Virgin Media 2010 Annual Report Download - page 120

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8—Long Term Debt (continued)
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. In the event of specified fundamental changes relating to Virgin Media Inc., referred to as
“make whole” fundamental changes, the conversion rate will be increased as provided by a formula set forth in
the indenture governing the convertible senior notes.
Holders may also require us to repurchase the convertible senior notes for cash in the event of a fundamental
change (as defined in the indenture governing the convertible senior notes), such as a change in control, merger,
consolidation, dissolution or delisting (including involuntary delisting for failure to continue to comply with the
NASDAQ listing criteria), for a purchase price equal to 100% of the principal amount, plus accrued but unpaid
interest to the purchase date.
Because the trading price of our common stock exceeded 120% of the conversion price of the convertible
notes for 20 out of the last 30 trading days of 2010, holders of the convertible notes may elect to convert their
convertible notes during the first quarter of 2011. If conversions of this nature occur, we may deliver cash,
common stock, or a combination of both, at our election, to settle our obligations. We have classified this debt as
long-term debt in the consolidated balance sheet as of December 31, 2010 because we determined, in accordance
with the Derivatives and Hedging Topic of the FASB ASC, that we have the ability to settle the obligations in
equity in all circumstances, except in the case of a fundamental change (as defined in the indenture governing the
convertible senior notes). This condition must be fulfilled on 20 of the last 30 trading days of each calendar
quarter. If the condition is not met during that time period, the notes will not be convertible in the following
quarter.
In May 2008, the FASB issued new guidance which requires that the liability and equity components of
convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be
separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. As a result, the
liability component is recorded at a discount reflecting its below market coupon interest rate, and is subsequently
accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance
being reflected in the results of operations. We adopted the guidance on January 1, 2009 as our convertible senior
notes are within the scope of the guidance and we have applied it on a retrospective basis, whereby our prior
period results have been adjusted.
We applied a nonconvertible borrowing rate of 10.35% which resulted in the recognition of a discount on
the convertible senior notes totaling £108.2 million, with the offsetting amount recognized as a component of
additional paid-in capital. In addition, a cumulative translation adjustment of £36.1 million was recognized in
relation to prior periods due to the decrease in the foreign currency denominated debt balance subject to
translation during 2008.
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