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EX-31.1 - EXHIBIT 31.1 - VIRGIN MEDIA INC. | a2198605zex-31_1.htm |
EX-4.3 - EXHIBIT 4.3 - VIRGIN MEDIA INC. | a2198605zex-4_3.htm |
EX-32.1 - EXHIBIT 32.1 - VIRGIN MEDIA INC. | a2198605zex-32_1.htm |
EX-31.2 - EXHIBIT 31.2 - VIRGIN MEDIA INC. | a2198605zex-31_2.htm |
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TABLE OF CONTENTS
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 March 31, 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)
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 o 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 May 4, 2010, there were 330,760,982 shares of the registrant's common stock, par value $0.01 per share, issued and outstanding, excluding 1,192,500 unvested shares of restricted stock held in escrow.
The Additional Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format. See "Note Concerning Virgin Media Investment Holdings Limited" in this Form 10-Q.
VIRGIN MEDIA INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2010
INDEX
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).
2
"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 Virgin Media Investment Holdings Limited
This quarterly report on Form 10-Q (excepting separate financial statements responsive to Part I, Item 1) covers Virgin Media, VMIL and VMIH, a company incorporated in England and Wales, with its registered office at 160 Great Portland Street, London W1W 5QA, United Kingdom, that 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 not an accelerated filer. VMIH is a guarantor of the unsecured senior notes issued by Virgin Media Finance. VMIH's guarantee of these notes is not deemed to be unconditional. VMIH is also a guarantor of the senior secured notes issued by Virgin Media Secured Finance PLC in January 2010. VMIH carries on the same business as Virgin Media, and is the principal borrower under Virgin Media's senior credit facility. Unless otherwise indicated, the discussion contained in this report applies to VMIH as well as Virgin Media and VMIL.
3
Note Concerning Virgin Media Investments Limited
VMIL was formed on December 18, 2009 as a wholly owned subsidiary of VMIH. On December 30, 2009, VMIL acceded as a senior subordinated guarantor of the unsecured senior notes issued by Virgin Media Finance, on the same terms as VMIH. As VMIL's guarantees are not deemed to be unconditional, separate financial statements for VMIL with notes to the financial statements combined with those of VMIH have been included in this quarterly report pursuant to the rules and regulations of the SEC. VMIL is not a registrant of this quarterly report on Form 10-Q. Unless otherwise indicated, the discussion contained in this report applies to VMIL as well as Virgin Media and VMIH.
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.
4
PART IFINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
|
March 31, 2010 |
December 31, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
(unaudited) |
|
|||||||
Assets |
|||||||||
Current assets |
|||||||||
Cash and cash equivalents |
£ | 420.7 | £ | 430.5 | |||||
Restricted cash |
6.0 | 6.0 | |||||||
Accounts receivabletrade, less allowances for doubtful accounts of £10.9 (2010) and £9.6 (2009) |
420.3 | 427.9 | |||||||
Inventory for resale |
15.5 | 12.9 | |||||||
Programming inventory |
88.1 | 62.1 | |||||||
Derivative financial instruments |
5.2 | 2.2 | |||||||
Prepaid expenses and other current assets |
95.6 | 100.8 | |||||||
Total current assets |
1,051.4 | 1,042.4 | |||||||
Fixed assets, net |
4,982.6 | 5,049.2 | |||||||
Goodwill and other indefinite-lived assets |
2,071.6 | 2,071.9 | |||||||
Intangible assets, net |
228.8 | 265.9 | |||||||
Equity investments |
359.4 | 359.9 | |||||||
Derivative financial instruments |
296.6 | 235.1 | |||||||
Deferred financing, net of accumulated amortization of £174.4 (2010) and £136.1 (2009) |
94.9 | 112.2 | |||||||
Other assets |
50.9 | 50.8 | |||||||
Total assets |
£ | 9,136.2 | £ | 9,187.4 | |||||
Liabilities and shareholders' equity |
|||||||||
Current liabilities |
|||||||||
Accounts payable |
£ | 340.6 | £ | 375.5 | |||||
Accrued expenses and other current liabilities |
367.5 | 420.1 | |||||||
Derivative financial instruments |
3.4 | 17.8 | |||||||
Restructuring liabilities |
51.3 | 57.3 | |||||||
VAT and employee taxes payable |
93.5 | 67.6 | |||||||
Interest payable |
127.4 | 126.6 | |||||||
Deferred revenue |
292.5 | 284.7 | |||||||
Current portion of long term debt |
41.7 | 41.2 | |||||||
Total current liabilities |
1,317.9 | 1,390.8 | |||||||
Long term debt, net of current portion |
6,105.2 | 5,933.5 | |||||||
Derivative financial instruments |
106.7 | 106.8 | |||||||
Deferred revenue and other long term liabilities |
182.2 | 182.0 | |||||||
Deferred income taxes |
84.2 | 83.0 | |||||||
Total liabilities |
7,796.2 | 7,696.1 | |||||||
Commitments and contingent liabilities |
|||||||||
Shareholders' equity |
|||||||||
Common stock$0.01 par value; authorized 1,000.0 (2010 and 2009) shares; issued 331.7 (2010) and 330.8 (2009) and outstanding 330.5 (2010) and 329.4 (2009) shares |
1.8 | 1.8 | |||||||
Additional paid-in capital |
4,496.0 | 4,483.2 | |||||||
Accumulated other comprehensive income |
27.6 | 22.5 | |||||||
Accumulated deficit |
(3,185.4 | ) | (3,016.2 | ) | |||||
Total shareholders' equity |
1,340.0 | 1,491.3 | |||||||
Total liabilities and shareholders' equity |
£ | 9,136.2 | £ | 9,187.4 | |||||
See accompanying notes.
5
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
|
Three months ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||
Revenue |
£ | 963.2 | £ | 935.7 | ||||
Costs and expenses |
||||||||
Operating costs (exclusive of depreciation shown separately below) |
399.1 | 413.7 | ||||||
Selling, general and administrative expenses |
207.7 | 209.7 | ||||||
Restructuring and other charges |
0.4 | 5.4 | ||||||
Depreciation |
242.9 | 232.7 | ||||||
Amortization |
37.1 | 61.2 | ||||||
|
887.2 | 922.7 | ||||||
Operating income |
76.0 | 13.0 | ||||||
Other income (expense) |
||||||||
Interest income and other, net |
1.1 | 3.3 | ||||||
Interest expense |
(123.3 | ) | (109.0 | ) | ||||
Loss on extinguishment of debt |
(32.9 | ) | | |||||
Share of income from equity investments |
7.6 | 2.5 | ||||||
Loss on derivative instruments |
(21.0 | ) | (21.2 | ) | ||||
Foreign currency loss |
(69.8 | ) | (11.9 | ) | ||||
Loss from continuing operations before income taxes |
(162.3 | ) | (123.3 | ) | ||||
Income tax benefit (expense) |
1.9 | (9.6 | ) | |||||
Loss from continuing operations |
(160.4 | ) | (132.9 | ) | ||||
Discontinued operations |
||||||||
Loss from discontinued operations, net of tax |
| (21.1 | ) | |||||
Net loss |
£ | (160.4 | ) | £ | (154.0 | ) | ||
Basic and diluted loss from continuing operations per |
||||||||
common share |
£ | (0.49 | ) | £ | (0.41 | ) | ||
Basic and diluted loss from discontinued operations per |
||||||||
common share |
£ | | £ | (0.06 | ) | |||
Basic and diluted net loss per common share |
£ | (0.49 | ) | £ | (0.47 | ) | ||
Dividends per share (in U.S. dollars) |
$ | 0.04 | $ | 0.04 | ||||
Average number of shares outstanding |
329.7 | 328.2 | ||||||
See accompanying notes.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
|
Three months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Operating activities: |
|||||||||
Net loss |
£ | (160.4 | ) | £ | (154.0 | ) | |||
Loss from discontinued operations |
| 21.1 | |||||||
Loss from continuing operations |
(160.4 | ) | (132.9 | ) | |||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: |
|||||||||
Depreciation and amortization |
280.0 | 293.9 | |||||||
Non-cash interest |
5.6 | (26.8 | ) | ||||||
Non-cash compensation |
7.3 | 4.7 | |||||||
Loss on extinguishment of debt |
32.8 | | |||||||
Income from equity accounted investments, net of dividends received |
(4.1 | ) | (2.5 | ) | |||||
Unrealized losses on derivative instruments |
46.5 | 23.2 | |||||||
Unrealized foreign currency losses |
34.1 | 16.4 | |||||||
Income taxes |
(0.6 | ) | 9.9 | ||||||
Amortization of original issue discount and deferred finance costs |
5.3 | 9.1 | |||||||
Gain on disposal of assets |
(0.7 | ) | | ||||||
Other |
1.1 | (1.3 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business acquisitions and dispositions: |
(59.7 | ) | (64.5 | ) | |||||
Net cash provided by operating activities |
187.2 | 129.2 | |||||||
Investing activities: |
|||||||||
Purchase of fixed and intangible assets |
(181.5 | ) | (144.4 | ) | |||||
Principal repayments on loans to equity investments |
1.2 | 1.2 | |||||||
Other |
1.0 | 1.5 | |||||||
Net cash used in investing activities |
(179.3 | ) | (141.7 | ) | |||||
Financing activities: |
|||||||||
New borrowings, net of financing fees |
1,447.8 | | |||||||
Proceeds from employee stock option exercises |
5.6 | | |||||||
Principal payments on long term debt, including redemption premiums, and capital leases |
(1,464.9 | ) | (12.4 | ) | |||||
Dividends paid |
(8.8 | ) | (9.0 | ) | |||||
Net cash used in financing activities |
(20.3 | ) | (21.4 | ) | |||||
Cash flow from discontinued operations: |
|||||||||
Net cash used in operating activities |
| (7.9 | ) | ||||||
Net cash used in discontinued operations |
| (7.9 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
2.6 |
(0.2 |
) |
||||||
Decrease in cash and cash equivalents |
(9.8 |
) |
(42.0 |
) |
|||||
Cash and cash equivalents, beginning of period |
430.5 | 181.6 | |||||||
Cash and cash equivalents, end of period |
£ | 420.7 | £ | 139.6 | |||||
Supplemental disclosure of cash flow information |
|||||||||
Cash paid during the period for interest exclusive of amounts capitalized |
£ | 109.0 | £ | 131.6 |
See accompanying notes.
7
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 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 2Recent 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. Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. We have not yet adopted the provisions of this guidance and are 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). The adoption of this standard 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 provisions of this guidance.
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.
8
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3Long Term Debt
Long term debt consisted of (in millions):
|
March 31, 2010 |
December 31, 2009 |
||||||
---|---|---|---|---|---|---|---|---|
Secured Obligations |
||||||||
U.S. Dollar |
||||||||
6.50% U.S. dollar senior secured notes due 2018 |
£ | 648.7 | £ | | ||||
Senior credit facility |
181.7 | 275.3 | ||||||
Euro |
||||||||
Senior credit facility |
267.1 | 356.5 | ||||||
Sterling |
||||||||
7.00% sterling senior secured notes due 2018 |
862.1 | | ||||||
Senior credit facility |
1,190.8 | 2,481.0 | ||||||
Unsecured Obligations |
||||||||
U.S. Dollar |
||||||||
8.75% U.S. dollar senior notes due 2014 |
58.8 | 55.3 | ||||||
9.125% U.S. dollar senior notes due 2016 |
362.2 | 340.2 | ||||||
6.50% U.S. dollar convertible senior notes due 2016 |
540.2 | 504.5 | ||||||
9.50% U.S. dollar senior notes due 2016 |
864.0 | 810.9 | ||||||
8.375% U.S. dollar senior notes due 2019 |
388.8 | 365.1 | ||||||
Euro |
||||||||
8.75% euro senior notes due 2014 |
42.1 | 41.9 | ||||||
9.50% euro senior notes due 2016 |
153.8 | 152.9 | ||||||
Sterling |
||||||||
9.75% sterling senior notes due 2014 |
78.8 | 78.8 | ||||||
8.875% sterling senior notes due 2019 |
344.5 | 344.5 | ||||||
Other Secured Obligations |
||||||||
Capital leases |
162.2 | 166.6 | ||||||
Other |
1.1 | 1.2 | ||||||
|
6,146.9 | 5,974.7 | ||||||
Less: current portion |
(41.7 | ) | (41.2 | ) | ||||
|
£6,105.2 | £5,933.5 | ||||||
The effective interest rate on the senior credit facility was 5.6% and 5.3% as at March 31, 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 senior credit facility.
9
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3Long 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. We also utilized £20.4 million of the new revolving credit facility for bank guarantees and standby letters of credit.
On April 12, 2010, Virgin Media Finance PLC, or Virgin Media Finance, issued redemption notices to the holders of our senior notes due 2014 pursuant to which we will redeem the full outstanding principal amount of these notes plus accrued interest on May 12, 2010. The redemption price will be 102.917% of the principal amount of the notes denominated in U.S. dollars and euros and 103.250% of the principal amount of the notes denominated in sterling. The estimated cost of redemption of these notes, inclusive of the cost to unwind derivative contracts entered in to as economic hedges of these notes, is £193.9 million.
Long term debt repayments, excluding capital leases, as of March 31, 2010, were due as follows (in millions):
Period ending March 31: | |
|||
---|---|---|---|---|
2011 |
£ | 0.4 | ||
2012 |
0.4 | |||
2013 |
1,639.9 | |||
2014 |
| |||
2015 |
179.8 | |||
Thereafter |
4,345.1 | |||
Total debt payments |
£6,165.6 | |||
Following the repayments made on April 19, 2010, there were no outstanding amounts under our old senior credit facility.
On a pro forma basis taking into account the repayment of our old senior credit facility and the concurrent drawings under the new senior credit facility along with the early redemption of the senior notes due 2014 on May 12, 2010, the long term debt repayments, excluding capital leases, as of March 31, 2010 are as follows (in millions):
Period ending March 31: | |
|||
---|---|---|---|---|
2011 |
£ | 180.1 | ||
2012 |
150.4 | |||
2013 |
175.3 | |||
2014 |
200.0 | |||
2015 |
200.0 | |||
Thereafter |
5,295.1 | |||
Total debt payments |
£6,200.9 | |||
10
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4Fair 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 5.
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.
11
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4Fair Value Measurements (Continued)
The carrying amounts and fair values of our long term debt are as follows (in millions):
|
March 31, 2010 | December 31, 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||
Senior credit facility |
£1,639.6 | £1,638.2 | £3,112.8 | £3,043.5 | |||||||||
8.75% U.S. dollar senior notes due 2014 |
58.8 | 60.1 | 55.3 | 57.7 | |||||||||
9.75% sterling senior notes due 2014 |
78.8 | 81.2 | 78.8 | 81.6 | |||||||||
8.75% euro senior notes due 2014 |
42.1 | 44.6 | 41.9 | 43.7 | |||||||||
9.125% U.S. dollar senior notes due 2016 |
362.2 | 382.4 | 340.2 | 359.4 | |||||||||
6.50% U.S. dollar convertible senior notes due 2016 |
540.2 | 806.9 | 504.5 | 737.0 | |||||||||
9.50% U.S. dollar senior notes due 2016 |
864.0 | 987.4 | 810.9 | 895.8 | |||||||||
9.50% euro senior notes due 2016 |
153.8 | 186.3 | 152.9 | 173.5 | |||||||||
8.375% U.S. dollar senior notes due 2019 |
388.8 | 395.9 | 365.1 | 377.0 | |||||||||
8.875% sterling senior notes due 2019 |
344.5 | 362.2 | 344.5 | 355.3 | |||||||||
6.50% U.S. dollar senior secured notes due 2018 |
648.7 | 646.3 | | | |||||||||
7.00% sterling senior secured notes due 2018 |
862.1 | 892.5 | | |
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 March 31, 2010 and December 31, 2009, we had £420.7 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 March 31, 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 March 31, 2010, based on market values, we had 56.7% of our derivative contracts with three 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.
12
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative 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 on 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.
In respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in cash flow or fair value attributable to the hedged risk. 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 March 31, 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.
13
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative Financial Instruments and Hedging Activities (Continued)
The fair values of our derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):
|
March 31, 2010 |
December 31, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Included within current assets: |
|||||||||
Accounting Hedge |
|||||||||
Foreign currency forward rate contracts |
£ | 0.5 | £ | 0.3 | |||||
Economic Hedge |
|||||||||
Foreign currency forward rate contracts |
4.7 | 1.9 | |||||||
|
£ | 5.2 | £ | 2.2 | |||||
Included within non-current assets: |
|||||||||
Accounting Hedge |
|||||||||
Cross-currency interest rate swaps |
£ | 139.4 | £ | 63.7 | |||||
Economic Hedge |
|||||||||
Cross-currency interest rate swaps |
157.2 | 169.5 | |||||||
Other |
| 1.9 | |||||||
|
£296.6 | £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 |
0.1 | 2.4 | |||||||
Interest rate swaps |
3.3 | 3.1 | |||||||
|
£ | 3.4 | £ | 17.8 | |||||
Included within non-current liabilities: |
|||||||||
Accounting Hedge |
|||||||||
Interest rate swaps |
£ | | £ | 21.0 | |||||
Cross-currency interest rate swaps |
10.9 | 27.6 | |||||||
Economic Hedge |
|||||||||
Interest rate swaps |
56.8 | | |||||||
Cross-currency interest rate swaps |
39.0 | 58.2 | |||||||
|
£106.7 | £106.8 | |||||||
Cross-Currency Interest Rate SwapsHedging the Interest Payments of Senior Notes and Senior Credit Facility
As of March 31, 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 credit facility.
14
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative Financial Instruments and Hedging Activities (Continued)
The terms of our outstanding cross-currency interest rate swaps at March 31, 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) |
|
|
||||||||
$89.3m senior notes due 2014 |
|||||||||||||
October 2011 |
Economic | $ | 89.3 | £ | 62.9 | 8.75% | 9.42% | ||||||
$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% | ||||||||
Senior credit facility |
|||||||||||||
September 2012 |
Economic | 275.9 | 149.7 | 3 month $ LIBOR + 2.00% |
3 month £ LIBOR + 2.13% |
||||||||
|
$ | 5,200.9 | £ | 3,061.1 | |||||||||
€47.3m senior notes due 2014 |
|||||||||||||
October 2011 |
Economic | € | 47.3 | £ | 43.8 | 8.75% | 8.90% | ||||||
€180m senior notes due 2016 |
|||||||||||||
August 2016 |
Accounting | 180.0 | 158.6 | 9.50% | 10.18% | ||||||||
Senior credit facility |
|||||||||||||
September 2012 |
Economic | 299.8 | 207.9 | 3 month EURIBOR + 2.00% |
3 month LIBOR + 2.16% |
||||||||
|
€ | 527.1 | £ | 410.3 | |||||||||
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 |
3 month |
||||||
December 2013 |
Economic | 29.7 | 43.3 | 3 month LIBOR + 2.90% |
3 month EURIBOR + 2.88% |
||||||||
|
£ | 68.5 | € | 100.0 | |||||||||
15
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative 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 convertible senior notes due 2016.
Interest Rate SwapsHedging of Interest Rate Sensitive Obligations
As of March 31, 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 March 31, 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 |
||||||||||
April 2010 |
Economic | £ | 3,000.0 | 3 month LIBOR | 2.18% | |||||
April 2010 to April 2011 |
Economic | 200.0 | 3 month LIBOR | 2.58% | ||||||
April 2010 to September 2012 |
Economic | 1,300.0 | 3 month LIBOR | 3.07% | ||||||
Other |
||||||||||
April 2010 to March 2013 |
Economic | £ | 300.0 | 3 month LIBOR | 3.28% | |||||
April 2010 to March 2013 |
Economic | 300.0 | 1.86% | 3 month LIBOR |
Foreign Currency Forward Rate ContractsHedging Committed and Forecasted Transactions
As of March 31, 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 March 31, 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) |
|
|||||||||
Commited and forecasted purchases |
|||||||||||||
April 2010 to December 2010 |
Economic | $ | 100.6 | £ | 61.7 | 1.6306 | |||||||
June 2010 to December 2010 |
Accounting | $ | 8.5 | £ | 5.3 | 1.6106 | |||||||
April 2010 to June 2010 |
Accounting | ZAR 13.2 | £ | 1.0 | 12.6893 |
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
16
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative 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 months ended March 31, 2010, there were no ineffectiveness losses recognized. The following tables present the effective amount of gain or (loss) recognized in other comprehensive income and amounts reclassified to earnings during the three months ended March 31, 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 |
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 gain |
(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 | ) | ||||
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 to earnings would be nil, £6.1 million and £0.5 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.
Note 6Restructuring and Other Charges
Restructuring and other charges of £0.4 million for the three months ended March 31, 2010 related primarily to employee termination and lease exit costs in connection with the restructuring program initiated in the last quarter of 2008, partially offset by revisions in cash flow estimates for lease exit costs in relation to our historic and 2006 acquisition restructuring activities. Restructuring and other charges of £5.4 million for the three months ended March 31, 2009 related primarily to employee termination costs in connection with the restructuring program initiated in the last quarter of 2008.
In connection with our 2008 restructuring program we expect to incur operating expenditures of between £140 million to £155 million and capital expenditures of between £40 million to £45 million in connection with this program over a three-year period.
17
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 6Restructuring and Other Charges (Continued)
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 March 31, 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 |
0.4 | | 0.4 | 1.3 | 2.1 | |||||||||||
Revisions |
(0.4 | ) | (1.1 | ) | (0.2 | ) | | (1.7 | ) | |||||||
Utilized |
(1.4 | ) | (1.9 | ) | (1.1 | ) | (1.7 | ) | (6.1 | ) | ||||||
Balance, March 31, 2010 |
£ | 11.2 | £ | 24.1 | £ | 0.9 | £ | 15.1 | £ | 51.3 | ||||||
Note 7Stockholders' Equity and Share Based Compensation
The average number of shares outstanding for the three months ended March 31, 2010 and 2009 is computed as follows (in millions):
|
Three months ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||
Number of shares outstanding at start of period |
329.4 | 328.1 | |||||
Issues of common stock (average number outstanding during the period) |
0.3 | 0.1 | |||||
Average number of shares outstanding |
329.7 | 328.2 | |||||
Total share based compensation expense included in selling, general and administrative expenses in the statements of operations was £7.3 million and £4.7 million for the three months ended March 31, 2010 and 2009, respectively.
Basic and diluted net loss per share is computed by dividing the net loss for the three months ended March 31, 2010 and 2009 by the weighted average number of shares outstanding during the respective periods. Options, sharesave options, shares of restricted stock held in escrow, restricted stock units, warrants, and shares issuable under our convertible senior notes at March 31, 2010 and 2009 are
18
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 7Stockholders' Equity and Share Based Compensation (Continued)
excluded from the calculation of diluted loss per share, since these securities are anti-dilutive. The following is a summary of the terms of each of these securities:
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 issue 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 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 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
Warrants are exercisable for a total of 25,769,060 shares of our common stock at an exercise price of $105.17 per share. The Series A warrants 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
19
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 7Stockholders' Equity and Share Based Compensation (Continued)
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.
Note 8Comprehensive Loss
Comprehensive loss comprises (in millions):
|
Three months ended March 31, |
||||||
---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||
Net loss for period |
£ | (160.4 | ) | £ | (154.0 | ) | |
Currency translation adjustment |
7.7 | 4.6 | |||||
Net unrealized gains (losses) on derivatives, net of tax |
95.8 | (22.1 | ) | ||||
Reclassification of derivative gains to net income, net of tax |
(98.4 | ) | (3.5 | ) | |||
Comprehensive loss |
£ | (155.3 | ) | £ | (175.0 | ) | |
The components of accumulated other comprehensive income, net of taxes, were as follows (in millions):
|
March 31, 2010 |
December 31, 2009 |
|||||
---|---|---|---|---|---|---|---|
Foreign currency translation |
£ | 167.8 | £ | 160.1 | |||
Pension liability adjustments |
(82.3 | ) | (82.3 | ) | |||
Net unrealized gains on derivatives |
(57.9 | ) | (55.3 | ) | |||
|
£ | 27.6 | £ | 22.5 | |||
20
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 9Contingent 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. Whilst 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 £35.9 million as of March 31, 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 10Industry 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 our operating structure which has been established to build a customer-focused organization able to respond effectively to rapid changes in the market, technology and customer demands through our three customer-based segments: Consumer, Business and Content.
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 broadband to residential customers.
Our Business segment comprises our 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.
We operate our Content segment through Virgin Media TV, which supplies television programming to the U.K. pay-television broadcasting market.
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
21
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 10Industry Segments (Continued)
certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by our Consumer and Business segments.
Segment information for the three month periods ended March 31, 2010 and 2009 was as follows (in millions):
|
Three months ended March 31, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consumer | Business | Content | Total | |||||||||
Revenue |
£ | 789.5 | £ | 139.9 | £ | 33.8 | £ | 963.2 | |||||
Inter segment revenue |
| | 7.1 | 7.1 | |||||||||
Segment contribution |
£ | 480.5 | £ | 76.1 | £ | 6.6 | £ | 563.2 |
|
Three months ended March 31, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Consumer | Business | Content | Total | |||||||||
Revenue |
£ | 753.3 | £ | 149.8 | £ | 32.6 | £ | 935.7 | |||||
Inter segment revenue |
| | 6.6 | 6.6 | |||||||||
Segment contribution |
£ | 438.2 | £ | 82.6 | £ | 6.9 | £ | 527.7 |
The reconciliation of total segment contribution to consolidated operating income is as follows (in millions):
|
Three months ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||
Total segment contribution |
£ | 563.2 | £ | 527.7 | ||||
Other operating and corporate costs |
206.8 | 215.4 | ||||||
Depreciation |
242.9 | 232.7 | ||||||
Amortization |
37.1 | 61.2 | ||||||
Restructuring and other charges |
0.4 | 5.4 | ||||||
Consolidated operating income |
£ | 76.0 | £ | 13.0 | ||||
Note 11Condensed Consolidated Financial Information
On April 13, 2004, Virgin Media Finance issued £375 million aggregate principal amount of 9.75% senior notes due 2014, $425 million aggregate principal amount of 8.75% senior notes due 2014, and €225 million aggregate principal amount of 8.75% senior notes due 2014. On July 25, 2006, Virgin Media Finance issued $550 million aggregate principal amount of 9.125% senior notes due 2016. On June 3, 2009, Virgin Media Finance issued $750 million aggregate principal amount of 9.50% senior notes due 2016 and €180 million aggregate principal amount of 9.50% senior notes due 2016 and on
22
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
July 21, 2009, Virgin Media Finance issued a further $600 million aggregate principle amounts of 9.50% senior notes due 2016. On November 9, 2009, Virgin Media Finance issued $600 million aggregate principal amount of 8.375% senior notes due 2019 and £350 million aggregate principal amount of 8.875% senior notes due 2019. Virgin Media Inc. and certain of its subsidiaries, namely Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited, have guaranteed the senior notes on a senior basis. Each of Virgin Media Investment Holdings Limited, or VMIH, and Virgin Media Investments Limited, or VMIL, are conditional guarantors and have guaranteed the senior notes on a senior subordinated basis. 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.
We present the following condensed consolidated financial information as of March 31, 2010 and December 31, 2009 and for the three months ended March 31, 2010 and 2009 as required by Rule 3-10(d) of Regulation S-X.
23
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
|
March 31, 2010 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Finance |
Other guarantors |
VMIH | VMIL | All other subsidiaries |
Adjustments | Total | ||||||||||||||||||
|
(in millions) |
|||||||||||||||||||||||||
Cash and cash equivalents |
£ | 15.4 | £ | 1.8 | £ | 0.8 | £ | 345.2 | £ | | £ | 57.5 | £ | | £ | 420.7 | ||||||||||
Restricted cash |
| | | | | 6.0 | | 6.0 | ||||||||||||||||||
Other current assets |
5.6 | | | 16.2 | | 602.9 | | 624.7 | ||||||||||||||||||
Total current assets |
21.0 | 1.8 | 0.8 | 361.4 | | 666.4 | | 1,051.4 | ||||||||||||||||||
Fixed assets, net |
|
|
|
|
|
4,982.6 |
|
4,982.6 |
||||||||||||||||||
Goodwill and intangible assets, net |
| | (15.0 | ) | | | 2,315.4 | | 2,300.4 | |||||||||||||||||
Investments in, and loans to, parent and subsidiary companies |
1,867.8 | 687.1 | (1,104.2 | ) | 2,056.9 | 1,442.3 | (5,500.0 | ) | 909.5 | 359.4 | ||||||||||||||||
Other assets, net |
10.7 | | | 358.6 | | 73.1 | | 442.4 | ||||||||||||||||||
Total assets |
£ | 1,899.5 | £ | 688.9 | £ | (1,118.4 | ) | £ | 2,776.9 | £ | 1,442.3 | £ | 2,537.5 | £ | 909.5 | £ | 9,136.2 | |||||||||
Current liabilities |
£ | 19.3 | £ | 55.7 | £ | 40.3 | £ | 120.2 | £ | | £ | 1,946.5 | £ | (864.1 | ) | £ | 1,317.9 | |||||||||
Long term debt, net of current portion |
540.2 | 2,293.0 | | 1,278.8 | | 1,993.2 | | 6,105.2 | ||||||||||||||||||
Other long term liabilities |
| | 0.3 | 83.9 | | 288.9 | | 373.1 | ||||||||||||||||||
Shareholders' equity (deficit) |
1,340.0 | (1,659.8 | ) | (1,159.0 | ) | 1,294.0 | 1,442.3 | (1,691.1 | ) | 1,773.6 | 1,340.0 | |||||||||||||||
Total liabilities and shareholders' equity |
£ | 1,899.5 | £ | 688.9 | £ | (1,118.4 | ) | £ | 2,776.9 | £ | 1,442.3 | £ | 2,537.5 | £ | 909.5 | £ | 9,136.2 | |||||||||
|
December 31, 2009 | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance sheets | Company | Virgin Media Finance |
Other guarantors |
VMIH | VMIL | All other subsidiaries |
Adjustments | Total | ||||||||||||||||||
|
(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 | | 591.6 | | 605.9 | ||||||||||||||||||
Total current assets |
16.7 | 1.9 | 0.4 | 302.8 | | 720.6 | | 1,042.4 | ||||||||||||||||||
Fixed assets, net |
|
|
|
|
|
5,049.2 |
|
5,049.2 |
||||||||||||||||||
Goodwill and intangible assets, net |
| | (15.0 | ) | | | 2,352.8 | | 2,337.8 | |||||||||||||||||
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 | £ | | £ | 1,898.2 | £ | 2,034.1 | £ | 9,187.4 | |||||||||
Current liabilities |
£ | 9.1 | £ | 82.9 | £ | 25.2 | £ | 127.3 | £ | | £ | 1,863.1 | £ | (716.8 | ) | £ | 1,390.8 | |||||||||
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 | £ | | £ | 1,898.2 | £ | 2,034.1 | £ | 9,187.4 | |||||||||
24
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
|
Three months ended March 31, 2010 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance |
Other guarantors |
VMIH | VMIL | All other subsidiaries |
Adjustments | Total | |||||||||||||||||
|
(in millions) |
||||||||||||||||||||||||
Revenue |
£ | | £ | | £ | | £ | | £ | | £ | 963.2 | £ | | £ | 963.2 | |||||||||
Operating costs |
| | | | | (399.1 | ) | | (399.1 | ) | |||||||||||||||
Selling, general and administrative expenses |
(4.6 | ) | | | | | (203.1 | ) | | (207.7 | ) | ||||||||||||||
Restructuring and other charges |
| | | | | (0.4 | ) | | (0.4 | ) | |||||||||||||||
Depreciation and amortization |
| | | | | (280.0 | ) | | (280.0 | ) | |||||||||||||||
Operating income (loss) |
(4.6 | ) | | | | | 80.6 | | 76.0 | ||||||||||||||||
Interest income and other, net |
10.3 |
56.8 |
29.4 |
28.3 |
|
161.0 |
(284.7 |
) |
1.1 |
||||||||||||||||
Interest expense |
(14.4 | ) | (58.6 | ) | (28.2 | ) | (108.7 | ) | | (198.1 | ) | 284.7 | (123.3 | ) | |||||||||||
Loss on extinguishment of debt |
| | | (16.4 | ) | | (16.5 | ) | | (32.9 | ) | ||||||||||||||
Share of income from equity investments |
| | | | | 7.6 | | 7.6 | |||||||||||||||||
Loss on derivative instruments |
| | | (19.1 | ) | | (1.9 | ) | | (21.0 | ) | ||||||||||||||
Foreign currency loss |
(0.2 | ) | | (4.4 | ) | (36.3 | ) | | (28.9 | ) | | (69.8 | ) | ||||||||||||
Income tax benefit (expense) |
| | (0.2 | ) | 3.6 | | (1.5 | ) | | 1.9 | |||||||||||||||
(Loss) income from continuing operations |
(8.9 | ) | (1.8 | ) | (3.4 | ) | (148.6 | ) | | 2.3 | | (160.4 | ) | ||||||||||||
Equity in net loss of subsidiaries |
(151.5 | ) | (151.7 | ) | (148.1 | ) | (3.1 | ) | (3.4 | ) | | 457.8 | | ||||||||||||
Net (loss) income |
£ | (160.4 | ) | £ | (153.5 | ) | £ | (151.5 | ) | £ | (151.7 | ) | £ | (3.4 | ) | £ | 2.3 | £ | 457.8 | £ | (160.4 | ) | |||
25
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
|
Three months ended March 31, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of operations | Company | Virgin Media Finance |
Other guarantors |
VMIH | All other subsidiaries |
Adjustments | Total | |||||||||||||||
|
(in millions) |
|||||||||||||||||||||
Revenue |
£ | | £ | | £ | | £ | | £ | 935.7 | £ | | £ | 935.7 | ||||||||
Operating costs |
| | | | (413.7 | ) | | (413.7 | ) | |||||||||||||
Selling, general and administrative expenses |
(5.1 | ) | | (0.7 | ) | | (203.9 | ) | | (209.7 | ) | |||||||||||
Restructuring and other charges |
| | | | (5.4 | ) | | (5.4 | ) | |||||||||||||
Depreciation and amortization |
| | | | (293.9 | ) | | (293.9 | ) | |||||||||||||
Operating income (loss) |
(5.1 | ) | | (0.7 | ) | | 18.8 | | 13.0 | |||||||||||||
Interest and other income, net |
11.3 |
38.6 |
35.8 |
19.8 |
137.4 |
(239.6 |
) |
3.3 |
||||||||||||||
Interest expense |
(15.4 | ) | (38.8 | ) | (29.7 | ) | (82.7 | ) | (182.0 | ) | 239.6 | (109.0 | ) | |||||||||
Share of income from equity investments |
| | | | 2.5 | | 2.5 | |||||||||||||||
Foreign currency (losses) gains |
| (0.3 | ) | (0.5 | ) | (12.8 | ) | 1.7 | | (11.9 | ) | |||||||||||
Losses on derivative instruments |
| | | (21.2 | ) | | | (21.2 | ) | |||||||||||||
Income tax expense |
| | (0.1 | ) | (8.0 | ) | (1.5 | ) | | (9.6 | ) | |||||||||||
(Loss) income from continuing operations |
(9.2 | ) | (0.5 | ) | 4.8 | (104.9 | ) | (23.1 | ) | | (132.9 | ) | ||||||||||
Loss from discontinued operations, net of taxes |
| | | | (21.1 | ) | | (21.1 | ) | |||||||||||||
Equity in net loss of subsidiaries |
(144.8 | ) | (151.8 | ) | (149.8 | ) | (46.9 | ) | | 493.3 | | |||||||||||
Net loss |
£ | (154.0 | ) | £ | (152.3 | ) | £ | (145.0 | ) | £ | (151.8 | ) | £ | (44.2 | ) | £ | 493.3 | £ | (154.0 | ) | ||
26
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
|
Three months ended March 31, 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 |
£ | (6.4 | ) | £ | (0.1 | ) | £ | 3.6 | £ | 79.5 | £ | | £ | 110.6 | £ | | £ | 187.2 | |||||||
Investing activities: |
|||||||||||||||||||||||||
Purchase of fixed and intangible assets |
| | | | | (181.5 | ) | | (181.5 | ) | |||||||||||||||
Principal repayments on loans to equity investments |
| | | | | 1.2 | | 1.2 | |||||||||||||||||
Principal drawdowns (repayments) on loans to group companies |
10.0 | | (3.1 | ) | (973.2 | ) | | 966.3 | | | |||||||||||||||
Proceeds from the sale of fixed assets |
| | | | | | | | |||||||||||||||||
Other |
| | | | | 1.0 | | 1.0 | |||||||||||||||||
Net cash (used in) provided by investing activities |
10.0 | | (3.1 | ) | (973.2 | ) | | 787.0 | | (179.3 | ) | ||||||||||||||
Financing activities: |
|||||||||||||||||||||||||
New borrowings, net of financing fees |
| | | 1,447.8 | | | | 1,447.8 | |||||||||||||||||
Proceeds from employee stock option exercises |
5.6 | | | | | | | 5.6 | |||||||||||||||||
Principal payments on long term debt and capital leases |
| | | (501.8 | ) | | (963.1 | ) | | (1,464.9 | ) | ||||||||||||||
Dividends paid |
(8.8 | ) | | | | | | | (8.8 | ) | |||||||||||||||
Net cash (used in) provided by financing activities |
(3.2 | ) | | | 946.0 | | (963.1 | ) | | (20.3 | ) | ||||||||||||||
Effect of exchange rates on cash and cash equivalents |
2.6 |
|
|
|
|
|
|
2.6 |
|||||||||||||||||
(Decrease) increase in cash and cash equivalents |
3.0 | (0.1 | ) | 0.5 | 52.3 | | (65.5 | ) | | (9.8 | ) | ||||||||||||||
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 |
£ | 15.4 | £ | 1.8 | £ | 0.8 | £ | 345.2 | £ | | £ | 57.5 | £ | | £ | 420.7 | |||||||||
27
VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 11Condensed Consolidated Financial Information (Continued)
|
Three months ended March 31, 2009 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statements of cash flows | Company | Virgin Media Finance |
Other guarantors |
VMIH | All Other subsidiaries |
Adjustments | Total | |||||||||||||||
|
(in millions) |
|||||||||||||||||||||
Net cash provided by (used in) operating activities |
£ | (3.1 | ) | £ | | £ | (1.4 | ) | £ | 75.1 | £ | 58.6 | £ | | £ | 129.2 | ||||||
Investing activities: |
||||||||||||||||||||||
Purchase of fixed and intangible assets |
| | | | (144.4 | ) | | (144.4 | ) | |||||||||||||
Principal repayments on loans to equity investments |
| | | | 1.2 | | 1.2 | |||||||||||||||
Principal repayments (drawdowns) on loans to group companies |
0.6 | | 0.6 | (0.9 | ) | (0.3 | ) | | | |||||||||||||
Other |
| | | | 1.5 | | 1.5 | |||||||||||||||
Net cash (used in) provided by investing activities |
0.6 | | 0.6 | (0.9 | ) | (142.0 | ) | | (141.7 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||||
Principal payments on long term debt and capital leases |
| | | | (12.4 | ) | | (12.4 | ) | |||||||||||||
Intercompany funding movements |
15.0 | | | (9.9 | ) | (5.1 | ) | | | |||||||||||||
Dividends paid |
(9.0 | ) | | | | | | (9.0 | ) | |||||||||||||
Net cash (used in) provided by financing activities |
6.0 | | | (9.9 | ) | (17.5 | ) | | (21.4 | ) | ||||||||||||
Cash flow from discontinued operations |
||||||||||||||||||||||
Net cash used in operating activities |
| | | | (7.9 | ) | | (7.9 | ) | |||||||||||||
Net cash used in discontinued operations |
| | | | (7.9 | ) | | (7.9 | ) | |||||||||||||
Effect of exchange rates on cash and cash equivalents |
(0.2 | ) | | | | | | (0.2 | ) | |||||||||||||
Decrease (increase) in cash and cash equivalents |
3.3 | | (0.8 | ) | 64.3 | (108.8 | ) | | (42.0 | ) | ||||||||||||
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 |
£ | 13.2 | £ | | £ | 0.4 | £ | 64.7 | £ | 61.3 | £ | | £ | 139.6 | ||||||||
28
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
|
March 31, 2010 | December 31, 2009 | |||||||
---|---|---|---|---|---|---|---|---|---|
|
(unaudited) |
|
|||||||
Assets |
|||||||||
Current assets |
|||||||||
Cash and cash equivalents |
£ | 402.7 | £ | 415.9 | |||||
Restricted cash |
5.3 | 5.3 | |||||||
Accounts receivabletrade, less allowances for doubtful accounts of £10.8 (2010) and £9.6 (2009) |
414.6 | 427.9 | |||||||
Inventory for resale |
15.5 | 12.9 | |||||||
Programming inventory |
88.1 | 62.1 | |||||||
Derivative financial instruments |
5.2 | 2.2 | |||||||
Prepaid expenses and other current assets |
90.0 | 96.4 | |||||||
Total current assets |
1,021.4 | 1,022.7 | |||||||
Fixed assets, net |
4,861.9 | 4,925.3 | |||||||
Goodwill and other indefinite-lived assets |
2,080.7 | 2,081.0 | |||||||
Intangible assets, net |
228.8 | 265.9 | |||||||
Equity investments |
359.4 | 359.9 | |||||||
Derivative financial instruments |
296.6 | 235.1 | |||||||
Deferred financing, net of accumulated amortization of £171.4 (2010) and £133.6 (2009) |
84.2 | 101.8 | |||||||
Other assets |
50.9 | 50.8 | |||||||
Due from group companies |
814.2 | 781.6 | |||||||
Total assets |
£ | 9,798.1 | £ | 9,824.1 | |||||
Liabilities and shareholders' equity |
|||||||||
Current liabilities |
|||||||||
Accounts payable |
£ | 340.5 | £ | 375.5 | |||||
Accrued expenses and other current liabilities |
356.1 | 407.4 | |||||||
Derivative financial instruments |
3.4 | 17.8 | |||||||
VAT and employee taxes payable |
89.3 | 61.8 | |||||||
Restructuring liabilities |
50.3 | 55.9 | |||||||
Interest payable |
61.4 | 42.7 | |||||||
Interest payable to group companies |
165.5 | 165.9 | |||||||
Deferred revenue |
290.4 | 276.7 | |||||||
Current portion of long term debt |
41.7 | 41.2 | |||||||
Total current liabilities |
1,398.6 | 1,444.9 | |||||||
Long term debt, net of current portion |
3,272.0 | 3,239.4 | |||||||
Long term debt due to group companies |
3,461.9 | 3,321.1 | |||||||
Derivative financial instruments |
106.7 | 106.8 | |||||||
Deferred revenue and other long term liabilities |
180.7 | 180.7 | |||||||
Deferred income taxes |
84.2 | 83.0 | |||||||
Total liabilities |
8,504.1 | 8,375.9 | |||||||
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 |
(140.3 | ) | (137.8 | ) | |||||
Accumulated deficit |
(2,937.0 | ) | (2,785.3 | ) | |||||
Total shareholders' equity |
1,294.0 | 1,448.2 | |||||||
Total liabilities and shareholders' equity |
£ | 9,798.1 | £ | 9,824.1 | |||||
See accompanying notes
29
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
|
Three months ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||
Revenue |
£ | 937.4 | £ | 907.6 | ||||
Costs and expenses |
||||||||
Operating costs (exclusive of depreciation shown separately below) |
388.5 | 400.3 | ||||||
Selling, general and administrative expenses |
196.4 | 197.3 | ||||||
Restructuring and other charges |
0.4 | 5.1 | ||||||
Depreciation |
237.4 | 227.5 | ||||||
Amortization |
37.1 | 61.2 | ||||||
|
859.8 | 891.4 | ||||||
Operating income |
77.6 | 16.2 | ||||||
Other income (expense) |
||||||||
Interest income and other, net |
1.4 | 3.3 | ||||||
Interest income from group companies |
1.9 | 2.1 | ||||||
Interest expense |
(54.6 | ) | (65.3 | ) | ||||
Interest expense to group companies |
(68.6 | ) | (47.7 | ) | ||||
Loss on extinguishment of debt |
(32.9 | ) | | |||||
Share of income from equity investments |
7.6 | 2.5 | ||||||
Loss on derivative instruments |
(21.0 | ) | (21.2 | ) | ||||
Foreign currency loss |
(65.2 | ) | (11.1 | ) | ||||
Loss from continuing operations before income taxes |
(153.8 | ) | (121.2 | ) | ||||
Income tax benefit (expense) |
2.1 | (9.5 | ) | |||||
Loss from continuing operations |
(151.7 | ) | (130.7 | ) | ||||
Discontinued operations |
||||||||
Loss from discontinued operations, net of tax |
| (21.1 | ) | |||||
Net loss |
£ | (151.7 | ) | £ | (151.8 | ) | ||
See accompanying notes.
30
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
|
Three months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Operating activities |
|||||||||
Net loss |
£ | (151.7 | ) | £ | (151.8 | ) | |||
Loss from discontinued operations |
| 21.1 | |||||||
Loss from continuing operations |
(151.7 | ) | (130.7 | ) | |||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: |
|||||||||
Depreciation and amortization |
274.5 | 288.7 | |||||||
Non-cash interest |
25.1 | (52.7 | ) | ||||||
Non-cash compensation |
6.7 | 4.0 | |||||||
Loss on extinguishment of debt |
32.8 | | |||||||
Income from equity accounted investments, net of dividends received |
(4.1 | ) | (2.5 | ) | |||||
Unrealized losses on derivative instruments |
46.5 | 23.2 | |||||||
Unrealized foreign currency losses |
35.8 | 14.2 | |||||||
Income taxes |
(0.7 | ) | 9.8 | ||||||
Amortization of original issue discount and deferred finance costs |
4.9 | 8.6 | |||||||
Gain on disposal of assets |
(0.7 | ) | | ||||||
Other |
1.1 | (1.3 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business acquisitions and dispositions: |
(43.6 | ) | (63.7 | ) | |||||
Net cash provided by operating activities |
226.6 | 97.6 | |||||||
Investing activities: |
|||||||||
Purchase of fixed and intangible assets |
(179.3 | ) | (141.9 | ) | |||||
Principal repayments on loans to equity investments |
1.2 | 1.2 | |||||||
Investments and loans from parent and subsidiary companies |
(45.6 | ) | 17.1 | ||||||
Other |
1.0 | 1.5 | |||||||
Net cash used in investing activities |
(222.7 | ) | (122.1 | ) | |||||
Financing activities: |
|||||||||
New borrowings, net of financing fees |
1,447.8 | | |||||||
Principal payments on long term debt, including redemption premiums, and capital leases |
(1,464.9 | ) | (12.4 | ) | |||||
Net cash used in financing activities |
(17.1 | ) | (12.4 | ) | |||||
Cash flow from discontinued operations: |
|||||||||
Net cash used in operating activities |
| (7.9 | ) | ||||||
Net cash used in discontinued operations |
| (7.9 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
| 0.1 | |||||||
Decrease in cash and cash equivalents |
(13.2 | ) | (44.7 | ) | |||||
Cash and cash equivalents, beginning of period |
415.9 | 170.7 | |||||||
Cash and cash equivalents, end of period |
£ | 402.7 | £ | 126.0 | |||||
See accompanying notes.
31
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except par value)
|
March 31, 2010 |
December 31, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
|
(Adjusted) |
|||||||
Assets |
|||||||||
Current assets |
|||||||||
Cash and cash equivalents |
£ | 402.7 | £ | 415.9 | |||||
Restricted cash |
5.3 | 5.3 | |||||||
Accounts receivabletrade, less allowances for doubtful accounts of £10.8 (2010) and £9.6 (2009) |
414.6 | 427.9 | |||||||
Inventory for resale |
15.5 | 12.9 | |||||||
Programming inventory |
88.1 | 62.1 | |||||||
Derivative financial instruments |
5.2 | 2.2 | |||||||
Prepaid expenses and other current assets |
90.0 | 96.4 | |||||||
Total current assets |
1,021.4 | 1,022.7 | |||||||
Fixed assets, net |
4,861.9 | 4,925.3 | |||||||
Goodwill and other indefinite-lived assets |
2,080.7 | 2,081.0 | |||||||
Intangible assets, net |
228.8 | 265.9 | |||||||
Equity investments |
359.4 | 359.9 | |||||||
Derivative financial instruments |
296.6 | 235.1 | |||||||
Deferred financing, net of accumulated amortization of £171.4 (2010) and £133.6 (2009) |
84.2 | 101.8 | |||||||
Other assets |
50.9 | 50.8 | |||||||
Due from group companies |
814.2 | 781.6 | |||||||
Total assets |
£ | 9,798.1 | £ | 9,824.1 | |||||
Liabilities and shareholders' equity |
|||||||||
Current liabilities |
|||||||||
Accounts payable |
£ | 340.5 | £ | 375.5 | |||||
Accrued expenses and other current liabilities |
356.1 | 407.4 | |||||||
Derivative financial instruments |
3.4 | 17.8 | |||||||
VAT and employee taxes payable |
89.3 | 61.8 | |||||||
Restructuring liabilities |
50.3 | 55.9 | |||||||
Interest payable |
17.2 | 18.9 | |||||||
Interest payable to group companies |
209.7 | 189.7 | |||||||
Deferred revenue |
290.4 | 276.7 | |||||||
Current portion of long term debt |
41.7 | 41.2 | |||||||
Total current liabilities |
1,398.6 | 1,444.9 | |||||||
Long term debt, net of current portion |
482.4 | 1,440.5 | |||||||
Long term debt due to group companies |
6,251.5 | 5,120.0 | |||||||
Derivative financial instruments |
106.7 | 106.8 | |||||||
Deferred revenue and other long term liabilities |
180.7 | 180.7 | |||||||
Deferred income taxes |
84.2 | 83.0 | |||||||
Total liabilities |
8,504.1 | 8,375.9 | |||||||
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 |
(140.3 | ) | (137.8 | ) | |||||
Accumulated deficit |
(2,937.0 | ) | (2,785.3 | ) | |||||
Total shareholders' equity |
1,294.0 | 1,448.2 | |||||||
Total liabilities and shareholders' equity |
£ | 9,798.1 | £ | 9,824.1 | |||||
See accompanying notes
32
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
|
Three months ended March 31, |
|||||||
---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | ||||||
Revenue |
£ | 937.4 | £ | 907.6 | ||||
Costs and expenses |
||||||||
Operating costs (exclusive of depreciation shown separately below) |
388.5 | 400.3 | ||||||
Selling, general and administrative expenses |
196.4 | 197.3 | ||||||
Restructuring and other charges |
0.4 | 5.1 | ||||||
Depreciation |
237.4 | 227.5 | ||||||
Amortization |
37.1 | 61.2 | ||||||
|
859.8 | 891.4 | ||||||
Operating income |
77.6 | 16.2 | ||||||
Other income (expense) |
||||||||
Interest income and other, net |
1.4 | 3.3 | ||||||
Interest income from group companies |
1.9 | 2.1 | ||||||
Interest expense |
(9.2 | ) | (30.4 | ) | ||||
Interest expense to group companies |
(114.0 | ) | (82.6 | ) | ||||
Loss on extinguishment of debt |
(32.9 | ) | | |||||
Share of income from equity investments |
7.6 | 2.5 | ||||||
Loss on derivative instruments |
(21.0 | ) | (21.2 | ) | ||||
Foreign currency loss |
(65.2 | ) | (11.1 | ) | ||||
Loss from continuing operations before income taxes |
(153.8 | ) | (121.2 | ) | ||||
Income tax benefit (expense) |
2.1 | (9.5 | ) | |||||
Loss from continuing operations |
(151.7 | ) | (130.7 | ) | ||||
Discontinued operations |
||||||||
Loss from discontinued operations, net of tax |
| (21.1 | ) | |||||
Net loss |
£ | (151.7 | ) | £ | (151.8 | ) | ||
See accompanying notes.
33
VIRGIN MEDIA INVESTMENTS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
|
Three months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
2010 | 2009 | |||||||
Operating activities |
|||||||||
Net loss |
£ | (151.7 | ) | £ | (151.8 | ) | |||
Loss from discontinued operations |
| 21.1 | |||||||
Loss from continuing operations |
(151.7 | ) | (130.7 | ) | |||||
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: |
|||||||||
Depreciation and amortization |
274.5 | 288.7 | |||||||
Non-cash interest |
25.1 | (52.7 | ) | ||||||
Non-cash compensation |
6.7 | 4.0 | |||||||
Loss on extinguishment of debt |
32.8 | | |||||||
Income from equity accounted investments, net of dividends received |
(4.1 | ) | (2.5 | ) | |||||
Unrealized losses on derivative instruments |
46.5 | 23.2 | |||||||
Unrealized foreign currency losses |
35.8 | 14.2 | |||||||
Income taxes |
(0.7 | ) | 9.8 | ||||||
Amortization of original issue discount and deferred finance costs |
4.9 | 8.6 | |||||||
Gain loss on disposal of assets |
(0.7 | ) | | ||||||
Other |
1.1 | (1.3 | ) | ||||||
Changes in operating assets and liabilities, net of effect from business acquisitions and dispositions: |
(43.6 | ) | (63.7 | ) | |||||
Net cash provided by operating activities |
226.6 | 97.6 | |||||||
Investing activities: |
|||||||||
Purchase of fixed and intangible assets |
(179.3 | ) | (141.9 | ) | |||||
Principal repayments on loans to equity investments |
1.2 | 1.2 | |||||||
Investments and loans from parent and subsidiary companies |
920.8 | 17.1 | |||||||
Other |
1.0 | 1.5 | |||||||
Net cash provided by (used) in investing activities |
743.7 | (122.1 | ) | ||||||
Financing activities: |
|||||||||
New borrowings, net of financing fees |
(20.2 | ) | | ||||||
Principal payments on long term debt, including redemption premiums, and capital leases |
(963.3 | ) | (12.4 | ) | |||||
Net cash used in financing activities |
(983.5 | ) | (12.4 | ) | |||||
Cash flow from discontinued operations: |
|||||||||
Net cash used in operating activities |
| (7.9 | ) | ||||||
Net cash used in discontinued operations |
| (7.9 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents |
| 0.1 | |||||||
Decrease in cash and cash equivalents |
(13.2 | ) | (44.7 | ) | |||||
Cash and cash equivalents, beginning of period |
415.9 | 170.7 | |||||||
Cash and cash equivalents, end of period |
£ | 402.7 | £ | 126.0 | |||||
See accompanying notes.
34
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1Basis 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 upon 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 adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2010 are not necessarily
35
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 1Basis of Presentation (Continued)
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 the annual report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on February 26, 2010.
Note 2Recent 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. Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. We have not yet adopted the provisions of this guidance and are 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). The adoption of this standard 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 provisions of this guidance.
Note 3Long 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.
36
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3Long Term Debt (Continued)
Long term debt consisted of (in millions):
|
March 31, 2010 | December 31, 2009 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
VMIH | VMIL | VMIH | VMIL | ||||||||||
Amounts due to third parties |
||||||||||||||
Sterling |
||||||||||||||
7.00% senior secured notes due 2018 |
£ | 862.1 | £ | | £ | | £ | | ||||||
Senior credit facility |
1,190.8 | 179.1 | 2,481.0 | 1,038.6 | ||||||||||
Capital leases |
162.2 | 162.2 | 166.6 | 166.6 | ||||||||||
Other |
1.1 | 1.1 | 1.2 | 1.2 | ||||||||||
U.S. Dollar |
||||||||||||||
6.50% senior secured notes due 2018 |
648.7 | | | | ||||||||||
Senior credit facility |
181.7 | 181.7 | 275.3 | 275.3 | ||||||||||
Euro |
||||||||||||||
Senior credit facility |
267.1 | | 356.5 | | ||||||||||
|
3,313.7 | 524.1 | 3,280.6 | 1,481.7 | ||||||||||
Less current portion |
(41.7 | ) | (41.7 | ) | (41.2 | ) | (41.2 | ) | ||||||
Long term debt due to third parties |
£ | 3,272.0 | £ | 482.4 | £ | 3,239.4 | £ | 1,440.5 | ||||||
Amounts due to group companies |
||||||||||||||
Sterling |
||||||||||||||
9.75% senior notes due 2014 |
£ | 78.8 | £ | 78.8 | £ | 78.8 | £ | 78.8 | ||||||
8.875% senior notes due 2019 |
344.5 | 344.5 | 344.5 | 344.5 | ||||||||||
7.00% senior secured notes due 2018 |
| 862.1 | | | ||||||||||
Senior credit facility |
| 1,011.7 | | 1,442.4 | ||||||||||
U.S. Dollar |
||||||||||||||
8.75% senior notes due 2014 |
58.8 | 58.8 | 55.3 | 55.3 | ||||||||||
9.125% senior notes due 2016 |
362.2 | 362.2 | 340.2 | 340.2 | ||||||||||
6.50% senior notes due 2016 |
646.0 | 646.0 | 606.8 | 606.8 | ||||||||||
9.50% senior notes due 2016 |
864.0 | 864.0 | 810.9 | 810.9 | ||||||||||
8.375% senior notes due 2019 |
388.8 | 388.8 | 365.1 | 365.1 | ||||||||||
6.50% senior secured notes due 2018 |
| 648.7 | | | ||||||||||
Floating rate senior loan notes due 2012 |
65.9 | 65.9 | 61.9 | 61.9 | ||||||||||
Euro |
||||||||||||||
8.75% senior notes due 2014 |
42.1 | 42.1 | 41.9 | 41.9 | ||||||||||
9.50% senior notes due 2016 |
153.8 | 153.8 | 152.9 | 152.9 | ||||||||||
Senior credit facility |
| 267.1 | | 356.5 | ||||||||||
Other amounts due to group companies |
||||||||||||||
Other notes due to affiliates |
457.0 | 457.0 | 462.8 | 462.8 | ||||||||||
Long term debt due to group companies |
£ | 3,461.9 | £ | 6,251.5 | £ | 3,321.1 | £ | 5,120.0 | ||||||
37
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3Long Term Debt (Continued)
The effective interest rate on the senior credit facility was 5.6% and 5.3% as at March 31, 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 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. We also utilized £20.4 million of the new revolving credit facility for bank guarantees and standby letters of credit.
On April 12, 2010, Virgin Media Finance PLC, or Virgin Media Finance, issued redemption notices to the holders of our senior notes due 2014 pursuant to which we will redeem the full outstanding principal amount of these notes plus accrued interest on May 12, 2010. The redemption price will be 102.917% of the principal amount of the notes denominated in U.S. dollars and euros and 103.250% of the principal amount of the notes denominated in sterling. The estimated cost of redemption of these notes, inclusive of the cost to unwind derivative contracts entered in to as economic hedges of these notes, is £193.9 million.
Long term debt repayments, excluding capital leases, as of March 31, 2010, were due as follows (in millions):
Period ending March 31:
|
|
|||
---|---|---|---|---|
2011 |
£ | 0.4 | ||
2012 |
0.4 | |||
2013 |
1,705.8 | |||
2014 |
| |||
2015 |
179.8 | |||
Thereafter |
4,789.6 | |||
Total debt payments |
£ | 6,676.0 | ||
Following the repayments made on April 19, 2010, there were no outstanding amounts under our old senior credit facility.
On a pro forma basis taking into account the repayment of our old senior credit facility and the concurrent drawings under the new senior credit facility along with the early redemption of the senior
38
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 3Long Term Debt (Continued)
notes due 2014 on May 12, 2010, the long term debt repayments, excluding capital leases as of March 31, 2010 are as follows (in millions):
Period ending March 31:
|
|
|||
---|---|---|---|---|
2011 |
£ | 180.1 | ||
2012 |
150.4 | |||
2013 |
241.2 | |||
2014 |
200.0 | |||
2015 |
200.0 | |||
Thereafter |
5,739.6 | |||
Total debt payments |
£ | 6,711.3 | ||
Note 4Fair 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.
39
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4Fair Value Measurements (Continued)
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 5.
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.
The carrying amounts and fair values of our long term debt are as follows (in millions):
|
March 31, 2010 | December 31, 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||
Senior credit facility |
£ | 1,639.6 | £ | 1,638.2 | £ | 3,112.8 | £ | 3,043.5 | |||||
8.75% U.S. dollar loan notes due 2014 |
58.8 | 60.1 | 55.3 | 57.7 | |||||||||
9.75% sterling loan notes due 2014 |
78.8 | 81.2 | 78.8 | 81.6 | |||||||||
8.75% euro loan notes due 2014 |
42.1 | 44.6 | 41.9 | 43.7 | |||||||||
9.125% U.S. dollar senior notes due 2016 |
362.2 | 382.4 | 340.2 | 359.4 | |||||||||
6.50% U.S. dollar loan notes due 2016 |
646.0 | 791.6 | 606.8 | 723.1 | |||||||||
9.50% U.S. dollar senior notes due 2016 |
864.0 | 987.4 | 810.9 | 895.8 | |||||||||
9.50% euro senior loan notes due 2016 |
153.8 | 186.3 | 152.9 | 173.5 | |||||||||
8.375% U.S. dollar senior notes due 2019 |
388.8 | 395.9 | 365.1 | 377.0 | |||||||||
8.875% sterling senior notes due 2019 |
344.5 | 362.2 | 344.5 | 355.3 | |||||||||
6.50% U.S. dollar senior secured notes due 2018 |
648.7 | 646.3 | | | |||||||||
7.00% sterling senior secured notes due 2018 |
862.1 | 892.5 | | | |||||||||
Floating rate loan note due 2012 |
65.9 | 65.9 | 61.9 | 61.9 | |||||||||
Other loan notes due to affiliates |
457.0 | 457.0 | 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 March 31, 2009 and December 31, 2009, we had £402.7 million and £415.9 million, respectively, in cash and cash equivalents. These cash and cash equivalents are on deposit with major financial
40
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 4Fair Value Measurements (Continued)
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 March 31, 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 March 31, 2010, based on market values, we had 56.7% of our derivative contracts with three 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.
Note 5Derivative 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 on 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.
41
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative Financial Instruments and Hedging Activities (Continued)
In respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in cash flow or fair value attributable to the hedged risk. 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 March 31, 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.
42
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative 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):
|
March 31, 2010 |
December 31, 2009 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Included within current assets: |
|||||||||
Accounting Hedge |
|||||||||
Foreign currency forward rate contracts |
£ | 0.5 | £ | 0.3 | |||||
Economic Hedge |
|||||||||
Foreign currency forward rate contracts |
4.7 | 1.9 | |||||||
|
£ | 5.2 | £ | 2.2 | |||||
Included within non-current assets: |
|||||||||
Accounting Hedge |
|||||||||
Cross-currency interest rate swaps |
£ | 139.4 | £ | 63.7 | |||||
Economic Hedge |
|||||||||
Cross-currency interest rate swaps |
157.2 | 169.5 | |||||||
Other |
| 1.9 | |||||||
|
£ | 296.6 | £ | 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 |
0.1 | 2.4 | |||||||
Interest rate swaps |
3.3 | 3.1 | |||||||
|
£ | 3.4 | £ | 17.8 | |||||
Included within non-current liabilities: |
|||||||||
Accounting Hedge |
|||||||||
Interest rate swaps |
£ | | £ | 21.0 | |||||
Cross-currency interest rate swaps |
10.9 | 27.6 | |||||||
Economic Hedge |
|||||||||
Interest rate swaps |
56.8 | | |||||||
Cross-currency interest rate swaps |
39.0 | 58.2 | |||||||
|
£ | 106.7 | £ | 106.8 | |||||
Cross-Currency Interest Rate SwapsHedging the Interest Payments of Senior Notes and Senior Credit Facility
As of March 31, 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 credit facility.
43
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative Financial Instruments and Hedging Activities (Continued)
The terms of our outstanding cross-currency interest rate swaps at March 31, 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) |
|
|
||||||||
$89.3m senior notes due 2014 |
|||||||||||||
October 2011 |
Economic | $ | 89.3 | £ | 62.9 | 8.75% | 9.42% | ||||||
$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% | ||||||||
Senior credit facility |
|||||||||||||
September 2012 |
Economic | 275.9 | 149.7 | 3 month $ LIBOR + 2.00% |
3 month £ LIBOR + 2.13% |
||||||||
|
$ | 5,200.9 | £ | 3,061.1 | |||||||||
€47.3m senior notes due 2014 |
|||||||||||||
October 2011 |
Economic | € | 47.3 | £ | 43.8 | 8.75% | 8.90% | ||||||
€180m senior notes due 2016 |
|||||||||||||
August 2016 |
Accounting | 180.0 | 158.6 | 9.50% | 10.18% | ||||||||
Senior credit facility |
|||||||||||||
September 2012 |
Economic | 299.8 | 207.9 | 3 month EURIBOR + 2.00% |
3 month LIBOR + 2.16% |
||||||||
|
€ | 527.1 | £ | 410.3 | |||||||||
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 | |||||||||
44
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
VIRGIN MEDIA INVESTMENTS LIMITED
COMBINED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5Derivative Financial Instruments and Hedging Activities (Continued)