as follows (in millions):
| Three months ended September 30, | | Nine months ended September 30, | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase/ (Decrease) | Increase/ (Decrease) | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
Revenue: | |||||||||||||||||||||
Retail: | |||||||||||||||||||||
Data | £61.1 | £55.4 | 10.3 | % | £179.1 | £156.6 | 14.4 | % | |||||||||||||
Voice | 41.2 | 44.3 | (7.0 | ) | 123.6 | 134.5 | (8.1 | ) | |||||||||||||
LAN Solutions and other | 9.3 | 7.6 | 22.4 | 25.2 | 28.2 | (10.6 | ) | ||||||||||||||
£111.6 | 107.3 | 4.0 | £327.9 | 319.3 | 2.7 | ||||||||||||||||
Wholesale | 40.6 | 36.0 | 12.8 | 116.9 | 116.3 | 0.5 | |||||||||||||||
Total revenue | £152.2 | £143.3 | 6.2 | % | £444.8 | £435.6 | 2.1 | % | |||||||||||||
For the three months ended September 30, 2010, revenue from business customers increased by 6.2% to £152.2 million from £143.3 million for the three months ended September 30, 2009. This increase was primarily attributable to growth in retail data and wholesale revenues together with growth in Local Area Network (LAN) solutions revenues partially offset by declines in retail voice revenue.
For the nine months ended September 30, 2010, revenue from business customers increased by 2.1% to £444.8 million from £435.6 million for the nine months ended September 30, 2009. This increase was primarily attributable to growth in retail data revenue, partially offset by declines in retail voice and LAN solutions revenues.
Retail data revenue represented 54.7% of the retail business revenue for the three months ended September 30, 2010 compared with 51.6% for the three months ended September 30, 2009. Retail data revenue represented 54.6% of the retail business revenue for the nine months ended September 30, 2010 compared with 49.0% for the nine months ended September 30, 2009. Retail data revenue increased in the three and nine months ended September 30, 2010 compared with the same periods in 2009 as a result of our strategy of focusing on higher margin data revenue and increasing demand for our data products within a growing data market.
Retail voice revenue decreased in the three and nine months ended September 30, 2010 compared with the same periods on 2009, mainly as a result of declining telephony usage.
LAN solutions and other revenue increased by 22.4% to £9.3 million in the three months ended September 30, 2010 as compared to £7.6 million in the three months ended September 30, 2009, primarily due to increased equipment and LAN project revenues. LAN solutions and other revenue decreased by 10.6% to £25.2 million in the nine months ended September 30, 2010 as compared to £28.2 million in the nine months ended September 30, 2009 primarily due to a reduction in revenue from public sector organizations and a decline in equipment sales. The majority of this revenue is from infrastructure projects which are non-recurring in nature.
Wholesale revenue increased to £40.6 million and £116.9 million for the three and nine months ended September 30, 2010, respectively, from £36.0 million and £116.3 million in the three and nine months ended September 30, 2009 respectively as increased usage of our network by wholesale customers has continued to offset the impact of the loss of certain wholesale contracts.
Business Segment Contribution
For the three months ended September 30, 2010, Business segment contribution increased to £89.1 million from £86.3 million for the three months ended September 30, 2009. For the nine months
82
ended September 30, 2010, Business segment contribution increased to £252.8 million from £252.6 million for the nine months ended September 30, 2009. The increase in segment contribution in the three months ended September 30, 2010 as compared with the same period in 2009 was due primarily to the higher revenue as described above. The increase in segment contribution in the nine months ended September 30, 2010 as compared with the same period in 2009 was due primarily to the higher revenue, as described above, offset by higher marketing costs due to the rebranding to Virgin Media Business during the first quarter of 2010.
Liquidity and Capital Resources
Overview
Our business is capital intensive and we are highly leveraged. We have significant cash requirements for operating costs, capital expenditures and interest expense. We believe that we will be able to meet our current and medium-term liquidity and capital requirements, including fixed charges, through cash on hand, cash from operations, available borrowings under our revolving credit facility, and our ability to obtain future external financing.
On July 28, 2010, we announced our intention to undertake a range of capital structure optimization actions. This capital structure optimization program is expected to include the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock until August 2011, and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. This program 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 this program will be held in treasury or cancelled. During the three and nine months ended September 30, 2010, we repurchased 9.3 million shares of common stock, at an average purchase price per share of $20.78 ($194 million in aggregate), through an accelerated stock repurchase program. The shares of common stock acquired in connection with this program were held in treasury as of September 30, 2010.
On October 27, 2010, we entered into capped call transactions with certain hedge counterparties relating to our $1.0 billion aggregate principal amount of 6.50% convertible senior notes due 2016. These capped call transactions relate to 90% of the aggregate principal amount of our convertible senior notes and are intended to offset a portion of the dilutive effects that would potentially be associated with conversion of our convertible senior notes at maturity. The capped call confirmations have an initial strike price of $19.22 per share of our common stock (which is the conversion price provided under the terms of our convertible senior notes, subject to certain adjustments) and a cap price of $35.00 per share of our common stock. The cost to us of the capped call transactions, which will be paid in the fourth quarter of 2010, will depend on the market price of our common stock during a hedging period and foreign exchange rate movements. The capped call transactions do not alter the terms of our convertible senior notes, or noteholders' rights thereunder. For a more detailed description of the capped call transactions, see the current report on Form 8-K of Virgin Media Inc., as filed with the SEC on October 27, 2010.
As of September 30, 2010, we had £5,983.3 million of debt outstanding, compared to £5,974.7 million as of December 31, 2009 and £5,972.0 million as of September 30, 2009, and £609.8 million of cash and cash equivalents, compared to £430.5 million as of December 31, 2009 and £351.6 million as of September 30, 2009. The increase in debt since September 30, 2009 is due to adverse movements in exchange rates and, to a lesser extent, an increase in net borrowing. The increase in debt from December 31, 2009 is also due to adverse movements in exchange rates and, to a lesser extent, an increase in net borrowing.
Our long term debt was issued by Virgin Media Inc. and certain of its subsidiaries that have no independent operations or significant assets other than investments in their respective subsidiaries and
83
receivables under intercompany loans. As a result, they will depend upon the receipt of sufficient funds from their respective subsidiaries or payments under intercompany loans to meet their obligations. In addition, the terms of our existing and future indebtedness and the laws of the jurisdictions under which our subsidiaries are organized limit the payment of dividends, loan repayments and other distributions from them under many circumstances.
Our debt agreements contain restrictions on our ability to transfer cash between groups of our subsidiaries. As a result of these restrictions, although our overall liquidity may be sufficient to satisfy our obligations, we may be limited by covenants in some of our debt agreements from transferring cash to other subsidiaries that might require funds. In addition, cross default provisions in our other indebtedness may be triggered if we default on any of these debt agreements.
Our cash balance of £609.8 million as of September 30, 2010 is held in a combination of short term bank deposits, money market funds and bank accounts that have a duration to maturity between overnight and up to three months. Our bank accounts are held with major financial institutions and, as part of our cash management process, we perform regular evaluations of the credit standing of these institutions using a range of metrics.
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010 and 2009
For the nine months ended September 30, 2010, cash provided by operating activities increased to £772.3 million from £653.7 million for the nine months ended September 30, 2009. This increase was primarily attributable to the improvement in operating results. For the nine months ended September 30, 2010, cash paid for interest, exclusive of amounts capitalized, increased to £331.4 million from £253.2 million during the same period in 2009. This increase was the result of differences in the timing of interest payments on our new senior credit facility and senior notes.
For the nine months ended September 30, 2010, cash used in investing activities was £264.9 million compared with cash used in investing activities of £420.7 million for the nine months ended September 30, 2009. The cash used in investing activities in the nine months ended September 30, 2010 mainly represented purchases of fixed assets partially offset by the proceeds received from the sale of Virgin Media TV along with proceeds from the disposal of 42 properties. These properties were subsequently leased from the purchaser for a period of up to 50 years. Cash used in investing activities in the nine months ended September 30, 2009 mainly represented purchases of fixed assets. Purchases of fixed and intangible assets increased to £478.0 million for the nine months ended September 30, 2010 from £412.5 million for the same period in 2009 primarily due to increased costs in relation to upgrading and extending our broadband and TV network architecture and the timing of payments to suppliers.
Cash used in financing activities for the nine months ended September 30, 2010 was £292.4 million compared to cash used in financing activities of £42.4 million for the nine months ended September 30, 2009. Cash used in financing activities for the nine months ended September 30, 2010 was primarily for principal payments on long term debt and repurchases of common stock, partially offset by new debt issuances. Cash used in financing activities for the nine months ended September 30, 2009 primarily related to principal payments on long term debt offset by new debt issuances and realized gains on derivatives.
Senior Credit Facility
On April 19, 2010, we drew down an aggregate principal amount of £1,675.0 million under our new senior credit facility, and applied the proceeds towards the repayment in full of all amounts outstanding under our old senior credit facility as at the draw down date. The new senior credit facility comprises of a term loan A, or Tranche A, facility in an aggregate principal amount of £1,000 million; a term loan B, or Tranche B, facility in an aggregate principal amount of £675 million; and a revolving
84
credit facility in an aggregate principal amount of £250 million. The proceeds from Tranches A and B facilities may also be used for general corporate purposes, while the proceeds from the revolving credit facility are available for the financing of our ongoing working capital requirements and general corporate purposes.
Principal Amortization
The final maturity date of Tranche A and the revolving credit facility under our senior credit facility is June 30, 2015, and the final maturity date of Tranche B is December 31, 2015. As of September 30, 2010, the amortization schedule under our senior credit facility was (in millions):
Date | Amount | |||
---|---|---|---|---|
Tranche A | ||||
September 30, 2011 | £ 150.0 | |||
September 30, 2012 | 175.0 | |||
September 30, 2013 | 200.0 | |||
September 30, 2014 | 200.0 | |||
September 30, 2015 | 275.0 | |||
Tranche B | ||||
December 31, 2015 | 675.0 | |||
Total | £1,675.0 | |||
Mandatory Prepayments
Our new senior credit facility must be prepaid in certain circumstances by certain amounts, including:
- •
- 50% of excess cash flow in each financial year, which percentage may be reduced to 25% or 0% if certain leverage ratios are met;
- •
- 50% of the net cash proceeds of any issuance of equity greater than £10 million subject to customary exceptions, which percentage may be reduced to 25% or 0% if certain leverage ratios are met;
- •
- from the net proceeds of insurance claims subject to an aggregate prepayment threshold amount, other minimum thresholds and customary exceptions;
- •
- from the net proceeds of certain asset disposals subject to an aggregate prepayment threshold amount, other minimum thresholds and customary exceptions; and
- •
- from the net proceeds of certain actions (including a sale, spin-off or distribution) taken with respect to all or part of our content division in excess of £200 million subject to minimum thresholds and customary exceptions.
In addition, the outstandings under our new senior credit facility must be repaid and all commitments will be cancelled upon the occurrence of a change of control.
Interest Margins
The annual rate of interest payable under our new senior credit facility is the sum of (i) the London Intrabank Offer Rate (LIBOR), plus (ii) the applicable interest margin and (iii) the applicable cost of complying with any mandatory costs requirement.
85
The applicable interest margin for Tranche A and the revolving credit facility under our new senior credit facility depends upon the total net leverage ratio of the bank group as such terms are defined therein (which comprises VMIH and most of its subsidiaries, and certain other operating companies which are subsidiaries of Virgin Media Inc. but not of VMIH) then in effect as set forth below:
Leverage Ratio | Margin | |||
---|---|---|---|---|
Greater than 3.75:1.00 | 3.50 | % | ||
Equal to or less than 3.75:1.00 but greater than 3.25:1.00 | 3.25 | % | ||
Equal to or less than 3.25:1.00 but greater than 2.75:1.00 | 3.00 | % | ||
Equal to or less than 2.75:1.00 | 2.75 | % |
The applicable interest margin for Tranche B is 3.75%.
Guarantees; Security
The security granted in respect of our new senior credit facility on the draw down date includes substantially all of the assets of the bank group. Our new senior credit facility requires that members of the bank group which generate not less than 80% of the consolidated operating cash flow of the bank group (excluding the consolidated net income attributable to any joint venture) in any financial year guarantee the payment of all sums payable under our new senior credit facility and such members are required to grant first-ranking security over all or substantially all of their assets to secure the payment of all sums payable under our new senior credit facility. Virgin Media Finance PLC has also provided a guarantee for the payment of all sums payable under our new senior credit facility and has secured its obligations under that guarantee by granting security over its interest in the intercompany debt owed to it by its direct subsidiary VMIH and over all of the shares in VMIH.
Financial Maintenance Covenants
Our new senior credit facility contains the following financial covenant ratios:
- •
- Consolidated net debt to consolidated operating cashflow, which we refer to as the leverage ratio; and
- •
- Consolidated operating cashflow to consolidated total net cash interest, which we refer to as the interest coverage ratio.
These covenant ratios are calculated with respect to our bank group companies, pursuant to the definitions contained in our senior credit facility, and are subject to certain adjustments provided therein. The full text of our senior credit facility is available as Exhibit 10.1 to the current report on
86
Form 8-K of Virgin Media Inc., as filed with the SEC on April 12, 2010. The minimum required ratios are outlined below:
Quarter Date | Leverage Ratio | Interest Coverage Ratio | |||||
---|---|---|---|---|---|---|---|
June 30, 2010 | 4.85:1.00 | 2.50:1.00 | |||||
September 30, 2010 | 4.80:1.00 | 2.55:1.00 | |||||
December 31, 2010 | 4.70:1.00 | 2.65:1.00 | |||||
March 31, 2011 | 4.60:1.00 | 2.75:1.00 | |||||
June 30, 2011 | 4.40:1.00 | 2.80:1.00 | |||||
September 30, 2011 | 4.35:1.00 | 2.85:1.00 | |||||
December 31, 2011 | 4.30:1.00 | 2.95:1.00 | |||||
March 31, 2012 | 4.25:1.00 | 3.00:1.00 | |||||
June 30, 2012 | 4.10:1.00 | 3.05:1.00 | |||||
September 30, 2012 | 4.10:1.00 | 3.10:1.00 | |||||
December 31, 2012 | 4.10:1.00 | 3.10:1.00 | |||||
March 31, 2013 | 4.05:1.00 | 3.15:1.00 | |||||
June 30, 2013 | 3.85:1.00 | 3.20:1.00 | |||||
September 30, 2013 | 3.80:1.00 | 3.25:1.00 | |||||
December 31, 2013 | 3.80:1.00 | 3.35:1.00 | |||||
March 31, 2014 | 3.75:1.00 | 3.45:1.00 | |||||
June 30, 2014 | 3.55:1.00 | 3.55:1.00 | |||||
September 30, 2014 | 3.55:1.00 | 3.70:1.00 | |||||
December 31, 2014 | 3.50:1.00 | 3.80:1.00 | |||||
March 31, 2015 | 3.50:1.00 | 3.95:1.00 | |||||
June 30, 2015 | 3.25:1.00 | 4.00:1.00 | |||||
September 30, 2015 | 3.25:1.00 | 4.00:1.00 | |||||
December 31, 2015 | 3.00:1.00 | 4.00:1.00 |
As shown in the table above, the required levels become more restrictive over time. As a result, we will need to continue to improve our operating performance over the next several years to meet these levels. Failure to meet these covenant levels would result in a default under our new senior credit facility.
Restrictions
Our new senior credit facility significantly, and in some cases absolutely, restricts the ability of the members of the bank group to, among other things:
- •
- incur or guarantee additional indebtedness;
- •
- pay dividends or make other distributions, or redeem or repurchase equity interests or subordinated obligations;
- •
- make investments;
- •
- dispose of assets, including the capital stock of subsidiaries;
- •
- create liens;
- •
- enter into agreements that restrict the ability of the members of the bank group to make payments or other distributions in cash to other members of the bank group;
- •
- merge or consolidate or transfer all or substantially all of their assets; and
87
- •
- enter into transactions with affiliates.
The new senior credit facility also contains certain carve-outs from these limitations.
Events of Default
The occurrence of events of default specified in our new senior credit facility entitle the lenders, after the expiry of any grace periods, as applicable, to cancel any undrawn portion of the facilities, require the immediate payment of all amounts outstanding under the facilities and enforce or direct the security trustee to enforce the security interests that have been granted. These events of default include, among other things:
- •
- failure to make payments of principal or interest when due;
- •
- breaches of representations;
- •
- breaches of obligations and undertakings under our new senior credit facility or related finance documents, including failure to comply with financial covenants;
- •
- cross-defaults to other indebtedness of any member of the group, subject to certain threshold amounts and other customary exceptions;
- •
- the occurrence of insolvency contingencies affecting the Company, Virgin Media Finance PLC, any borrower under our new senior credit facility or any guarantor that is a material subsidiary;
- •
- repudiation of the new senior credit facility or related finance documents;
- •
- illegality; and
- •
- the occurrence of any event or circumstance which would have a material adverse effect on the business, assets or financial condition of the obligors under our new senior credit facility taken as a whole or any obligor's payment or other material obligations under our new senior credit facility or related finance documents.
For the full text of our new senior credit facility, see Virgin Media Inc.'s current report on Form 8-K, as filed with the SEC on April 12, 2010.
Senior Notes
In November 2009, Virgin Media Finance issued U.S. dollar denominated 8.375% senior notes due 2019 with a principal amount outstanding of $600 million and sterling denominated 8.875% senior notes due 2019 with a principal amount outstanding of £350 million, collectively, the senior notes due 2019. Interest on the senior notes due 2019 is payable on April 15 and October 15 of each year. The senior notes due 2019 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance's outstanding senior notes due 2014 and 2016. The senior notes due 2019 mature on October 15, 2019 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL.
In June 2009, Virgin Media Finance issued U.S. dollar denominated 9.50% senior notes due 2016 with a principal amount outstanding of $750 million and euro denominated 9.50% senior notes due 2016 with a principal amount outstanding of €180 million. In July 2009, Virgin Media Finance issued additional U.S. dollar denominated 9.50% senior notes due 2016 with a principal amount outstanding of $600 million. The U.S. dollar denominated senior notes issued in June 2009 and July 2009, respectively, are treated as a single issuance of the same notes under the indenture for these notes. We refer to all these notes, collectively, as the 9.50% senior notes due 2016. Interest on the 9.50% senior notes due 2016 is payable on February 15 and August 15 of each year. The 9.50% senior notes due
88
2016 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance's outstanding senior notes due 2014 and 2019 and its 9.125% senior notes due 2016. The 9.50% senior notes due 2016 mature on August 15, 2016 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL.
In July 2006, Virgin Media Finance issued U.S. dollar denominated 9.125% senior notes due 2016 with a principal amount outstanding of $550 million. The 9.125% senior notes due 2016 are unsecured senior obligations of Virgin Media Finance and rank pari passu with Virgin Media Finance's outstanding 9.50% senior notes due 2016 and its senior notes due 2014 and 2019. Interest on the 9.125% senior notes due 2016 is payable on February 15 and August 15 of each year. The 9.125% senior notes due 2016 mature on August 15, 2016 and are guaranteed on a senior basis by Virgin Media Inc., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL.
In April 2004, Virgin Media Finance issued U.S. dollar denominated 8.75% senior notes due 2014 with a principal amount outstanding of $425 million, sterling denominated 9.75% senior notes due 2014 with a principal amount outstanding of £375 million, and euro denominated 8.75% senior notes due 2014 with a principal amount outstanding of €225 million, collectively, the senior notes due 2014. We partially redeemed our senior notes due 2014 in December 2009 using the proceeds from the senior notes which we issued in November 2009, and we redeemed the outstanding balance of our senior notes due 2014 in full on May 12, 2010 using cash from our balance sheet.
Senior Secured Notes
On January 19, 2010, our wholly owned subsidiary Virgin Media Secured Finance PLC issued U.S. dollar denominated 6.50% senior secured notes due 2018 with a principal amount outstanding of $1.0 billion and sterling denominated 7.00% senior secured notes due 2018 with a principal amount outstanding of £875 million, collectively, the senior secured notes due 2018. Interest is payable on the senior secured notes due 2018 on June 15 and December 15 each year, beginning on June 15, 2010. The senior secured notes due 2018 rank pari passu with our new senior credit facility and, subject to certain exceptions, share in the same guarantees and security which has been granted in favor of our new senior facilities. See "—Senior Credit Facility—Guarantees; Security" above.
On August 5, 2010, we completed an offer to exchange any and all of the then outstanding senior secured notes due 2018, which were originally issued in a U.S. private placement, for an equivalent amount of new senior secured notes due 2018 which have been registered under the U.S. Securities Act of 1933, as amended. In connection with this offer, we exchanged a total of $999,369,000 aggregate principal amount, or 99.9%, of the original U.S. dollar denominated notes, and £867,373,000 aggregate principal amount, or 99.1%, of the original sterling denominated notes, for an equivalent amount of newly issued senior secured notes due 2018. Holders of the original senior secured notes due 2018 who did not tender their notes in compliance with the offer terms will remain subject to restrictions on transfer of these notes. Completion of the exchange offer satisfied our obligations in full under a registration rights agreement entered into in connection with the original note issuance in January 2010. Virgin Media did not receive any additional proceeds from the exchange offer. For further details relating to the exchange offer please see Amendment No. 1 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on June 30, 2010.
Convertible Senior Notes
In April 2008, Virgin Media Inc. issued U.S. dollar denominated 6.50% convertible senior notes due 2016 with a principal amount outstanding of $1.0 billion. The convertible senior notes are
89
unsecured senior obligations of Virgin Media Inc. and, consequently, are subordinated to our obligations under our new senior credit facility and rank equally with Virgin Media Inc.'s guarantees of the senior notes. The convertible senior notes bear interest at an annual rate of 6.50% payable semi-annually on May 15 and November 15 of each year, beginning November 15, 2008. The convertible senior notes mature on November 15, 2016 and may not be redeemed by us prior to their maturity date. Upon conversion, we may elect to settle in cash, shares of common stock or a combination of cash and shares of our common stock. Our 2009 Annual Report contains a more detailed description of the terms of our convertible senior notes.
Cash Dividends
During the year ended December 31, 2009 and the nine months ended September 30, 2010, we paid the following dividends:
Board Declaration Date | Per Share | Record Date | Payment Date | Total Amount | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | (in millions) | |||||||||
Year ended December 31, 2009: | |||||||||||||
February 27, 2009 | $ | 0.04 | March 12, 2009 | March 20, 2009 | £ | 9.0 | |||||||
May 29, 2009 | 0.04 | June 12, 2009 | June 22, 2009 | 8.0 | |||||||||
August 27, 2009 | 0.04 | September 11, 2009 | September 21, 2009 | 8.1 | |||||||||
November 24, 2009 | 0.04 | December 11, 2009 | December 21, 2009 | 8.2 | |||||||||
Nine months ended September 30, 2010: | |||||||||||||
March 2, 2010 | $ | 0.04 | March 12, 2010 | March 22, 2010 | £ | 8.8 | |||||||
May 27, 2010 | 0.04 | June 11, 2010 | June 21, 2010 | 9.0 | |||||||||
July 23, 2010 | 0.04 | September 13, 2010 | September 23, 2010 | 8.2 |
Future payments of regular quarterly dividends by us are at the discretion of the Board of Directors and will be subject to our future needs and uses of cash, which could include investments in operations, the repayment of debt, and share repurchase programs. In addition, the terms of our and our subsidiaries' existing and future indebtedness and the laws of jurisdictions under which those subsidiaries are organized limit the payment of dividends, loan repayments and other distributions to us under many circumstances.
Off-Balance Sheet Arrangements
As of September 30, 2010 and 2009, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K under the U.S. Securities Exchange Act of 1934, as amended.
90
Contractual Obligations and Commercial Commitments
The following table includes aggregate information about our contractual obligations as of September 30, 2010, and the periods in which payments are due (in millions):
| | Payments Due by Period (Undiscounted) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||
Long Term Debt Obligations | £ | 5,917.0 | £ | 150.3 | £ | 375.4 | £ | 475.0 | £ | 4,916.3 | ||||||
Capital Lease Obligations | 427.5 | 87.8 | 101.2 | 33.6 | 204.9 | |||||||||||
Operating Lease Obligations | 278.8 | 56.4 | 93.3 | 58.3 | 70.8 | |||||||||||
Purchase Obligations | 1,041.6 | 439.7 | 275.2 | 167.5 | 159.2 | |||||||||||
Interest Obligations | 2,658.4 | 405.5 | 798.8 | 778.9 | 675.2 | |||||||||||
Total | £ | 10,323.3 | £ | 1,139.7 | £ | 1,643.9 | £ | 1,513.3 | £ | 6,026.4 | ||||||
Early Termination Charges | £16.0 | £4.2 | £0.1 | £— | ||||||||||||
Early termination charges are amounts that would be payable in the above periods in the event of early termination during that period of certain of the contracts underlying the purchase obligations listed above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. As some of our indebtedness accrues interest at variable rates, we have exposure to volatility in future cash flows and earnings associated with variable interest rate payments.
Also, substantially all of our revenues, operating costs and selling, general and administrative expenses are earned and paid in pounds sterling but we pay interest and principal obligations on some of our indebtedness in U.S. dollars and euros. As of September 30, 2010, £2,860.6 million, or 46.5%, of our indebtedness based upon contractual obligations, was denominated in U.S. dollars and £155.6 million, or 2.5%, of our indebtedness based upon contractual obligations, was denominated in euros. As a result, we have exposure to volatility in future cash flows and earnings associated with changes in foreign exchange rates on payments of principal and interest on a portion of our indebtedness. We also have committed and forecasted purchases of goods and services in U.S. dollars, euros and South African rand.
To mitigate the risk from these exposures, we have implemented a cash flow hedging program. The objective of this program is to reduce, but not eliminate, the volatility of our cash flows and earnings caused by changes in underlying rates. To achieve this objective we have entered into a number of derivative instruments. The derivative instruments utilized comprise interest rate swaps, cross-currency interest rate swaps and foreign currency forward contracts. We do not enter into derivative instruments for trading or speculative purposes. See note 6 to the consolidated financial statements of Virgin Media Inc.
The fair market value of long term fixed interest rate debt and the amount of future interest payments on variable interest rate debt are subject to interest rate risk.
91
The following table provides information as of September 30, 2010 about our long term fixed and variable interest rate debt that are sensitive to changes in interest rates and foreign currency exchange rates (in millions):
| Year ended December 31, | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Fair Value September 30, 2010 | |||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | |||||||||||
Long term debt (including current portion) | ||||||||||||||||||
U.S. Dollars | ||||||||||||||||||
Fixed rate | — | — | — | — | — | $4,500.0 | $4,500.0 | $5,281.2 | ||||||||||
Average interest rate | 7.971% | |||||||||||||||||
Average forward exchange rate | 0.64 | |||||||||||||||||
Euros | ||||||||||||||||||
Fixed rate | — | — | — | — | — | €180.0 | €180.0 | €208.1 | ||||||||||
Average interest rate | 9.500% | |||||||||||||||||
Average forward exchange rate | 0.9 | |||||||||||||||||
Pounds Sterling | ||||||||||||||||||
Fixed rate | — | — | — | — | — | £1,225.0 | £1,225.0 | £1,323.4 | ||||||||||
Average interest rate | 7.536% | |||||||||||||||||
Variable rate | £150.0 | £175.0 | £200.0 | £200.0 | £950.0 | £1,675.0 | £1,648.2 | |||||||||||
Average interest rate | LIBOR plus | LIBOR plus | LIBOR plus | LIBOR plus | LIBOR plus | |||||||||||||
2.75-3.50% | 2.75-3.50% | 2.75-3.50% | 2.75-3.50% | 2.75-3.75% | ||||||||||||||
Currency swap agreements related to long term debt | ||||||||||||||||||
Receipt of U.S.Dollars (interest and principal) | ||||||||||||||||||
Notional amount | — | — | — | — | — | $3,500.0 | $3,500.0 | $88.8 | ||||||||||
Average forward exchange rate | 0.60 | |||||||||||||||||
Average sterling interest rate paid | 8.74% | |||||||||||||||||
Receipt of U.S.Dollars (interest only) | ||||||||||||||||||
Notional amount | — | — | — | — | — | $1,000.0 | $1,000.0 | $36.3 | ||||||||||
Average contract exchange rate | 0.51 | |||||||||||||||||
Average sterling interest rate paid | 6.95% | |||||||||||||||||
Receipt of Euros (interest and principal) | ||||||||||||||||||
Notional amount | — | — | — | — | — | €180.0 | €180.0 | £(6.7 | ) | |||||||||
Average contract exchange rate | 0.88 | |||||||||||||||||
Average sterling interest rate paid | 10.18% | |||||||||||||||||
Interest rate derivative financial instruments related to long term debt | ||||||||||||||||||
Sterling Interest Rate Swaps | ||||||||||||||||||
Notional amount | — | — | — | — | — | £600.0 | £600.0 | £(4.6 | ) | |||||||||
Average sterling interest rate paid | 2.86% | |||||||||||||||||
Sterling interest rate received | LIBOR |
92
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, these controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
93
We are involved in various disputes and litigation arising in the ordinary course of our business. While we do not believe any of these litigation matters alone or in the aggregate will have a material adverse effect on our financial position or results of operation, any adverse outcome in one or more of these matters could be material to our consolidated financial statements for any one period.
There have been no material changes in the risk factors discussed under "Risk Factors" and elsewhere in our 2009 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
- (a)
- Not applicable.
- (b)
- Not applicable.
- (c)
- Issuer Purchases of Equity Securities
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
July 1–31, 2010 | — | — | — | — | |||||||||
August 1–31, 2010 | 9,334,721 | $ | 20.78 | 9,334,721 | — | ||||||||
September 1–30, 2010 | — | — | — | — | |||||||||
Total | 9,334,721 | — | 9,334,721 | — | |||||||||
- (1)
- On July 28, 2010, we announced our intention to undertake a range of capital structure optimization actions, including the expected repurchase of up to £375 million of our common stock by August 2011. On the same date, we launched a £125 million accelerated stock repurchase program as part of our capital structure optimization plan. This accelerated stock repurchase program was completed on August 27, 2010. The shares of common stock acquired in connection with this program were held in treasury as of September 30, 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (REMOVED AND RESERVED)
None.
94
Exhibit No. | Description | ||
---|---|---|---|
3.1 | Second Restated Articles of Incorporation of Virgin Media Inc. (Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on March 1, 2007). | ||
3.2 | Restated by-laws of Virgin Media Inc. (Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on March 1, 2007). | ||
3.3 | Memorandum and Articles of Association of Virgin Media Investment Holdings Limited (Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 26, 2010). | ||
3.4 | Memorandum and Articles of Association of Virgin Media Investments Limited (Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on February 26, 2010). | ||
4.1 | Indenture, dated as of January 19, 2010, among Virgin Media Secured Finance PLC, the guarantors party thereto, The Bank of New York Mellon as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A. as Luxembourg paying agent (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on January 20, 2010). | ||
4.2 | Registration Rights Agreement, dated as of January 19, 2010, among Virgin Media Secured Finance PLC, Virgin Media Inc., Virgin Media Finance PLC, Virgin Media Investment Holdings Limited and the initial purchasers party thereto (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of Virgin Media Inc. as filed with the Securities and Exchange Commission on January 20, 2010). | ||
4.3 | First Supplemental Indenture, dated as of April 19, 2010, among Virgin Media SFA Finance Limited, Virgin Media Secured Finance PLC and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 15, 2010). | ||
4.4 | Second Supplemental Indenture, dated as of May 17, 2010, among General Cable Investments Limited, NTL Funding Limited, Telewest Communications Holdco Limited, VM Sundial Limited, Virgin Media Secured Finance PLC and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 15, 2010). | ||
4.5 | Third Supplemental Indenture, dated as of June 10, 2010, among Telewest Communications (Cumbernauld) Limited, Telewest Communications (Dumbarton) Limited, Telewest Communications (Falkirk) Limited, Telewest Communications (Glenrothes) Limited, Barnsley Cable Communications Limited, Doncaster Cable Communications Limited, Halifax Cable Communications Limited, Wakefield Cable Communications Limited, Virgin Media Secured Finance PLC and The Bank of New York Mellon as trustee (Incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 15, 2010). | ||
4.6 | Composite Debenture dated June 29, 2010 made between the companies listed in schedule 1 thereto, the partnerships listed in schedule 2 thereto and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.11 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). |
95
Exhibit No. | Description | ||
---|---|---|---|
4.7 | Charge over Shares relating to the shares in the companies listed in schedule 2 thereto dated January 19, 2010 and made between the companies listed in schedule 1 thereto and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.12 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.8 | Blocked Account Charge dated February 9, 2010 and made between Virgin Media Investment Holdings Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.13 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.9 | Charge dated April 15, 2010 over the shares of Virgin Media Investment Holdings Limited made between Virgin Media Finance PLC and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.14 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.10 | Assignment of Loans dated April 15, 2010 made between Virgin Media Finance PLC and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.15 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.11 | Composite Debenture dated April 15, 2010 made between Virgin Media SFA Finance Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.16 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.12 | Composite Debenture dated May 17, 2010 made between General Cable Investments Limited, NTL Funding Limited, Telewest Communications Holdco Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.17 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.13 | Assignment of Loans dated May 17, 2010 made between VM Sundial Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.18 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.14 | Composite Debenture dated June 10, 2010 made between Barnsley Cable Communications Limited, Doncaster Cable Communications Limited, Halifax Cable Communications Limited, Telewest Communications (Cumbernauld) Limited, Telewest Communications (Dumbarton) Limited, Telewest Communications (Falkirk) Limited, Telewest Communications (Glenrothes) Limited, Wakefield Cable Communications Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.19 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.15 | Standard Security dated January 19, 2010 and made between CableTel (UK) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.20 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.16 | Ranking Agreement dated January 19, 2010 and made between CableTel (UK) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.21 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). |
96
Exhibit No. | Description | ||
---|---|---|---|
4.17 | Share Pledge dated January 19, 2010 and made between Virgin Media Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.22 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.18 | Share Pledge dated January 19, 2010 and made between NTL Glasgow and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.23 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.19 | Share Pledge dated January 19, 2010 and made between Telewest Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.24 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.20 | Share Pledge dated January 19, 2010 and made between Telewest Communications (Scotland Holdings) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.25 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.21 | Bond and Floating Charge dated January 19, 2010 and made between Prospectre Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.26 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.22 | Bond and Floating Charge dated January 19, 2010 and made between NTL Glasgow and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.27 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.23 | Bond and Floating Charge dated January 19, 2010 and made between CableTel Scotland Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.28 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.24 | Bond and Floating Charge dated January 19, 2010 and made between Telewest Communications (Scotland Holdings) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.29 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.25 | Bond and Floating Charge dated January 19, 2010 and made between Telewest Communications (Scotland) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.30 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.26 | Bond and Floating Charge dated January 19, 2010 and made between Telewest Communications (Motherwell) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.31 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.27 | Bond and Floating Charge dated January 19, 2010 and made between Telewest Communications (Dundee & Perth) Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.32 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). |
97
Exhibit No. | Description | ||
---|---|---|---|
4.28 | Security Agreement dated January 19, 2010 and made between Birmingham Cable Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.33 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.29 | Amended and Restated Pledge Agreement dated January 19, 2010 and made between NTL Victoria Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.34 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.30 | Amended and Restated Pledge Agreement dated January 19, 2010 and made between the parties listed on the signature pages thereto and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.35 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.31 | Amended and Restated Security Agreement dated January 19, 2010 and made between the parties listed on the signature pages thereto and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.36 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.32 | Amended and Restated Pledge and Security Agreement re: the interests in Avon Cable Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.37 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.33 | Amended and Restated Pledge and Security Agreement re: the interests in Cotswolds Cable Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.38 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.34 | Amended and Restated Pledge and Security Agreement re: the interests in Edinburgh Cable Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.39 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.35 | Amended and Restated Pledge and Security Agreement re: the interests in Estuaries Cable Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.40 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.36 | Amended and Restated Pledge and Security Agreement re: the interests in Tyneside Cable Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.41 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). |
98
Exhibit No. | Description | ||
---|---|---|---|
4.37 | Amended and Restated Pledge and Security Agreement re: the interests in United Cable (London South) Limited Partnership dated January 19, 2010 and made between TCI/US West Cable Communications Group, Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.42 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.38 | Amended and Restated Pledge and Security Agreement re: the interests in TCI/US West Cable Communications Group dated January 19, 2010 and made between Theseus No.1 Limited, Theseus No.2 Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.43 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.39 | Amended and Restated Pledge and Security Agreement re: the interests in London South Cable Partnership dated January 19, 2010 and made between United Cable (London South) Limited Partnership, Crystal Palace Radio Limited and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.44 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.40 | Amendment and Restatement Agreement dated January 19, 2010 and made between Future Entertainment S.à r.l. and Deutsche Bank AG, London Branch in relation to the Luxembourg Accounts Pledge Agreement (Incorporated by reference to Exhibit 4.45 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.41 | English law Assignment of Contracts dated January 19, 2010 and made between Future Entertainment S.à r.l. and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.46 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.42 | Share Pledge Agreement dated January 19, 2010 and made between Virgin Media Investments Limited, Future Entertainment S.à r.l. and Deutsche Bank AG, London Branch (Incorporated by reference to Exhibit 4.47 to Amendment No. 1 on Form S-4/A to the Registration Statement of Virgin Media Inc., as filed with the Securities and Exchange Commission on June 30, 2010). | ||
4.43 | Amendment No. 3, dated as of October 27, 2010, to the Rights Agreement, dated as of March 25, 2004, between Virgin Media Inc. and The Bank of New York Mellon (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of Virgin Media Inc., as filed with the Securities and Exchange Commission on October 27, 2010). | ||
*10.1 | Amendment Letter, dated as of May 12, 2010, relating to the Employment Agreement, dated as of September 18, 2007, between Virgin Media Inc. and Mark Schweitzer. | ||
*10.2 | Letter agreement, dated as of September 14, 2010, between Virgin Media Inc. and James F. Mooney. | ||
10.3 | Form of Capped Call Confirmation (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Virgin Media Inc., as filed with the Securities and Exchange Commission on October 27, 2010). | ||
*31.1 | Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
*31.2 | Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. |
99
Exhibit No. | Description | ||
---|---|---|---|
*32.1 | Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
*101 | The following financial information from the Registrants' Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009, (iv) Notes to Condensed Consolidated Financial Statements.† |
- *
- Filed herewith.
- †
- Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
100
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
VIRGIN MEDIA INC. | ||||
Date: November 8, 2010 | By: | /s/ NEIL A. BERKETT Neil A. Berkett Chief Executive Officer | ||
Date: November 8, 2010 | By: | /s/ EAMONN O'HARE Eamonn O'Hare Chief Financial Officer | ||
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED | ||||
Date: November 8, 2010 | By: | /s/ NEIL A. BERKETT Neil A. Berkett Chief Executive Officer | ||
Date: November 8, 2010 | By: | /s/ EAMONN O'HARE Eamonn O'Hare Chief Financial Officer | ||
VIRGIN MEDIA INVESTMENTS LIMITED | ||||
Date: November 8, 2010 | By: | /s/ NEIL A. BERKETT Neil A. Berkett Chief Executive Officer | ||
Date: November 8, 2010 | By: | /s/ EAMONN O'HARE Eamonn O'Hare Chief Financial Officer |
101