Virgin Media 2010 Annual Report Download - page 121

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8—Long Term Debt (continued)
The equity component of the convertible senior notes was £108.2 million as of December 31, 2010 and
2009. The following table presents the principal amount of the liability component, the unamortized discount,
and the net carrying amount of our convertible debt instruments as of December 31, 2010 and 2009 (in millions):
December 31,
2010 2009
Principal obligation ................................ £641.1 £ 618.5
Unamortized discount ............................... (105.7) (114.0)
Net carrying amount ................................ £535.4 £ 504.5
As of December 31, 2010, the remaining discount will be amortized over a period of approximately 6 years.
The amount of interest cost recognized for the contractual interest coupon during the years ended December 31,
2010 and 2009 was approximately £42.0 million and £41.5 million, respectively. The amount of interest cost
recognized for the amortization of the discount on the liability component of the senior convertible notes for the
years ended December 31, 2010 and 2009 was £12.7 million and £11.2 million, respectively.
On October 27, 2010, we entered into capped call option transactions, or conversion hedges, with certain
counterparties relating to our $1.0 billion 6.50% convertible senior notes due 2016. The conversion hedges are
intended to offset a portion of the dilutive effects that could potentially be associated with conversion of the
convertible senior notes at maturity and provide us with the option to receive the number of shares of our
common stock (or in certain circumstances cash) with a value equal to the excess of (a) the value owed by us (up
to the cap price of $35.00 per share) to convertible senior note investors pursuant to the terms of the notes on
conversion of up to 90% of the notes over (b) the aggregate face amount of such converted notes upon maturity
of the convertible senior notes. The conversion hedges also provide various mechanisms for settlement in our
common stock and/or cash in certain circumstances, based primarily on the settlement method elected for the
notes. These conversion hedges have an initial strike price of $19.22 per share of our stock, which is the
conversion price provided under the terms of our convertible senior notes, and a cap price of $35.00 per share of
our stock. We paid £205.4 million in respect of the conversion hedges during the fourth quarter. The cost of these
transactions was not deductible for U.S. federal income tax purposes, and the proceeds, if any, received upon
exercise of the options will not be taxable for U.S. federal income tax purposes.
The conversion hedges do not qualify for equity classification under the authoritative guidance as there are
potential circumstances in which cash settlement may be required at the discretion of the counterparties. As such,
the fair value of the conversion hedges, which was approximately £191.9 million as of December 31, 2010, has
been included as a non-current derivative financial asset in the consolidated balance sheet. The conversion
hedges will be recorded at fair value at each reporting period with changes in fair values reported as a loss (gain)
on derivative instruments in the consolidated statement of operations. Refer to Note 9 for additional discussion of
the fair value measurement of the conversion hedges.
Senior Credit Facility
The principal amount outstanding under our senior credit facility at December 31, 2010 was
£1,675.0 million. Our senior credit facility comprises a term facility denominated in pounds sterling,
£1,675.0 million, and a revolving facility of £250.0 million. At December 31, 2010, £1,675.0 million of the term
facility had been drawn and £15.8 million of the revolving credit facility had been utilized for bank guarantees
and standby letters of credit.
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