Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 8, 2013)
  • 10-Q (May 3, 2013)
  • 10-Q (Oct 31, 2012)
  • 10-Q (Jul 30, 2012)
  • 10-Q (May 8, 2012)
  • 10-Q (Nov 4, 2011)

 
8-K

 
Other

Virgin Media 10-Q 2013

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Graphic
  6. Graphic
VMED-6.30.2013-Q2
________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_____________________
Form 10-Q
 ________________________ 
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
Or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-50886
 ________________________
VIRGIN MEDIA INC.
(Exact name of registrant as specified in its charter)
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
(Additional Registrant)
VIRGIN MEDIA INVESTMENTS LIMITED
(Additional Registrant)
 ________________________
 
Delaware
 
46-1961563

(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
12300 Liberty Boulevard, Englewood, Colorado
 
80112
(Address of principal executive offices)
 
(Zip Code)
(303) 220-6600
(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  S    No  £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  S    No  £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
S
 
Accelerated filer
£
  
Non-accelerated filer
£ 
 
Smaller reporting company
£
 
 
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  £    No  S
Effective June 7, 2013, the registrant was acquired by Liberty Global plc. Following completion of the acquisition, there is no public trading in the registrant's common stock and the aggregate market value of voting common stock is zero.
The Additional Registrants meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this report with the reduced disclosure format. See “Note Concerning Virgin Media Investment Holdings Limited and Virgin Media Investments Limited” in this Form 10-Q.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________


VIRGIN MEDIA INC. - FORM 10-Q - QUARTER ENDED June 30, 2013

INDEX
 
 
Page
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


Merger with Liberty Global, Inc.
On February 5, 2013, Liberty Global, Inc. and Virgin Media Inc. entered into a merger agreement (the “Merger Agreement”). Pursuant to the Merger Agreement, Liberty Global, Inc. and Virgin Media Inc. completed a series of mergers on June 7, 2013 that resulted in the surviving corporations in the mergers (renamed Liberty Global, Inc. and Virgin Media Inc.) becoming wholly-owned subsidiaries of Liberty Global plc (collectively, the “Mergers”). Pursuant to the terms and conditions of the Merger Agreement:
each share of common stock, par value $0.01 per share, of Virgin Media Inc. was converted into the right to receive the following (collectively, the “VMI merger consideration”): (i) 0.2582 of a class A ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc (a “class A Liberty Global plc share”), (ii) 0.1928 of a class C ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc (a “class C Liberty Global plc share”) and (iii) $17.50 in cash, without interest; and
each share of series A common stock of Liberty Global, Inc. was converted into the right to receive one class A Liberty Global plc share, each share of series B common stock of Liberty Global, Inc. was converted into the right to receive one class B ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc and each share of series C common stock of Liberty Global, Inc. was converted into the right to receive one class C Liberty Global plc share.
Liberty Global plc is a public limited company organized under the laws of England and Wales and its class A, class B and class C ordinary shares are quoted on the NASDAQ Global Select market under the LBTYA, LBTYB and LBTYK symbols, respectively.

Basis of this Quarterly Report on Form 10-Q

This quarterly report on Form 10-Q includes the consolidated information for Virgin Media Inc. and the surviving corporation in the Mergers, which was renamed Virgin Media Inc. and is a wholly owned subsidiary of Liberty Global plc. Amounts as of December 31, 2012, and for the periods ended June 7, 2013 and earlier, reflect the activity, financial position, results of operations, and changes in financial position of the Predecessor (defined and described below), and periods from June 8, 2013, reflect the activity, financial position, results of operations, and changes in financial position of the Successor (defined and described below).
In this quarterly report on Form 10-Q unless we have indicated otherwise, or the context otherwise requires, references to:
The "Successor", or "Successor financial information" and similar terms, represents the consolidated business from June 8, 2013 of the surviving corporation in the Mergers, which was renamed Virgin Media Inc., a Delaware corporation;
The "Predecessor", or "Predecessor financial information" and similar terms, represents the consolidated business through June 7, 2013 of Virgin Media Inc. as existed as a Delaware corporation prior to the Mergers, and until June 7, 2013, had its common stock publicly traded in the United States on the NASDAQ Global Select Market and in the United Kingdom on the London Stock Exchange;
“Virgin Media”, the "Company,” "our company," and similar terms refer to both the pre-merger consolidated business of Virgin Media Inc. and the post-merger consolidated business of the surviving corporation in the Mergers, which was renamed Virgin Media Inc., and its subsidiaries (including Virgin Media Investment Holdings Limited, or VMIH, Virgin Media Investments Limited, or VMIL, and their respective subsidiaries);
"Liberty Global", the "Group", "our Parent" and similar terms refer to the post-merger consolidated business of Liberty Global plc and its subsidiaries;
"Liberty Global, Inc.", "LGI", the "pre-merger Group", and similar terms refer to the pre-merger consolidated business of Liberty Global, Inc. as existed as a Delaware corporation prior to the Mergers, and until June 7, 2013, had its common stock publicly traded in the United States on the NASDAQ Global Select Market; and
The terms “we”, “our” and “us” refers to Virgin Media as defined above.

3


Post-merger organizational structure relevant to this Form 10-Q
The following chart shows the corporate structure of Liberty Global and those Virgin Media entities through which our primary operations are conducted. This is a condensed chart and it does not show all of our, or Liberty Global's, operating and other intermediate companies.
 
 
 
Liberty Global plc and Intermediate Holding Companies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media Inc. (1)(2)
 
Other Liberty Global subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intermediate Holding Companies (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media Finance PLC (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media Investment Holdings Limited (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media Investments Limited
 
 
Virgin Media Secured Finance PLC (6)
 
 
 
 
 
 
 
 
 
 
 
 
Virgin Media Limited and other Operating Subsidiaries (7)
 
 
 
 
 
 
 
(1)
Virgin Media Inc. completed a series of mergers on June 7, 2013 that resulted in the surviving corporation in the mergers (renamed Virgin Media Inc.) becoming a wholly-owned subsidiary of Liberty Global plc.
(2)
Issuer of our convertible senior notes.
(3)
The entities which we refer to as the intermediate holding companies are Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited.
(4)
Issuer of our senior unsecured notes.
(5)
Virgin Media Investment Holdings Limited is the principal borrower under our senior credit facility. Substantially all of the assets of Virgin Media Investment Holdings Limited and its subsidiaries secure our senior credit facility and senior secured notes.
(6)
Issuer of our senior secured notes.
(7)
Virgin Media Limited is one of our principal operating companies, although significant portions of our operations are conducted through other operating subsidiaries.


Note Concerning Virgin Media Investment Holdings Limited and Virgin Media Investments Limited
VMIH is a wholly owned subsidiary of Virgin Media Finance PLC, or VMF, and a wholly owned indirect subsidiary of Virgin Media. VMIL is a wholly owned subsidiary of VMIH. VMIH and VMIL are senior subordinated guarantors of the unsecured senior notes issued by VMF. As the VMIH and VMIL guarantees are not deemed to be unconditional, separate financial statements for each of VMIH and VMIL have been included in this Form 10-Q pursuant to the rules and regulations of the United States Securities and Exchange Commission. VMIH and VMIL are also guarantors of the senior secured notes issued by Virgin Media Secured Finance PLC, or VMSF. VMIH is the principal borrower under Virgin Media's senior credit facility.
VMIH and VMIL carry on the same business as Virgin Media, are not accelerated filers, and are companies incorporated in England and Wales, with their registered office at Media House, Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UP, England. Unless otherwise indicated, the discussion contained in this report applies to VMIH and VMIL as well as Virgin Media.


Financial Information and Currency of Financial Statements
All of the financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States. The reporting currency of our consolidated financial statements is pounds sterling.

4


PART I—FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except par value)
 
Successor
 
 
Predecessor (1)
 
June 30, 2013
 
 
December 31, 2012
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
£
273.8

 
 
£
206.3

Restricted cash
1.5

 
 
1.9

Trade receivables, net
416.6

 
 
442.7

Deferred income taxes (note 7)
65.5

 
 
58.1

Derivative instruments (note 3)
322.0

 
 
36.2

Intercompany notes receivable (note 11)
2,357.6

 
 

Intercompany interest receivable and other assets (note 11)
17.7

 
 

Other current assets
86.0

 
 
92.6

Total current assets
3,540.7

 
 
837.8

Property and equipment, net (note 5)
6,342.4

 
 
4,512.2

Goodwill (note 2)
5,781.6

 
 
2,017.5

Intangible assets subject to amortization, net (note 5)
2,504.0

 
 

Derivative instruments (note 3)
289.6

 
 
443.0

Deferred financing costs, net of accumulated amortization of £2.5 (2013) and £50.6 (2012)
115.3

 
 
61.5

Deferred income taxes (note 7)
1,533.2

 
 
2,641.7

Intercompany long term notes receivable
12.3

 
 

Other assets, net
50.7

 
 
51.2

Total assets
£
20,169.8

 
 
£
10,564.9

Liabilities and equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
£
295.2

 
 
£
296.4

Deferred revenue and advanced payments from subscribers and others
303.9

 
 
317.7

Current portion of debt and capital lease obligations (note 6)
192.7

 
 
77.1

Derivative instruments (note 3)
199.0

 
 
29.3

Accrued interest
107.5

 
 
60.3

Accrued programming
57.1

 
 
53.8

Intercompany notes payable (note 11)
366.0

 
 

Intercompany interest and other payables (note 11)
965.4

 
 

Other accrued and current liabilities
407.3

 
 
402.8

Total current liabilities
2,894.1

 
 
1,237.4

Long-term debt and capital lease obligations (note 6)
8,677.5

 
 
5,852.0

Derivative instruments (note 3)
36.5

 
 
88.1

Deferred income tax liabilities (note 7)
47.9

 
 

Deferred revenue and other long-term liabilities
119.8

 
 
169.0

Total liabilities
11,775.8

 
 
7,346.5

Commitments and contingent liabilities (note 12)
 
 
 
 
Equity
 
 
 
 
Successor ordinary shares - $0.01 par value; authorized 1,000 shares; issued and outstanding 100 shares

 
 

Predecessor common stock - $0.01 par value; authorized 1,000 (2013 and 2012) shares; issued and outstanding 0 and 269.3, respectively

 
 
1.4

Additional paid-in capital
8,511.3

 
 
3,658.9

Accumulated deficit
(48.9
)
 
 
(436.1
)
Accumulated other comprehensive loss
(68.4
)
 
 
(5.8
)
Total equity
8,394.0

 
 
3,218.4

Total liabilities and equity
£
20,169.8

 
 
£
10,564.9

(1) As retrospectively revised - see note 1.

The accompanying notes are an integral part of these condensed consolidated financial statements.
5



VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(3 months ended June 30) (unaudited) (in millions)
 
Successor


Predecessor
 
Period from June 8 to June 30, 2013


Period from April 1 to June 7, 2013
 
Three months ended June 30, 2012(1)
Revenue
£
259.0



£
767.7

 
£
1,026.9

Operating costs and expenses:
 
 
 
 
 

Operating (other than depreciation and amortization)
112.6



355.6

 
468.2

Selling, general and administrative (including share-based compensation) (note 9)
56.4



109.8

 
146.6

Depreciation and amortization
92.7



183.5

 
246.3

Restructuring and other operating items, net
5.4



44.0

 
(13.8
)
 
267.1

 
 
692.9

 
847.3

Operating income (loss)
(8.1
)
 
 
74.8

 
179.6

Non operating income (expense)




 

Interest expense
(32.1
)


(67.1
)
 
(98.6
)
Interest expense to group companies
(3.6
)
 
 

 

Interest income and other, net
0.4

 
 
0.2

 
6.0

Interest income from group companies
10.7

 
 

 

Gain on debt modification and extinguishment, net
0.6




 

Realized and unrealized gains (losses) on derivative instruments, net (note 3)
120.2



(51.8
)
 
(20.6
)
Foreign currency transaction gains (losses) net
(23.2
)


0.2

 
(1.4
)
Earnings (loss) before income taxes
64.9

 
 
(43.7
)
 
65.0

Income tax benefit (expense) (note 7)
(6.5
)


4.6

 
(0.3
)
Net earnings (loss)
£
58.4

 
 
£
(39.1
)
 
£
64.7

(1) As retrospectively revised - see note 1.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(3 months ended June 30) (unaudited) (in millions)


 
Successor
 
 
Predecessor
 
Period from June 8 to June 30, 2013
 
 
Period from April 1 to June 7, 2013
 
Three months ended June 30, 2012
 
 
 
 
 
 
 
Net earnings (loss)
£
58.4

 
 
£
(39.1
)
 
£
64.7

Other comprehensive earnings (loss), net of taxes:
 
 
 
 
 
 
Foreign currency translation adjustments
(68.4
)
 
 
3.2

 
(6.6)
Net unrealized gains (losses) on derivatives, net of tax

 
 
(45.0
)
 
31.5
Reclassification of derivative losses (gains) to net income, net of tax

 
 
39.9

 
(29.3
)
   Pension liability adjustment, net of tax

 
 
0.2

 
1.2
Other comprehensive loss
(68.4
)
 
 
(1.7
)
 
(3.2
)
Total comprehensive earnings (loss)
£
(10.0
)
 
 
£
(40.8
)
 
£
61.5



The accompanying notes are an integral part of these condensed consolidated financial statements.
6


VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(6 months ended June 30) (unaudited) (in millions)
 
Successor
 
 
Predecessor(1)
 
Period from June 8 to June 30, 2013
 
 
Period from January 1 to June 7, 2013
 
Six months ended June 30, 2012
Revenue
£
259.0

 
 
£
1,810.2

 
£
2,033.1

Operating costs and expenses
 
 
 
 
 
 
Operating (other than depreciation and amortization)
112.6

 
 
845.4

 
949.8

Selling, general and administrative (including share-based compensation) (note 9)
56.4

 
 
256.1

 
294.7

Depreciation and amortization
92.7

 
 
432.8

 
487.3

Restructuring and other operating items, net
5.4

 
 
51.2

 
(9.2
)
 
267.1

 
 
1,585.5

 
1,722.6

Operating income (loss)
(8.1
)
 
 
224.7

 
310.5

Non operating income (expense)
 
 
 
 
 
 
Interest expense
(32.1
)
 
 
(156.7
)
 
(204.2
)
Interest expense to group companies
(3.6
)
 
 

 

Interest income and other, net
0.4

 
 
0.4

 
6.3

Interest income from group companies
10.7

 
 

 

Gain (loss) on debt modification and extinguishment, net
0.6

 
 
(0.1
)
 
(58.6
)
Realized and unrealized gains on derivative instruments, net (note 3)
120.2

 
 
51.8

 
23.9

Foreign currency transaction losses, net
(23.2
)
 
 
(2.1
)
 
(5.8
)
Earnings before income taxes
64.9

 
 
118.0

 
72.1

Income tax expense (note 7)
(6.5
)
 
 
(18.1
)
 
(0.4
)
Net earnings
£
58.4

 
 
£
99.9

 
£
71.7

(1) As retrospectively revised - see note 1.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(6 months ended June 30) (unaudited) (in millions)


 
Successor
 
 
Predecessor
 
Period from June 8 to June 30, 2013
 
 
Period from January 1 to June 7, 2013
 
Six months ended June 30, 2012
 
 
 
 
 
 
 
Net earnings
£
58.4

 
 
£
99.9

 
£
71.7

Other comprehensive earnings (loss), net of taxes:
 
 
 
 
 
 
Foreign currency translation adjustments
(68.4
)
 
 
(9.8
)
 
2.9

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

 
 
66.8

 
(34.9)

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

 
 
(74.4
)
 
32.5
   Pension liability adjustment, net of tax

 
 
0.6

 
1.2
Other comprehensive earnings (loss)
(68.4
)
 
 
(16.8
)
 
1.7
Total comprehensive earnings (loss)
£
(10.0
)
 
 
£
83.1

 
£
73.4

.

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited) (in millions)
 
 
 
 
 
Accumulated Other
Comprehensive Earnings (Loss)
 
 
 
 
 
Common
Stock $0.01
Par Value
 
Additional
Paid-In
Capital
 
Foreign
Currency
Translation
 
Pension
Liability
Adjustments
 
Net (Losses)
Gains on
Derivatives
 
Accumulated
Deficit
 
Total equity
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
£
1.4

 
£
3,658.9

 
£
161.2

 
£
(98.5
)
 
£
(68.5
)
 
£
(436.1
)
 
£
3,218.4

Net earnings

 

 

 

 

 
138.9

 
138.9

Other comprehensive earnings, net of taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments

 

 
(13.0
)
 

 

 

 
(13.0
)
Net gains on derivatives, net of tax

 

 

 

 
111.8

 

 
111.8

Reclassification of derivative gains to net earnings, net of tax

 

 

 

 
(114.3
)
 

 
(114.3
)
Pension liability adjustment, net of tax

 

 

 
0.4

 

 

 
0.4

Exercise of stock options and tax effect
0.1

 
9.6

 

 

 

 

 
9.7

Conversion of debt into equity

 
(0.7
)
 

 

 

 

 
(0.7
)
Repurchase of common stock

 
1.8

 

 

 

 
(1.8
)
 

Share-based compensation

 
7.6

 

 

 

 

 
7.6

Dividends paid

 

 

 

 

 
(7.1
)
 
(7.1
)
Balance, March 31, 2013
£
1.5

 
£
3,677.2

 
£
148.2

 
£
(98.1
)
 
£
(71.0
)
 
£
(306.1
)
 
£
3,351.7

Net loss

 

 

 

 

 
(39.1
)
 
(39.1
)
Other comprehensive earnings, net of taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments

 

 
3.2

 

 

 

 
3.2

Net losses on derivatives, net of tax

 

 

 

 
(45.0
)
 

 
(45.0
)
Reclassification of derivative losses to net loss, net of tax

 

 

 

 
39.9

 

 
39.9

Pension liability adjustment, net of tax

 

 

 
0.2

 

 

 
0.2

Exercise of stock options and tax effect

 
12.0

 

 

 

 

 
12.0

Share-based compensation

 
4.3

 

 

 

 

 
4.3

Dividends paid

 

 

 

 

 
(7.1
)
 
(7.1
)
Balance, June 7, 2013
£
1.5

 
£
3,693.5

 
£
151.4

 
£
(97.9
)
 
£
(76.1
)
 
£
(352.3
)
 
£
3,320.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 8, 2013
£

 
£
6,147.3

 
£

 
£

 
£

 
£
(107.3
)
 
£
6,040.0

Net earnings

 

 

 

 

 
58.4

 
58.4

Foreign currency translation adjustments

 

 
(68.4
)
 

 

 

 
(68.4
)
Capital contribution from parent

 
2,343.2

 

 

 

 

 
2,343.2

Share-based compensation

 
20.8

 

 

 

 

 
20.8

Balance, June 30, 2013
£

 
£
8,511.3

 
£
(68.4
)
 
£

 
£

 
£
(48.9
)
 
£
8,394.0



The accompanying notes are an integral part of these condensed consolidated financial statements.
8


VIRGIN MEDIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
 
Successor
 
 
Predecessor (1)
 
Period from June 8 to June 30, 2013
 
 
Period from January 1 to June 7, 2013
 
Six months ended June 30, 2012
Cash flows from operating activities:
 
 
 
 
 
 
Net earnings
£
58.4

 
 
£
99.9

 
£
71.7

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
 
 
 
 
 
 
Share-based compensation expense
23.2

 
 
22.1

 
17.0

Depreciation and amortization
92.7

 
 
432.8

 
487.3

Restructuring and other operating items, net
5.4

 
 
51.2


(9.2
)
Amortization of deferred financing costs and non-cash interest accretion
1.8

 
 
14.7

 
18.1

Losses (gains) on debt modification and extinguishment, net
(0.6
)
 
 
0.1

 
58.6

Realized and unrealized gains on derivative instruments, net
(120.2
)
 
 
(51.8
)
 
(23.9
)
Foreign currency transaction losses, net
23.2

 
 
2.1

 
5.8

Deferred income tax expense
6.4

 
 
17.2

 

Changes in operating assets and liabilities
(140.3
)
 
 
(0.2
)
 
(129.7
)
Net cash provided (used) by operating activities
(50.0
)

 
588.1

 
495.7

 Cash flows from investing activities:
 
 
 
 
 
 
Purchase of fixed and intangible assets
(38.3
)
 
 
(313.4
)
 
(368.6
)
Loan to related party
(2,290.6
)
 
 

 

Other

 
 
4.1

 
(1.4
)
Net cash used by investing activities
(2,328.9
)
 
 
(309.3
)
 
(370.0
)
Cash flows from financing activities:
 
 
 
 
 
 
Borrowings of debt
1,983.4

 
 

 
419.1

Repayments and repurchases of debt and capital lease obligations

(3,945.2
)
 
 
(46.5
)
 
(364.3
)
Repayments of related party notes
(467.5
)
 
 

 

Release of restricted cash from escrow
2,313.6

 
 

 

Cash held by subsidiaries contributed to or merged into Virgin Media after acquisition
107.7

 
 

 

Capital contribution from parent undertaking
2,290.6

 
 

 

Payment of financing costs and debt premiums
(63.8
)
 
 
(1.1
)
 
(51.6
)
Other financing activities
(10.2
)
 
 
8.7

 
(231.5
)
Net cash provided (used) by financing activities
2,208.6

 
 
(38.9
)
 
(228.3
)
Effect of exchange rate changes on cash and cash equivalents
(3.0
)
 
 
0.9

 
(6.9
)
Net increase (decrease) in cash and cash equivalents
(173.3
)
 
 
240.8

 
(109.5
)
Cash and cash equivalents:
 
 
 
 
 
 
Beginning of period
447.1

 
 
206.3

 
300.4

End of period
£
273.8

 
 
£
447.1

 
£
190.9

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
Cash paid during the period for interest
£
72.4

 
 
£
102.9

 
£
207.2

Income taxes paid
£

 
 
£
0.1

 
£

(1) As retrospectively revised - see note 1.

The accompanying notes are an integral part of these condensed consolidated financial statements.
9


VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1—Basis of Presentation
Merger with Liberty Global, Inc.
On February 5, 2013, Liberty Global, Inc. and Virgin Media Inc. entered into a merger agreement (the “Merger Agreement”). Pursuant to the Merger Agreement, Liberty Global, Inc. and Virgin Media Inc. completed a series of mergers on June 7, 2013 that resulted in the surviving corporations in the mergers (renamed Liberty Global, Inc. and Virgin Media Inc.) becoming wholly-owned subsidiaries of Liberty Global plc (collectively, the “Mergers”). For further information, see note 2.
In connection with the execution of the Merger Agreement, we entered into various debt financing arrangements. For further information, see note 6.
Presentation of Predecessor and Successor financial information
The consolidated business of Virgin Media Inc. as existed as a Delaware Corporation prior to the Mergers, or the "Predecessor", is considered to be a Predecessor company to the consolidated business of the surviving corporation in the Merger, which was renamed Virgin Media Inc., or the "Successor".
As a result of Liberty Global's push-down of its investment basis in Virgin Media arising from the Mergers, a new basis of accounting was created on June 7, 2013.
In this quarterly report on Form 10-Q, amounts as of December 31, 2012, and for the periods ended June 7, 2013 and earlier, reflect the activity, financial position, results of operations, and changes in financial position of the Predecessor, and the period from June 8, 2013 reflects the activity, financial position, results of operations, and changes in financial position of the Successor.
Successor periods are not comparable to Predecessor periods primarily due to:
(i) The application of the acquisition method of accounting (see note 2), of which the most significant implications are (a) increased depreciation expense, (b) increased amortization expense and (c) increased share-based compensation expense;
(ii) conforming accounting policy changes, primarily to align to Liberty Global's accounting policy for the recognition of installation fees associated with customers in the Business segment as discussed later in this note; and
(iii) additional interest expense associated with debt financing arrangements entered into in connection with the Mergers and subsequently pushed down to the Successor's balance sheet (see note 6).
Operating results for the Successor period from June 8 to June 30, 2013 and the Predecessor period from January 1 to June 7, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These unaudited condensed consolidated financial statements should be read in conjunction with the Predecessor's 2012 consolidated financial statements and notes thereto included in the Predecessor's 2012 Annual Report on Form 10-K/A.
Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and with the instructions to Securities Exchange Commission, or "SEC", Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or SEC rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The reporting currency of our consolidated financial statements is pounds sterling.


10

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 1—Basis of Presentation (continued)

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets, share-based compensation and actuarial liabilities associated with our defined benefit plans. Actual results could differ from those estimates.
Unless otherwise indicated, convenience translations into pounds sterling are calculated as of June 30, 2013.
Alignment of accounting policies
The Predecessor and Successor consolidated financial statements have been prepared in accordance with GAAP, although certain differences exist when comparing the Predecessor's and Successor's application of GAAP, with the primary difference relating to installation fees from customers in the Business segment as set out in the following paragraphs.
On June 8, 2013, the Successor adopted Liberty Global's accounting policy for installation fees relating to revenue arrangements with customers in the Business segment involving both installation services and an ongoing service provision. The Predecessor generally treated installation fees received from customers in the Business segment as a separate deliverable and recognized revenue upon completion of the installation activity in an amount that was based on the relative standalone selling price methodology. The Successor's accounting policy is to generally defer upfront installation fees received from customers in the Business segment and recognize the associated revenue over the contractual term of the arrangement. The following table presents the amount of installation revenue recognized by the Predecessor that would have been deferred under Liberty Global's accounting policy in the indicated periods (in millions):
Predecessor period

Three months ended March 31, 2012
£
12.0

Three months ended June 30, 2012
£
12.1

Three months ended March 31, 2013
£
16.2

April 1, 2013 - June 7, 2013
£
9.3

The following table provides a rollforward of the Successor's deferred revenue for installation services provided to customers in the Business segment in the period from June 8, 2013 through June 30, 2013. The balance as of June 8, 2013 excludes any amounts that were included in the condensed consolidated balance sheet as of June 7, 2013 (in millions):

Balance at June 8, 2013
£

Amounts deferred for completed installation services(a)
5.4

Amortization of deferred revenue over contract life
(0.2
)
Balance at June 30, 2013
£
5.2


(a) Represents amounts that would have been recognized as installation revenue under the Predecessor's accounting policy but were deferred under the Successor's accounting policy.




11

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 1—Basis of Presentation (continued)

Presentational reclassifications

Certain amounts and captions included in the Predecessor's consolidated financial statements have been reclassified to conform to the presentation of Liberty Global.

Significant reclassifications include reclassifications between operating costs and selling, general and administrative expenses on the statement of operations for the three and six months ended June 30, 2012, and the reclassification of premiums paid on debt redemptions from net cash provided by operating activities to net cash used in financing activities in the statement of cash flows for the six months ended June 30, 2012.
Adjustment of December 31, 2012 Balance Sheet
In the three months ended March 31, 2013, and subsequent to the filing of the Predecessor's Annual Report on Form 10-K/A for the year ended December 31, 2012, the Predecessor discovered that the reported amount of its deferred income tax assets as of December 31, 2012 and the reported income tax benefit for the year ended December 31, 2012 were understated by £60.8 million. This understatement was principally caused by an error in the calculation of the Predecessor's deferred tax assets relating to arrangements that we account for as capital leases.
Following the provisions of SEC Staff Accounting Bulletin, or "SAB", No. 99, including an analysis of quantitative and qualitative factors, the Predecessor determined that the understatement was not material to the consolidated financial statements as of and for the year ended December 31, 2012. However, if the adjustments to correct the understatement of its deferred income tax assets had been recorded in the three months ended March 31, 2013, the Predecessor believed the impact would have been significant to that period. Therefore, following the provisions of SEC SAB No. 108, the Predecessor determined that it was appropriate to correct the error to the consolidated financial statements as of and for the year ended December 31, 2012 by correcting the previously issued financial statements in the financial statements as of and for the year ending December 31, 2013, beginning with the condensed consolidated financial statements for the three months ended March 31, 2013.
The December 31, 2012 condensed consolidated balance sheets included in this quarterly report on Form 10-Q reflect the correction of this understatement by increasing the previously reported amounts of the Predecessor's total deferred tax assets, total assets and total shareholders' equity by £60.8 million and by decreasing the previously reported amount of accumulated deficit by £60.8 million. Prior to the fourth quarter of 2012, the Predecessor maintained a full valuation allowance on its deferred income tax assets. If we had not understated our deferred income tax assets in periods prior to the fourth quarter of 2012, we would have increased the valuation allowance on those deferred income tax assets by a corresponding amount, resulting in no net impact on the consolidated balance sheets or statements of comprehensive income. Therefore, there will be no changes to the 2012 statements of operations for periods prior to the fourth quarter of 2012 until the financial statements for the year ending December 31, 2013 are issued, at which time the income tax benefit, income from continuing operations, net income and comprehensive income for the year ended December 31, 2012 will increase by £60.8 million. The correction will have no impact on the total cash flows from operating, investing or financing activities previously reported in the Predecessor's consolidated statement of cash flows for the year ended December 31, 2012.

Note 2—Merger with Liberty Global
In connection with the Mergers, Liberty Global and Virgin Media completed a merger that resulted in the surviving corporations in the Mergers (renamed Liberty Global, Inc. and Virgin Media Inc.) becoming wholly-owned subsidiaries of Liberty Global plc. Pursuant to the terms and conditions of the Merger Agreement:
each share of common stock, par value $0.01 per share, of Virgin Media Inc. was converted into the right to receive the following (collectively, the “VMI merger consideration”): (i) 0.2582 of a class A ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc (a “class A Liberty Global plc share”), (ii) 0.1928 of a class C ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc (a “class C Liberty Global plc share”) and (iii) $17.50 in cash, without interest; and

12

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 2—Merger with Liberty Global (continued)

each share of series A common stock of Liberty Global, Inc. was converted into the right to receive one class A Liberty Global plc share, each share of series B common stock of Liberty Global, Inc. was converted into the right to receive one class B ordinary share, nominal amount (i.e., par value) $0.01 per share, of Liberty Global plc and each share of series C common stock of Liberty Global, Inc. was converted into the right to receive one class C Liberty Global plc share.
Liberty Global plc is a public limited company organized under the laws of England and Wales and its class A, class B, and class C ordinary shares are quoted on the NASDAQ Global Select market under the LBTYA, LBTYB and LBTYK symbols, respectively.
On June 7, 2013, Liberty Global plc issued 70,233,842 class A and 52,444,170 class C ordinary shares to holders of Virgin Media common stock and 141,234,331 class A, 10,176,295 class B and 105,572,797 class C ordinary shares to holders of LGI common stock. Each class A ordinary share of Liberty Global is entitled to one vote per share, each class B ordinary share of Liberty Global is entitled to ten votes per share and each class C ordinary share of Liberty Global was issued without voting rights.
The Mergers and related financing transactions were funded with a combination of (i) the net proceeds from the April 2021 Senior Secured Notes and 2023 Senior Notes assumed by the Successor (each as defined and described in note 6), (ii) borrowings under the Senior Credit Facility (as defined and described in note 6) and (iii) Liberty Global's and Virgin Media’s existing liquidity.
For accounting purposes, the Mergers were treated as the acquisition of Virgin Media (the Predecessor) by Liberty Global. In this regard, the equity and cash consideration paid to acquire the Predecessor, and pushed down to and reported by the Successor, is set out below (in millions):
Liberty Global class A ordinary shares(a)
£
3,446.7

Liberty Global class C ordinary shares(a)
2,414.0

Cash(b)
3,064.1

Estimated fair value of the vested portion of Virgin Media stock incentive awards(c)
174.1

Total equity and cash consideration
£
9,098.9

_______________
(a) Represents the value assigned to the 70,233,842 class A and 52,444,170 class C ordinary shares of Liberty Global issued to the Predecessor's shareholders in connection with the Mergers. These amounts are based on (i) the exchange ratios specified by the Merger Agreement, (ii) the closing per share price on June 7, 2013 of Series A and Series C LGI common stock of $76.24 and $71.51, respectively, and (iii) the 272,013,333 outstanding shares of the Predecessor's common stock at June 7, 2013.
(b) Represents the cash consideration paid in connection with the Mergers. This amount is based on (i) the $17.50 per share cash consideration specified by the Merger Agreement and (ii) the 272,013,333 outstanding shares of the Predecessor's common stock at June 7, 2013.
(c) Represents the portion of the estimated fair value of the Predecessor's stock incentive awards that are attributable to services provided prior to the June 7, 2013 acquisition date. The estimated fair value is based on the attributes of the 13.0 million outstanding Predecessor's stock incentive awards at June 7, 2013, including the market price of the Predecessor's underlying common stock. The outstanding Predecessor's stock incentive awards at June 7, 2013 included 9.9 million stock options that have been valued using Black Scholes option valuations. In addition, the Predecessor’s stock incentive awards at June 7, 2013 included 3.17 million restricted stock units that include performance conditions and, in certain cases, market conditions. Those restricted stock units with market conditions have been valued using Monte Carlo simulation models. For further information, see note 9.

13

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 2—Merger with Liberty Global (continued)

The table below represents a reconciliation of the purchase consideration pushed down to amounts recorded in opening additional paid-in capital by the Successor (in millions):
Purchase consideration
£
9,098.9

Contributed debt(a)
(3,096.5
)
Other net assets(b)
144.9

Opening Successor push-down equity
£
6,147.3

(a) Consists of obligations pursuant to (i) a third-party bridge loan of £2,281.9 million that was subsequently repaid during the period from June 8 to June 30, 2013, and (ii) an intercompany loan payable to a subsidiary of Liberty Global of £814.6 million, both of which were pushed down to Virgin Media through a non-cash common control merger with an indirect subsidiary of Liberty Global as a part of the Mergers. The proceeds from these loans were used by Liberty Global prior to the common control merger to fund the cash portion of the purchase consideration and other related costs.
(b) In connection with the Mergers, certain subsidiaries of Liberty Global were contributed to or merged into Virgin Media and its consolidated subsidiaries immediately after the acquisition of Virgin Media (Predecessor) by Liberty Global. The opening equity of the Successor includes the equity of these entities.
Direct transaction costs associated with the Mergers have been expensed as incurred. Transaction costs incurred in the Successor period from June 8 to June 30, 2013 and the Predecessor period from April 1 to June 7, 2013 are £0.2 million and £45.8 million, respectively, including professional fees and other related costs.

The Mergers have been accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations, whereby the total purchase price was allocated to the acquired identifiable net assets based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. This allocation is preliminary and subject to adjustment based on final assessment of the fair values of the acquired identifiable assets and liabilities.

The preliminary fair value of assets and liabilities was determined by management with the assistance of outside valuation experts in the second quarter of 2013. Outside experts primarily assisted management in determining the fair value of its property, plant and equipment and intangible assets. Although most items in the valuation process remain open, the items with the highest likelihood of changing upon finalization of the valuation process include property, equipment, goodwill, customer relationships and income taxes. We expect to complete the purchase price allocation as soon as practicable. The adjustments, if any, arising out of the completion of the purchase price allocation will not impact cash flows.

Following the provisions of SEC SAB Topic 5J, “New Basis of Accounting Required in Certain Circumstances,” the fair values of the assets acquired and liabilities assumed by Liberty Global have been pushed down to the Successor’s financial statements to form a new basis of accounting.

14

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 2—Merger with Liberty Global (continued)

A summary of the purchase price allocation and opening balance sheet pushed down to the Successor at the June 7, 2013 acquisition date is presented in the following table (in millions):
Cash and cash equivalents
£
447.1

Other current assets
600.7

Property and equipment, net
6,353.1

Goodwill(a)
5,781.6

Intangible assets subject to amortization(b)
2,527.0

Other assets, net
2,103.6

Current portion of debt and capital lease obligations
(762.4
)
Other current liabilities(c)(d)
(2,285.0
)
Long-term portion of debt and capital lease obligations
(5,456.8
)
Other long-term liabilities
(210.0
)
Total purchase price
£
9,098.9

(a) The goodwill recognized is primarily attributable to (i) the ability to take advantage of Virgin Media’s existing advanced broadband communications network to gain immediate access to potential customers and (ii) substantial synergies that are expected to be achieved through the integration of Virgin Media with Liberty Global's other broadband communications operations in Europe.
(b) Amount consists of intangible assets related to customer relationships. As of June 7, 2013, the weighted average useful life of our intangible assets was approximately seven years.
(c) Amount includes a £23.0 million liability that was recorded to adjust an unfavorable capacity supply arrangement to its estimated fair value. This amount, which is subject to adjustment upon the finalization of our acquisition accounting, will be amortized through the March 31, 2014 expiration date of the contract as a reduction of Virgin Media's operating expenses so that the net effect of this amortization and the payments required under the contract approximate market rates. During the period from June 8, 2013 through June 30, 2013, £4.3 million of this liability was amortized.
(d) Includes the equity component of the Convertible Notes (as defined in Note 6) of £1,068.5 million that is reflected as a derivative liability in the Successor period. For additional information, see note 6.
Goodwill
The goodwill was allocated to our reportable segments as set forth below (in millions):
Reportable Segment
 
Consumer
£
4,862.3

Business
919.3

Total
£
5,781.6



Note 3 - Derivative Instruments

Strategies and Objectives for Holding Derivative Instruments
During both the Successor and Predecessor periods, the Company's operations have been materially impacted by changes in interest rates and foreign currency exchange rates.
Cross-currency interest rate swaps and foreign currency forward rate contracts have been entered into to manage interest rate and foreign exchange rate currency exposures with respect to U.S. dollar denominated debt obligations. Additionally, interest rate swaps have been entered into to manage interest rate exposures resulting from variable and fixed rates of interest due on pounds sterling denominated debt obligations.
During both the Successor and Predecessor periods, the Company did not enter into derivatives for speculative or trading purposes.

15

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 3—Derivative Instruments

Accounting for Derivative Instruments
Successor accounting
The Successor does not apply hedge accounting to derivative instruments. Accordingly, changes in the fair values of derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in the condensed consolidated statements of operations.
Predecessor accounting
Whenever practical, the Predecessor designated a derivative contract as either a cash flow or fair value hedge for accounting purposes. These relationships were referred to as “Accounting Hedges”. When a derivative contract was not designated as an Accounting Hedge, it was treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains or losses on derivative instruments in net income in the condensed consolidated statements of comprehensive income. These derivatives were referred to as “Economic Hedges”.
During the Predecessor period from April 1 to June 7, 2013 and the Predecessor period for the three months ended June 30, 2012, losses of £47.4 million and £14.4 million were recognized on derivative instruments, respectively, that were not designated or qualifying as a hedging instrument, and during the Predecessor period from January 1 to June 7, 2013 and the Predecessor period for the six months ended June 30, 2012 gains of £60.3 million and £28.4 million were recognized on derivative instruments, respectively, that were not designated or qualifying as a hedging instrument.

Cash Flow Hedging
For derivative instruments that were designated and qualified as cash flow Accounting Hedges, the effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affected earnings. In the Predecessor condensed consolidated statements of cash flows, the cash flows resulting from derivative contracts that were treated as Accounting Hedges were recognized in the same category where the cash flows from the underlying exposure were recognized. Cash flows from derivative contracts that were not designated as Accounting Hedges were recognized as operating activities in the condensed consolidated statement of cash flows. If hedge accounting was discontinued for an instrument, subsequent cash flows were classified based on the nature of the instrument.
Gains or losses in the Predecessor periods representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness were recognized as gains or losses on derivative instruments in net income in the period in which they occurred. During the Predecessor period from April 1 to June 7, 2013, the Predecessor period for the three months ended June 30, 2012, the Predecessor period from January 1 to June 7, 2013 and the Predecessor period for the six months ended June 30, 2012, no gain or loss relating to ineffectiveness on cash flow hedges was recognized.
See note 10 for details of the effective amount of gain or loss recognized in other comprehensive earnings and amounts reclassified to earnings during the Predecessor period from January 1 to June 7, 2013.
Fair Value Hedging
For derivative instruments that were designated in qualifying fair value Accounting Hedge relationships in the Predecessor periods, the gain or loss on the derivative, inclusive of counterparty non-performance risk, was reported in earnings. The difference between these movements and changes in the fair value of the hedged debt obligations due to changes in the hedged risks is referred to as hedge ineffectiveness. In the Predecessor condensed consolidated balance sheets, changes in the value of the hedged debt obligations due to changes in the hedged risks were included as adjustments to the carrying value of the debt.
In the Predecessor condensed consolidated statements of cash flows, the cash flows resulting from derivative contracts that were treated as Accounting Hedges were recognized in the same category where the cash flows from the underlying exposure were recognized. All other cash flows from derivative contracts were recognized as operating activities in the Predecessor condensed consolidated statement of cash flows.

16

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 3—Derivative Instruments (continued)

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness were recognized as gains or losses on derivative instruments in net income in the Predecessor condensed consolidated statements of operations in the periods in which they occurred. During the Predecessor period from April 1 to June 7, 2013 and the Predecessor period for the three months ended June 30, 2012, hedge ineffectiveness losses of £4.4 million and £6.2 million, respectively, were recognized. During the Predecessor period from January 1 to June 7, 2013 and the Predecessor period for the six months ended June 30, 2012, hedge ineffectiveness losses of £8.5 million and £4.5 million, respectively, were recognized.

Conversion Hedges
During 2010, the Predecessor entered into capped call option transactions, or conversion hedges, relating to its Convertible Notes (as defined in note 6), in order to offset a portion of the dilutive effects associated with the conversion of the Convertible Notes. On consummation of the Mergers, these instruments were transferred to the Successor. As further described in note 6, most of the Convertible Notes were exchanged for class A and class C ordinary shares of Liberty Global and cash following the Mergers. Accordingly, subsequent to June 30, 2013, we settled 93.8% of the notional amount of the conversion hedges for cash proceeds of $543.8 million (£352.2 million).

17

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 3—Derivative Instruments (continued)

Summary of Derivative Instruments
The following table provides details of the fair values of the derivative instrument assets and liabilities recognized in the Successor and Predecessor condensed consolidated balance sheets (in millions):
 
Successor
 
 
Predecessor(1)
 
June 30,
2013
 
 
December 31,
2012
Included within current assets:
 
 
 
 
Accounting Hedges
 
 
 
 
Interest rate swaps
£

 
 
£
7.5

Cross-currency interest rate swaps

 
 
18.1

Economic Hedges
 
 
 
 
Interest rate swaps
19.6

 
 
1.4

Cross-currency interest rate swaps
17.1

 
 
9.2

Conversion hedges
285.3

 
 

 
£
322.0

 
 
£
36.2

Included within non-current assets:
 
 
 
 
Accounting Hedges
 
 
 
 
Interest rate swaps
£

 
 
£
95.6

Cross-currency interest rate swaps

 
 
32.0

Economic Hedges
 
 
 
 
Interest rate swaps
87.6

 
 

Cross-currency interest rate swaps
117.1

 
 
13.0

Conversion hedges
84.9

 
 
302.4

 
£
289.6

 
 
£
443.0

Included within current liabilities:
 
 
 
 
Accounting Hedges
 
 
 
 
Cross-currency interest rate swaps
£

 
 
£
9.3

Economic Hedges
 
 
 
 
Interest rate swaps
35.5

 
 
14.0

Cross-currency interest rate swaps
9.3

 
 
6.0

Derivative embedded in convertible debt
154.2

 
 

 
£
199.0

 
 
£
29.3

Included within non-current liabilities:
 
 
 
 
Accounting Hedges
 
 
 
 
Cross-currency interest rate swaps
£

 
 
£
54.5

Economic Hedges
 
 
 
 
Interest rate swaps
20.8

 
 
33.4

Cross-currency interest rate swaps
15.7

 
 
0.2

 
£
36.5

 
 
£
88.1

(1) As retrospectively revised - see note 1.

Successor Period
Cross-Currency Interest Rate Swaps
As of June 30, 2013, the Successor held outstanding cross-currency interest rate swaps to mitigate the interest and foreign exchange rate risks relating to the pound sterling value of interest and principal payments on the U.S. dollar denominated senior notes and senior secured notes, and the U.S. dollar denominated senior credit facility.

18

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 3—Derivative Instruments (continued)

The terms of outstanding cross-currency interest rate swaps for the Successor at June 30, 2013, are as follows:
Maturity date
 
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
 
 
 
 
November 2016
 
$
1,000.0

 
£
516.9

 
6.50%
 
6.91%
January 2018
 
1,000.0

 
615.7

 
6.50%
 
7.02%
April 2019
 
291.5

 
186.2

 
5.38%
 
5.49%
October 2019
 
500.0

 
302.3

 
8.38%
 
9.02%
June 2020
 
1,384.6

 
901.4

 
6 month US LIBOR + 2.75%
 
6 month LIBOR + 3.18%
October 2020
 
1,370.4

 
881.6

 
6 month US LIBOR + 2.75%
 
6 month LIBOR + 3.10%
January 2021
 
500.0

 
308.9

 
5.25%
 
6 month LIBOR + 1.94%
February 2022
 
500.0

 
313.6

 
5.25%
 
5.80%
February 2022
 
900.0

 
560.0

 
4.88%
 
5.11%
 
 
$
7,446.5

 
£
4,586.6

 
 
 
 
All 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 Convertible Notes. Accordingly, the only cash flows associated with this instrument are interest payments and receipts.
Interest Rate Swaps
As of June 30, 2013, the Successor had outstanding interest rate swap agreements to manage the exposure to variability in future cash flows on the interest payments associated with its senior credit facility, which accrue at variable rates based on LIBOR. The Successor also had outstanding interest rate swap agreements to manage its exposure to changes in the fair value of the January 2021 sterling senior secured notes. The interest rate swaps allow the receipt or payment of interest based on six month LIBOR in exchange for payments or receipts of interest at fixed rates.
The terms of the outstanding interest rate swap contracts of the Successor at June 30, 2013 are as follows:
Maturity date
 
Notional
amount
 
Weighted average
interest rate due from
counterparty
 
Weighted average
interest rate due to
counterparty
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
December 2015
 
£
600.0

 
6 month LIBOR
 
2.86%
April 2018
 
300.0

 
6 month LIBOR
 
1.37%
October 2018
 
2,155.0

 
6 month LIBOR
 
1.52%
January 2021
 
650.0

 
5.50%
 
6 month LIBOR + 1.84%
January 2021
 
300.0

 
6 month LIBOR + 1.83%
 
3.89%
 
 
£
4,005.0

 
 
 
 


19

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 4—Fair Value Measurements

We use the fair value method to account for our derivative instruments. The reported fair values of these derivative instruments as of June 30, 2013 likely will not represent the value that will be realized upon the ultimate settlement or disposition of these assets and liabilities. We expect that the values realized generally will be based on market conditions at the time of settlement, which may occur at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.

GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities in or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred. During the six months ended June 30, 2013, no such transfers were made.

All of our Level 1 inputs (quoted market prices of Liberty Global's class A and C ordinary shares), Level 2 inputs (interest rate futures, swap rates and certain of the inputs for our weighted average cost of capital calculations) and certain of our Level 3 inputs (forecasted volatilities and credit spreads) are obtained from pricing services. These inputs, or interpolations or extrapolations thereof, are used in our internal models to calculate, among other items, yield curves, forward interest and currency rates and weighted average cost of capital rates. In the normal course of business, we receive market value assessments from the counterparties to our derivative contracts. Although we compare these assessments to our internal valuations and investigate unexpected differences, we do not otherwise rely on counterparty quotes to determine the fair values of our derivative instruments. The midpoints of applicable bid and ask ranges generally are used as inputs for our internal valuations.

As further described in note 3, we have entered into various derivative instruments to manage our interest rate and foreign currency exchange risk. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data includes applicable interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties.

Our and our counterparties’ credit spreads are Level 3 inputs that are used to derive the credit risk valuation adjustments with respect to our various interest rate and foreign currency derivative valuations. As we would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these derivative instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy.

Fair value measurements are also used in connection with nonrecurring valuations performed in connection with impairment assessments and acquisition accounting. These nonrecurring valuations include the valuation of customer relationship intangible assets, property and equipment and the implied value of goodwill. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer, contributory asset charges, and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During the six months ended June 30, 2013, we performed nonrecurring valuations for the purpose of determining the fair value of the assets and liabilities pushed down pursuant to the Mergers. We used a discount rate of 9.0% for our preliminary valuation of the customer

20

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 4—Fair Value Measurements (continued)

relationships acquired as a result of this acquisition. We did not perform any significant nonrecurring fair value measurements during the six months ended June 30, 2012.
The following tables present the Predecessor and Successor assets and liabilities measured at fair value, aggregated by the level in the fair value hierarchy into which those measurements fall (in millions): 
 
Successor
 
June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Derivative financial instruments, excluding conversion hedges
£

 
£
241.4

 
£

 
£
241.4

Conversion hedges

 

 
370.2

 
370.2

Total
£

 
£
241.4

 
£
370.2

 
£
611.6

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
£

 
£
235.5

 
£

 
£
235.5

Total
£

 
£
235.5

 
£

 
£
235.5

 
Predecessor
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Derivative financial instruments, excluding conversion hedges
£

 
£
176.8

 
£

 
£
176.8

Conversion hedges

 

 
302.4

 
302.4

Total
£

 
£
176.8

 
£
302.4

 
£
479.2

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments
£

 
£
117.4

 
£

 
£
117.4

Total
£

 
£
117.4

 
£

 
£
117.4

Conversion hedges
The following table presents a reconciliation of the beginning and ending balances of the conversion hedges (in millions):
Predecessor
 
Balance at December 31, 2012
£
302.4

Unrealized gain included in gain on derivative instruments
97.3

Unrealized currency translation adjustment included in other comprehensive loss
21.6

Balance at March 31, 2013
£
421.3

Unrealized loss included in loss on derivative instruments
(47.3
)
Unrealized currency translation adjustment included in other comprehensive loss
(9.1
)
Balance at June 7, 2013
£
364.9

 
 
 
 
Successor
 
Balance at June 8, 2013
£
364.9

Unrealized loss included in gain on derivative instruments
(3.1
)
Unrealized currency translation adjustment included in other comprehensive loss
8.4

Balance at June 30, 2013
£
370.2

Changes in fair values of the conversion hedges in both the Predecessor and the Successor periods are reported as realized and unrealized gains (losses) on derivative instruments in the condensed consolidated statements of operations.

21

VIRGIN MEDIA INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Note 5—Long Lived Assets

Property and Equipment, net

As part of the push-down accounting discussed in note 2, property and equipment has been recorded at fair value at June 7, 2013 in the Successor's financial statements.

The details of our property and equipment and the related accumulated depreciation are set forth below (in millions):

 
 
Successor
 
 
Predecessor

 
June 30, 2013
 
 
December 31, 2012
Distribution Systems
 
£
4,992.4

 
 
£
7,947.4

Customer premises equipment
 
771.8

 
 
1,355.1

Support equipment, buildings and land
 
647.9

 
 
690.7


 
6,412.1

 
 
9,993.2

Accumulated depreciation
 
(69.7
)
 
 
(5,481.0
)
Total property and equipment, net
 
£
6,342.4