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Virgin Media 10-Q 2009

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, 2009

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 1, 2009, there were 328,893,059 shares of the registrant's common stock, par value $0.01 per share, issued and outstanding, excluding 244,025 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.


Table of Contents


VIRGIN MEDIA INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2009
INDEX

 
  Page

PART I. FINANCIAL INFORMATION

  5

Item 1. Financial Statements

  5

Virgin Media Inc.

   
 

Condensed Consolidated Balance Sheets—March 31, 2009 and December 31, 2008

  5
 

Condensed Consolidated Statements of Operations—Three months ended March 31, 2009 and 2008

  6
 

Condensed Consolidated Statements of Cash Flows—Three months ended March 31, 2009 and 2008

  7
 

Notes to Condensed Consolidated Financial Statements

  8

Virgin Media Investment Holdings Limited

   
 

Condensed Consolidated Balance Sheets—March 31, 2009 and December 31, 2008

  28
 

Condensed Consolidated Statements of Operations—Three months ended March 31, 2009 and 2008

  29
 

Condensed Consolidated Statements of Cash Flows—Three months ended March 31, 2009 and 2008

  30
 

Notes to Condensed Consolidated Financial Statements

  31

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

  45

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  63

Item 4. Controls and Procedures

  63

PART II. OTHER INFORMATION

  64

Item 1. Legal Proceedings

  64

Item 1A. Risk Factors

  64

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

  64

Item 3. Defaults Upon Senior Securities

  64

Item 4. Submission of Matters to a Vote of Security Holders

  64

Item 5. Other Information

  64

Item 6. Exhibits

  65

SIGNATURES

  66

2


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Introductory Note

        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, and its subsidiaries and Virgin Mobile Holdings (UK) Limited, or Virgin Mobile, and its subsidiaries).

"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," "expect," "estimate," "project," "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 ability to manage customer churn;

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

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

    the general deterioration in economic conditions;

    the continued right to use the Virgin name and logo;

    possible losses in revenues due to systems failures;

    the ability to provide attractive programming at a reasonable cost;

    the ability to control unauthorized access to our network;

    the effect of technological changes on our businesses;

    the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services;

    currency and interest rate fluctuations;

    the ability to fund debt service obligations through operating cash flow and refinance our debt obligations;

    the ability to obtain additional financing in the future;

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

    the extent to which our future cash flow will be sufficient to cover our fixed charges.

        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, 2008, as filed with the Securities and Exchange Commission, or SEC, on February 26, 2009. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.

3


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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 both Virgin Media and VMIH, a company incorporated in England and Wales with its address at 160 Great Portland Street, London W1W 5QA, United Kingdom, which is a wholly owned subsidiary of Virgin Media Finance PLC and a wholly owned indirect subsidiary of Virgin Media Inc. VMIH is not an accelerated filer. VMIH is one of the guarantors of Virgin Media Finance PLC's 9.75% senior notes due 2014 (sterling denominated), 8.75% senior notes due 2014 (euro denominated), 8.75% senior notes due 2014 (U.S. dollar denominated), and 9.125% senior notes due 2016 (U.S. dollar denominated). VMIH's guarantee of those notes is not deemed to be unconditional.

        VMIH carries on the same business as Virgin Media, and is the principal borrower under Virgin Media's senior credit facility.

Note Concerning Financial Information and Currency of Financial Statements

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

4


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PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
  March 31,
2009
  December 31,
2008
 
 
   
  (Adjusted)
 

Assets

             
 

Current assets

             
 

Cash and cash equivalents

    £139.6     £181.6  
 

Restricted cash

    6.0     6.1  
 

Accounts receivable—trade, less allowances for doubtful accounts of £17.0 (2009) and £16.5 (2008)

    449.0     454.3  
 

Inventory

    106.0     81.1  
 

Derivative financial instruments

    167.1     168.4  
 

Prepaid expenses and other current assets

    89.4     107.8  
 

Current assets held for sale

    15.8     56.2  
           
   

Total current assets

    972.9     1,055.5  

Fixed assets, net

    5,270.1     5,342.1  

Goodwill and other indefinite-lived assets

    2,082.3     2,082.3  

Intangible assets, net

    449.2     510.3  

Equity investments

    357.2     353.5  

Derivative financial instruments

    401.6     435.7  

Other assets, net of accumulated amortization of £88.2 (2009) and £79.1 (2008)

    144.2     153.9  
           

Total assets

    £9,677.5     £9,933.3  
           

Liabilities and shareholders' equity

             

Current liabilities

             
 

Accounts payable

    £332.6     £370.5  
 

Accrued expenses and other current liabilities

    422.0     449.9  
 

Derivative financial instruments

    92.3     84.4  
 

VAT and employee taxes payable

    72.8     63.5  
 

Restructuring liabilities

    63.9     71.0  
 

Interest payable

    97.6     131.6  
 

Deferred revenue

    270.2     268.0  
 

Current portion of long term debt

    257.7     40.5  
 

Current liabilities held for sale

    26.5     36.2  
           
   

Total current liabilities

    1,635.6     1,515.6  

Long term debt, net of current portion

    5,922.3     6,129.6  

Derivative financial instruments

    50.7     42.6  

Deferred revenue and other long term liabilities

    151.5     150.1  

Deferred income taxes

    80.7     79.2  
           

Total liabilities

    7,840.8     7,917.1  
           

Commitments and contingent liabilities

             

Shareholders' equity

             
 

Common stock—$0.01 par value; authorized 1,000.0 (2009 and 2008) shares; issued 329.1 (2009) and 329.0 (2008) and outstanding 328.4 (2009) and 328.1 (2008) shares

    1.8     1.8  
 

Additional paid-in capital

    4,465.8     4,461.3  
 

Accumulated other comprehensive income

    157.2     178.2  
 

Accumulated deficit

    (2,788.1 )   (2,625.1 )
           
   

Total shareholders' equity

    1,836.7     2,016.2  
           

Total liabilities and shareholders' equity

    £9,677.5     £9,933.3  
           

See accompanying notes.

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 
  Three months ended
March 31,
 
 
  2009   2008  
 
   
  (Adjusted)
 

Revenue

    £935.7     £947.3  

Costs and expenses

             
 

Operating costs (exclusive of depreciation shown separately below)

    413.7     420.0  
 

Selling, general and administrative expenses

    209.7     203.8  
 

Restructuring and other charges

    5.4     4.6  
 

Depreciation

    232.7     230.9  
 

Amortization

    61.2     89.9  
           

    922.7     949.2  
           

Operating income (loss)

    13.0     (1.9 )

Other income (expense)

             
 

Interest income and other, net

    3.3     5.9  
 

Interest expense

    (109.0 )   (123.3 )
 

Share of income from equity investments

    2.5     5.1  
 

Foreign currency losses

    (11.9 )   (28.4 )
 

(Losses) gains on derivative instruments

    (21.2 )   33.4  
           

Loss from continuing operations before income taxes

    (123.3 )   (109.2 )

Income tax (expense) benefit

    (9.6 )   7.3  
           
 

Loss from continuing operations

    (132.9 )   (101.9 )
           

Discontinued operations

             
   

Loss from discontinued operations, net of tax

    (21.1 )   (2.5 )
           

Net loss

    £(154.0 )   £(104.4 )
           

Basic and diluted loss from continuing operations per share

   
£(0.41

)
 
£(0.31

)
           

Basic and diluted loss from discontinued operations per share

    £(0.06 )   £(0.01 )
           

Basic and diluted net loss per share

    £(0.47 )   £(0.32 )
           

Dividends per share (in U.S. dollars)

  $ 0.04   $ 0.04  
           

Average number of shares outstanding

    328.2     327.8  
           

See accompanying notes.

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 
  Three months ended
March 31,
 
 
  2009   2008  
 
   
  (Adjusted)
 

Operating activities

             

Net loss

    £(154.0 )   £(104.4 )

Loss from discontinued operations

    21.1     2.5  
           

Loss from continuing operations

    (132.9 )   (101.9 )

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

             
 

Depreciation and amortization

    293.9     320.8  
 

Non-cash interest

    (26.8 )   (22.9 )
 

Non-cash compensation

    4.7     2.1  
 

Income from equity accounted investments, net of dividends received

    (2.5 )   (4.4 )
 

Income taxes

    9.9     (6.3 )
 

Amortization of original issue discount and deferred finance costs

    9.1     5.5  
 

Unrealized foreign currency losses

    16.4     26.9  
 

Unrealized losses (gains) on derivative instruments

    23.2     (33.4 )
 

Other

    (1.3 )   0.1  

Changes in operating assets and liabilities

    (64.5 )   (75.9 )
           
   

Net cash provided by operating activities

    129.2     110.6  
           

Investing activities

             
 

Purchase of fixed and intangible assets

    (144.4 )   (124.4 )
 

Principal repayments (drawdowns) on loans to equity investments

    1.2     (4.9 )
 

Other

    1.5     0.3  
           
   

Net cash used in investing activities

    (141.7 )   (129.0 )
           

Financing activities

             
 

Proceeds from employee stock option exercises

        0.6  
 

Principal payments on long term debt and capital leases

    (12.4 )   (8.8 )
 

Dividends paid

    (9.0 )   (6.6 )
           
   

Net cash used in financing activities

    (21.4 )   (14.8 )
           

Cash flow from discontinued operations

             
 

Net cash used in operating activities

    (7.9 )   (5.3 )
 

Net cash used in investing activities

        (0.6 )
           
   

Net cash used in discontinued operations

    (7.9 )   (5.9 )
           

Effect of exchange rate changes on cash and cash equivalents

   
(0.2

)
 
 

Decrease in cash and cash equivalents

    (42.0 )   (39.1 )

Cash and cash equivalents, beginning of period

    181.6     321.4  
           

Cash and cash equivalents, end of period

    £139.6     £282.3  
           

Supplemental disclosure of cash flow information

             

Cash paid during the period for interest exclusive of amounts capitalized

    £131.6     £142.1  

See accompanying notes.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. 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, 2008, as filed with the SEC on February 26, 2009.

        The 2008 financial information has been adjusted so the basis of presentation is consistent with that of the 2009 financial information. The adjustments reflect (i) the financial condition and results of operations of our sit-up reporting unit as assets and liabilities available for sale and discontinued operations, respectively, in the periods presented and (ii) the application of the Financial Accounting Standards Board, or FASB, Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion, or FSP APB 14-1.

Note 2—Accounting Changes

        In May 2008, the FASB issued FSP APB 14-1 which requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer's nonconvertible debt borrowing rate. As a result, the liability component is recorded at a discount reflecting its below market coupon interest rate, and is subsequently accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected in the results of operations.

        We adopted FSP APB 14-1 on January 1, 2009 as our convertible senior notes are within the scope of the standard. We have applied FSP APB 14-1 on a retrospective basis, whereby our prior period results have been adjusted. As the convertible notes were issued on April 16, 2008, this standard did not impact our previously reported statement of operations for the three months ended March 31, 2008.

        We applied a nonconvertible borrowing rate of 10.35% which resulted in the recognition of a discount on the convertible senior notes totaling £108.2 million, with the offsetting amount recognized as a component of additional paid-in capital. In addition, a cumulative translation adjustment of £36.1 million was recognized in relation to prior periods due to the decrease in the foreign

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 2—Accounting Changes (Continued)


denominated debt balance subject to translation during 2008. The following table presents the impact of these adjustments on our previously reported consolidated balance sheet as of December 31, 2008.

 
  Year ended
December 31, 2008
 
 
  As
Reported
  Adjustments   As
Adjusted
 
 
  (in millions)
 

Long term debt, net of current portion

    6,267.7     (138.1 )   6,129.6  

Additional paid-in capital

    4,353.1     108.2     4,461.3  

Accumulated other comprehensive income

    142.1     36.1     178.2  

Accumulated deficit

    (2,618.9 )   (6.2 )   (2,625.1 )

Note 3—Discontinued Operations

        On April 1, 2009, we reached an agreement to sell our sit-up reporting unit, which was formerly included within our Content segment. sit-up provided a variety of retail consumer products through three interactive auction-based television channels: price-drop tv, bid tv and speed auction tv.

        In accordance with the provisions of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or FAS 144, we determined that the planned sale of the sit-up business met the requirements as of March 31, 2009 to be reflected as assets and liabilities held for sale and discontinued operations in both the current and prior periods and accordingly, we adjusted the balance sheet as of December 31, 2008 and statement of operations for the three months ended March 31, 2008. Revenue of the sit-up business, reported in discontinued operations, for the three months ended March 31, 2009 and 2008 was £38.9 million and £55.0 million, respectively. sit-up's pre-tax loss, reported within discontinued operations, for the three months ended March 31, 2009 and 2008 was £21.1 million and £2.5 million, respectively. In accordance with the provisions of FAS 144, we wrote down the assets held for sale to fair value, resulting in a £19.0 million impairment charge, which is included in the loss from discontinued operations for the three months ended March 31, 2009.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 3—Discontinued Operations (Continued)

        The assets and liabilities of the sit-up business reported as held for sale as of March 31, 2009 included (in millions):

Current assets held for sale

       
 

Accounts receivable, net

  £ 2.6  
 

Inventory

    5.4  
 

Prepaid expenses

    4.1  
 

Other current assets

    3.7  
       
   

Current assets held for sale

    £15.8  
       

Current liabilities held for sale

       
 

Accounts payable

    £18.6  
 

Accrued expenses

    7.2  
 

Deferred revenue and other liabilities

    0.7  
       
   

Current liabilities held for sale

    £26.5  
       

        In accordance with the sale agreement, part of the consideration included a loan note from Aurelius AG. On April 1, 2009, we entered into a five-year carriage agreement with sit-up for continued distribution of the three sit-up channels on our television platform. In general, the agreements governing the loan note and exchange of services between us and sit-up are for specified periods at commercial rates. Following the sale, our continuing involvement with sit-up is limited to the loan note and carriage agreement and is therefore not considered significant.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Long Term Debt

        Long term debt consisted of (in millions):

 
  March 31,
2009
  December 31,
2008
 
 
   
  (Adjusted)
 

U.S. Dollar

             
 

8.75% U.S. Dollar senior notes due 2014

    £297.2     £290.7  
 

9.125% U.S. Dollar senior notes due 2016

    384.6     376.2  
 

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

    561.1     545.9  
 

Senior credit facility

    371.9     363.8  

Euro

             
 

8.75% Euro senior notes due 2014

    208.6     214.2  
 

Senior credit facility

    393.1     403.7  

Sterling

             
 

9.75% Sterling senior notes due 2014

    375.0     375.0  
 

Senior credit facility

    3,421.9     3,421.9  
 

Capital leases

    162.7     174.6  
 

Other

    3.9     4.1  
           

    6,180.0     6,170.1  
 

Less: current portion

    (257.7 )   (40.5 )
           

    £5,922.3     £6,129.6  
           

        The effective interest rate on the senior credit facility was 7.0% and 7.3% as at March 31, 2009 and December 31, 2008, respectively.

Note 5—Derivative Financial Instruments

        In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133, or FAS 161, which amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, or FAS 133, with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under FAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit risk-related contingent features in derivative instruments. FAS 161 applies to all entities and all derivative instruments and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We adopted the provisions of FAS 161 on January 1, 2009.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments (Continued)

Strategies and Objectives for Holding Derivative Instruments

        Our results are materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. In accordance with FAS 133, 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.

        Whenever it is practical to do so, we will 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 contract is not designated, 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 earnings. As a result of our effectiveness assessment at March 31, 2009, we believe our derivative contracts that are designated and qualify for hedge accounting under FAS 133 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.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments (Continued)

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

 
  March 31,
2009
  December 31,
2008
 

Included within current assets:

             
 

Accounting Hedge

             
   

Foreign currency forward rate contracts

  £ 42.6   £ 37.6  
   

Interest rate swaps

    6.1     6.1  
   

Cross-currency interest rate swaps

    55.9     61.5  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

    62.5     63.2  
           

  £ 167.1   £ 168.4  
           

Included within non-current assets:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 0.1   £  
   

Cross-currency interest rate swaps

    124.3     136.1  
 

Economic Hedge

             
   

Cross-currency interest rate swaps

    277.2     299.6  
           

  £ 401.6   £ 435.7  
           

Included within current liabilities:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 6.6   £ 2.2  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

    79.2     79.6  
   

Interest rate swaps

    6.5     2.6  
           

  £ 92.3   £ 84.4  
           

Included within non-current liabilities:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 19.5   £ 11.5  
   

Cross-currency interest rate swaps

    3.7      
 

Economic Hedge

             
   

Cross-currency interest rate swaps

    27.5     31.1  
           

  £ 50.7   £ 42.6  
           

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

        As of March 31, 2009, 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.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments (Continued)

        The terms of our outstanding cross-currency interest rate swaps at March 31, 2009 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)
   
   

$425m senior notes due 2014

                       
 

April 2009

  Accounting   $ 425.0   £ 231.4   8.75%   9.42%
 

April 2009 to October 2011

  Accounting     425.0     291.0   8.75%   9.53%

$550m senior notes due 2016

                       
 

August 2016

  Accounting     550.0     301.2   9.13%   8.54%

$1,000 convertible senior notes due 2016

                       
 

November 2016

  Economic     1,000.0     505.6   6.50%   6.95%

Senior credit facility

                       
 

September 2012

  Economic     531.9     288.5   3 month
$ LIBOR + 2.00%
  3 month
£ LIBOR + 2.12%
                     

      $ 2,931.9   £ 1,617.7        
                     

€225m senior notes due 2014

                       
 

April 2009

  Accounting   225.0   £ 156.0   8.75%   10.26%
 

April 2009 to October 2011

  Accounting     225.0     207.4   8.75%   8.90%

Senior credit facility

                       
 

September 2012

  Economic     427.9     296.7   3 month
EURIBOR + 2.00%
  3 month
LIBOR + 2.16%
                     

      877.9   £ 660.1        
                     

Other

                       
 

April 2012

  Economic   28.3   £ 20.1   3 month
EURIBOR + 2.38%
  3 month
LIBOR + 2.69%
 

December 2012

  Economic     28.3     20.1   3 month
EURIBOR + 2.38%
  3 month
LIBOR + 2.69%
 

April 2013

  Economic     21.7     15.4   3 month
EURIBOR + 2.88%
  3 month
LIBOR + 3.26%
 

December 2013

  Economic     21.7     15.4   3 month
EURIBOR + 2.88%
  3 month
LIBOR + 3.26%
                     

      100.0   £ 71.0        
                     
 

April 2012

 

Economic

 
£

19.4
 

28.3
 

3 month
LIBOR + 2.40%

 

3 month
EURIBOR + 2.38%

 

December 2012

  Economic     19.4     28.3   3 month
LIBOR + 2.40%
  3 month
EURIBOR + 2.38%
 

April 2013

  Economic     14.8     21.7   3 month
LIBOR + 2.90%
  3 month
EURIBOR + 2.88%
 

December 2013

  Economic     14.8     21.7   3 month
LIBOR + 2.90%
  3 month
EURIBOR + 2.88%
                     

      £ 68.4   100.0        
                     

        All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in April 2009 hedging the $425 million senior notes due 2014 and the contract maturing in November 2016 hedging the $1,000 million convertible senior notes due 2016.

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

        As of March 31, 2009, 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,

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments (Continued)


which accrue at variable rates based on LIBOR. The interest rate swaps allow us to receive interest based on three and six month LIBOR in exchange for payments of interest at fixed rates.

        The terms of our outstanding interest rate swap contracts at March 31, 2009 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 2009

  Accounting   £ 500.0   3 month LIBOR     5.18%  
 

April 2009

  Economic     500.0   3 month LIBOR     5.18%  
 

April 2009

  Accounting     1,725.0   6 month LIBOR     5.33%  
 

April 2009

  Economic     425.0   6 month LIBOR     5.09%  
 

June 2009

  Economic     17.0   3 month LIBOR     4.81%  
 

April 2009 to April 2010

  Accounting     2,600.0   3 month LIBOR     2.27%  
 

April 2010 to September 2012

  Accounting     600.0   3 month LIBOR     2.96%  
                     

      £ 6,367.0            
                     

Foreign Currency Forward Rate Contracts—Hedging the Principal Obligations of the Debt Obligations and Committed and Forecasted Transactions

        As of March 31, 2009, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars which hedge changes in the pound sterling value of the U.S. dollar denominated principal obligations. We have also entered into forward rate contracts to purchase U.S. dollars, euros and South African rand to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at March 31, 2009 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)
   
 

$425m senior notes due 2014

                     
 

April 2009

  Accounting   $ 425.0   £ 254.1   1.6724  

Committed and forecasted purchases

                     
 

April 2009 to June 2009

  Economic   $ 11.5   £ 8.2   1.4100  
 

May 2009 to January 2010

  Accounting   2.4   £ 2.1   1.1250  
 

April 2009 to January 2010

  Accounting   ZAR 41.0   £ 2.7   15.1351  

Other

                     
 

April 2009

  Economic   $ 345.2   £ 207.9   1.6610  
 

April 2009

  Economic   £ 194.1   $ 345.2   1.7788  
 

April 2009

  Economic   151.0   £ 110.1   1.3720  
 

April 2009

  Economic   £ 107.3   151.0   1.4069  

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments (Continued)

Cash Flow Hedges

        For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. In our consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the consolidated statement of cash flows.

        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 on the statement of operations in the period in which they occur. We have no gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges. During the three months ended March 31, 2009, we recognized a loss totaling £0.1 million relating to ineffectiveness. The following table presents the effective amount of gain or (loss) recognized in other comprehensive income and amount reclassified to earnings during the three months ended March 31, 2009.

 
  Total   Interest rate
swaps
  Cross-currency
interest rate
swaps
  Forward
foreign
exchange
contracts
  Tax Effect  
 
  (in millions)
 

Balance at December 31, 2008

  £ 40.1   £ (7.9 ) £ 64.0   £   £ (16.0 )

Amounts recognized in other comprehensive income

    (30.6 )   (14.1 )   (16.9 )   0.4      

Amounts reclassified to earnings impacting:

                               
 

Foreign exchange (gains) losses

    (2.8 )       (2.8 )        
 

Interest expense

    (2.1 )   2.0     (4.1 )        

Tax effect recognized

    9.9                 9.9  
                       

Balance at March 31, 2009

  £ 14.5   £ (20.0 ) £ 40.2   £ 0.4   £ (6.1 )
                       

        Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax (losses) gains that would be reclassified to earnings would be £(16.6) million, £9.1 million and £0.4 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.

Note 6—Restructuring and Other Charges

        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 as discussed below. Restructuring and other charges of £4.6 million for the three months ended March 31, 2008 related to lease exit and employee termination costs as a result of our acquisition-related restructuring programs.

        During the fourth quarter of 2008, we commenced the implementation of a restructuring plan aimed at driving further improvements in our operational performance and eliminating inefficiencies in

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 6—Restructuring and Other Charges (Continued)


order to create a fully-integrated, customer-focused organization. This plan involves the incurrence of substantial operating and capital expenditures, including certain costs which may be treated as restructuring costs under FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

        The following tables summarize 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
  Total  
 
  Lease
Exit Costs
  Lease
Exit Costs
  Involuntary
Employee
Termination and
Related Costs
  Lease and
Contract
Exit Costs
        

Balance, December 31, 2008

  £ 16.5   £ 38.5   £ 2.0   £ 14.0   £ 71.0  

Charged to expense

    0.5     0.8     5.6     4.3     11.2  

Revisions

    (1.2 )   (4.6 )           (5.8 )

Utilized

    (1.2 )   (1.7 )   (2.0 )   (7.6 )   (12.5 )
                       

Balance, March 31, 2009

  £ 14.6   £ 33.0   £ 5.6   £ 10.7   £ 63.9  
                       

Note 7—Stockholders' Equity and Share Based Compensation

        During the year ended December 31, 2008 and the three months ended March 31, 2009, we paid the following dividends:

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

Year ended December 31, 2008:

                         

February 6, 2008

  $ 0.04     March 12, 2008     March 20, 2008   £ 6.6  

May 21, 2008

    0.04     June 12, 2008     June 20, 2008     6.7  

September 2, 2008

    0.04     September 12, 2008     September 22, 2008     7.1  

November 25, 2008

    0.04     December 12, 2008     December 22, 2008     8.9  

Three months ended March 31, 2009:

                         

February 27, 2009

  $ 0.04     March 12, 2009     March 20, 2009   £ 9.0  

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

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 7—Stockholders' Equity and Share Based Compensation (Continued)

        Basic and diluted net loss per share is computed by dividing the net loss for the three months ended March 31, 2009 and 2008 by the weighted average number of shares outstanding during the respective periods. Options, warrants, shares issuable under our convertible senior notes, and shares of restricted stock held in escrow at March 31, 2009 and 2008, respectively, are excluded from the calculation of diluted loss per share, since these securities are anti-dilutive.

        The average number of shares outstanding for the three months ended March 31, 2009 and 2008 is computed as follows (in millions):

 
  Three months
ended
March 31,
 
 
  2009   2008  

Number of shares outstanding at start of period

    328.1     327.5  

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

    0.1     0.3  
           

Average number of shares outstanding

    328.2     327.8  
           

        Total share based compensation expense included in selling, general and administrative expenses in the statements of operations was £4.7 million and £2.1 million for the three months ended March 31, 2009 and 2008, respectively.

Note 8—Comprehensive Loss

        Comprehensive loss comprises (in millions):

 
  Three months
ended
March 31,
 
 
  2009   2008  

Net loss for period

  £ (154.0 ) £ (104.4 )

Currency translation adjustment

    4.6      

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

    (22.1 )   15.9  

Reclassification of derivative gains to net income, net of tax

    (3.5 )   (9.6 )
           

Comprehensive loss

  £ (175.0 ) £ (98.1 )
           

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

 
  March 31,
2009
  December 31,
2008
 
 
   
  (Adjusted)
 

Foreign currency translation

  £ 174.2   £ 169.6  

Pension liability adjustments

    (31.5 )   (31.5 )

Net unrealized gains on derivatives

    14.5     40.1  
           

  £ 157.2   £ 178.2  
           

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 9—Income Taxes

        At each period end, it is necessary for us to make certain estimates and assumptions to compute the provision for income taxes including, but not limited to, the expected operating income (or loss) for the year, projections of the proportion of income (or loss) earned and taxed in the United Kingdom and the extent to which this income (or loss) may also be taxed in the United States, permanent and temporary differences, the likelihood of deferred tax assets being recovered and the outcome of contingent tax risks. At each interim period, management uses the best information available to develop these estimates and assumptions, which are used to compute the forecast effective tax rate for the full year which is applied in computing the income tax expense or benefit for the interim period. In accordance with U.S. generally accepted accounting principles, the impact of revisions to these estimates are recorded as income tax expense or benefit in the period in which they become known. Accordingly, the accounting estimates used to compute the provision for income taxes have changed and will change as new events occur, as more experience is acquired, as additional information is obtained and our tax environment changes. To the extent that the estimate changes during a subsequent quarter, the effect of the change on prior quarters as well as on the current quarter is included in income tax expense for the current quarter.

        For the three months ended March 31, 2009, there was an income tax expense of £9.6 million as compared with an income tax benefit of £7.3 million for the same period in 2008. The income tax expense for the three months ended March 31, 2009 was comprised of current federal taxes of £0.1 million, deferred federal tax expense of £1.5 million, a U.K. current tax benefit of £1.9 million and a U.K. deferred tax expense of £9.9 million. The U.K. current tax benefit related to amounts receivable in respect of the sale of U.K. tax losses to an equity-method investee. The U.K. deferred tax expense relates to an increase in our deferred tax asset valuation allowance as a result of a reduction in certain deferred tax liabilities relating to amounts recognized in the statement of other comprehensive income during the quarter. The income tax benefit for the three months ended March 31, 2008 was comprised of current federal taxes of £0.2 million, deferred federal tax expense of £3.3 million, a U.K. current tax benefit of £1.3 million and a U.K. deferred tax benefit of £9.5 million. The U.K. current tax benefit related to amounts receivable in respect of the sale of U.K. tax losses to an equity-method investee.

        We recognize interest and penalties related to unrecognized tax benefits in income tax expense in the statements of operations.

Note 10—Recent Accounting Pronouncements

        In December 2007, the FASB issued Statement No. 141(R), Business Combinations, or FAS 141(R). FAS 141(R) requires the acquiring entity in a business combination to prospectively recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. Further, regardless of the business combination date, any subsequent changes to acquired uncertain tax positions and valuation allowances associated with acquired deferred tax assets will no longer be applied to goodwill but will be recognized as an adjustment to income tax expense. FAS 141(R) is effective for financial statements

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Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 10—Recent Accounting Pronouncements (Continued)


issued for fiscal years beginning after December 15, 2008. The adoption of this statement did not have a material impact on our consolidated financial statements.

        In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51, or FAS 160. FAS 160 establishes requirements for ownership interests in subsidiaries held by parties other than ourselves (sometimes called "minority interests") to be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent's equity. All changes in the parent's ownership interests are required to be accounted for consistently as equity transactions and any non-controlling equity investments in unconsolidated subsidiaries must be measured initially at fair value. FAS 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008; however, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The account balances recorded in our consolidated financial statements relating to noncontrolling interests are immaterial and therefore, the disclosure requirements of FAS 160 have not been applied as permitted by the provisions of the accounting standard.

Note 11—Industry Segments

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

        Our previously reported operating segments were based on how we distributed our services. Distribution through cable systems, delivery of television content, and provision of mobile phone services made up the core of our business and were the focus of how the business was managed internally through our former Cable, Content and Mobile segments.

        As a result of the business reorganization initiated in 2008, we have realigned our internal reporting structure and the related financial information used by management and the CODM. Our operating structures have been revised to build a customer-focused organization able to respond effectively to rapid changes in the market, technology and customer demands through our three new customer-based segments: Consumer, Business and Content.

        Our Consumer segment, part of which was previously included within our Cable segment, is our primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to consumers on our cable network and, to a lesser extent, off our cable network. The Consumer segment also includes our former Mobile segment consisting of our mobile telephony and broadband business.

        Our Business segment, which was previously part of our Cable segment, comprises our operations carried out through ntl:Telewest 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.

        The 2008 fiscal year amounts have been adjusted to conform to the current period presentation. We performed an interim impairment review of the goodwill related to the previous Mobile segment as

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Industry Segments (Continued)


at January 1, 2009 and concluded that the goodwill was not impaired. We are also performing the necessary valuations required to allocate goodwill between the revised Consumer and Business segments.

        Segment contribution, which is operating income (loss) 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 as permitted under FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by our Consumer and Business segments.

        Segment information for the three months ended March 31, 2009 and 2008 is as follows (in millions):

 
  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  

 

 
  Three months ended
March 31, 2008
 
 
  Consumer   Business   Content   Total  

Revenue

  £ 758.2   £ 160.7   £ 28.4   £ 947.3  

Inter segment revenue

      £ 0.1   £ 6.3   £ 6.4  

Segment Contribution

  £ 451.3   £ 82.2   £ 4.0   £ 537.5  

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

 
  Three months
ended
March 31,
 
 
  2009   2008  

Total segment contribution

  £ 527.7   £ 537.5  
 

Other operating and corporate costs

    215.4     214.0  
 

Depreciation

    232.7     230.9  
 

Amortization

    61.2     89.9  
 

Restructuring and other charges

    5.4     4.6  
           

Consolidated operating income (loss)

  £ 13.0   £ (1.9 )
           

21


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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidated Financial Information

        On April 13, 2004, our wholly owned subsidiary, Virgin Media Finance PLC, or 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, together referred to as the Senior Notes due 2014. On July 25, 2006, Virgin Media Finance issued $550 million aggregate principal amount of 9.125% senior notes due 2016, which together with the Senior Notes due 2014, are referred to as the Senior Notes. 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. Virgin Media Investment Holdings Limited, or VMIH, has guaranteed the Senior Notes on a senior subordinated basis.

        We present the following condensed consolidated financial information as of March 31, 2009 and December 31, 2008 and for the three months ended March 31, 2009 and 2008 as required by Rule 3-10(d) of Regulation S-X.

 
  March 31, 2009  
Balance sheets   Company   Virgin
Media
Finance
  Other guarantors   VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (in millions)
 

Cash and cash equivalents

  £ 13.2   £   £ 0.4   £ 64.7   £ 61.3   £   £ 139.6  

Restricted cash

                    6.0         6.0  

Other current assets

    2.9         0.4     181.4     626.8         811.5  

Current assets held for sale

                    15.8         15.8  
                               
 

Total current assets

    16.1         0.8     246.1     709.9         972.9  

Fixed assets, net

   
   
   
   
   
5,270.1
   
   
5,270.1
 

Intangible assets, net

            (15.0 )       2,546.5         2,531.5  

Investments in, and loans to, parent and subsidiary companies

    2,389.5     138.4     (641.8 )   3,336.5     (5,948.6 )   1,083.2     357.2  

Other assets, net

    13.0             451.3     81.5         545.8  
                               
 

Total assets

  £ 2,418.6   £ 138.4   £ (656.0 ) £ 4,033.9   £ 2,659.4   £ 1,083.2   £ 9,677.5  
                               

Other current liabilities

  £ 20.8   £ 56.5   £ 42.1   £ 234.9   £ 1,994.8   £ (740.0 ) £ 1,609.1  

Current liabilities held for sale

                    26.5         26.5  
                               
 

Total current liabilities

    20.8     56.5     42.1     234.9     2,021.3     (740.0 )   1,635.6  

Long term debt

   
561.1
   
1,265.5
   
   
2,012.8
   
2,082.9
   
   
5,922.3
 

Other long term liabilities

            0.8     23.2     258.9         282.9  

Shareholders' equity

    1,836.7     (1,183.6 )   (698.9 )   1,763.0     (1,703.7 )   1,823.2     1,836.7  
                               
 

Total liabilities and shareholders' equity

  £ 2,418.6   £ 138.4   £ (656.0 ) £ 4,033.9   £ 2,659.4   £ 1,083.2   £ 9,677.5  
                               

22


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidated Financial Information (Continued)

 
  December 31, 2008  
Balance sheets   Company   Virgin
Media
Finance
  Other guarantors   VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Cash and cash equivalents

  £ 9.9   £   £ 1.2   £ 0.4   £ 170.1   £   £ 181.6  

Restricted cash

                    6.1         6.1  

Other current assets

    3.5         0.3     187.7     620.1         811.6  

Current assets held for sale

                    56.2         56.2  
                               
 

Total current assets

    13.4         1.5     188.1     852.5         1,055.5  

Fixed assets, net

   
   
   
   
   
5,342.1
   
   
5,342.1
 

Intangible assets, net

            (15.0 )       2,607.6         2,592.6  

Investments in, and loans to, parent and subsidiary companies

    2,545.0     287.9     (487.7 )   3,519.4     (6,591.6 )   1,080.5     353.5  

Other assets, net

    13.2             506.5     69.9         589.6  
                               
 

Total assets

  £ 2,571.6   £ 287.9   £ (501.2 ) £ 4,214.0   £ 2,280.5   £ 1,080.5   £ 9,933.3  
                               

Other current liabilities

  £ 9.5   £ 37.1   £ 26.1   £ 197.1   £ 1,381.2   £ (171.6 ) £ 1,479.4  

Current liabilities held for sale

                    36.2         36.2  
                               
 

Total current liabilities

    9.5     37.1     26.1     197.1     1,417.4     (171.6 )   1,515.6  

Long term debt

   
545.9
   
1,256.2
   
   
2,064.6
   
2,262.9
   
   
6,129.6
 

Other long term liabilities

            0.7     11.5     259.7         271.9  

Shareholders' equity

    2,016.2     (1,005.4 )   (528.0 )   1,940.8     (1,659.5 )   1,252.1     2,016.2  
                               
 

Total liabilities and shareholders' equity

  £ 2,571.6   £ 287.9   £ (501.2 ) £ 4,214.0   £ 2,280.5   £ 1,080.5   £ 9,933.3  
                               

23


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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed 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 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 )
                               

24


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidated Financial Information (Continued)

 
  Three months ended March 31, 2008  
Statements of operations   Company   Virgin
Media
Finance
  Other guarantors   VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Revenue

  £   £   £   £   £ 947.3   £   £ 947.3  

Operating costs

                    (420.0 )       (420.0 )

Selling, general and administrative expenses

    (0.6 )       (5.2 )       (198.0 )       (203.8 )

Restructuring and other charges

                    (4.6 )       (4.6 )

Depreciation and amortization

                    (320.8 )       (320.8 )
                               

Operating (loss) income

    (0.6 )       (5.2 )       3.9         (1.9 )

Interest income and other, net

   
   
25.5
   
13.1
   
16.9
   
(9.1

)
 
(40.5

)
 
5.9
 

Interest expense

    (0.4 )   (25.5 )   (6.6 )   (82.6 )   (48.7 )   40.5     (123.3 )

Share of income from equity investments

                    5.1         5.1  

Foreign currency (losses) gains

        (0.4 )       (28.5 )   0.5         (28.4 )

Gain on derivative instruments

                    33.4         33.4  

Income tax benefit (expense)

            (2.3 )       9.6         7.3  
                               

Loss from continuing operations

    (1.0 )   (0.4 )   (1.0 )   (94.2 )   (5.3 )       (101.9 )

Loss from discontinued operations, net of tax

   
   
   
   
   
(2.5

)
 
   
(2.5

)

Equity in net loss of subsidiaries

    (103.4 )   (100.2 )   (102.5 )   (6.0 )       312.1      
                               

Net loss

  £ (104.4 ) £ (100.6 ) £ (103.5 ) £ (100.2 ) £ (7.8 ) £ 312.1   £ (104.4 )
                               

25


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed 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 (drawdowns) 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

    (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  
                               

26


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidated Financial Information (Continued)

 
  Three months ended March 31, 2008  
Statements of cash flows   Company   Virgin
Media
Finance
  Other guarantors   VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Net cash provided by (used in) operating activities

  £ 5.7   £   £ 3.1   £ (24.3 ) £ 126.1   £   £ 110.6  

Investing activities:

                                           

Purchase of fixed and intangible assets

                    (124.4 )       (124.4 )

Principal (drawdowns) repayments on loans to equity investments

            0.9     31.2     (37.0 )       (4.9 )

Other

                    0.3         0.3  
                               

Net cash (used in) provided by investing activities

            0.9     31.2     (161.1 )       (129.0 )
                               

Financing activities:

                                           

Proceeds from employee stock option excercises

    0.6                         0.6  

Principal payments on long term debt and capital leases

                    (8.8 )       (8.8 )

Dividends paid

    (6.6 )                       (6.6 )
                               

Net cash used in financing activities

    (6.0 )               (8.8 )       (14.8 )
                               

Cash flow from discontinued operations

                                           

Net cash used in operating activities

                    (5.3 )       (5.3 )

Net cash used in investing activities

                    (0.6 )       (0.6 )
                               

Net cash used in discontinued operations

                    (5.9 )       (5.9 )
                               

(Decrease) increase in cash and cash equivalents

    (0.3 )       4.0     6.9     (49.7 )       (39.1 )

Cash and cash equivalents at beginning of period

    1.3         10.0     0.7     309.4         321.4  
                               

Cash and cash equivalents at end of period

  £ 1.0   £   £ 14.0   £ 7.6   £ 259.7   £   £ 282.3  
                               

27


Table of Contents


VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
  March 31,
2009
  December 31,
2008
 
 
   
  (Adjusted)
 

Assets

             

Current assets

             
 

Cash and cash equivalents

  £ 126.0   £ 170.7  
 

Restricted cash

    5.3     5.3  
 

Accounts receivable—trade, less allowances for doubtful accounts of £17.0 (2009) and £16.5 (2008)

    449.0     454.3  
 

Inventory

    106.0     81.1  
 

Derivative financial instruments

    167.1     168.4  
 

Prepaid expenses and other current assets

    86.2     104.0  
 

Current assets held for sale

    15.8     56.2  
           

Total current assets

    955.4     1,040.0  

Fixed assets, net

    5,139.9     5,209.3  

Goodwill and other indefinite-lived assets

    2,091.4     2,091.4  

Intangible assets, net

    449.2     510.3  

Equity investments

    357.2     353.5  

Derivative financial instruments

    401.6     435.7  

Other assets, net of accumulated amortization of £86.6 (2009) and £78.0 (2008)

    131.1     140.7  

Due from group companies

    817.9     795.0  
           

Total assets

  £ 10,343.7   £ 10,575.9  
           

Liabilities and shareholders' equity

             

Current liabilities

             
 

Accounts payable

  £ 332.6   £ 370.0  
 

Accrued expenses and other current liabilities

    415.6     443.4  
 

Derivative financial instruments

    92.3     84.4  
 

VAT and employee taxes payable

    67.1     57.4  
 

Restructuring liabilities

    62.5     69.5  
 

Interest payable

    38.7     95.9  
 

Interest payable to group companies

    159.9     113.7  
 

Deferred revenue

    261.7     259.4  
 

Current portion of long term debt

    257.7     40.5  
 

Current liabilities held for sale

    26.5     36.2  
           
 

Total current liabilities

    1,714.6     1,570.4  

Long term debt, net of current portion

    4,095.8     4,327.6  

Long term debt due to group companies

    2,490.2     2,468.1  

Derivative financial instruments

    50.7     42.6  

Deferred revenue and other long term liabilities

    148.7     147.2  

Deferred income taxes

    80.7     79.2  
           

Total liabilities

    8,580.7     8,635.1  
           

Commitments and contingent liabilities

             

Shareholders' equity

             
 

Common stock—£0.001 par value; authorized 1,000,000 ordinary shares (2009 and 2008); issued and outstanding 224,552 ordinary shares (2009 and 2008)

         
 

Additional paid-in capital

    4,371.3     4,371.3  
 

Accumulated other comprehensive (loss)/income

    (17.0 )   9.0  
 

Accumulated deficit

    (2,591.3 )   (2,439.5 )
           
 

Total shareholders' equity

    1,763.0     1,940.8  
           

Total liabilities and shareholders' equity

  £ 10,343.7   £ 10,575.9  
           

See accompanying notes.

28


Table of Contents


VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited) (in millions)

 
  Three months ended March 31,  
 
  2009   2008  
 
   
  (Adjusted)
 

Revenue

  £ 907.6   £ 919.9  

Costs and expenses

             
 

Operating costs (exclusive of depreciation shown separately below)

    400.3     407.1  
 

Selling, general and administrative expenses

    197.3     191.4  
 

Restructuring and other charges

    5.1     4.5  
 

Depreciation

    227.5     225.3  
 

Amortization

    61.2     88.0  
           

    891.4     916.3  
           

Operating income

    16.2     3.6  

Other income (expense)

             
 

Interest income and other, net

    3.3     5.8  
 

Interest income from group companies

    2.1     1.9  
 

Interest expense

    (65.3 )   (99.4 )
 

Interest expense to group companies

    (47.7 )   (29.7 )
 

Share of income from equity investments

    2.5     5.1  
 

Foreign currency losses

    (11.1 )   (28.0 )
 

Gains (losses) on derivative instruments

    (21.2 )   33.4  
           

Loss from continuing operations before income taxes

    (121.2 )   (107.3 )

Income tax (expense) benefit

    (9.5 )   9.6  
           
 

Loss from continuing operations

    (130.7 )   (97.7 )
           

Discontinued operations

             
   

Loss from discontinued operations, net of tax

    (21.1 )   (2.5 )
           

Net loss

  £ (151.8 ) £ (100.2 )
           

See accompanying notes.

29


Table of Contents


VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 
  Three months ended March 31,  
 
  2009   2008  
 
   
  (Adjusted)
 
Operating activities              
Net loss   £ (151.8 ) £ (100.2 )
Loss from discontinued operations     21.1     2.5  
           
Loss from continuing operations     (130.7 )   (97.7 )

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

 

 

 

 

 

 

 
  Depreciation and amortization     288.7     313.3  
  Non-cash interest     (52.7 )   (34.5 )
  Non-cash compensation     4.0     1.5  
  Income from equity accounted investments, net of dividends received     (2.5 )   (4.4 )
  Income taxes     9.8     (8.3 )
  Amortization of original issue discount and deferred finance costs     8.6     5.5  
  Unrealized foreign currency losses     14.2     26.9  
  Unrealized losses (gains) on derivative instruments     23.2     (33.4 )
  Other     (1.3 )   0.1  
Changes in operating assets and liabilities     (63.7 )   (81.8 )
           
    Net cash provided by operating activities     97.6     87.2  
           

Investing activities

 

 

 

 

 

 

 
  Purchase of fixed and intangible assets     (141.9 )   (122.9 )
  Principal repayments (drawdowns) on loans to equity investments     1.2     (4.9 )
  Investments in, and loans from, parent and subsidiary companies     17.1     12.3  
  Other     1.5     0.3  
           
    Net cash used in investing activities     (122.1 )   (115.2 )
           

Financing activities

 

 

 

 

 

 

 
  Principal payments on long term debt and capital leases     (12.4 )   (8.8 )
           
    Net cash used in financing activities     (12.4 )   (8.8 )
           

Cash flow from discontinued operations

 

 

 

 

 

 

 
  Net cash used in operating activities     (7.9 )   (5.3 )
  Net cash used in investing activities         (0.6 )
           
    Net cash used in discontinued operations     (7.9 )   (5.9 )
           

Effect of exchange rate changes on cash and cash equivalents

 

 

0.1

 

 


 
Decrease in cash and cash equivalents     (44.7 )   (42.7 )
Cash and cash equivalents, beginning of period     170.7     310.0  
           
Cash and cash equivalents, end of period   £ 126.0   £ 267.3  
           

See accompanying notes.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

        Virgin Media Investment Holdings Limited, or VMIH, is an indirect, wholly owned subsidiary of Virgin Media Inc.

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and notes thereto included in Virgin Media's annual report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on February 26, 2009.

        The 2008 financial information has been adjusted so the basis of presentation is consistent with that of the 2009 financial information. The adjustments reflect the financial condition and results of operations of our sit-up reporting unit as assets and liabilities available for sale and discontinued operations, respectively, in the periods presented.

Note 2—Discontinued Operations

        On April 1, 2009, we reached an agreement to sell our sit-up reporting unit, which was formerly included within our Content segment. sit-up provided a variety of retail consumer products through three interactive auction-based television channels: price-drop tv, bid tv and speed auction tv.

        In accordance with the provisions of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or FAS 144, we determined that the planned sale of the sit-up business met the requirements as of March 31, 2009 to be reflected as assets and liabilities held for sale and discontinued operations in both the current and prior periods and accordingly, we adjusted the balance sheet as of December 31, 2008 and statement of operations for the three months ended March 31, 2008. Revenue of the sit-up business, reported in discontinued operations, for the three months ended March 31, 2009 and 2008 was £38.9 million and £55.0 million, respectively. sit-up's pre-tax loss, reported within discontinued operations, for the three months ended March 31, 2009 and 2008 was £21.1 million and £2.5 million, respectively. In accordance with the provisions of FAS 144, we wrote down the assets held for sale to fair value, resulting in a £19.0 million impairment charge, which is included in the loss from discontinued operations for the three months ended March 31, 2009.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 2—Discontinued Operations (Continued)

        The assets and liabilities of the sit-up business reported as held for sale as of March 31, 2009 included (in millions):

Current assets held for sale

       
 

Accounts receivable, net

  £ 2.6  
 

Inventory

    5.4  
 

Prepaid expenses

    4.1  
 

Other current assets

    3.7  
       
   

Current assets held for sale

  £ 15.8  
       

Current liabilities held for sale

       
 

Accounts payable

  £ 18.6  
 

Accrued expenses

    7.2  
 

Deferred revenue and other liabilities

    0.7  
       
   

Current liabilities held for sale

  £ 26.5  
       

        In accordance with the sale agreement, part of the consideration included a loan note from Aurelius AG. On April 1, 2009, we entered into a five-year carriage agreement with sit-up for continued distribution of the three sit-up channels on our television platform. In general, the agreements governing the loan note and exchange of services between us and sit-up are for specified periods at commercial rates. Following the sale, our continuing involvement with sit-up is limited to the loan note and carriage agreement and is therefore not considered significant.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 3—Long Term Debt

        Long term debt consisted of (in millions):

 
  March 31,
2009
  December 31,
2008
 

U.S. Dollar

             
 

8.75% U.S. Dollar senior loan notes due 2014 due to Virgin Media Finance PLC

  £ 297.2   £ 290.7  
 

9.125% U.S. Dollar senior notes due 2016 due to Virgin Media Finance PLC

    384.6     376.2  
 

6.50% U.S. Dollar loan notes due 2016 due to Virgin Media (UK) Group Inc

    167.7     164.1  
 

6.50% U.S. Dollar loan notes due 2016 due to Virgin Media Finance PLC

    518.3     507.0  
 

Senior credit facility

    371.9     363.8  

Euro

             
 

8.75% Euro senior loan notes due 2014 due to Virgin Media Finance PLC

    208.6     214.2  
 

Senior credit facility

    393.1     403.7  

Sterling

             
 

9.75% Sterling senior loan notes due 2014 due to Virgin Media Finance PLC

    375.0     375.0  
 

Floating rate senior loan notes due 2012 due to Virgin Media Finance PLC

    69.9     68.4  
 

Senior credit facility

    3,421.9     3,421.9  
 

Other loan notes due to affiliates

    468.9     472.5  
 

Capital leases

    162.7     174.6  
 

Other

    3.9     4.1  
           

    6,843.7     6,836.2  
 

Less: current portion

    (257.7 )   (40.5 )
           

  £ 6,586.0   £ 6,795.7  
           

        The effective interest rate on the senior credit facility was 7.0% and 7.3% as at March 31, 2009 and December 31, 2008, respectively.

Note 4—Derivative Financial Instruments

        In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an Amendment of FASB Statement No. 133, or FAS 161, which amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, or FAS 133, with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under FAS 133 and its related interpretations; and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and disclosures about credit risk-related contingent features in derivative instruments. FAS 161 applies to all entities and all derivative instruments and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We adopted the provisions of FAS 161 on January 1, 2009.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)

Strategies and Objectives for Holding Derivative Instruments

        Our results are materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. In accordance with FAS 133, 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.

        Whenever it is practical to do so, we will 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 contract is not designated, 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 earnings. As a result of our effectiveness assessment at March 31, 2009, we believe our derivative contracts that are designated and qualify for hedge accounting under FAS 133 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.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)

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

 
  March 31,
2009
  December 31,
2008
 

Included within current assets:

             
 

Accounting Hedge

             
   

Foreign currency forward rate contracts

  £ 42.6   £ 37.6  
   

Interest rate swaps

    6.1     6.1  
   

Cross-currency interest rate swaps

    55.9     61.5  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

    62.5     63.2  
           

  £ 167.1   £ 168.4  
           

Included within non-current assets:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 0.1   £  
   

Cross-currency interest rate swaps

    124.3     136.1  
 

Economic Hedge

             
   

Cross-currency interest rate swaps

    277.2     299.6  
           

  £ 401.6   £ 435.7  
           

Included within current liabilities:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 6.6   £ 2.2  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

    79.2     79.6  
   

Interest rate swaps

    6.5     2.6  
           

  £ 92.3   £ 84.4  
           

Included within non-current liabilities:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £ 19.5   £ 11.5  
   

Cross-currency interest rate swaps

    3.7      
 

Economic Hedge

             
   

Cross-currency interest rate swaps

    27.5     31.1  
           

  £ 50.7   £ 42.6  
           

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

        As of March 31, 2009, 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.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)

        The terms of our outstanding cross-currency interest rate swaps at March 31, 2009 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)
   
   

$425m senior notes due 2014

                       
 

April 2009

  Accounting   $ 425.0   £ 231.4   8.75%   9.42%
 

April 2009 to October 2011

  Accounting     425.0     291.0   8.75%   9.53%

$550m senior notes due 2016

                       
 

August 2016

  Accounting     550.0     301.2   9.13%   8.54%

$1,000 senior notes due 2016

                       
 

November 2016

  Economic     1,000.0     505.6   6.50%   6.95%

Senior credit facility

                       
 

September 2012

  Economic     531.9     288.5   3 month
$ LIBOR + 2.00%
  3 month
£ LIBOR + 2.12%
                     

      $ 2,931.9   £ 1,617.7        
                     

€225m senior notes due 2014

                       
 

April 2009

  Accounting   225.0   £ 156.0   8.75%   10.26%
 

April 2009 to October 2011

  Accounting     225.0     207.4   8.75%   8.90%

Senior credit facility

                       
 

September 2012

  Economic     427.9     296.7   3 month
EURIBOR + 2.00%
  3 month
LIBOR + 2.16%
                     

      877.9   £ 660.1        
                     

Other

                       
 

April 2012

  Economic   28.3   £ 20.1   3 month
EURIBOR + 2.38%
  3 month
LIBOR + 2.69%
 

December 2012

  Economic     28.3     20.1   3 month
EURIBOR + 2.38%
  3 month
LIBOR + 2.69%
 

April 2013

  Economic     21.7     15.4   3 month
EURIBOR + 2.88%
  3 month
LIBOR + 3.26%
 

December 2013

  Economic     21.7     15.4   3 month
EURIBOR + 2.88%
  3 month
LIBOR + 3.26%
                     

      100.0   £ 71.0        
                     
 

April 2012

 

Economic

 
£

19.4
 

28.3
 

3 month
LIBOR + 2.40%

 

3 month
EURIBOR + 2.38%

 

December 2012

  Economic     19.4     28.3   3 month
LIBOR + 2.40%
  3 month
EURIBOR + 2.38%
 

April 2013

  Economic     14.8     21.7   3 month
LIBOR + 2.90%
  3 month
EURIBOR + 2.88%
 

December 2013

  Economic     14.8     21.7   3 month
LIBOR + 2.90%
  3 month
EURIBOR + 2.88%
                     

      £ 68.4   100.0        
                     

        All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in April 2009 hedging the $425 million senior

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)


notes due 2014 and the contract maturing in November 2016 hedging the $1,000 million senior notes due 2016.

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

        As of March 31, 2009, 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 interest rate swaps allow us to receive interest based on three and six month LIBOR in exchange for payments of interest at fixed rates.

        The terms of our outstanding interest rate swap contracts at March 31, 2009 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 2009

  Accounting   £ 500.0   3 month LIBOR     5.18%  
 

April 2009

  Economic     500.0   3 month LIBOR     5.18%  
 

April 2009

  Accounting     1,725.0   6 month LIBOR     5.33%  
 

April 2009

  Economic     425.0   6 month LIBOR     5.09%  
 

June 2009

  Economic     17.0   3 month LIBOR     4.81%  
 

April 2009 to April 2010

  Accounting     2,600.0   3 month LIBOR     2.27%  
 

April 2010 to September 2012

  Accounting     600.0   3 month LIBOR     2.96%  
                     

      £ 6,367.0            
                     

Foreign Currency Forward Rate Contracts—Hedging the Principal Obligations of the Debt Obligations and Committed and Forecasted Transactions

        As of March 31, 2009, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars which hedge changes in the pound sterling value of the U.S. dollar denominated principal obligations. We have also entered into forward rate contracts to purchase U.S. dollars, euros and South

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)


African rand to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at March 31, 2009 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)
   
 

$425m senior notes due 2014

                     
 

April 2009

  Accounting   $ 425.0   £ 254.1   1.6724  

Committed and forecasted purchases

                     
 

April 2009 to June 2009

  Economic   $ 11.5   £ 8.2   1.4100  
 

May 2009 to January 2010

  Accounting   2.4   £ 2.1   1.1250  
 

April 2009 to January 2010

  Accounting   ZAR 41.0   £ 2.7   15.1351  

Other

                     
 

April 2009

  Economic   $ 345.2   £ 207.9   1.6610  
 

April 2009

  Economic   £ 194.1   $ 345.2   1.7788  
 

April 2009

  Economic   151.0   £ 110.1   1.3720  
 

April 2009

  Economic   £ 107.3   151.0   1.4069  

Cash Flow Hedges

        For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. In our consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the consolidated statement of cash flows.

        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 on the statement of operations in the period in which they occur. We have no gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges. During the three months ended March 31, 2009, we recognized a loss totaling £0.1 million relating to ineffectiveness. The following table presents the

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Derivative Financial Instruments (Continued)


amount of gain or (loss) recognized in other comprehensive income and amount reclassified to earnings during the three months ended March 31, 2009.

 
  Total   Interest
rate swaps
  Cross-currency
interest
rate swaps
  Forward foreign
exchange contracts
  Tax Effect  
 
  (in millions)
 

Balance at December 31, 2008

  £ 40.1   £ (7.9 ) £ 64.0   £   £ (16.0 )

Amounts recognized in other comprehensive income

    (30.6 )   (14.1 )   (16.9 )   0.4      

Amounts reclassified to earnings impacting:

                               
 

Foreign exchange losses

    (2.8 )       (2.8 )        
 

Interest expense

    (2.1 )   2.0     (4.1 )        

Tax effect recognized

    9.9                 9.9  
                       

Balance at March 31, 2009

  £ 14.5   £ (20.0 ) £ 40.2   £ 0.4   £ (6.1 )
                       

        Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax (losses) gains that would be reclassified to earnings would be £(16.6) million, £9.1 million and £0.4 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.

Note 5—Restructuring and Other Charges

        Restructuring and other charges of £5.1 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 as discussed below. Restructuring and other charges of £4.5 million for the three months ended March 31, 2008 related to lease exit and employee termination costs as a result of our acquisition-related restructuring programs.

        During the fourth quarter of 2008, we commenced the implementation of a restructuring plan aimed at driving further improvements in our operational performance and eliminating inefficiencies in order to create a fully-integrated, customer-focused organization. This plan involves the incurrence of substantial operating and capital expenditures, including certain costs which may be treated as restructuring costs under FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

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VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Restructuring and Other Charges (Continued)

        The following tables summarize our historical restructuring accruals, the restructuring accruals resulting from the acquisitions made by us during 2006 and the accruals for the restructuring plan announced in 2008 by Virgin Media (in millions):

 
  Historical
Restructuring
Accruals
  2006
Acquisition
Restructuring
Accruals
  2008
Restructuring Accruals
  Total  
 
  Lease
Exit Costs
  Lease
Exit Costs
  Involuntary
Employee
Termination and
Related Costs
  Lease and
Contract
Exit Costs
        

Balance, December 31, 2008

  £ 16.0   £ 38.1   £ 1.9   £ 13.5     £69.5  

Charged to expense

    0.5     0.8     5.4     4.2     10.9  

Revisions

    (1.2 )   (4.6 )           (5.8 )

Utilized

    (1.2 )   (1.7 )   (1.9 )   (7.3 )   (12.1 )
                       

Balance, March 31, 2009

  £ 14.1   £ 32.6   £ 5.4   £ 10.4     £62.5  
                       

Note 6—Share Based Compensation

Stock Option Plans

        We are an indirect, wholly owned subsidiary of Virgin Media. Accordingly, we have no stock-based compensation plans. As at March 31, 2009, certain of our employees participated in the stock-based compensation plans of Virgin Media, as described in Virgin Media's 2008 annual report on Form 10-K as filed with the SEC on February 26, 2009.

Note 7—Comprehensive Loss

        Comprehensive loss comprises (in millions):

 
  Three months
ended
March 31,
 
 
  2009   2008  

Net loss for period

  £ (151.8 ) £ (100.2 )

Currency translation adjustment

    (0.4 )    

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

    (22.1 )   15.9  

Reclassification of derivative gains to net income, net of tax

    (3.5 )   (9.6 )
           

Comprehensive loss

  £ (177.8 ) £ (93.9 )