Virgin Media 2007 Annual Report Download - page 132

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. We
accrued interest in respect of unrecognized tax benefits of £0.3 million and £0.6 million at
December 31, 2007 and January 1, 2007, respectively. Income tax expense for the year ended
December 31, 2007 includes an interest benefit of £0.3 million relating to unrecognized tax benefits.
The statute of limitations is open for the years 2004 to 2007 in the U.S. and 2004 to 2007 in the
U.K., our major tax jurisdictions.
At each period end, it is necessary for us to make certain estimates and assumptions to compute
the provision for income taxes including, but not limited to the expected operating income (or loss) for
the year, projections of the proportion of income (or loss) earned and taxed in the U.K. and the extent
to which this income (or loss) may also be taxed in the United States, permanent and temporary
differences, the likelihood of deferred tax assets being recovered and the outcome of contingent tax
risks. In the normal course of business, our tax returns are subject to examination by various taxing
authorities. Such examinations may result in future tax and interest assessments by these taxing
authorities for uncertain tax positions taken in respect to matters such as business acquisitions and
disposals and certain financing transactions including intercompany transactions, amongst others. We
accrue a liability when we believe an assessment may be probable and the amount is estimable. In
accordance with generally accepted accounting principles, the impact of revisions to these estimates is
recorded as income tax expense or benefit in the period in which they become known. Accordingly, the
accounting estimates used to compute the provision for income taxes have and will change as new
events occur, as more experience is acquired, as additional information is obtained and our tax
environment changes.
16. Related Party Transactions
Virgin Enterprises Limited
We have identified Virgin Enterprises Limited as a related party to us. Virgin Entertainment
Investment Holdings Limited became a holder of our common stock as a result of our acquisition of
Virgin Mobile on July 4, 2006. As of December 31, 2007, Virgin Entertainment Investment Holdings
Limited owned 10.5% of our common stock (based on SEC filings). Virgin Enterprises Limited is a
wholly owned subsidiary of Virgin Entertainment Investment Holdings Ltd. In addition, Gordon
McCallum is a member of our Board of Directors and is a Director at Virgin Enterprises Limited.
We own and have the right to use registered trademarks, including the exclusive right to use the
‘‘Virgin’’ name and logo in connection with our corporate activities and in connection with the activities
of our consumer and a large part of our content businesses under license from Virgin Enterprises
Limited. This license with Virgin Enterprises Limited is for a 30-year term and exclusive to us within
the U.K. and Ireland. The license entitles us to use the ‘‘Virgin’’ name for the TV, broadband internet,
telephone and mobile phone services we provide to our residential customers, as well as the acquisition
and branding of sports, movies and other premium television content and the sale of certain
communications equipment, such as set top boxes and cable modems. For our content operations, we
are entitled to use the ‘‘Virgin Media Television’’ name for the creation, distribution and management
of our wholly-owned television channels, and to use the ‘‘Virgin’’ name for our recently launched
television channel, Virgin 1. Our license agreement provides for an annual royalty of 0.25% of certain
consumer and content revenues, subject to a minimum annual royalty of £8.7 million, except for Virgin
1, where we pay an annual royalty of 0.5% of revenues received by Virgin 1, subject to a minimum of
F-46