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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-50886
VIRGIN MEDIA INC.
(Exact name of registrant as specified in its charter)
VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED
(Additional Registrant)
VIRGIN MEDIA INVESTMENTS LIMITED
(Additional Registrant)
Delaware 59-3778247
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
909 Third Avenue, Suite 2863, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 906-8472
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No È
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ÈAccelerated filer Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No È
The aggregate market value of the registrant’s voting stock held by non-affiliates as of June 30, 2011 based on the closing price for the registrant’s common
stock on the NASDAQ Global Select Market on such date, was $8,854,389,707.
As of February 14, 2012, there were 279,014,326 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding.
The Additional Registrants meet the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and are therefore filing this form with the reduced
disclosure format. See “Note Concerning Virgin Media Investment Holdings Limited and Virgin Media Investments Limited” in this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K.

Table of contents

  • Page 1
    ..., New York (Address of principal executive offices) 10022 (Zip Code) (212) 906-8472 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share NASDAQ Global Select Market No ' No È Indicate by check...

  • Page 2
    ... Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures about Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting...

  • Page 3
    ...operate in highly competitive markets which may lead to a decrease in our revenue, increased costs, customer churn or a reduction in the rate of customer acquisition The sectors in which we compete are subject to rapid and significant changes in technology, and the effect of technological changes on...

  • Page 4
    ... as well as Virgin Media. Financial Information and Currency of Financial Statements All of the financial statements included in this annual report have been prepared in accordance with accounting principles generally accepted in the United States, or U.S., or GAAP. The reporting currency of our...

  • Page 5
    ... Virgin Media Inc. is a Delaware corporation and its common stock is publicly traded in the United States on the NASDAQ Global Select Market and in the United Kingdom on the London Stock Exchange. On October 1, 2009 our common stock was admitted to the Official List of the United Kingdom Listing...

  • Page 6
    ... governance regime of the U.S. State of Delaware and the applicable rules of the NASDAQ Global Select Market, the London Stock Exchange and the SEC. Information relating to our board, committees, corporate governance codes and practices are available on our website at www.virginmedia.com/investors...

  • Page 7
    ... broadband service and one of the most advanced TV on-demand services available in the U.K. market. As of December 31, 2011, we provided services to approximately 4.8 million residential cable customers on our network. We are also one of the U.K.'s largest mobile virtual network operators by number...

  • Page 8
    ... under the U.S. Securities Act of 1933, as amended. On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash from our balance sheet. We recognized a loss on extinguishment of £15.5 million as a result of this...

  • Page 9
    ... and financial discipline. We will continue to enhance the connectivity and applications enjoyed by our cable customers and will seek to grow our Business segment revenues through a focus on managed data services. Available Information and Website Our principal executive offices are located at...

  • Page 10
    ... We provide cable broadband internet, television and fixed line telephone services under the Virgin Media brand to residential customers in the U.K. Our cable services are distributed via our wholly owned, local access cable network. Our cable network covers parts of many major metropolitan areas in...

  • Page 11
    ... through our set-top boxes in 2011. As a result, we believe that customers who use our VOD service are less likely to churn. The primary categories of content which are available within Virgin TV On Demand are television programming, movies (on a pay-per-view and subscription basis) and music videos...

  • Page 12
    .... The new TiVo service, combined with the existing VOD service, makes available television shows, movies and music videos in addition to supporting web video services such as the BBC iPlayer and YouTube. Virgin Media TV powered by TiVo service continues to be enhanced and rolled out to customers. As...

  • Page 13
    ... are not yet mobile telephone customers. Our bundling strategy provides our customers with discounts and additional value added services when they buy our services. We also provide the convenience of a single bill for "triple-play" (TV, broadband and fixed line telephony phone) packages. We believe...

  • Page 14
    ... through Virgin Media Business, offers a broad portfolio of voice, data and internet solutions to commercial and public sector organizations in the U.K., ranging from analog telephony to managed data networks and applications. Our Business segment peak usage occurs at different times of the day from...

  • Page 15
    ... capable of supporting the latest Very High Speed Digital Subscriber Line 2, or VDSL2, broadband technologies. As a result of the extensive use of fiber in our access networks, we are also able to provide high-speed data network services to business customers delivering nationwide connectivity. 14

  • Page 16
    ... broadband related network platforms, as well as adding capacity for HD broadcast and VOD services. In 2011, we extended our network to provide triple play cable capability to approximately 170,000 additional homes. We also continued to invest in upgrading our access network from analog to digital...

  • Page 17
    ... HD, ITV HD and Channel 4 HD. Freesat also offers a range of DVRs under the brand "Freesat+". Content owners, online aggregators and television channel owners are increasingly using broadband as a new digital distribution channel direct to consumers. A new free-to-air internet-connected TV service...

  • Page 18
    ... of the same service, but charge for calls made to fixed line or mobile numbers either on a flat monthly rate for unlimited calls (typically restricted to geographic areas) or based on usage. We also face competition from the growth in online communication through social networking sites such as...

  • Page 19
    ... to all communication networks and services for electronic communications including telecommunications (fixed and mobile), e-mail, access to the internet and content related broadcasting. The purpose of the European Framework is to ensure more effective competition leading to better rights and...

  • Page 20
    ...the publicly funded BBC License Fee, under-spend from the Digital TV Switch Off Project and private investment. Two key projects have been announced: the Broadband Delivery Program, which is focused on delivering broadband to areas that the market will not serve of its own accord (mainly rural areas...

  • Page 21
    ...movie channels and acts on that market power to restrict supply and prevent fair and effective competition. To remedy the concerns around premium sports channels, Ofcom imposed a wholesale must offer, or WMO, regime for regulating the terms of supply of Sky Sports 1 and 2 SD and HD. Sky has supplied...

  • Page 22
    ... (virtual or active network access via methods such as provision of wholesale managed service products). Ofcom concluded that Virgin Media does not have SMP in these markets and so we are not subject to SMP regulation. Typically, such conclusions apply for three to four years. BT continues to have...

  • Page 23
    ... the television, broadband internet, fixed line telephone and mobile phone services we provide to our consumer and business customers, and in connection with the sale of certain communications equipment, such as set-top boxes and cable modems. Our license agreements provide for an annual royalty of...

  • Page 24
    ... revenue, increased costs, increased customer churn or a reduction in the rate of customer acquisition. The markets for broadband internet, television, telephony and business services in which we operate are highly competitive and, in certain markets, we compete with established companies which hold...

  • Page 25
    ... with the rate of decline in lines used by businesses being nearly twice as high as that in the residential fixed telephony market. There is a risk that business and residential customers will migrate from using fixed line telephony to using other forms of telephony such as VoIP, or mobile telephony...

  • Page 26
    ... effect on our business and results of operations. Unauthorized access to our network resulting in piracy could result in a loss of revenue. We rely on the integrity of our technology to ensure that our services are provided only to identifiable paying customers. Increasingly sophisticated means of...

  • Page 27
    ... supply on 60 days' notice, and to wholesale price changes for Sky Sports 1 and 2 which can occur under Ofcom's price regulation mechanism following changes to BSkyB's own retail prices. We are also exposed to BSkyB offering HD versions of its channels exclusively to its digital satellite customers...

  • Page 28
    ... favorable terms. Additionally, migration of all or some of our customer base to any such replacement network operator would be dependent in part on Everything Everywhere and could entail potential technical or commercial risk. Everything Everywhere is also a customer of Virgin Media Business. Any...

  • Page 29
    ... to use the non-significant market power, or non-SMP, access provisions to require us to make available access to our network to third parties. In addition, Ofcom may look to impose regulation on the cable network, which is currently unregulated. Such regulation would allow customers to switch...

  • Page 30
    ...to August 12, 2012 London will be hosting the 2012 Olympic Games. Certain network and information systems may be affected by a significant increase in usage of our services which could result in outages or our failure to adequately service our customers. An increase in the use of mobile telephony in...

  • Page 31
    ... to fund our debt service obligations, particularly in times of turbulent capital markets. The covenants under our debt agreements place certain limitations on our ability to finance future operations and how we manage our business. The agreements that govern our indebtedness contain financial...

  • Page 32
    .... Sales in the public market of the common stock issued upon conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the convertible senior notes may encourage short selling by market participants. We may in the future seek to raise funds through...

  • Page 33
    .... Sales of the company's common stock, and the possibility of these sales, could make it more difficult for the company to sell equity, or equity related securities, in the future at a time, and price, that it considers appropriate. Provisions of our debt agreements, our stockholder rights plan...

  • Page 34
    ... to the Company. These purportedly arise in connection with payments received by Huff Asset Management in 2004 for advisory services furnished to NTL Incorporated, or NTL, and Telewest Communications PLC, or Telewest. The businesses of NTL and Telewest merged in 2006 to form the Company. While Mr...

  • Page 35
    ... NASDAQ Global Select Market in the United States. Our common stock is also listed in the U.K. on the London Stock Exchange. As of February 14, 2012, there were 116 record holders of our common stock. The following table sets forth the reported high and low price per share of our common stock on the...

  • Page 36
    ... in our common stock for the five-year period from January 1, 2007 through December 31, 2011, with a similar investment in the Standard & Poor's 500 Stock Index and a Peer Group Index and assumes the reinvestment of dividends. As no published index of comparable companies currently reports values on...

  • Page 37
    ... companies have been included in the Peer Group Index: AT&T Inc., British Sky Broadcasting Group plc, BT Group plc, Cablevision Systems Corporation, Carphone Warehouse Group plc, Comcast Corporation, DISH Network Corporation, France Telecom SA, Liberty Global Inc., Rogers Communication Inc., Talk...

  • Page 38
    ... of future results. The Statement of Operations and Balance Sheet data for the years ending and as at December 31, 2009, 2008 and 2007 have been adjusted for the disposals of Virgin Media TV and sit-up as described in the notes to our consolidated financial statements. 2011 Year ended December 31...

  • Page 39
    ... broadband service and one of the most advanced TV on-demand services available in the U.K. market. As of December 31, 2011, we provided service to approximately 4.8 million residential cable customers on our network. We are also one of the U.K.'s largest mobile virtual network operators by number...

  • Page 40
    ...the exchange offer. For further details relating to the exchange offer, please see the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on July 20, 2011. On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using...

  • Page 41
    ... wholesale customers; and installation and connection services. monthly fees and usage charges for cable and non-cable telephone and internet access services and cable television services; monthly fees and usage charges for mobile services including charges for airtime, data, long-distance calls and...

  • Page 42
    ... employee-related costs including outsourcing; television programming services and programming costs; interconnect costs paid to carriers relating to call termination services; marketing and selling costs; and purchase costs of mobile handsets and other equipment. Disposal of Equity Investments...

  • Page 43
    ... retain customers and increase revenue depends on our competitive strength. There is significant competition in the market for our consumer services, including broadband and telephone services offered by BT; resellers or local loop unbundlers, such as BSkyB and Talk Talk; alternative internet access...

  • Page 44
    ... revenue from our residential cable customers on our network. We believe that our "triple-play" cable offering of television, broadband and fixed line telephone services is attractive to our existing cable customer base and generally allows us to increase our cable ARPU by facilitating the sale...

  • Page 45
    ...technology or changes in intended use of these assets may cause the estimated useful life to change, resulting in higher or lower depreciation charges or asset impairment charges. As an example, we have reviewed the useful lives of the assets that support our non-TiVo television set-top box platform...

  • Page 46
    ... our projections of future profitability, and may change our assessment of the likelihood of utilizing a portion of these assets; however, no assurances can be provided that our future results will be consistent with our results for the year ended December 31, 2011. New Accounting Pronouncements...

  • Page 47
    ... fixed line and mobile telephony interconnect costs as a result of lower usage. Business cost of sales increased as the impact on costs of increased install activity and higher retail and wholesale data revenues was only partially offset by lower retail and wholesale voice cost of sales. Network...

  • Page 48
    ... marketing activity, mainly in connection with the launch of TiVo services. Other costs increased primarily as a result of a higher bad debt expense. Employee and outsourcing costs reduced compared to the prior year primarily as a result of reduced costs in relation to employee incentive programs...

  • Page 49
    ...interest and cross currency rate swaps designated as accounting hedges. We paid cash interest of £435.2 million for the year ended December 31, 2011 and £438.8 million for the year ended December 31, 2010. The decrease in cash interest payments was primarily as a result of a lower level of debt at...

  • Page 50
    ... The loss related to the disposal of our share in the UKTV companies. Loss on Derivative Instruments The loss on derivative instruments of £50.7 million in the year ended December 31, 2011 was primarily driven by the loss on the conversion hedges as a result of a decrease in the price of our common...

  • Page 51
    ... was £77.1 million, compared with a loss of £169.2 million for the same period in 2010 due to the factors discussed above. Gain on Disposal For the year ended December 31, 2010, gain on disposal relating the sale of our Virgin Media TV business was £19.2 million, net of tax of £15.0 million. 50

  • Page 52
    ... in 2012. Segmental Results of Operations for the Years Ended December 31, 2011 and 2010 A description of the products and services, as well as financial data, for each segment can be found in note 17 to the consolidated financial statements of Virgin Media Inc. The reportable segments disclosed...

  • Page 53
    ... revenue by customer type for the years ended December 31, 2011 and 2010 was as follows (in millions): Year ended December 31, 2011 2010 Increase/ (Decrease) Revenue: Cable ...Mobile(1) ...Non-cable ...Total revenue ...(1) Includes equipment revenue stated net of discounts earned through service...

  • Page 54
    ... of telephone, television and internet services to customers who are directly connected to our network in that period together with revenue generated from our customers using our virginmedia.com website, exclusive of VAT, by the average number of customers directly connected to our network in...

  • Page 55
    ... by net losses of 344,700 prepay customers. The growth in contract customers reflects our strategy of using our own sales channels and cross-selling mobile contracts to our cable and non-cable customers. The decline in prepay customers reflects increased competition in the prepay market and our...

  • Page 56
    ...due to increased competition in the market. December 31, 2011 Three months ended September 30, June 30, March 31, 2011 2011 2011 December 31, 2010 Opening customers ...Net customer (disconnections) additions ...Closing customers ...Opening Non-cable products: Telephone ...Broadband ...Net Non-cable...

  • Page 57
    ... margin data revenue and increasing demand for our data products within a growing data market. Retail voice revenue decreased in the year ended December 31, 2011 compared to 2010, mainly as a result of declining telephony usage and, to a lesser extent, a decline in rental and install revenues. LAN...

  • Page 58
    ... which are carried on Virgin Media's cable platform and also satellite. Some channels are also available on Freeview. We accounted for our interest in UKTV under the equity method and recognized a share of net income of £18.0 million and £22.8 million in the years ended December 31, 2011 and 2010...

  • Page 59
    ... leases on our Great Portland Street office in central London, and involuntary employee termination costs in connection with the restructuring program initiated in 2008 as discussed below. Restructuring and other charges in the year ended December 31, 2009 related primarily to lease exit costs and...

  • Page 60
    ... our proportionate share of the income earned by UKTV. Setanta Sports News ceased broadcasting on June 23, 2009 when Setanta Sports Limited entered administration. See Segmental Results of Operations for the Years Ended December 31, 2009 and 2008-Television Channel Joint Ventures. (Losses) Gains on...

  • Page 61
    ... are not designated as hedges for accounting purposes. The losses on derivative instruments of £114.5 million in the year ended December 31, 2009, were mainly driven by the U.S. dollar and euro weakening against the pound sterling in the first six months of the year, which resulted in a reduction...

  • Page 62
    ... discussed above. Gain on disposal For the year ended December 31, 2010, gain on disposal relating the sale of our Virgin Media TV business was £19.2 million, net of tax of £15.0 million. Income (Loss) on Discontinued Operations For the year ended December 31, 2010, the income on discontinued...

  • Page 63
    ... and non-cable product offerings. The increase in cable revenue was primarily due to selective telephony, broadband and television price increases, additional subscribers to our television, broadband and fixed line telephone services and increased number of customers taking our higher tier packages...

  • Page 64
    ... customer additions ...Closing customers(1) ...Cable churn(1)(3) ...Cable products: Television(1) ...DTV (included in Television) ...ATV (included in Television)(1) ...Telephone ...Broadband ...Total cable products ...Cable products/Customer(1) ...Triple-play penetration(1) ...Cable Average Revenue...

  • Page 65
    ... by net losses of 366,900 prepay customers. The growth in contract customers reflects our strategy of using our own sales channels and cross-selling mobile contracts to our cable and non-cable customers. The decline in prepay customers reflects increased competition in the prepay market and our...

  • Page 66
    ... offer telephone line rental services bundled with our broadband services. December 31, 2010 Three months ended September June 30, March 31, 2010 2010 2010 December 31, 2009 Opening customers ...Net customer additions ...Closing customers ...Opening Non-cable products: Telephone ...Broadband ...Net...

  • Page 67
    ... and LAN project revenues. Wholesale revenue increased by 4.2% to £160.3 million from £153.9 million for the year ended December 31, 2009 mainly as a result of increased usage of our network by wholesale voice customers, partially offset by the loss of certain wholesale contracts. Business Segment...

  • Page 68
    ... from the sale of our equity accounted investment in the UKTV companies and the related principal repayment on loans to equity investments. For the year ended December 31, 2010, cash used in investing activities of £411.4 million was principally comprised of purchases of fixed assets totaling £628...

  • Page 69
    ... of capital required to connect customers to our network, expand and upgrade our network and offer new services. On January 11, 2012, we announced a major program to double the speeds of over four million broadband customers. This will involve an incremental investment of approximately £110 million...

  • Page 70
    ... share price of our common stock over a defined time period, the end of which is expected to be no later than May 9, 2012. On February 15, 2011, we further amended our senior credit facility to increase our operational flexibility. On May 20, 2011, we entered into two new additional facilities...

  • Page 71
    ... details relating to the exchange offer, please see the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on July 20, 2011. On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash from...

  • Page 72
    ... A and B. We used £25 million of existing cash on hand to reduce the loan balance. In addition, on May 27, 2011, we effected certain amendments to the senior credit facility including, among other things: (i) amending the definition of additional high yield notes and high yield refinancings to...

  • Page 73
    ... financial year guarantee the payment of all sums payable under our senior credit facility and such members are required to grant first-ranking security over all or substantially all of their assets to secure the payment of all sums payable under our senior credit facility. Virgin Media Finance PLC...

  • Page 74
    ... covenant levels would result in a default under our senior credit facility. As of December 31, 2011, we...make investments; sell assets, including the capital stock of subsidiaries; create liens; enter into agreements that restrict the bank group's ability to pay dividends or make inter-company loans...

  • Page 75
    ...., Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited and on a senior subordinated basis by VMIH and VMIL. On July 26, 2011, we fully redeemed the 9.125% senior notes due 2016 by paying $575.1 million, or £355.8 million, of cash...

  • Page 76
    ...not receive any additional proceeds from the exchange offer. For further details relating to the exchange offer, please see Amendment No.1 to the Registration Statement on Form S-4 of Virgin Media Inc., as filed with the SEC on June 30, 2010. On March 3, 2011, Virgin Media Secured Finance PLC issued...

  • Page 77
    ... 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...

  • Page 78
    ...to meet these covenant levels would result in a default under our senior credit facility. We may opportunistically access the loan and debt markets in order to extend debt maturities and seek improved debt terms. Off-Balance Sheet Arrangements As part of our ongoing business we have not participated...

  • Page 79
    ... purchase obligations listed above. The following table includes information about our commercial commitments as of December 31, 2011. Commercial commitments are items that we could be obligated to pay in the future. They are not required to be included in the consolidated balance sheet (in millions...

  • Page 80
    ...to receive or pay interest based on three or six month LIBOR in exchange for payments or receipts of interest at fixed rates. We have designated some of the interest rate swaps as cash flow hedges because they hedge against changes in LIBOR. All interest rate swaps are recognized as either assets or...

  • Page 81
    ...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...

  • Page 82
    ...trading or speculative purposes. See note 10 to the consolidated financial statements of Virgin Media Inc. and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Derivative Instruments and Hedging Activities". The fair market value of long term fixed interest rate...

  • Page 83
    ... table provides information as of December 31, 2011 about our long term fixed and variable interest rate debt that are sensitive to changes in interest rates and foreign currency exchange rates (in millions): Year ended December 31, 2012 2013 2014 2015 Fair Value December 31, 2011 2016 Thereafter...

  • Page 84
    ... table provides information as of December 31, 2010 about our long term fixed and variable interest rate debt that are sensitive to changes in interest rates and foreign currency exchange rates (in millions): Year ended December 31, 2012 2013 2014 Fair Value December 31, 2010 2011 2015 Thereafter...

  • Page 85
    ...statements, the notes thereto and the report of the independent registered public accounting firm begin on page F-1 of this document and are incorporated in this document by reference. On June 4, 2010, we announced the sale to BSkyB of our television channel business known as Virgin Media TV. Virgin...

  • Page 86
    ... including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) Management's Annual Report on Internal Control Over Financial Reporting for Virgin Media Inc. Our management is responsible for establishing and maintaining...

  • Page 87
    ... only management's report in this annual report. (d) Management's Annual Report on Internal Control Over Financial Reporting for Virgin Media Investments Limited Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is...

  • Page 88
    ... respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Virgin Media Inc. and...

  • Page 89
    ... PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item is incorporated by reference to our Proxy Statement for the 2012 Annual Meeting of Stockholders. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements-See list of Financial Statements on...

  • Page 90
    .... The following consolidated financial statements of Virgin Media Investment Holdings Limited, Virgin Media Investments Limited and Subsidiaries are included in Item 8: Reports of Independent Registered Public Accounting Firm ...F-79 Consolidated Balance Sheets-December 31, 2011 and 2010 ...F-81...

  • Page 91
    ...the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Virgin Media Inc. and subsidiaries' internal control over financial reporting as of December 31, 2011, based on criteria established in Internal...

  • Page 92
    ...BALANCE SHEETS (in millions, except par value) December 31, 2011 December 31, 2010 Assets Current assets Cash and cash equivalents ...Restricted cash ...Accounts receivable-trade, less allowances for doubtful accounts of £10.9 (2011) and £6.4 (2010) ...Inventory for resale ...Derivative financial...

  • Page 93
    VIRGIN MEDIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) Year ended December 31, 2011 2010 2009 Revenue ...Costs and expenses Operating costs (exclusive of depreciation shown separately below) ...Selling, general and administrative expenses ......

  • Page 94
    ... ...Other ...Net cash used in investing activities ...Financing activities: New borrowings, net of financing fees ...Repurchase of common stock ...Purchase of conversion hedges ...Proceeds from employee stock option exercises ...Principal payments on long term debt ...Principal payments on capital...

  • Page 95
    ...to net income, net of tax ...Pension liability adjustment, net of tax ...Balance, December 31, 2009 ...Exercise of stock options and tax effect ...Repurchase of common stock ...Stock compensation costs ...Dividends paid ...Comprehensive loss: Net loss for the year ended December 31, 2010 ...Currency...

  • Page 96
    ... broadband service and one of the most advanced TV on-demand services available in the U.K. market. As of December 31, 2011, we provided service to approximately 4.8 million residential cable customers on our network. We are also one of the U.K.'s largest mobile virtual network operators by number...

  • Page 97
    ... of our valuation allowance on deferred tax assets. Actual results could differ from those estimates. Fair Values We have determined the estimated fair value amounts presented in these consolidated financial statements using available market information and appropriate methodologies including, where...

  • Page 98
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 2-Significant Accounting Policies (continued) Cash and Cash Equivalents and Restricted Cash Cash equivalents are short term highly liquid investments purchased with an original maturity of three months or ...

  • Page 99
    ... connection with the design and installation of our operating network equipment and facilities. Costs associated with initial customer installations, additions of network equipment necessary to enable enhanced services, acquisition of additional fixed assets and replacement of existing fixed assets...

  • Page 100
    ... undiscounted and discounted cash flow analyses are based on a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating results of the asset group, discount rate and long term growth rate. As of December 31, 2011 there were...

  • Page 101
    ... ASC in relation to installation fees for cable television, fixed line telephone, and broadband internet services. Installation revenues are recognized at the time the installation is completed to the extent those fees are less than direct selling costs, which is generally the case. Mobile handset...

  • Page 102
    ... services billed in advance and to accrue for earned but unbilled services. Revenue from non-contract pre-pay customers is recorded as deferred revenue prior to commencement of services and is recognized as the services are rendered or usage rights expire. Business Rental revenues in respect of line...

  • Page 103
    ...We recognize all derivative financial instruments as either assets or liabilities measured at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. To the extent that...

  • Page 104
    ...our consolidated financial statements for the year ended December 31, 2011. This is principally due to the fact that although prior to the adoption of this guidance we were unable to meet the criteria to separate the units of accounting for our residential customer arrangements, the Cable Television...

  • Page 105
    ...share (in millions): Year ended December 31, 2011 2010 2009 Numerator for basic income (loss) per common share from continuing operations ...Interest on senior convertible notes, net of tax ...Numerator for diluted income (loss) per common share from continuing operations ...Weighted average number...

  • Page 106
    ... range. Sharesave Option Grants All options granted under the Virgin Media Inc. Sharesave Plan enable eligible employees to purchase shares of our common stock at a discount. Employees are invited to take out savings contracts that last for three years. At the end of the contract, employees use...

  • Page 107
    ... statements of operations, cash flows and shareholders' equity for the year ended December 31, 2009. 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...

  • Page 108
    ..., 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...

  • Page 109
    ... FINANCIAL STATEMENTS (continued) Note 5-Fixed Assets (Including Leases) Fixed assets consist of (in millions): December 31, 2011 Under Capital Leases Total 2010 Under Capital Leases Useful Life Total Operating equipment Cable distribution plant ...Switches and headends ...Customer premises...

  • Page 110
    ... FINANCIAL STATEMENTS (continued) Note 5-Fixed Assets (Including Leases) (continued) Future minimum annual payments under capital and operating leases at December 31, 2011 are as follows (in millions). The table reflects our contractual obligations. Capital Leases Operating Leases Year ending...

  • Page 111
    ... of our Consumer and Business reporting units as at October 1, 2011 and 2010. As a result of this review we concluded that no impairment charge was required at either date. Based on the results of the review as at October 1, 2011, neither our Business or Consumer reporting units were at risk of...

  • Page 112
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7-Long Term Debt Long term debt consists of (in millions): December 31, 2011 2010 Secured Obligations U.S. Dollar 6.50% senior secured notes due 2018 ...5.25% senior secured notes due 2021 ...Sterling 7....

  • Page 113
    ...November 15, 2016 and may not be redeemed by us prior to their maturity date. Upon conversion, we may elect to settle in cash, shares of common stock or a combination of cash and shares of our common stock. Based on the December 31, 2011 closing price of our common stock, the 'if converted value' of...

  • Page 114
    ... 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...

  • Page 115
    ... million as of December 31, 2011 and 2010, respectively, has been included as a non-current derivative financial asset in the consolidated balance sheets. 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...

  • Page 116
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7-Long Term Debt (continued) In March 2011, we used the net proceeds from our senior secured notes due 2021 to prepay £532.5 million of the Tranche A outstanding under our senior credit facility, thus ...

  • Page 117
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7-Long Term Debt (continued) Long term debt repayments, excluding capital leases, as of December 31, 2011, are due as follows (in millions): Year ending December 31: 2012 ...2013 ...2014 ...2015 ...2016 ...

  • Page 118
    ... the fair value of our financial assets and liabilities, we used the following methods and assumptions: Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely...

  • Page 119
    ... prices in active markets and incorporate non-performance risk. The carrying values of the $500 million 5.25% and £650 million 5.50% senior secured notes due 2021 include adjustments of £45.7 million and £77.9 million, respectively, as a result of our application of fair value hedge accounting...

  • Page 120
    ... 10% of total accounts receivable. Concentrations of credit risk with respect to derivative contracts are focused within a limited number of international financial institutions with which we operate and relate only to derivatives with recorded asset balances at December 31, 2011. We perform regular...

  • Page 121
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Derivative Financial Instruments and Hedging Activities (continued) In respect to Accounting Hedges, we believe our hedge contracts will be highly effective during their term in offsetting changes in ...

  • Page 122
    ... and foreign exchange rate risks relating to the pound sterling value of interest and principal payments on the U.S. dollar and euro denominated senior notes and senior secured notes. We have also entered into cross-currency interest rate swap agreements to manage our exposure to changes in the...

  • Page 123
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Derivative Financial Instruments and Hedging Activities (continued) The terms of our outstanding cross-currency interest rate swaps at December 31, 2011 were as follows: Notional amount due from ...

  • Page 124
    ... swap agreements to manage our exposure to changes in the fair value of certain debt obligations due to interest rate fluctuations. The interest rate swaps allow us to receive or pay interest based on three or six month LIBOR in exchange for payments or receipts of interest at fixed rates. The terms...

  • Page 125
    ... in the consolidated statement of operations in the period in which they occur. During the years ended December 31, 2011, 2010 and 2009, we recognized £0.0 million, a gain of £0.5 million, and a loss of £0.6 million respectively, relating to ineffectiveness on our cash flow hedges. F-36

  • Page 126
    ...years ended December 31, 2011, 2010 and 2009 (in millions): Interest rate swaps Cross-currency interest rate swaps Forward foreign exchange contracts Tax Effect Total Balance at December 31, 2008 ...Amounts recognized in other comprehensive income (loss) ...Amounts reclassified as a result of cash...

  • Page 127
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Derivative Financial Instruments and Hedging Activities (continued) Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax income or losses that ...

  • Page 128
    ... increase the compensation cost. Expected dividend yield. This is the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will increase compensation cost. Expected volatility. Actual historical changes in the market value of our stock are used...

  • Page 129
    ... outstanding as of December 31, 2011 pursuant to the stock incentive plans and the Virgin Media Sharesave Plan and of the changes during the year ended December 31, 2011, is provided below: Stock Incentive Plans Non-performance Performance Based Based Weighted Average Exercise Price Virgin Media...

  • Page 130
    ... value of the proportion of restricted stock units subject to the TSV performance measure as of the grant date. Year ended December 31, 2011 Risk-free Interest Rate ...Expected Dividend Yield ...Expected Volatility of Virgin Media Shares ...Expected Volatility of Selected Comparator Group Shares...

  • Page 131
    ...restricted stock units that vested during the years ended December 31, 2011, 2010 and 2009 had total fair values of £16.3 million, £1.8 million and £0.7 million, respectively. Note 11-Employee Benefit Plans Defined Benefit Plans Certain of our subsidiaries operate defined benefit pension plans in...

  • Page 132
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 11-Employee Benefit Plans (continued) Obligations and Funded Status The change in projected benefit obligation was as follows (in millions): Year ended December 31, 2011 2010 Benefit obligation at ...

  • Page 133
    ... of actuarial losses in the net periodic benefit cost for the year ended December 31, 2012. Net Periodic Benefit Costs The components of net periodic benefit costs were as follows (in millions): Year ended December 31, 2011 2010 2009 Service cost ...Interest cost ...Expected return on plan assets...

  • Page 134
    ... MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 11-Employee Benefit Plans (continued) Assumptions The weighted-average assumptions used to determine benefit obligations were as follows: December 31, 2011 2010 Discount rate ...Rate of compensation increase...

  • Page 135
    ...of the assets of our two defined benefit pension plans, have in place an investment strategy that targets an allocation of 40% equities, 10% fund of hedge funds, 3% property and 47% bonds and cash, at December 31, 2011. The assets are managed by a number of fund managers, which means as markets move...

  • Page 136
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 12-Restructuring and other charges Restructuring and other charges in the year to December 31, 2011, 2010 and 2009 related primarily to employee termination and lease and contract exit costs in connection ...

  • Page 137
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 13-Income Taxes The (expense) benefit for income taxes consists of the following (in millions): Year ended December 31, 2011 2010 2009 Current: Federal ...State and local ...Foreign ...Total current ......

  • Page 138
    ... our financial position and results of operations for the current and preceeding years, the availability of deferred tax liabilities and tax carrybacks, as well as an evaluation of currently available information about future years. Significant components of deferred tax liabilities and assets are...

  • Page 139
    ... CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 13-Income Taxes (continued) The change in tax rates relates to a reduction in the UK corporate income tax rate from 28% in 2010, to 26% with effect from 1 April 2011, and to 25% with effect from 1 April 2012. The deferred tax assets and liabilities...

  • Page 140
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 13-Income Taxes (continued) A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in millions): 2011 2010 2009 Balance, January 1 ...Additions for tax provisions...

  • Page 141
    ... 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. Our...

  • Page 142
    ... quarterly dividends by us are at the discretion of our Board of Directors and will be subject to our future needs and uses of cash, which could include investments in operations, the repayment of debt, and share repurchase programs. In addition, the terms of our and our subsidiaries' existing and...

  • Page 143
    ... through open market, privately negotiated, and/or derivative transactions, and may be implemented through arrangements with one or more brokers. Any shares of common stock acquired in connection with these programs will be held in treasury or cancelled. In addition on October 27, 2011, we announced...

  • Page 144
    ... and other, net in the consolidated statement of operations for the year ended December 31, 2011. Our VAT treatment of certain other revenue generating activities remains subject to challenge by the U.K. tax authorities. As a result, we have estimated contingent losses totaling £27.4 million as of...

  • Page 145
    ... fixed line telephone services to residential customers outside of our cable network, and the provision of mobile telephony and mobile broadband to residential customers. Our Business segment comprises our operations carried out through Virgin Media Business which provides voice, data and internet...

  • Page 146
    VIRGIN MEDIA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 17-Industry Segments (continued) Segment information for the years ended December 31, 2011, 2010 and 2009 was as follows (in millions): Year ended December 31, 2011 Consumer Business Total Revenue ......

  • Page 147
    ... Media Finance Other guarantors All other subsidiaries Adjustments Balance sheets Company VMIH VMIL (in millions) Total Cash and cash equivalents ...£ Restricted cash ...Other current assets ...Total current assets ...Fixed assets, net ...Goodwill and intangible assets, net ...Investments...

  • Page 148
    ... CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 18-Condensed Consolidating Financial Information-Senior Notes (continued) December 31, 2010 Virgin Media Finance Other guarantors All other subsidiaries Adjustments Balance sheets Company VMIH VMIL (in millions) Total Cash and cash equivalents...

  • Page 149
    ...-Condensed Consolidating Financial Information-Senior Notes (continued) Year ended December 31, 2011 Virgin Media Other All other Company Finance guarantors VMIH VMIL subsidiaries Adjustments (in millions) Statements of operations Total Revenue ...£ 0.0 £ Operating costs ...0.0 Selling, general...

  • Page 150
    ...-Condensed Consolidating Financial Information-Senior Notes (continued) Year ended December 31, 2010 Virgin Media Other All other Company Finance guarantors VMIH VMIL subsidiaries Adjustments (in millions) Statements of operations Total Revenue ...£ 0.0 £ Operating costs ...0.0 Selling, general...

  • Page 151
    ...-Condensed Consolidating Financial Information-Senior Notes (continued) Year ended December 31, 2009 Virgin Media Other All other Company Finance guarantors VMIH subsidiaries Adjustments (in millions) Statements of operations Total Revenue ...£ 0.0 £ Operating costs ...0.0 Selling, general and...

  • Page 152
    ... Financial Information-Senior Notes (continued) Year ended December 31, 2011 Virgin All Media Other other Company Finance guarantors VMIH VMIL subsidiaries Adjustments (in millions) Statements of cash flows Total Net cash provided by (used in) operating activities ...£ (56.1) £ (20.0) Investing...

  • Page 153
    ...Financing activities: New borrowings, net of financing fees ...Repurchase of common stock ...Purchase of conversion hedges ...Proceeds from employee stock option exercises ...Principal payments on long term debt and capital leases ...Intercompany funding movements ...Dividends paid ...Net cash (used...

  • Page 154
    ...(repayments) on loans to group companies ...Disposal of businesses, net ...Other ...Net cash (used in) provided by investing activities ...Financing activities: New borrowings, net of financing fees . . Proceeds from employee stock option exercises ...Principal payments on long term debt and capital...

  • Page 155
    ...2011 Virgin Media Secured Finance NonGuarantors Guarantors (in millions) Balance sheets Company Adjustments Total Cash and cash equivalents ...Restricted cash ...Other current assets ...Total current assets ...Fixed assets, net ...Goodwill and intangible assets, net ...Investments in, and loans...

  • Page 156
    ... FINANCIAL STATEMENTS (continued) Note 19-Condensed Consolidating Financial Information-Senior Secured Notes (continued) December 31, 2010 Virgin Media Secured Finance NonGuarantors Guarantors (in millions) Balance sheets Company Adjustments Total Cash and cash equivalents ...Restricted cash...

  • Page 157
    ...19-Condensed Consolidating Financial Information-Senior Secured Notes (continued) Year ended December 31, 2011 Virgin Media Secured Finance NonGuarantors Guarantors (in millions) Statements of operations Company Adjustments Total Revenue ...Operating costs ...Selling, general and administrative...

  • Page 158
    ...19-Condensed Consolidating Financial Information-Senior Secured Notes (continued) Year ended December 31, 2010 Virgin Media Secured Finance NonGuarantors Guarantors (in millions) Statements of operations Company Adjustments Total Revenue ...Operating costs ...Selling, general and administrative...

  • Page 159
    ...19-Condensed Consolidating Financial Information-Senior Secured Notes (continued) Year ended December 31, 2009 Virgin Media Secured Finance NonGuarantors Guarantors (in millions) Statements of operations Company Adjustments Total Revenue ...Operating costs ...Selling, general and administrative...

  • Page 160
    ... Consolidating Financial Information-Senior Secured Notes (continued) Year ended December 31, 2011 Virgin Media Secured NonCompany Finance Guarantors Guarantors Adjustments (in millions) Statements of cash flows Total Net cash provided by (used in) operating activities ...£ (56.1) £ Investing...

  • Page 161
    ...Financing activities: New borrowings, net of financing fees ...Repurchase of common stock ...Purchase of conversion hedges ...Proceeds from employee stock option exercises ...Principal payments on long term debt and capital leases ...Intercompany funding movements ...Dividends paid ...Net cash (used...

  • Page 162
    ... (repayments) on loans to group companies ...Disposal of businesses, net ...Other ...Net cash (used in) provided by investing activities ...Financing activities: New borrowings, net of financing fees ...Proceeds from employee stock option exercises ...Principal payments on long term debt and capital...

  • Page 163
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 20-Subsequent Events On February 8, 2012, we entered into a $250 million capped accelerated stock repurchase agreement under the 2011 capital optimization program. Under the terms of this agreement, we paid $250 million from cash on hand to...

  • Page 164
    VIRGIN MEDIA INC. SCHEDULE I-FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEET (in millions, except par value) December 31, 2011 2010 Assets Current assets Cash and cash equivalents ...Other current assets ...Total current assets ...Investments in and loans to affiliates, net ...Other assets, net ...

  • Page 165
    VIRGIN MEDIA INC. FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF OPERATIONS (in millions) Year ended December 31, 2011 2010 2009 Costs and expenses General and administrative expenses ...Operating loss ...Other income (expense) Interest expense ...Loss on derivative instruments ...Foreign ...

  • Page 166
    VIRGIN MEDIA INC. FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOWS (in millions) Year ended December 31, 2011 2010 2009 Net cash used in operating activities ...£ (56.1) £ (34.5) £ (8.5) Investing activities Principal repayments on loans to group companies ...621.6 479.9 0.0 Net cash ...

  • Page 167
    VIRGIN MEDIA INC. NOTES TO FINANCIAL INFORMATION OF REGISTRANT Note 1-Basis of Presentation In our financial statements, our investment in subsidiaries is stated at cost plus equity in the undistributed earnings of the subsidiaries. Our share of net loss of our subsidiaries is included in net loss ...

  • Page 168
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Virgin Media Investment Holdings Limited We have audited the accompanying consolidated balance sheets of Virgin Media Investment Holdings Limited and subsidiaries (the "Company"), an indirect wholly owned...

  • Page 169
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Virgin Media Investments Limited We have audited the accompanying consolidated balance sheets of Virgin Media Investments Limited and subsidiaries (the "Company"), an indirect wholly owned subsidiary of ...

  • Page 170
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except share data) December 31, 2011 December 31, 2010 Assets Current assets Cash and cash equivalents ...Restricted cash ...Accounts receivable-trade, less allowances for doubtful accounts of £10.9...

  • Page 171
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions) Year ended December 31, 2011 2010 2009 Revenue ...Costs and expenses Operating costs (exclusive of depreciation shown separately below) ...Selling, general and administrative expenses ......

  • Page 172
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year ended December 31, 2011 2010 2009 Operating activities: Net income (loss) ...Loss (income) from discontinued operations ...Income (loss) from continuing operations ...Adjustments to ...

  • Page 173
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (in millions, except share data) Accumulated Other Comprehensive Income (Loss) Net Share Capital Comprehensive Foreign Pension (Losses) £0.001 Par Value Additional Paid-In Income Currency ...

  • Page 174
    VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except share data) December 31, 2011 December 31, 2010 Assets Current assets Cash and cash equivalents ...Restricted cash ...Accounts receivable-trade, less allowances for doubtful accounts of £10.9 (2011) ...

  • Page 175
    VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions) Year ended December 31, 2011 2010 2009 Revenue ...Costs and expenses Operating costs (exclusive of depreciation shown separately below) ...Selling, general and administrative expenses ......

  • Page 176
    VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year ended December 31, 2011 2010 2009 Operating activities: Net income (loss) ...Loss (income) from discontinued operations ...Income (loss) from continuing operations ...Adjustments to reconcile ...

  • Page 177
    VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (in millions, except share data) Accumulated Other Comprehensive Income (Loss) Net Common Additional Foreign Pension (Losses) Stock £1.0 Paid-In Comprehensive Currency Liability Gains on Accumulated ...

  • Page 178
    ... broadband service and one of the most advanced TV on-demand services available in the U.K. market. As of December 31, 2011, we provided service to approximately 4.8 million residential cable customers on our network. We are also one of the U.K.'s largest mobile virtual network operators by number...

  • Page 179
    ...portfolio of voice, data and internet solutions to leading businesses, public sector organizations and service providers in the U.K. through Virgin Media Business. Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is...

  • Page 180
    ... of our valuation allowance on deferred tax assets. Actual results could differ from those estimates. Fair Values We have determined the estimated fair value amounts presented in these consolidated financial statements using available market information and appropriate methodologies including, where...

  • Page 181
    ... INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 2-Significant Accounting Policies (continued) Trade Receivables Our trade receivables are stated at outstanding principal balance...

  • Page 182
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 2-Significant Accounting Policies (continued) additional fixed assets and replacement of existing fixed assets are ...

  • Page 183
    ... undiscounted and discounted cash flow analyses are based on a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating results of the asset group, discount rate and long term growth rate. As of December 31, 2011 there were...

  • Page 184
    ... ASC in relation to installation fees for cable television, fixed line telephone, and broadband internet services. Installation revenues are recognized at the time the installation is completed to the extent those fees are less than direct selling costs, which is generally the case. Mobile handset...

  • Page 185
    ... services billed in advance and to accrue for earned but unbilled services. Revenue from non-contract pre-pay customers is recorded as deferred revenue prior to commencement of services and is recognized as the services are rendered or usage rights expire. Business Rental revenues in respect of line...

  • Page 186
    ...We recognize all derivative financial instruments as either assets or liabilities measured at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. To the extent that...

  • Page 187
    ...our consolidated financial statements for the year ended December 31, 2011. This is principally due to the fact that although prior to the adoption of this guidance we were unable to meet the criteria to separate the units of accounting for our residential customer arrangements, the Cable Television...

  • Page 188
    ... statements of operations, cash flows and shareholders' equity for the year ended December 31, 2009. 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...

  • Page 189
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 3-Disposals (continued) Disposal of sit-up On April 1, 2009, we completed the disposal of our sit-up reporting unit, ...

  • Page 190
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 4-Fixed Assets (Including Leases) (continued) Included in assets acquired under capital leases for the year ended December 31, 2011 is £55.5 million in respect to customer...

  • Page 191
    ... INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5-Goodwill and Intangible Assets Goodwill and intangible assets consist of (in millions): Estimated Useful Life December 31, 2011...

  • Page 192
    ...VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 6-Long Term Debt Long term debt consists of (in millions): December 31, 2011 VMIH VMIL December 31, 2010 VMIH VMIL Amounts due to third parties U.S. Dollar 6.50% senior secured...

  • Page 193
    ... to us for the acquisition of Telewest UK Limited. All senior notes have been guaranteed by us pursuant to a senior subordinated guarantee. The terms of our senior notes and loan notes due to Virgin Media Finance PLC and loan notes due to Virgin Media (UK) Group Inc are summarized below. • 9.50...

  • Page 194
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 6-Long Term Debt (continued) On July 26, 2011, we redeemed in full the outstanding balance of our $550 million 9.125% senior notes due 2016 using £355.8 million of cash...

  • Page 195
    ...similar assets or liabilities in markets that are not active, or Inputs other than quoted prices that are observable for the asset or liability Unobservable inputs for the asset or liability Level 3 We endeavor to utilize the best available information in measuring fair value. Financial assets and...

  • Page 196
    ... In estimating the fair value of our other financial instruments, we used the following methods and assumptions: Derivative financial instruments: As a result of our financing activities, we are exposed to market risks from changes in interest and foreign currency exchange rates, which may adversely...

  • Page 197
    ... 10% of total accounts receivable. Concentrations of credit risk with respect to derivative contracts are focused within a limited number of international financial institutions with which we operate and relate only to derivatives with recorded asset balances at December 31, 2011. We perform regular...

  • Page 198
    ...changes in cash flow or fair value attributable to the hedged risk. The foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps are valued using internal models based on observable inputs, counterparty valuations or market transactions in either the listed...

  • Page 199
    ... and foreign exchange rate risks relating to the pound sterling value of interest and principal payments on the U.S. dollar and euro denominated senior notes and senior secured notes. We have also entered into cross-currency interest rate swap agreements to manage our exposure to changes in the...

  • Page 200
    ... swap agreements to manage our exposure to changes in the fair value of certain debt obligations due to interest rate fluctuations. The interest rate swaps allow us to receive or pay interest based on three or six month LIBOR in exchange for payments or receipts of interest at fixed rates. The terms...

  • Page 201
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 8-Derivative Financial Instruments and Hedging Activities (continued) Foreign Currency Forward Rate Contracts-Hedging ...

  • Page 202
    ...December 31, 2011, 2010 and 2009 (in millions): Interest rate swaps Cross-currency interest rate swaps Forward foreign exchange contracts Total Tax Effect Balance at December 31, 2008 ...Amounts recognized in other comprehensive income (loss) ...Amounts reclassified as a result of cash flow hedge...

  • Page 203
    ...tax gains of £0.1 million relating to forward foreign exchange contracts. Fair Value Hedges For derivative instruments that are designated and qualify as fair value accounting hedges, the gain or loss on the derivative is reported in earnings along with offsetting changes in the value of the hedged...

  • Page 204
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Employee Benefit Plans (continued) Obligations and Funded Status The change in projected benefit obligation was as follows (in millions): Year ended December 31, 2011...

  • Page 205
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Employee Benefit Plans (continued) Amount Included in Other Comprehensive Income The amount included in other comprehensive income for the years ended December 31, 2011...

  • Page 206
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Employee Benefit Plans (continued) Assumptions The weighted-average assumptions used to determine benefit obligations were as follows: December 31, 2011 2010 Discount rate...

  • Page 207
    ...of the assets of our two defined benefit pension plans, have in place an investment strategy that targets an allocation of 40% equities, 10% fund of hedge funds, 3% property and 47% bonds and cash, at December 31, 2011. The assets are managed by a number of fund managers, which means as markets move...

  • Page 208
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9-Employee Benefit Plans (continued) Defined Contribution Pension Plans Our subsidiaries operate defined contribution pension plans in the U.K. The total expense in relation...

  • Page 209
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 10-Restructuring and other charges (continued) The following table summarizes, for the years ended December 31, 2011, ...

  • Page 210
    ... SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 11-Income Taxes (continued) The U.K. deferred income tax expense for the year ended December 31, 2011 related primarily to our discontinuance of hedge accounting...

  • Page 211
    ... effect from 1 April 2012. The deferred tax assets and liabilities presented for 2011 reflect the 25% rate. Further rate changes have been announced that are expected to reduce the UK corporate income tax rate in equal annual decrements of one percentage point to 23%, but these changes have not yet...

  • Page 212
    ... tax benefits is as follows (in millions): 2011 2010 2009 Balance, January 1 ...Additions based on tax positions related to the current year ...Additions for tax provisions of prior years ...Reductions for tax provisions of prior years ...Reductions for lapse of applicable statute of limitation...

  • Page 213
    ... 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. Our...

  • Page 214
    ...period to September 30, 2011. We also carry the UKTV channels in our pay television packages available to our customers. As at December 31, 2011 and 2010, included in the balance sheet were amounts related to our share of net assets, loans receivable, redeemable preference shares, and other payables...

  • Page 215
    ... and other, net in the consolidated statement of operations for the year ended December 31, 2011. Our VAT treatment of certain other revenue generating activities remains subject to challenge by the U.K. tax authorities. As a result, we have estimated contingent losses totaling £27.4 million as of...

  • Page 216
    .... Virgin Media has two reporting segments, Consumer and Business, as described below. Virgin Media's Consumer segment is its primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on its cable network...

  • Page 217
    VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 14-Industry Segments (continued) Segment information for the years ended December 31, 2011, 2010 and 2009 was as ...

  • Page 218
    ... VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 14-Industry Segments (continued) The reconciliation of total segment contribution to our consolidated operating income and net income (loss) is as follows (in millions): Year...