Virgin Media 2011 Annual Report Download - page 114

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7—Long Term Debt (continued)
than 98% of the product of the closing price of our common stock and the then applicable conversion rate; (iii) if
a specified corporate event occurs, such as a merger, recapitalization, reclassification, binding share exchange or
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.
The liability and equity components of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) are required to 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 have 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.
The equity component of the convertible senior notes was £108.2 million as of December 31, 2011 and
2010. 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, 2011 and 2010 (in millions):
December 31,
2011 2010
Principal obligation ................................. £643.3 £ 641.1
Unamortized discount ............................... (92.2) (105.7)
Net carrying amount ................................ £551.1 £ 535.4
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