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Virgin Media 10-Q 2010

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 June 30, 2010

or

o

 

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

Commission File No. 000-50886

VIRGIN MEDIA INC.
(Exact name of registrant as specified in its charter)

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
(Additional Registrant)

VIRGIN MEDIA INVESTMENTS LIMITED
(Additional Registrant)

Delaware
(State or other jurisdiction of
incorporation or organization)
  59-3778247
(I.R.S. Employer Identification No.)

909 Third Avenue, Suite 2863
New York, New York

(Address of principal executive offices)

 

10022
(Zip Code)

(212) 906-8440
(Registrant's telephone number, including area code)

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

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

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

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

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

         As of August 2, 2010, there were 331,911,102 shares of the registrant's common stock, par value $0.01 per share, issued and outstanding.

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


Table of Contents


VIRGIN MEDIA INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2010
INDEX

 
  Page

PART I—FINANCIAL INFORMATION

  4

Item 1. Financial Statements

  4

Virgin Media Inc.

   
 

Condensed Consolidated Balance Sheets—June 30, 2010 and December 31, 2009

  4
 

Condensed Consolidated Statements of Operations—Three and Six Months ended June 30, 2010 and 2009

  5
 

Condensed Consolidated Statements of Cash Flows—Six Months ended June 30, 2010 and 2009

  6
 

Notes to Condensed Consolidated Financial Statements

  7

Virgin Media Investment Holdings Limited

   
 

Condensed Consolidated Balance Sheets—June 30, 2010 and December 31, 2009

  41
 

Condensed Consolidated Statements of Operations—Three and Six Months ended June 30, 2010 and 2009

  42
 

Condensed Consolidated Statements of Cash Flows—Six Months ended June 30, 2010 and 2009

  43

Virgin Media Investments Limited

   
 

Condensed Consolidated Balance Sheets—June 30, 2010 and December 31, 2009

  44
 

Condensed Consolidated Statements of Operations—Three and Six Months ended June 30, 2010 and 2009

  45
 

Condensed Consolidated Statements of Cash Flows—Six Months ended June 30, 2010 and 2009

  46

Virgin Media Investment Holdings Limited and Virgin Media Investments Limited

   
 

Combined Notes to Condensed Consolidated Financial Statements

  47

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

  65

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  87

Item 4. Controls and Procedures

  89

PART II—OTHER INFORMATION

 
90

Item 1. Legal Proceedings

  90

Item 1A. Risk Factors

  90

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

  90

Item 3. Defaults Upon Senior Securities

  90

Item 4. (Removed and Reserved)

  90

Item 5. Other Information

  90

Item 6. Exhibits

  91

SIGNATURES

  93

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

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

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

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

    the effect of technological changes on our businesses;

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

    possible losses of revenues or customers due to systems failures;

    the ability to control unauthorized access to our network;

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

    the continued right to use the Virgin name and logo;

    the ability to manage customer churn;

    general economic conditions;

    the ability to provide attractive programming at a reasonable cost;

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

    currency and interest rate fluctuations;

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

    the ability to obtain additional financing in the future; and

    the ability to comply with restrictive covenants in our indebtedness agreements.

        These and other factors are discussed in more detail under "Risk Factors" and elsewhere in our annual report on Form 10-K for the year ended December 31, 2009, or the 2009 Annual Report, as filed with the U.S. Securities and Exchange Commission, or SEC, on February 26, 2010. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.


Note Concerning the Additional Registrants

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

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

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        As the guarantees granted by VMIH and VMIL are not deemed to be unconditional, separate financial statements for these wholly owned indirect subsidiaries of Virgin Media Inc. have been included in this quarterly report pursuant to the rules and regulations of the SEC. Unless otherwise indicated, the discussion contained in this report applies to Virgin Media as well as VMIH and VMIL. Both VMIH and VMIL are incorporated in England and Wales, with their respective registered offices at 160 Great Portland Street, London W1W 5QA, United Kingdom. Neither VMIH nor VMIL is an accelerated filer.


Financial Information and Currency of Financial Statements

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

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PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        


VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited) (in millions, except par value)

 
  June 30,
2010
  December 31,
2009
 
 
   
  (Adjusted)
 

Assets

             

Current assets

             
 

Cash and cash equivalents

  £ 414.9   £ 430.5  
 

Restricted cash

    5.5     6.0  
 

Accounts receivable—trade, less allowances for doubtful accounts of £10.0 (2010) and £9.0 (2009)

    394.2     403.1  
 

Inventory for resale

    19.3     12.9  
 

Derivative financial instruments

    4.7     2.2  
 

Prepaid expenses and other current assets

    102.8     95.0  
 

Current assets held for sale

    181.0     152.8  
           
   

Total current assets

    1,122.4     1,102.5  

Fixed assets, net

    4,930.1     5,045.8  

Goodwill and other indefinite-lived assets

    2,017.5     2,017.8  

Intangible assets, net

    191.8     265.9  

Equity investments

    351.3     359.9  

Derivative financial instruments

    260.7     235.1  

Deferred financing costs, net of accumulated amortization of £13.9 (2010) and £136.1 (2009)

    108.3     112.2  

Other assets

    49.7     50.8  
           

Total assets

    £9,031.8     £9,190.0  
           

Liabilities and shareholders' equity

             

Current liabilities

             
 

Accounts payable

  £ 316.4   £ 312.5  
 

Accrued expenses and other current liabilities

    367.8     404.4  
 

Derivative financial instruments

        17.8  
 

Restructuring liabilities

    48.6     57.3  
 

VAT and employee taxes payable

    81.1     67.0  
 

Interest payable

    105.6     126.6  
 

Deferred revenue

    302.1     282.8  
 

Current portion of long term debt

    196.2     41.2  
 

Current liabilities held for sale

    90.1     83.8  
           
   

Total current liabilities

    1,507.9     1,393.4  

Long term debt, net of current portion

    5,856.8     5,933.5  

Derivative financial instruments

    77.7     106.8  

Deferred revenue and other long term liabilities

    198.7     182.0  

Deferred income taxes

    84.1     83.0  
           

Total liabilities

    7,725.2     7,698.7  
           

Commitments and contingent liabilities

             

Shareholders' equity

             
 

Common stock—$0.01 par value; authorized 1,000.0 (2010 and 2009) shares; issued and outstanding 331.9 (2010) and 330.8 (2009)

    1.8     1.8  
 

Additional paid-in capital

    4,505.2     4,483.2  
 

Accumulated other comprehensive income

    53.9     22.5  
 

Accumulated deficit

    (3,254.3 )   (3,016.2 )
           
   

Total shareholders' equity

    1,306.6     1,491.3  
           

Total liabilities and shareholders' equity

    £9,031.8     £9,190.0  
           

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 June 30,   Six months ended June 30,  
 
  2010   2009   2010   2009  
 
   
  (Adjusted)
   
  (Adjusted)
 

Revenue

  £ 964.2   £ 900.1     £1,893.6     £1,803.2  

Costs and expenses

                         
 

Operating costs (exclusive of depreciation shown separately below)

    394.1     380.3     770.9     774.5  
 

Selling, general and administrative expenses

    200.4     192.3     403.4     395.9  
 

Restructuring and other charges

    6.5     23.6     6.9     29.0  
 

Depreciation

    246.5     233.4     489.0     465.6  
 

Amortization

    37.1     61.1     74.2     122.3  
                   

    884.6     890.7     1,744.4     1,787.3  
                   

Operating income

    79.6     9.4     149.2     15.9  

Other income (expense)

                         
 

Interest expense

    (117.6 )   (102.3 )   (240.9 )   (211.3 )
 

Loss on extinguishment of debt

    (37.1 )   (7.3 )   (70.0 )   (7.3 )
 

Share of income (loss) from equity investments

    7.1     (0.4 )   14.7     2.1  
 

Loss on derivative instruments

    (7.2 )   (126.5 )   (28.2 )   (147.7 )
 

Foreign currency (losses) gains

    (10.1 )   172.9     (77.5 )   157.4  
 

Interest income and other, net

    2.8     2.0     3.9     5.3  
                   

Loss from continuing operations before income taxes

    (82.5 )   (52.2 )   (248.8 )   (185.6 )
 

Income tax benefit (expense)

    14.0     (2.8 )   17.0     (12.4 )
                   

Loss from continuing operations

    (68.5 )   (55.0 )   (231.8 )   (198.0 )
                   

Discontinued operations

                         
 

Income (loss) from discontinued operations, net of tax

    8.6     5.7     11.5     (5.3 )
                   

Net loss

  £ (59.9 ) £ (49.3 ) £ (220.3 ) £ (203.3 )
                   

Basic and diluted loss from continuing operations per common share

  £ (0.21 ) £ (0.17 ) £ (0.70 ) £ (0.60 )
                   

Basic and diluted income (loss) from discontinued operations per common share

  £ 0.03   £ 0.02   £ 0.03   £ (0.02 )
                   

Basic and diluted net loss per common share

  £ (0.18 ) £ (0.15 ) £ (0.67 ) £ (0.62 )
                   

Dividends per share (in U.S. dollars)

  $ 0.04   $ 0.04   $ 0.08   $ 0.08  
                   

Average number of shares outstanding

    330.9     328.7     330.3     328.5  
                   

See accompanying notes.

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)

 
  Six months ended
June 30,
 
 
  2010   2009  
 
   
  (Adjusted)
 

Operating activities:

             

Net loss

  £ (220.3 ) £ (203.3 )

(Income) loss from discontinued operations

    (11.5 )   5.3  
           

Loss from continuing operations

    (231.8 )   (198.0 )

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

             
 

Depreciation and amortization

    563.2     587.9  
 

Non-cash interest

    (13.1 )   (36.5 )
 

Non-cash compensation

    15.2     5.9  
 

Loss on extinguishment of debt

    70.1     6.8  
 

Income from equity accounted investments, net of dividends received

    (6.1 )   (1.5 )
 

Unrealized losses on derivative instruments

    106.2     155.0  
 

Unrealized foreign currency losses (gains)

    (44.5 )   (177.4 )
 

Income taxes

    (10.2 )   13.5  
 

Amortization of original issue discount and deferred finance costs

    10.5     18.0  
 

Other

    (0.4 )   (1.7 )

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

    (6.4 )   (0.1 )
           
   

Net cash provided by operating activities

    452.7     371.9  
           

Investing activities:

             
 

Purchase of fixed and intangible assets

    (327.5 )   (292.1 )
 

Principal repayments on loans to equity investments

    12.5     0.7  
 

Decrease in restricted cash

    0.5      
 

Disposal of sit-up, net

        (17.5 )
 

Other

    1.0     0.8  
           
   

Net cash used in investing activities

    (313.5 )   (308.1 )
           

Financing activities:

             
 

New borrowings, net of financing fees

    3,072.7     572.8  
 

Proceeds from employee stock option exercises

    6.8     0.2  
 

Principal payments on long term debt, including redemption premiums, and capital leases

    (3,210.3 )   (625.9 )
 

Dividends paid

    (17.8 )   (17.0 )
 

Realized gain on derivatives

        88.3  
 

Other

        (0.3 )
           
   

Net cash (used in) provided by financing activities

    (148.6 )   18.1  
           

Cash flow from discontinued operations:

             
 

Net cash used in operating activities

    (10.4 )   (15.1 )
 

Net cash used in investing activities

        (0.5 )
           
   

Net cash used in discontinued operations

    (10.4 )   (15.6 )
           

Effect of exchange rate changes on cash and cash equivalents

    4.2     (1.9 )

Decrease in cash and cash equivalents

    (15.6 )   64.4  

Cash and cash equivalents, beginning of period

    430.5     181.6  
           

Cash and cash equivalents, end of period

  £ 414.9   £ 246.0  
           

Supplemental disclosure of cash flow information

             

Cash paid during the period for interest exclusive of amounts capitalized

  £ 248.1   £ 228.3  

See accompanying notes.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and notes thereto included in Virgin Media Inc.'s annual report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on February 26, 2010, or the 2009 Annual Report.

Note 2—Recent Accounting Pronouncements

        In September 2009, the Financial Accounting Standards Board, or FASB, ratified new accounting guidance for existing multiple-element revenue arrangements. The revised multiple-element revenue arrangements guidance will be effective for the first annual reporting period beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. We have not yet adopted the provisions of this guidance and are evaluating the impact on our consolidated financial statements.

        In January 2010, the FASB issued new guidance for fair value measurements and disclosures. The guidance improves disclosures about fair value measurements by requiring a greater level of disaggregated information and more robust disclosures about valuation techniques and inputs to fair value measurements. In addition, the guidance requires separate disclosure of amounts of significant transfers in and out of Levels 1 and 2 of the fair value hierarchy and a reconciliation of fair value measurements using significant unobservable inputs (Level 3 of the fair value hierarchy). We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.

        In February 2010, the FASB issued new guidance for the disclosure of subsequent events. As a result of this guidance, we are no longer required to disclose the date through which we have evaluated subsequent events in the financial statements. We have adopted the disclosure requirements of this standard which did not have a material impact on our consolidated financial statements.

        In April 2010, the FASB issued new guidance for employee share-based payment awards. The guidance clarifies that share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of an entity's equity securities trades, should not be classified as a liability if they otherwise qualify as equity. The new guidance is effective for fiscal years and interim periods beginning on or after December 15, 2010. While we are still evaluating the impact of the adoption of this guidance, we do not expect it to have a material impact on our consolidated financial statements.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 3—Disposals

        On June 4, 2010, we announced the sale to British Sky Broadcasting Limited, or BSkyB, of our television channel business known as Virgin Media TV. Virgin Media TV's operations comprised our former Content segment. We determined that the planned sale met the requirements as of June 30, 2010 for Virgin Media TV to be reflected as assets and liabilities held for sale and discontinued operations in both the current and prior periods, and accordingly, we adjusted the balance sheet as of December 31, 2009 and statement of operations and cash flows for the three and six months ended June 30, 2009.

        We have also entered into a number of agreements providing for the carriage by us of certain of BSkyB's standard and high-definition channels along with the former Virgin Media TV channels sold. The agreements in respect to the sale of Virgin Media TV and the carriage of these channels were negotiated concurrently. We have determined that these agreements are separate units of account as described by the fair value measurements guidance issued by the FASB. We are performing a review of the fair value of the services received and the business disposed of to determine the appropriate values to attribute to each unit of account. As a result, a portion of the gain on disposal of Virgin Media TV may be deferred on the balance sheet and treated as a reduction in operating costs over the contractual terms of the carriage arrangements which range from 3 to 7 years.

        The revenue and costs of Virgin Media TV, including intersegment transactions, reported in discontinued operations for the three and six months ended June 30, 2010 and 2009 were as follows (in millions):

 
  Three months
ended
June 30,
  Six months
ended
June 30,
 
 
  2010   2009   2010   2009  

Revenue

  £ 48.0   £ 42.3   £ 88.9   £ 81.5  

Costs and expenses

                         
 

Operating costs (exclusive of depreciation shown separately below)

    (31.6 )   (30.9 )   (61.0 )   (57.0 )
 

Selling, general and administrative expenses

    (4.1 )   (5.1 )   (8.9 )   (11.2 )
 

Depreciation

    (0.4 )   (0.5 )   (0.8 )   (1.0 )
 

Foreign currency gains (losses)

        1.6     (2.3 )   5.2  
                   

Income from discontinued operations

    11.9     7.4     15.9     17.5  
                   
 

Income tax expense

    (3.3 )       (4.4 )    
                   

Income from discontinued operations net of tax

  £ 8.6   £ 7.4   £ 11.5   £ 17.5  
                   

        Income from discontinued operations for the prior periods also includes the results of operation of our former sit-up reporting unit which was disposed of on April 1, 2009. Intercompany costs related to the carriage of the Virgin Media TV channels by our Consumer segment that had previously been eliminated for consolidation purposes and now have been recognized in our income from continuing operations for the three and six months ended June 30, 2010 were £7.1 million and £14.3 million, respectively, and for the three and six months ended June 30, 2009 were £6.6 million and £13.2 million, respectively.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 3—Disposals (Continued)

        The assets and liabilities of Virgin Media TV reported as held for sale as of June 30, 2010 and December 31, 2009 comprised (in millions):

 
  June 30,
2010
  December 31,
2009
 

Current assets held for sale

             
 

Accounts receivable, net

  £ 30.4   £ 27.4  
 

Programming inventory

    89.2     62.1  
 

Prepaid expenses

    4.8     5.8  
 

Fixed Assets

    2.6     3.5  
 

Trademark licenses

    11.3     11.3  
 

Goodwill

    42.7     42.7  
           
   

Current assets held for sale

  £ 181.0   £ 152.8  
           

Current liabilities held for sale

             
 

Accounts payable

  £ 78.2   £ 63.2  
 

Accrued expenses

    10.9     17.9  
 

Deferred revenue and other liabilities

    1.0     2.7  
           
   

Current liabilities held for sale

  £ 90.1   £ 83.8  
           

        The sale of Virgin Media TV was completed on July 12, 2010 following approval from Irish regulators. On that date, consideration was received totalling £105.0 million. Additional consideration of up to £55.0 million will be received upon full approval of the transaction by U.K. regulators.

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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):

 
  June 30,
2010
  December 31,
2009
 

Secured Obligations

             
 

U.S. Dollar

             
 

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

  £ 659.3   £  
 

Senior credit facility

        275.3  
 

Euro

             
 

Senior credit facility

        356.5  
 

Sterling

             
 

7.00% sterling senior secured notes due 2018

    862.4      
 

Senior credit facility

    1,675.0     2,481.0  

Unsecured Obligations

             
 

U.S. Dollar

             
 

8.75% U.S. dollar senior notes due 2014

        55.3  
 

9.125% U.S. dollar senior notes due 2016

    368.0     340.2  
 

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

    552.1     504.5  
 

9.50% U.S. dollar senior notes due 2016

    878.5     810.9  
 

8.375% U.S. dollar senior notes due 2019

    395.1     365.1  
 

Euro

             
 

8.75% euro senior notes due 2014

        41.9  
 

9.50% euro senior notes due 2016

    142.2     152.9  
 

Sterling

             
 

9.75% sterling senior notes due 2014

        78.8  
 

8.875% sterling senior notes due 2019

    344.6     344.5  

Other Secured Obligations

             
 

Capital leases

    175.0     166.6  
 

Other

    0.8     1.2  
           

    6,053.0     5,974.7  
 

Less: current portion

    (196.2 )   (41.2 )
           

  £ 5,856.8   £ 5,933.5  
           

        The effective interest rate on the senior credit facility was 5.2% and 5.3% as at June 30, 2010 and December 31, 2009, respectively.

        On January 19, 2010, our wholly owned subsidiary Virgin Media Secured Finance PLC issued $1.0 billion aggregate principal amount of 6.50% senior secured notes due 2018 and £875 million aggregate principal amount of 7.00% senior secured notes due 2018. Interest is payable on June 15 and December 15 each year, beginning on June 15, 2010. The senior secured notes due 2018 rank pari passu with our senior credit facility and, subject to certain exceptions, share in the same guarantees and security which have been granted in favor of our senior credit facility. We used the net proceeds to make repayments totaling £1,453.0 million under our old senior credit facility.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Long Term Debt (Continued)

        On April 19, 2010, we drew down an aggregate principal amount of £1,675.0 million under our new senior credit facility dated March 16, 2010, as amended and restated, or the new senior credit facility, and applied the proceeds towards the repayment of all amounts outstanding under our old senior credit facility and for general corporate purposes. The new senior credit facility comprises a term loan A facility in an aggregate principal amount of £1,000 million, a term loan B facility in an aggregate principal amount of £675 million and a revolving credit facility in aggregate principal amount of £250 million. We also utilized £20.4 million of the new revolving credit facility for bank guarantees and standby letters of credit.

        On May 12, 2010, we redeemed in full the outstanding balance of our senior notes due 2014 using cash from our balance sheet. The total cost to redeem these notes was £192.3 million, inclusive of the cost to settle derivative contracts entered in to as economic hedges of these notes.

        Long term debt repayments, excluding capital leases, as of June 30, 2010, were due as follows (in millions):

Period ending June 30:
   
 

2011

  £ 150.3  

2012

    175.3  

2013

    200.2  

2014

    200.0  

2015

    275.0  

Thereafter

    5,058.7  
       

Total debt payments

  £ 6,059.5  
       

Note 5—Fair Value Measurements

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

 
   
Level 1   Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2

 

Unadjusted quoted prices in active markets for similar assets or liabilities, or

 

 

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or

 

 

Inputs other than quoted prices that are observable for the asset or liability

Level 3

 

Unobservable inputs for the asset or liability

        We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We have determined that all of our financial assets and liabilities that are stated at fair value fall in levels 1 and 2 in the fair value hierarchy described above. In estimating the fair value of our financial assets and liabilities, we used the following methods and assumptions:

        Cash and cash equivalents, and restricted cash:    The carrying amounts reported in the consolidated balance sheets approximate fair value due to the short maturity and nature of these financial instruments.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Fair Value Measurements (Continued)

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

        Long term debt:    In the following table the fair value of our senior credit facility is based upon quoted trading prices in inactive markets for this debt, which incorporates non-performance risk, and is classified within level 2 of the fair value hierarchy. The fair values of our other debt in the following table are based on the quoted market prices in active markets and incorporate non-performance risk. Accordingly, the inputs used to value these debt instruments are classified within level 1 of the fair value hierarchy.

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

 
  June 30, 2010   December 31, 2009  
 
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 

Senior credit facility

  £ 1,675.0   £ 1,618.0   £ 3,112.8   £ 3,043.5  

8.75% U.S. dollar senior notes due 2014

            55.3     57.7  

9.75% sterling senior notes due 2014

            78.8     81.6  

8.75% euro senior notes due 2014

            41.9     43.7  

9.125% U.S. dollar senior notes due 2016

    368.0     380.6     340.2     359.4  

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

    552.1     781.8     504.5     737.0  

9.50% U.S. dollar senior notes due 2016

    878.5     954.4     810.9     895.8  

9.50% euro senior notes due 2016

    142.2     164.5     152.9     173.5  

8.375% U.S. dollar senior notes due 2019

    395.1     416.7     365.1     377.0  

8.875% sterling senior notes due 2019

    344.6     365.9     344.5     355.3  

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

    659.3     647.3          

7.00% sterling senior secured notes due 2018

    862.4     862.8          

Concentrations of Credit Risk

        Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, trade receivables and derivative contracts.

        At June 30, 2010 and December 31, 2009, we had £414.9 million and £430.5 million, respectively, in cash and cash equivalents. These cash and cash equivalents are on deposit with major financial institutions and, as part of our cash management process, we perform regular evaluations of the credit standing of these institutions using a range of metrics. We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash balances.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Fair Value Measurements (Continued)

        Concentrations of credit risk with respect to trade receivables are limited because of the large number of customers and their dispersion across geographic areas. We perform periodic credit evaluations of our Business segment customers' financial condition and generally do not require collateral. No single group or customer represents greater than 10% of total accounts receivable.

        Concentrations of credit risk with respect to derivative contracts are focused within a limited number of international financial institutions with whom we operate and relate only to derivatives with recorded asset balances at June 30, 2010. We perform regular reviews of the financial institutions with which we operate as to their credit worthiness and financial condition. We have not experienced non-performance by any of our derivative counterparties nor do we expect there to be non-performance risks associated with our counterparties. At June 30, 2010, based on market values, we had 44.1% of our derivative contracts with three financial institutions, each with more than 10% of our total exposure. At December 31, 2009, based on market values, we had 68.2% of our derivative contracts with three financial institutions, each with more than 10% of our total exposure.

Note 6—Derivative Financial Instruments and Hedging Activities

Strategies and Objectives for Holding Derivative Instruments

        Our results could be materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. We are required to recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and to recognize certain changes in the fair value of derivative instruments on our consolidated statements of operations.

        We have entered into cross-currency interest rate swaps and foreign currency forward rate contracts to manage interest rate and foreign exchange rate currency exposures with respect to our U.S. dollar ($) and euro (€) denominated debt obligations. Additionally, we have entered into interest rate swaps to manage interest rate exposures resulting from variable rates of interest we pay on our U.K. pound sterling (£) denominated debt obligations. We have also entered into U.S. dollar, euro and South African rand (ZAR) forward rate contracts to manage our foreign exchange rate currency exposures related to certain committed and forecasted purchases.

        When practical, we designate a derivative contract as either a cash flow or fair value hedge for accounting purposes. These derivatives are referred to as "Accounting Hedges" below. When a derivative contract is not designated as an Accounting Hedge, the derivative will be treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains (losses) on derivative instruments in the statements of operations. These derivatives are referred to as "Economic Hedges" below. We do not enter into derivatives for speculative trading purposes.

        In respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in cash flow or fair value attributable to the hedged risk. We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge contracts, including assessing the possibility of counterparty default. If we determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the derivative in gains or losses on derivative instruments in the

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

statement of operations. As a result of our effectiveness assessment at June 30, 2010, we believe our derivative contracts that are designated and qualify for hedge accounting will continue to be highly effective in offsetting changes in cash flow or fair value attributable to the hedged risk.

        The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. As such, these derivative instruments are classified within level 2 in the fair value hierarchy. Derivative instruments which are subject to master netting arrangements are not offset and we have not provided, nor do we require, cash collateral with any counterparty.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

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

 
  June 30,
2010
  December 31,
2009
 

Included within current assets:

             
 

Accounting Hedge

             
   

Foreign currency forward rate contracts

  £ 0.4   £ 0.3  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

    4.3     1.9  
           

  £ 4.7   £ 2.2  
           

Included within non-current assets:

             
 

Accounting Hedge

             
   

Cross-currency interest rate swaps

  £ 198.3   £ 63.7  
 

Economic Hedge

             
   

Interest rate swaps

    4.1      
   

Cross-currency interest rate swaps

    58.3     169.5  
   

Other

        1.9  
           

  £ 260.7   £ 235.1  
           

Included within current liabilities:

             
 

Accounting Hedge

             
   

Foreign currency forward rate contracts

  £   £ 0.3  
   

Interest rate swaps

        12.0  
 

Economic Hedge

             
   

Foreign currency forward rate contracts

        2.4  
   

Interest rate swaps

        3.1  
           

  £   £ 17.8  
           

Included within non-current liabilities:

             
 

Accounting Hedge

             
   

Interest rate swaps

  £   £ 21.0  
   

Cross-currency interest rate swaps

    17.4     27.6  
 

Economic Hedge

             
   

Interest rate swaps

    38.9      
   

Cross-currency interest rate swaps

    21.4     58.2  
           

  £ 77.7   £ 106.8  
           

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

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

        As of June 30, 2010, we had outstanding cross-currency interest rate swaps to mitigate the interest and foreign exchange rate risks relating to the pound sterling value of interest payments on the U.S. dollar and euro denominated senior notes and senior secured notes.

        The terms of our outstanding cross-currency interest rate swaps at June 30, 2010 were as follows:

Hedged item/Maturity date
  Hedge type   Notional
amount due
from
counterparty
  Notional
amount due
to
counterparty
  Weighted
average
interest
rate due
from
counterparty
  Weighted
average
interest
rate due
to
counterparty
 
   
  (in millions)
  (in millions)
   
   

$550m senior notes due 2016

                       
 

August 2016

  Accounting   $ 550.0   £ 301.2   9.13%   8.54%

$1,350m senior notes due 2016

                       
 

August 2016

  Accounting     1,350.0     835.5   9.50%   9.98%

$1,000m convertible senior notes due 2016

                       
 

November 2016

  Economic     1,000.0     505.6   6.50%   6.95%

$600m senior notes due 2019

                       
 

October 2019

  Accounting     264.3     159.8   8.38%   9.03%
 

October 2011

  Economic     335.7     228.0   8.38%   9.23%
 

October 2011 to October 2019

  Accounting     335.7     203.0   8.38%   9.00%

$1,000m senior secured notes due 2018

                       
 

January 2018

  Accounting     1,000.0     615.4   6.50%   7.01%
                     

      $ 4,835.7   £ 2,848.5        
                     

€180m senior notes due 2016

                       
 

August 2016

  Accounting   180.0   £ 158.6   9.50%   10.18%
                     

      180.0   £ 158.6        
                     

Other

                       
 

December 2012

  Economic   56.7   £ 40.3   3 month   3 month

                  EURIBOR + 2.38%   LIBOR + 2.69%
 

December 2013

  Economic     43.3     30.8   3 month   3 month

                  EURIBOR + 2.88%   LIBOR + 3.26%
                     

      100.0   £ 71.1        
                     
 

December 2012

  Economic   £ 38.8   56.7   3 month   3 month

                  LIBOR + 2.40%   EURIBOR + 2.38%
 

December 2013

  Economic     29.7     43.3   3 month   3 month

                  LIBOR + 2.90%   EURIBOR + 2.88%
                     

      £ 68.5   100.0        
                     

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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

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

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

        As of June 30, 2010, we had outstanding interest rate swap agreements to manage the exposure to variability in future cash flows on the interest payments associated with our senior credit facility, which accrue at variable rates based on LIBOR. The terms of our outstanding interest rate swap contracts at June 30, 2010 were as follows:

Hedged item/Maturity date
  Hedge type   Notional
amount
  Weighted
average
interest
rate due
from
counterparty
  Weighted
average
interest
rate due
to
counterparty
 
   
  (in millions)
   
   

Senior credit facility

                 
 

September 2012

  Economic   £ 600.0   3 month LIBOR   3.09%

Other

                 
 

March 2013

  Economic   £ 300.0   3 month LIBOR   3.28%
 

March 2013

  Economic     300.0   1.86%   3 month LIBOR

Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions

        As of June 30, 2010, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars and South African rand to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at June 30, 2010 were as follows:

Hedged item/Maturity date
  Hedge type   Notional
amount due
from
counterparty
  Notional
amount due
to
counterparty
  Weighted
average
exchange
rate
 
 
   
  (in millions)
  (in millions)
   
 

Commited and forecasted purchases

                       
 

July 2010 to December 2010

  Economic   $ 60.8   £ 36.4     1.6704  
 

September 2010 to December 2010

  Accounting   $ 5.7   £ 3.4     1.6701  
 

July 2010 to December 2010

  Accounting   ZAR 33.0   £ 2.9     11.5444  

Cash Flow Hedges

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

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

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


where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the consolidated statement of cash flows.

        Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the statement of operations in the period in which they occur. During the three and six months ended June 30, 2010, there were no ineffectiveness losses recognized. The following tables present the effective amount of gain or (loss) recognized in other comprehensive income and amounts reclassified to earnings during the three and six months ended June 30, 2010 (in millions):

 
  Total   Interest
rate swaps
  Cross-currency
interest rate
swaps
  Forward
foreign
exchange
contracts
  Tax
Effect
 

Balance at December 31, 2009

  £ (55.3 ) £ (32.4 ) £ (6.9 ) £   £ (16.0 )

Amounts recognized in other comprehensive income

    95.8         95.1     0.7      

Amounts reclassified as a result of cash flow hedge discontinuance

    32.4     32.4              

Amounts reclassified to earnings impacting:

                               
 

Foreign exchange loss

    (127.9 )       (127.9 )        
 

Interest expense

    (2.7 )       (2.7 )        
 

Operating costs

    (0.2 )           (0.2 )    
                       

Balance at March 31, 2010

  £ (57.9 ) £   £ (42.4 ) £ 0.5   £ (16.0 )
                       

Amounts recognized in other comprehensive income

    54.5         54.5          

Amounts reclassified as a result of cash flow hedge discontinuance

                     

Amounts reclassified to earnings impacting:

                               
 

Foreign exchange loss

    (20.9 )       (20.9 )        
 

Interest expense

    (2.0 )       (2.0 )        
 

Operating costs

    (0.1 )           (0.1 )    

Tax effect recognized

    (8.1 )               (8.1 )
                       

Balance at June 30, 2010

  £ (34.5 ) £   £ (10.8 ) £ 0.4   £ (24.1 )
                       

        Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax gains that would be reclassified from other comprehensive income to earnings would be nil, £4.8 million and £0.4 million relating to interest rate swaps, cross-currency interest rate swaps and forward foreign exchange contracts, respectively.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 7—Restructuring and Other Charges

        Restructuring and other charges of £6.5 million and £6.9 million for the three and six months ended June 30, 2010, respectively, related primarily to involuntary employee termination and related costs in connection with the restructuring program initiated in the last quarter of 2008. Restructuring and other charges of £23.6 million and £29.0 million for the three and six months ended June 30, 2009, respectively, related primarily to employee termination costs in connection with the restructuring program initiated in the last quarter of 2008.

        During the quarter, we identified further savings through the expansion of the 2008 restructuring program and revised the estimated total costs and extended the completion date through the end of 2012. In connection with our 2008 restructuring program we expect to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million in connection with this program.

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

 
  Historical
Restructuring
Accruals
  2006
Acquisition
Restructuring
Accruals
  2008
Restructuring Accruals
   
 
Three months ended June 30, 2010
  Lease
Exit Costs
  Lease
Exit Costs
  Involuntary
Employee
Termination
and Related
Costs
  Lease and
Contract
Exit Costs
  Total  

Balance, March 31, 2010

  £ 11.2   £ 24.1   £ 0.9   £ 15.1   £ 51.3  

Charged to expense

    0.4     0.6     5.2     0.9     7.1  

Revisions

        (0.2 )   (0.4 )       (0.6 )

Utilized

    (0.8 )   (5.6 )   (0.8 )   (2.0 )   (9.2 )
                       

Balance, June 30, 2010

  £ 10.8   £ 18.9   £ 4.9   £ 14.0   £ 48.6  
                       

 

 
  Historical
Restructuring
Accruals
  2006
Acquisition
Restructuring
Accruals
  2008
Restructuring Accruals
   
 
Six months ended June 30, 2010
  Lease
Exit Costs
  Lease
Exit Costs
  Involuntary
Employee
Termination
and Related
Costs
  Lease and
Contract
Exit Costs
  Total  

Balance, December 31, 2009

  £ 12.6   £ 27.4   £ 1.8   £ 15.5   £ 57.3  

Amendments offset against goodwill

        (0.3 )           (0.3 )

Charged to expense

    0.8     0.6     5.6     2.2     9.2  

Revisions

    (0.4 )   (1.3 )   (0.6 )       (2.3 )

Utilized

    (2.2 )   (7.5 )   (1.9 )   (3.7 )   (15.3 )
                       

Balance, June 30, 2010

  £ 10.8   £ 18.9   £ 4.9   £ 14.0   £ 48.6  
                       

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 8—Shareholders' Equity and Share Based Compensation

        Total share based compensation expense included in selling, general and administrative expenses in the statements of operations was £7.9 million and £1.2 million for the three months ended June 30, 2010 and 2009, respectively, and £15.2 million and £5.9 million for the six months ended June 30, 2010 and 2009, respectively.

        Basic and diluted net loss per share is computed by dividing the net loss for the three and six months ended June 30, 2010 and 2009 by the weighted average number of shares outstanding during the respective periods. The average number of shares outstanding for the three and six months ended June 30, 2010 and 2009 is computed as follows (in millions):

 
  Three months ended June 30,   Six months ended June 30,  
 
  2010   2009   2010   2009  

Number of shares outstanding at start of period

    330.5     328.4     329.4     328.1  

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

    0.4     0.3     0.9     0.4  
                   

Average number of shares outstanding

    330.9     328.7     330.3     328.5  
                   

        Options, sharesave options, shares of restricted stock held in escrow, restricted stock units, warrants, and shares issuable under our convertible senior notes at June 30, 2010 and 2009 are excluded from the calculation of diluted loss per share, since these securities are anti-dilutive. The following is a summary of the terms of each of these securities:

Stock Option Grants

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

Sharesave Option Grants

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

Restricted Stock Grants

        The shares of restricted stock granted under our stock incentive plans have a term of up to three and a half years and vest based on time or performance, subject to continued employment. For performance based restricted stock grants, the performance objectives are based upon quantitative and qualitative objectives, including earnings, operational performance and achievement of strategic goals, amongst others, which vest after a one to three year period. These objectives may be absolute or

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 8—Shareholders' Equity and Share Based Compensation (Continued)


relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.

Restricted Stock Unit Grants

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

Series A Warrants

        Warrants are exercisable for a total of 25,769,060 shares of our common stock at an exercise price of $105.17 per share. The Series A warrants expire on January 10, 2011.

Convertible Senior Notes

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

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

        On July 28, 2010, we announced our intention to undertake a range of capital structure optimization actions. This capital structure optimization program is expected to include the application of, in aggregate, up to £700 million, in part towards repurchases of up to £375 million of our common stock over the next twelve months, and in part towards transactions relating to our debt and convertible debt, including related derivative transactions. As a first step in this program, on the same date we initiated a £125 million accelerated stock repurchase program. This program may be effected through

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 8—Shareholders' Equity and Share Based Compensation (Continued)


open market, privately negotiated, and/or derivative transactions, and may be implemented through arrangements with one or more brokers. Any shares of common stock acquired in connection with this program will be held in treasury or cancelled.

        On July 23, 2010, the Board of Directors of Virgin Media Inc. approved the payment of a quarterly cash dividend of $0.04 per share on September 23, 2010 to stockholders of record as of September 13, 2010.

Note 9—Comprehensive Loss

        Comprehensive loss comprises (in millions):

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2010   2009   2010   2009  

Net loss for period

  £ (59.9 ) £ (49.3 ) £ (220.3 ) £ (203.3 )

Currency translation adjustment

    2.9     (19.5 )   10.6     (14.9 )

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

    12.4     (120.6 )   108.2     (142.6 )

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

    11.0     113.3     (87.4 )   109.7  
                   

Comprehensive loss

  £ (33.6 ) £ (76.1 ) £ (188.9 ) £ (251.1 )
                   

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

 
  June 30,
2010
  December 31,
2009
 

Foreign currency translation

  £ 170.7   £ 160.1  

Pension liability adjustments

    (82.3 )   (82.3 )

Net unrealized gains on derivatives

    (34.5 )   (55.3 )
           

  £ 53.9   £ 22.5  
           

Note 10—Contingent Liabilities

        We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. We recognize a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have adequate provisions for any such matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us. Nevertheless, it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies, or because of the diversion of management's attention and the creation of significant expenses.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 10—Contingent Liabilities (Continued)

        Our revenue generating activities are subject to Value Added Tax, or VAT. The U.K. tax authorities are seeking to challenge our VAT treatment of certain of these activities. As a result, we have estimated contingent losses totaling £44.0 million as of June 30, 2010 that are not accrued for, as we do not deem them to be probable of resulting in a liability. We continue to evaluate the likelihood of the contingent losses as additional information becomes available and, to the extent an accrual becomes necessary, it will be recognized in earnings in the period when such amount becomes probable. Any challenge made could be subject to court proceedings before any settlement would be required and therefore the timescale for resolution is not expected to occur within the next financial year.

Note 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 internal reporting structure and the related financial information used by management and the CODM reflect changes we have made after the announcement of the sale of Virgin Media TV, which comprised our Content segment, to BSkyB in June 2010. Following this announcement we have two reporting segments, Consumer and Business, as described below.

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

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

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

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Industry Segments (Continued)

        Segment information for the three and six month periods ended June 30, 2010 and 2009 was as follows (in millions):

 
  Three months ended
June 30, 2010
  Three months ended
June 30, 2009
 
 
  Consumer   Business   Total   Consumer   (Adjusted)
Business
  Total  

Revenue

  £ 811.5   £ 152.7   £ 964.2   £ 757.6   £ 142.5   £ 900.1  

Segment contribution

  £ 489.4   £ 87.6   £ 577.0   £ 454.0   £ 83.7   £ 537.7  

 

 
  Six months ended June 30, 2010   Six months ended June 30, 2009  
 
  Consumer   Business   Total   Consumer   (Adjusted)
Business
  Total  

Revenue

  £ 1,601.0   £ 292.6   £ 1,893.6   £ 1,510.9   £ 292.3   £ 1,803.2  

Segment contribution

  £ 969.9   £ 163.7   £ 1,133.6   £ 892.2   £ 166.3   £ 1,058.5  

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

 
  Three months ended
June 30,
  Six months ended
June 30,
 
 
  2010   2009   2010   2009  
 
   
  (Adjusted)
   
  (Adjusted)
 

Total segment contribution

  £ 577.0   £ 537.7   £ 1,133.6   £ 1,058.5  
 

Other operating and corporate costs

    207.3     210.2     414.3     425.7  
 

Depreciation

    246.5     233.4     489.0     465.6  
 

Amortization

    37.1     61.1     74.2     122.3  
 

Restructuring and other charges

    6.5     23.6     6.9     29.0  
                   

Consolidated operating income

  £ 79.6   £ 9.4   £ 149.2   £ 15.9  
                   

Note 12—Condensed Consolidating Financial Information—Senior Notes

        We present the following condensed consolidating financial information as of June 30, 2010 and December 31, 2009 and for the three and six months ended June 30, 2010 and 2009 as required by Rule 3-10(d) of Regulation S-X.

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

    £375 million aggregate principal amount of 9.75% senior notes due 2014

    $425 million aggregate principal amount of 8.75% senior notes due 2014

    €225 million aggregate principal amount of 8.75% senior notes due 2014

    $550 million aggregate principal amount of 9.125% senior notes due 2016

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

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

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)

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

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

        Virgin Media Inc. and certain of its subsidiaries, namely Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited, have guaranteed the senior notes on a senior basis. Each of Virgin Media Investment Holdings Limited, or VMIH, and Virgin Media Investments Limited, or VMIL, are conditional guarantors and have guaranteed the senior notes on a senior subordinated basis. VMIL is included as a conditional guarantor as at December 31, 2009 following its accession on December 30, 2009 as a senior subordinated guarantor of the senior notes issued by Virgin Media Finance.

 
  June 30, 2010  
Balance sheets
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   VMIL   All other
subsidiaries
  Adjustments   Total  
 
  (in millions)
 

Cash and cash equivalents

  £ 15.8   £ 1.9   £ 0.5   £ 294.1   £   £ 102.6   £   £ 414.9  

Restricted cash

                        5.5         5.5  

Other current assets

    5.3             18.1         497.6         521.0  

Current assets held for sale

                        181.0         181.0  
                                   
 

Total current assets

    21.1     1.9     0.5     312.2         786.7         1,122.4  

Fixed assets, net

   
   
   
   
   
   
4,930.1
   
   
4,930.1
 

Goodwill and intangible assets, net

            (15.0 )           2,224.3         2,209.3  

Investments in, and loans to, parent and subsidiary companies

    1,836.5     496.1     (1,151.0 )   760.2     1,520.3     (3,885.6 )   774.8     351.3  

Other assets, net

    10.4             347.0         61.3         418.7  
                                   
 

Total assets

  £ 1,868.0   £ 498.0   £ (1,165.5 ) £ 1,419.4   £ 1,520.3   £ 4,116.8   £ 774.8   £ 9,031.8  
                                   

Current liabilities

 
£

9.3
 
£

67.6
 
£

21.4
 
£

100.4
 
£

 
£

2,183.4
 
£

(964.3

)

£

1,417.8
 

Current liabilities held for sale

                        90.1         90.1  
                                   
 

Total current liabilities

    9.3     67.6     21.4     100.4         2,273.5     (964.3 )   1,507.9  

Long term debt, net of current portion

   
552.1
   
2,128.4
   
   
   
   
3,176.3
   
   
5,856.8
 

Other long term liabilities

            0.3     62.7         297.5         360.5  

Shareholders' equity (deficit)

    1,306.6     (1,698.0 )   (1,187.2 )   1,256.3     1,520.3     (1,630.5 )   1,739.1     1,306.6  
                                   
 

Total liabilities and shareholders' equity

  £ 1,868.0   £ 498.0   £ (1,165.5 ) £ 1,419.4   £ 1,520.3   £ 4,116.8   £ 774.8   £ 9,031.8  
                                   

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


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

Cash and cash equivalents

  £ 12.4   £ 1.9   £ 0.3   £ 292.9   £   £ 123.0   £   £ 430.5  

Restricted cash

                        6.0         6.0  

Other current assets

    4.3         0.1     9.9         498.9         513.2  

Current assets held for sale

                        152.8         152.8  
                                   
 

Total current assets

    16.7     1.9     0.4     302.8         780.7         1,102.5  

Fixed assets, net

   
   
   
   
   
   
5,045.8
   
   
5,045.8
 

Goodwill and intangible assets, net

            (15.0 )           2,298.7         2,283.7  

Investments in, and loans to, parent and subsidiary companies

    1,977.8     766.8     (962.1 )   2,859.9         (6,316.6 )   2,034.1     359.9  

Other assets, net

    10.4             295.5         92.2         398.1  
                                   
 

Total assets

  £ 2,004.9   £ 768.7   £ (976.7 ) £ 3,458.2   £   £ 1,900.8   £ 2,034.1   £ 9,190.0  
                                   

Current liabilities

 
£

9.1
 
£

82.9
 
£

25.2
 
£

127.3
 
£

 
£

1,781.9
 
£

(716.8

)

£

1,309.6
 

Current liabilities held for sale

                        83.8       £ 83.8  
                                   
 

Total current liabilities

    9.1     82.9     25.2     127.3         1,865.7     (716.8 ) £ 1,393.4  

Long term debt, net of current portion

   
504.5
   
2,189.5
   
   
1,798.9
   
   
1,440.6
   
   
5,933.5
 

Other long term liabilities

            0.1     83.8         287.9         371.8  

Shareholders' equity (deficit)

    1,491.3     (1,503.7 )   (1,002.0 )   1,448.2         (1,693.4 )   2,750.9     1,491.3  
                                   
 

Total liabilities and shareholders' equity

  £ 2,004.9   £ 768.7   £ (976.7 ) £ 3,458.2   £   £ 1,900.8   £ 2,034.1   £ 9,190.0  
                                   

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Three months ended June 30, 2010  
Statements of operations
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   VMIL   All other
subsidiaries
  Adjustments   Total  
 
  (in millions)
 

Revenue

  £   £   £   £   £   £ 964.2   £   £ 964.2  

Operating costs

                        (394.1 )       (394.1 )

Selling, general and administrative expenses

    (5.4 )                   (195.0 )       (200.4 )

Restructuring and other charges

                        (6.5 )       (6.5 )

Depreciation and amortization

                        (283.6 )       (283.6 )
                                   

Operating income (loss)

    (5.4 )                   85.0         79.6  

Interest expense

   
(15.4

)
 
(56.1

)
 
(29.3

)
 
(106.7

)
 
   
(241.2

)
 
331.1
   
(117.6

)

Loss on extinguishment of debt

                (34.2 )       (2.9 )       (37.1 )

Share of income from equity investments

                        7.1         7.1  

Losses on derivative instruments

                (7.1 )       (0.1 )       (7.2 )

Foreign currency (losses) gains

    0.8     (0.3 )   4.5     (1.4 )       (13.7 )       (10.1 )

Interest and other income, net

    11.0     56.2     29.8     36.8         200.1     (331.1 )   2.8  

Income tax benefit (expense)

            (0.1 )   (3.6 )       17.7         14.0  
                                   

(Loss) income from continuing operations

    (9.0 )   (0.2 )   4.9     (116.2 )       52.0         (68.5 )

Gain on discontinued

                                                 
 

operations, net of tax

                        8.6         8.6  

Equity in net (loss) income of subsidiaries

    (50.9 )   (61.4 )   (56.0 )   55.0     54.5         58.8      
                                   

Net (loss) income

  £ (59.9 ) £ (61.6 ) £ (51.1 ) £ (61.2 ) £ 54.5   £ 60.6   £ 58.8   £ (59.9 )
                                   

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Six months ended June 30, 2010  
Statements of operations
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   VMIL   All other
subsidiaries
  Adjustments   Total  
 
  (in millions)
 

Revenue

  £   £   £   £   £   £ 1,893.6   £   £ 1,893.6  

Operating costs

                        (770.9 )       (770.9 )

Selling, general and administrative expenses

    (10.0 )                   (393.4 )       (403.4 )

Restructuring and other charges

                        (6.9 )       (6.9 )

Depreciation and amortization

                        (563.2 )       (563.2 )
                                   

Operating income (loss)

    (10.0 )                   159.2         149.2  

Interest expense

   
(29.8

)
 
(114.7

)
 
(57.5

)
 
(215.4

)
 
   
(439.3

)
 
615.8
   
(240.9

)

Loss on extinguishment of debt

                (50.6 )       (19.4 )       (70.0 )

Share of income from equity investments

                        14.7         14.7  

Loss on derivative instruments

                (26.2 )       (2.0 )       (28.2 )

Foreign currency (losses) gains

    0.6     (0.3 )   0.1     (37.7 )       (40.2 )       (77.5 )

Interest income and other, net

    21.3     113.0     59.2     65.1         361.1     (615.8 )   3.9  

Income tax benefit (expense)

            (0.3 )           17.3         17.0  
                                   

(Loss) income from continuing operations

    (17.9 )   (2.0 )   1.5     (264.8 )       51.4         (231.8 )

Gain on discontinued operations, net of tax

                        11.5         11.5  

Equity in net (loss) income of subsidiaries

    (202.4 )   (213.1 )   (204.1 )   51.9     51.1         516.6      
                                   

Net (loss) income

  £ (220.3 ) £ (215.1 ) £ (202.6 ) £ (212.9 ) £ 51.1   £ 62.9   £ 516.6   £ (220.3 )
                                   

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Three months ended June 30, 2009  
Statements of operations
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Revenue

  £   £   £   £   £ 900.1   £   £ 900.1  

Operating costs

                    (380.3 )       (380.3 )

Selling, general and administrative expenses

    (1.5 )       (0.6 )   (0.1 )   (190.1 )       (192.3 )

Restructuring and other charges

                    (23.6 )       (23.6 )

Depreciation and amortization

                    (294.5 )       (294.5 )
                               

Operating income (loss)

    (1.5 )       (0.6 )   (0.1 )   11.6         9.4  

Interest expense

   
(14.3

)
 
(39.4

)
 
(28.1

)
 
(80.0

)
 
(152.2

)
 
211.7
   
(102.3

)

Loss on extinguishment of debt

                (4.2 )   (3.1 )       (7.3 )

Share of loss from equity investments

                    (0.4 )       (0.4 )

(Losses) gains on derivative instruments

                (126.7 )   0.2         (126.5 )

Foreign currency gains

    0.9     1.4         147.5     23.1         172.9  

Interest and other income, net

    10.5     40.7     34.2     17.4     110.9     (211.7 )   2.0  

Income tax expense

    (0.1 )           (2.1 )   (0.6 )       (2.8 )
                               

(Loss) income from continuing operations

    (4.5 )   2.7     5.5     (48.2 )   (10.5 )       (55.0 )

Gain on discontinued operations, net of tax

                    5.7         5.7  

Equity in net loss of subsidiaries

    (44.8 )   (54.6 )   (50.7 )   (6.2 )       156.3      
                               

Net (loss) income

  £ (49.3 ) £ (51.9 ) £ (45.2 ) £ (54.4 ) £ (4.8 ) £ 156.3   £ (49.3 )
                               

29


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Six months ended June 30, 2009  
Statements of operations
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   All other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Revenue

  £   £   £   £   £ 1,803.2   £   £ 1,803.2  

Operating costs

                    (774.5 )       (774.5 )

Selling, general and administrative expenses

    (6.6 )       (1.3 )   (0.1 )   (387.9 )       (395.9 )

Restructuring and other charges

                    (29.0 )       (29.0 )

Depreciation and amortization

                    (587.9 )       (587.9 )
                               

Operating income (loss)

    (6.6 )       (1.3 )   (0.1 )   23.9         15.9  

Interest expense

   
(29.7

)
 
(78.2

)
 
(57.8

)
 
(162.7

)
 
(334.2

)
 
451.3
   
(211.3

)

Loss on extinguishment of debt

                (4.2 )   (3.1 )       (7.3 )

Share of income from equity investments

                    2.1         2.1  

(Losses) gains on derivative instruments

                (147.9 )   0.2         (147.7 )

Foreign currency gains (losses)

    0.9     1.1     (0.5 )   134.7     21.2         157.4  

Interest income and other, net

    21.8     79.3     70.0     37.2     248.3     (451.3 )   5.3  

Income tax expense

    (0.1 )       (0.1 )   (10.1 )   (2.1 )       (12.4 )
                               

(Loss) income from continuing operations

    (13.7 )   2.2     10.3     (153.1 )   (43.7 )       (198.0 )

Loss from discontinued operations, net of tax

                    (5.3 )       (5.3 )

Equity in net loss of subsidiaries

    (189.6 )   (206.4 )   (200.5 )   (53.1 )       649.6      
                               

Net (loss) income

  £ (203.3 ) £ (204.2 ) £ (190.2 ) £ (206.2 ) £ (49.0 ) £ 649.6   £ (203.3 )
                               

30


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Six months ended June 30, 2010  
Statements of cash flows
  Company   Virgin
Media
Finance
  Other
guarantors
  VMIH   VMIL   All other
subsidiaries
  Adjustments   Total  
 
  (in millions)
 

Net cash provided by (used in) operating activities

  £ (14.7 ) £   £ 8.2   £ 192.2   £   £ 267.0   £   £ 452.7  

Investing activities:

                                                 

Purchase of fixed and intangible assets

                        (327.5 )       (327.5 )

Principal repayments on loans to equity investments

                        12.5         12.5  

Principal drawdowns (repayments) on loans to group companies

    14.9     179.1     (8.0 )   (1,347.7 )       1,161.7          

Decrease in restricted cash

                        0.5         0.5  

Other

                        1.0         1.0  
                                   

Net cash (used in) provided by investing activities

    14.9     179.1     (8.0 )   (1,347.7 )       848.2         (313.5 )
                                   

Financing activities:

                                                 

New borrowings, net of financing fees

                2,893.7         179.0         3,072.7  

Proceeds from employee stock option exercises

    6.8                             6.8  

Principal payments on long term debt and capital leases

        (179.1 )       (1,727.0 )       (1,304.2 )       (3,210.3 )

Intercompany funding movements

    10.0             (10.0 )                

Dividends paid

    (17.8 )                           (17.8 )
                                   

Net cash (used in) provided by financing activities

    (1.0 )   (179.1 )       1,156.7         (1,125.2 )       (148.6 )
                                   

Cash flow from discontinued operations

                                                 

Net cash used in operating activities

                        (10.4 )       (10.4 )
                                   

Net cash used in discontinued operations

                        (10.4 )       (10.4 )
                                   

Effect of exchange rates on cash and cash equivalents

    4.2                             4.2  

(Decrease) increase in cash and cash equivalents

    3.4         0.2     1.2         (20.4 )       (15.6 )

Cash and cash equivalents at beginning of period

    12.4     1.9     0.3     292.9         123.0         430.5  
                                   

Cash and cash equivalents at end of period

  £ 15.8   £ 1.9   £ 0.5   £ 294.1   £   £ 102.6   £   £ 414.9  
                                   

31


Table of Contents


VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 12—Condensed Consolidating Financial Information—Senior Notes (Continued)


 
  Six months ended June 30, 2009  
Statements of cash flows
  Company   Virgin
Media
Finance
  Other
Guarantors
  VMIH   All Other
subsidiaries
  Adjustments   Total  
 
  (Adjusted) (in millions)
 

Net cash provided by (used in) operating activities

  £ (5.1 ) £   £ (2.1 ) £ (114.8 ) £ 493.9   £   £ 371.9  

Investing activities:

                                           

Purchase of fixed and intangible assets

                    (292.1 )       (292.1 )

Principal repayments on loans to equity investments

                    0.7         0.7  

Principal (drawdowns) repayments on loans to group companies

    0.6     (598.2 )   1.6     382.9     213.1          

Disposal of sit-up, net

                    (17.5 )       (17.5 )

Other

                    0.8         0.8  
                               

Net cash (used in) provided by investing activities

    0.6     (598.2 )   1.6     382.9     (95.0 )       (308.1 )
                               

Financing activities:

                                           

New borrowings, net of financing activities

        598.2         (15.5 )   (9.9 )       572.8  

Proceeds from employee stock options

    0.2                         0.2  

Principal payments on long term debt and capital leases

                (140.4 )   (485.5 )       (625.9 )

Intercompany funding movements

    25.0             (19.9 )   (5.1 )        

Dividends paid

    (17.0 )                       (17.0 )

Gain on derivatives

                88.3             88.3  

Other

    (0.3 )                       (0.3 )
                               

Net cash provided by (used in) financing activities

    7.9     598.2         (87.5 )   (500.5 )       18.1  
                               

Cash flow from discontinued operations

                                           

Net cash used in operating activities

                    (15.1 )       (15.1 )

Net cash used in investing activities

                    (0.5 )       (0.5 )
                               

Net cash used in discontinued operations

                    (15.6 )       (15.6 )
                               

Effect of exchange rates on cash and cash equivalents

    (1.9 )                       (1.9 )

Increase (decrease) in cash and cash equivalents

    1.5         (0.5 )   180.6     (117.2 )       64.4  

Cash and cash equivalents at beginning of period

    9.9         1.2     0.4     170.1         181.6