Virgin Media 2010 Annual Report Download - page 112

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4—Disposals (continued)
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 have performed 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,
£33.6 million of the gain on disposal of Virgin Media TV was deferred within other liabilities on the balance
sheet and will be treated as a reduction in operating costs over the contractual terms of the carriage arrangements,
which range from 3 to 7 years. During 2010, £2.0 million of this deferred gain was recognized in the
consolidated statement of operations.
The fair value of Virgin Media TV was determined utilizing the market approach along with other third
party bids we received for the business. The market approach utilized market multiples for similar businesses
along with indicative earnings before interest, tax, depreciation and amortization, or EBITDA, levels for the
business. The fair value of the carriage agreements was estimated utilizing an analysis of the cost of carriage
agreements with other suppliers of content, prices proposed or established by U.K. regulators and audience
viewing data. Along with this, we utilized a discount rate of 9.5%. These fair value measurements utilize
significant unobservable inputs and fall within Level 3 of the fair value hierarchy.
The results of operations of Virgin Media TV have been included as discontinued operations in the
consolidated statements of operations through July 12, 2010, which is the date the sale was completed following
approval from regulators in Ireland. On that date, consideration was received totaling £105.0 million. On
September 17, 2010, additional consideration of £55.0 million was received upon full approval of the transaction
by U.K. regulators. The terms of the sale and purchase agreement include customary warranties, guarantees and
working capital adjustments which may impact the amount recognized in future periods. No U.K. income tax is
due as a result of the gain on disposal of Virgin Media TV due to our ability to offset capital losses and capital
allowances against this income. The tax expense associated with the gain on disposal in the consolidated
statements of operations is offset with an equal tax benefit in continuing operations.
Revenue of the Virgin Media TV business, reported in discontinued operations, for the years ended
December 31, 2010, 2009 and 2008 was £100.1 million, £167.8 million and £147.5 million, respectively. Virgin
Media TV’s pre-tax income, reported within discontinued operations, for the years ended December 31, 2010 and
2009 was £11.9 million and £15.3 million, respectively. Virgin Media TV’s pre-tax loss, reported within
discontinued operations was £26.0 million for the year ended December 31, 2008.
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 years ended December 31, 2010, 2009 and 2008 were £14.3 million, £27.3 million
and £25.7 million, respectively.
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