Virgin Mobile USA (VM)

INTRODUCTION

The enclosed proxy is solicited by Virgin Mobile USA, Inc., a Delaware corporation (the “Company”) on behalf of the Board of Directors of the Company (the “Board of Directors”), for use at its Special Meeting of Stockholders (the “Special Meeting”) to be held on February 23, 2009, at 10:00 a.m. local time, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Special Meeting. The Special Meeting will be held at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren, NJ 07059. We intend to mail this proxy statement and accompanying proxy card on or about January 21, 2009 to all stockholders entitled to vote at the Special Meeting, based on a January 16, 2009 record date.

Introduction

We are a Delaware corporation formed in April 2007 as a holding company for the purpose of facilitating an initial public offering, or IPO, of Class A common stock, which was completed on October 16, 2007. Prior to the completion of the IPO, Virgin Mobile USA, Inc. and its subsidiaries completed reorganization transactions, or the Reorganization, pursuant to which Virgin Mobile USA, LLC, the principal operating entity for our business, converted into a Delaware limited partnership, changed its name to Virgin Mobile USA, L.P., and became a majority-owned subsidiary of Virgin Mobile USA, Inc., the holding company for the public’s common equity interests in our business.

We have accounted for the Reorganization for periods prior to the completion of the IPO using a carryover basis, similar to a pooling-of-interest, because the reorganization transactions were premised on a non-substantive exchange in order to facilitate the IPO resulting in the retention of historical based accounting. This is consistent with Financial Accounting Standards Board Technical Bulletin 85-5, Issues Relating to Accounting for Business Combinations, including Costs of Closing Duplicate Facilities of an Acquirer; Stock Transactions between Companies under Common Control; Down-Stream Mergers, Identical Common Shares for a Pooling of Interests; and Pooling of Interests by Mutual and Cooperative Enterprises. Under this method of accounting, the companies are treated as if they had always been combined for accounting and financial reporting purposes and, therefore, the condensed consolidated financial statements for the three and nine months ended September 30, 2007 are presented on the same basis as those for the three and nine months ended September 30, 2008. We began recording minority interest associated with Sprint Nextel’s ownership in Virgin Mobile USA, L.P. during the three months ended June 30, 2008 because we had cumulative earnings since the date of the reorganization. We present minority interest in a manner consistent with Emerging Issues Task Force Issue No. 94-2, Treatment of Minority Interests in Certain Real Estate Investment Trusts.

Introduction

We are a Delaware corporation formed in April 2007 as a holding company for the purpose of facilitating an initial public offering, or IPO, of Class A common stock, which was completed on October 16, 2007. Prior to completion of the IPO, Virgin Mobile USA, Inc. and its subsidiaries completed reorganization transactions, or the Reorganization. Pursuant to the Reorganization, Virgin Mobile USA, LLC, the principal operating entity for our business, converted into a Delaware limited partnership, changed its name to Virgin Mobile USA, L.P., and became a majority-owned subsidiary of Virgin Mobile USA, Inc., the holding company for the public’s common equity interests in our business.

We have accounted for the Reorganization, for periods prior to the completion of the IPO, using a carryover basis, similar to a pooling-of-interest, as the reorganization transactions were premised on a non-substantive exchange in order to facilitate the IPO, resulting in the retention of historical based accounting. This is consistent with Financial Accounting Standards Board Technical Bulletin 85-5, Issues Relating to Accounting for Business Combinations, including Costs of Closing Duplicate Facilities of an Acquirer; Stock Transactions between Companies under Common Control; Down-Stream Mergers, Identical Common Shares for a Pooling of Interests; and Pooling of Interests by Mutual and Cooperative Enterprises. Under this method of accounting, the companies are treated as if they had always been combined for accounting and financial reporting purposes and, therefore, the condensed consolidated financial statements for the three and six months ended June 30, 2007 are presented on the same basis as those for the three and six months ended June 30, 2008. We began recording minority interest during the three months ended June 30, 2008 since we currently have cumulative earnings since the date of the reorganization. We present minority interest in a manner consistent with Emerging Issues Task Force Issue (“EITF”) No. 94-2, Treatment of Minority Interests in Certain Real Estate Investment.

Introduction

We are a Delaware corporation formed in April 2007 as a holding company for the purpose of facilitating an initial public offering, or IPO, of Class A common stock, which was completed on October 16, 2007. Prior to completion of the IPO, Virgin Mobile USA, Inc. and its subsidiaries completed reorganization transactions, or the Reorganization. Pursuant to the Reorganization, Virgin Mobile USA, LLC, the principal operating entity for our business, converted into a Delaware limited partnership, changed its name to Virgin Mobile USA, L.P., and became a majority-owned subsidiary of Virgin Mobile USA, Inc., the holding company for the public’s common equity interests in our business.

We have accounted for the Reorganization, for periods prior to the completion of the IPO, using a carryover basis, similar to a pooling-of-interest, as the reorganization transactions were premised on a non-substantive exchange in order to facilitate the IPO, resulting in the retention of historical based accounting. This is consistent with Financial Accounting Standards Board Technical Bulletin 85-5, Issues Relating to Accounting for Business Combinations, including Costs of Closing Duplicate Facilities of an Acquirer; Stock Transactions between Companies under Common Control; Down-Stream Mergers, Identical Common Shares for a Pooling of Interests; and Pooling of Interests by Mutual and Cooperative Enterprises. Under this method of accounting, the companies are treated as if they had always been combined for accounting and financial reporting purposes and, therefore, the condensed consolidated financial statements for the three months ended March 31, 2007 are presented on the same basis as those for the three months ended March 31, 2008. Since minority interest was a deficit balance at the reorganization date and continues to be a deficit balance at March 31, 2008, the minority interest is presented as zero, in a manner consistent with Emerging Issues Task Force Issue, or EITF No. 94-2, Treatment of Minority Interests in Certain Real Estate Investment.

Introduction

We are a holding company formed for the purpose of an initial public offering, or IPO, which was completed on October 16, 2007. In connection with our IPO, Virgin Mobile USA, Inc., Virgin Mobile USA, LLC and Bluebottle USA Investments L.P. and its subsidiaries, Bluebottle USA Holdings L.P. and VMUI Inc., completed reorganization transactions, or the Reorganization. As part of the Reorganization, Sprint Nextel (1) contributed a portion of its interest in Virgin Mobile USA, LLC to Virgin Mobile USA, Inc. in consideration for shares of Class A common stock (which were sold in the IPO) and one share of Class B common stock and (2) sold a portion of its interest in Virgin Mobile USA, LLC to Virgin Mobile USA, Inc. for $136.0 million, which consideration was based on the amount Sprint Nextel would have received had it converted such limited liability company interests into shares of the Company’s Class A common stock and sold the shares in the IPO. Minority investors in Virgin Mobile USA, LLC contributed their respective interests in Virgin Mobile USA, LLC to Virgin Mobile USA, Inc. in consideration for shares of Class A common stock (a portion of which were sold in the IPO). The minority investor in Bluebottle USA Holdings L.P. contributed its limited partnership interest to Virgin Mobile USA, Inc. in consideration for shares of Class A common stock. The Virgin Group contributed its interests in Bluebottle USA Investments L.P. and its interests in a newly-formed entity, VMU GP, LLC, to Virgin Mobile USA, Inc. in consideration for shares of Class A and Class C common stock, resulting in Virgin Mobile USA, Inc. being (directly and indirectly) the sole owner of Bluebottle USA Holdings L.P., and VMUI, Inc. was liquidated. Virgin Mobile USA, Inc. contributed a small part of its interest in Virgin Mobile USA, LLC to a newly-formed entity, VMU GP1, LLC, in exchange for all of the interests in VMU GP1, LLC. Virgin Mobile USA, Inc. then contributed all of its interests in VMU GP1, LLC to Bluebottle USA Investments L.P., which in turn contributed such interests to Bluebottle USA Holdings L.P. Virgin Mobile USA, LLC converted to a Delaware limited partnership and changed its name to Virgin Mobile USA, L.P. The limited partnership agreement of Virgin Mobile USA, L.P., provides that VMU GP1, LLC manage and control its business and affairs. VMU GP1, LLC is an indirect, wholly-owned subsidiary of the Company.

On October 16, 2007, we completed our IPO and we, along with the selling stockholders sold 27,500,000 shares of our Class A common stock. We received net proceeds of $352.7 million after deducting underwriting commissions and discounts of $23.7 million and offering expenses of $7.4 million. We used $136.0 million of the net proceeds to us to pay Sprint Nextel for a portion of Sprint Nextel’s limited liability company interests in Virgin Mobile USA, LLC that we purchased in connection with the reorganization and the IPO. The remaining net proceeds of $216.7 million were used to (1) repay $150.0 million of outstanding borrowings and $0.8 million of accrued interest under the senior secured credit facility and (2) repay $45.0 million of indebtedness and $0.6 million of accrued interest owed to Sprint Nextel under the subordinated secured revolving credit facility. Subsequent to the IPO, the remaining net proceeds of approximately $20 million were used for general corporate purposes.

We have accounted for the reorganization transactions, for all periods presented, using a carryover basis, similar to a pooling-of-interest as the reorganization transactions were premised on a non-substantive exchange in order to facilitate the IPO, resulting in the retention of historical based accounting. This is consistent with Financial Accounting Standards Board Technical Bulletin 85-5, Issues Relating to Accounting for Business Combinations, including Costs of Closing Duplicate Facilities of an Acquirer; Stock Transactions between Companies under Common Control; Down-Stream Mergers, Identical Common Shares for a Pooling of Interests; and Pooling of Interests by Mutual and Cooperative Enterprises. Under this method of accounting, we

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Table of Contents

treat the companies as if they had always been combined for accounting and financial reporting purposes and, therefore, the consolidated financial statements for the years ended December 31, 2006 and 2005 are presented on the same basis as that for the year ended and as of December 31, 2007.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided as a supplement to the financial statements and the related footnotes, included elsewhere in this annual report, to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The MD&A is organized as follows: