Virgin Media 2013 Annual Report Download

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Consolidated Financial Statements
December 31, 2013 and 2012
VIRGIN MEDIA INC.
12300 Liberty Boulevard
Englewood, Colorado 80112

Table of contents

  • Page 1
    Consolidated Financial Statements December 31, 2013 and 2012 VIRGIN MEDIA INC. 12300 Liberty Boulevard Englewood, Colorado 80112

  • Page 2
    ..., 2012 and 2011...II - 10 Notes to Consolidated Financial Statements ...II - 12 Management's Discussion and Analysis of Financial Condition and Results of Operations...III - 1 Critical Accounting Policies, Judgments and Estimates...III - 21 Quantitative and Qualitative Disclosures about Market Risk...

  • Page 3
    ...our digital cable, broadband internet, fixed-line telephony and mobile and B2B (as defined in this annual report) service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future; our ability to manage rapid technological changes; our...

  • Page 4
    ... for our digital cable services at reasonable costs; uncertainties inherent in the development and integration of new business lines and business strategies; our ability to adequately forecast and plan future network requirements; the availability of capital for the acquisition and/or development of...

  • Page 5
    ...of broadband internet service through analysis of speed, market conditions and other factors. Our digital cable service offerings include basic and premium programming and incremental product and service offerings such as enhanced pay-per-view programming (including digital cable-on-demand), digital...

  • Page 6
    ...digital television signal. Our Television Subscriber base includes customers who pay a monthly fee for the television subscription or TiVo box functionality they receive (Paying TV customers), as well as those that have paid an initial fee to receive a Virgin Media set-top box together with internet...

  • Page 7
    ... this program. In November 2013, we announced a further speed increase which we began to implement in February 2014. As a result, we currently offer three tiers of cable broadband services available to new subscribers with unlimited downloads (subject to any fair usage or traffic management policy...

  • Page 8
    ..., our cable network enables us to provide digital cableon-demand content to our customers separately from their high-speed data services, thereby maintaining their broadband speed. The primary categories of content available within Virgin TV On Demand are television programming, movies (on...

  • Page 9
    ... internet streaming TV service that allows our TV customers to stream up to 90 live TV channels, including Sky Sports, and watch more than 4,000 hours of Virgin TV On-Demand through their web browser, anywhere in the U.K. with a broadband connection. Customers are able to also discover new...

  • Page 10
    ... cable network. We have continued to promote the use of our mobile platform to view internet and television content by introducing features such as Virgin TV Anywhere. As at December 31, 2013, we employed approximately 550 members of staff in our mobile services call centers. Business Products and...

  • Page 11
    ... 3G data services as a reseller of EE's business services. As a result, we now have the opportunity to offer our B2B customers a one-supplier solution for both their fixed-line and mobile telephony needs. Our Network We deliver voice, video and high-speed data services over our cable access network...

  • Page 12
    ... League. The BT Sport channels are available over BT's internet protocol television (IPTV) platform, BSkyB's satellite system and our cable network. BT is currently offering customers who subscribe to their broadband service free access to the SD version of BT Sport channels over BT TV, BT broadband...

  • Page 13
    ... 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. Mobile In the mobile telephony market, we face direct competition from mobile network operators (MNOs) such as O2, EE...

  • Page 14
    ... with traditional network operators such as Vodafone UK, which acquired C&W Worldwide in July 2012, and BT. BT represents the main competitive threat nationally due to its network reach and product portfolio. Vodafone UK is our only U.K. competitor to have both a fixed and mobile network to serve...

  • Page 15
    ... at establishing "super connected" cities with internet capabilities of between 80 Mbps to 100 Mbps and comprehensive mobile broadband coverage. In 2013, the U.K. Government announced the Superfast Extension Programme, which is designed to support the roll-out of broadband with download speeds of 30...

  • Page 16
    ... is intended to increase competition for the provision of roaming services. Mobile termination charges applied by MNOs are regulated by Ofcom under a significant market power charge control condition. Under our MNO agreement with EE these changes in mobile termination charges are passed on to us...

  • Page 17
    "Virgin" name for the television, broadband internet, fixed-line telephony 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 ...

  • Page 18
    ... The markets for digital cable, broadband internet, fixed-line telephony and mobile services in which we operate are highly competitive and, in certain markets, we compete with established companies that hold positions of market power in these and/or closely related markets. We face competition from...

  • Page 19
    ... be harmed. Adverse economic developments could reduce customer spending for our digital cable, broadband, fixed-line telephony and mobile services and increase churn, either of which could have a material adverse effect on our business, financial condition and results of operations. Most of our...

  • Page 20
    ... competitors in the television services business. BSkyB is a leading supplier of programming to pay television platforms in the U.K. and is the exclusive supplier of some programming, including its Sky Sports channels and Sky Movies channels, which are the most popular premium subscription sports...

  • Page 21
    ...and its premium sports and movie channels on our digital cable service. However, for SD we are still exposed to BSkyB changing the rate card terms of supply on 60 days' notice and we are also exposed to BSkyB offering HD versions of its channels exclusively to its digital satellite customers and not...

  • Page 22
    ... would be sufficient 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...

  • Page 23
    ... other indebtedness in the future that may contain financial or other covenants more restrictive than those applicable under our current indebtedness. We are a holding company dependent upon cash flow from subsidiaries to meet our obligations. Virgin Media Inc. and a number of its subsidiaries are...

  • Page 24
    ... protections that will potentially limit any reduction of the increased effective tax rate. We may have exposure to additional tax liabilities. We are subject to income taxes as well as non-income based taxes in multiple jurisdictions, such as payroll, sales, use, value-added, net worth, property...

  • Page 25
    restructuring and integration activities, no assurance can be given that the actual synergies that we achieve will not fall short of our expectations. These factors could have a material adverse effect on our business and/or our reputation. I - 23

  • Page 26
    ...'s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial...

  • Page 27
    Report of Independent Auditors The Board of Directors Virgin Media Inc. We have audited the accompanying consolidated financial statements of Virgin Media Inc., which comprise the consolidated balance sheet as of December 31, 2012 (Predecessor), and the related consolidated statements of operations...

  • Page 28
    VIRGIN MEDIA INC. (See note 1) CONSOLIDATED BALANCE SHEETS (in millions) Successor December 31, 2013 ASSETS Predecessor (a) December 31, 2012 Current assets: Cash and cash...017.5 - 2,641.7 - 555.7 10,564.9 The accompanying notes are an integral part of these consolidated financial statements. II - 3

  • Page 29
    ...31, 2012 Current liabilities: Accounts payable ...£ Deferred revenue and advanced payments from subscribers and others ...Current portion of debt and capital lease obligations (note 7)...Derivative instruments (note 4) ...Accrued interest ...Related-party payables (note 11) ...Value added tax (VAT...

  • Page 30
    VIRGIN MEDIA INC. (See note 1) CONSOLIDATED STATEMENTS OF OPERATIONS (in millions) Successor Period from June 8 to December 31, 2013 Predecessor Period from January 1 to June 7, 2013 Year ended December 31, 2012 (a) Year ended December 31, 2011 Revenue...£ Operating costs and expenses: Operating (...

  • Page 31
    VIRGIN MEDIA INC. (See note 1) CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) (in millions) Successor Period from June 8 to December 31, 2013 Predecessor Period from January 1 to June 7, 2013 Year ended December 31, 2012... an integral part of these consolidated financial statements. II - 6

  • Page 32
    ... earnings ...Other comprehensive loss, net of taxes (note 14) ...Exercise of stock options and tax effect ...Share-based compensation (note 10) ...Acquisition of additional shares in a controlled subsidiary ...Repurchase of common stock (note 9) ...Dividends paid (note 9) ...Balance at December 31...

  • Page 33
    ... 14) ...Exercise of stock options and tax effect ...Share-based compensation (note 10) ...Excess tax benefits on stock-based compensation ...Acquisition of additional shares in a controlled subsidiary ...Repurchase of common stock (note 9) ...Dividends paid (note 9) ...Balance at December 31, 2012...

  • Page 34
    ... earnings, net of taxes (note 14) ...Capital contribution from parent (note 9)...Issuance of additional common stock to parent (note 9) ...Share-based compensation (note 10) ...Capital charge in connection with the exercise of share-based incentive awards (note 11) ...Balance at December 31, 2013...

  • Page 35
    ...: Receivables and other operating assets ...Payables and accruals...Net cash used by operating activities of discontinued operation...Net cash provided by operating activities ...Cash flows from investing activities: Loan to related-party ...Capital expenditures ...Sale of equity investments...

  • Page 36
    ...instruments ...Payment of financing costs and debt premiums...Repurchase of common stock ...Dividends paid ...Other financing activities, net ...Net cash provided (used) by financing activities ...Effect of exchange rate changes on cash and cash equivalents...Net increase (decrease) in cash and cash...

  • Page 37
    ... of digital cable, broadband internet, fixed-line telephony and mobile services in the United Kingdom (U.K.) to both residential and business-to-business (B2B) customers. Virgin Media became a whollyowned subsidiary of Liberty Global plc (Liberty Global) as a result of a series of mergers that...

  • Page 38
    ...Media's consolidated balance sheet as of June 7, 2013 were eliminated in acquisition accounting. For additional information, see note 3. Represents amounts that would have been recognized upfront as installation revenue under Old Virgin Media's policy, but were deferred under Liberty Global's policy...

  • Page 39
    ... the time of acquisition. We record money market funds at the net asset value reported by the investment manager as there are no restrictions on our ability, contractual or otherwise, to redeem our investments at the stated net asset value reported by the investment manager. Restricted cash consists...

  • Page 40
    ... activities that are capitalized include (i) the initial connection (or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of...

  • Page 41
    ... by considering (a) sale prices for similar assets, (b) discounted estimated future cash flows using an appropriate discount rate and/or (c) estimated replacement cost. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. We...

  • Page 42
    ... include (i) the estimated long-term rates of return to be earned by plan assets, (ii) the estimated discount rates used to value the projected benefit obligations and (iii) estimated wage increases. We estimate discount rates annually based upon the yields on high-quality fixed-income investments...

  • Page 43
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Sale of Multiple Products and Services. We sell digital cable, broadband internet and fixed-line telephony services to our customers in bundled packages at a rate lower than if ...

  • Page 44
    ...services provided prior to the June 7, 2013 acquisition date. The estimated fair value is based on the attributes of our 13.03 million outstanding stock incentive awards at June 7, 2013, including the market price of our underlying common stock. Our outstanding stock incentive awards at June 7, 2013...

  • Page 45
    ... of Virgin Media's existing advanced broadband communications network to gain immediate access to potential customers and (ii) substantial synergies that are expected to be achieved through the integration of Virgin Media with Liberty Global's other broadband communications operations in Europe. 447...

  • Page 46
    ... value. This amount will be amortized through the March 31, 2014 expiration date of the contract as a reduction of Virgin Media's operating expenses so that the net effect of this amortization and the payments required under the contract approximate market rates. During the period from June 8, 2013...

  • Page 47
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 aggregating £3.1 million and £4.8 million, respectively, and (ii) the fair values of our cross-currency and interest rate derivative contracts that represented liabilities have ...

  • Page 48
    ...early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set-off of amounts due under such derivative contracts against present...

  • Page 49
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Cross-currency and Interest Rate Derivative Contracts Cross-currency Swaps: The terms of our outstanding cross-currency swap contracts at December 31, 2013 which are held by our subsidiary, Virgin Media Investment Holdings Limited...

  • Page 50
    ... Virgin Media Capped Calls mature on dates ranging from September 30, 2016 to November 10, 2016. As further described in note 7, during the Successor period in 2013, most of the VM Convertible Notes were exchanged for Liberty Global Class A and Class C ordinary shares and cash pursuant to the terms...

  • Page 51
    ... fall under Level 3 of the fair value hierarchy. For the December 31, 2013 valuations of our equityrelated derivatives, we used estimated volatilities ranging from 25% to 27%. Based on the December 31, 2013 market price for Liberty Global ordinary shares, changes in forecasted volatilities currently...

  • Page 52
    ... Fair value measurements at December 31, 2013 using: Quoted prices Significant Significant in active other unobservable markets for observable inputs identical assets inputs (Level 3) (Level 1) (Level 2) in millions Description December 31, 2013 Assets: Cross-currency and interest rate derivative...

  • Page 53
    ...note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 A reconciliation of the beginning and ending balances of Virgin Media Capped Calls, which are measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows...

  • Page 54
    ... leases of £28.3 million, £64.7 million, £88.9 million and £91.2 million, respectively. In addition, during the period from June 8 to December 31, 2013, we recorded non-cash increases related to vendor financing arrangements of £34.8 million, which amount excludes related value-added taxes...

  • Page 55
    ...) or, when quoted market prices are unavailable or not considered indicative of fair value, discounted cash flow models (mostly Level 2 of the fair value hierarchy). The discount rates used in the cash flow models are based on the market interest rates and estimated credit spreads of the applicable...

  • Page 56
    ... of value-added taxes that were paid on our behalf by the vendor. Repayments of vendor financing obligations are included in repayments and repurchases of debt and capital lease obligations in our consolidated statements of cash flows. VM Convertible Notes In April 2008, Old Virgin Media issued...

  • Page 57
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 As discussed in note 1, the Liberty Global share and share-based amounts set forth above have not been adjusted to give effect to the 2014 Share Dividend. VM Notes At December 31,...

  • Page 58
    ...the VM Notes as of December 31, 2013 are summarized in the following table: Outstanding principal amount Pound Borrowing Estimated sterling currency fair value equivalent in millions VM Notes Maturity Interest rate Carrying value (a) 2018 VM Dollar Senior Secured Notes ...January 15, 2018 6.500...

  • Page 59
    ... present value of all remaining scheduled interest payments to January 15, 2014, October 15, 2014, April 15, 2017 or April 15, 2018 (as applicable) using the discount rate (as specified in the applicable indenture) as of the redemption date plus 50 basis points. Virgin Media Finance and Virgin Media...

  • Page 60
    ... of default under the VM Credit Facility. The VM Credit Facility permits certain members of the Virgin Media Borrowing Group to make certain distributions and restricted payments to its parent company (and indirectly to Liberty Global) through loans, advances or dividends subject to compliance with...

  • Page 61
    ... of Liberty Global entered into a short-term unsecured bridge credit facility agreement as the borrower in an aggregate principal amount of approximately $3,545.0 million (£2,281.9 million at the applicable rate) (the MergerCo Bridge Facility Agreement), with amounts borrowed applied towards paying...

  • Page 62
    ..., 2012 and 2011 Maturities of Debt and Capital Lease Obligations The pound sterling equivalents of the maturities of our debt and capital lease obligations as of December 31, 2013 are presented below: Debt Capital lease obligations in millions Total Year ending December 31: 2014...£ 2015...2016...

  • Page 63
    ... - (Continued) December 31, 2013, 2012 and 2011 (8) Income Taxes Virgin Media files tax returns in the U.S. and the U.K. The income taxes of Virgin Media and its subsidiaries are presented in our financial statements based on a separate return basis for each tax-paying entity or group. The...

  • Page 64
    ... quarter of 2013, it was announced that the U.K. corporate income tax rate will change to 21% in April 2014 and 20% in April 2015. This change in law was enacted in July 2013, and accordingly, the amount presented for 2013 reflects the impact of these future rate changes. The 2012 amount primarily...

  • Page 65
    ...31, 2013 Predecessor December 31, 2012 (a) Deferred tax assets: Net operating loss...£ Capital loss carryforwards ...Debt ...Property and equipment, net ...Other future deductible amounts...Deferred tax assets ...Valuation allowance...Deferred tax assets, net of valuation allowance ...Deferred tax...

  • Page 66
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 The significant components of our tax loss carryforwards and related tax assets at December 31, 2013 are as follows: Country Net operating Related loss (a) tax asset in millions ...

  • Page 67
    ... the Liberty Global ordinary shares that were used, together with cash consideration, to settle the exchanged VM Convertible Notes. For additional information, see note 7 . During 2012 and 2011, Old Virgin Media's board of directors authorized various stock repurchase programs. Under these plans, we...

  • Page 68
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 The following table provides details of our common stock repurchases during 2012 and 2011: Average price paid per share (a) Shares purchased pursuant to repurchase programs ...

  • Page 69
    ...for options, shares and performance shares related to the common stock of Old Virgin Media. Incentive awards are denominated in U.S. dollars. As discussed in note 1, the Liberty Global share and share-based amounts set forth below have not been adjusted to give effect to the 2014 Share Dividend. The...

  • Page 70
    ... 31, 2013, 2012 and 2011 The following table summarizes certain information related to the incentive awards granted or remeasured and exercised by employees of our subsidiaries with respect to Liberty Global ordinary shares during the Successor period and Old Virgin Media common stock during the...

  • Page 71
    ... target is based on the achievement of a specified compound annual growth rate (CAGR) in a consolidated operating cash flow metric (as defined in the applicable underlying agreement), adjusted for events such as acquisitions, dispositions and changes in foreign currency exchange rates that affect...

  • Page 72
    ..., restricted shares, RSUs and performance awards. In accordance with the terms of the LG/VM Transaction, Liberty Global issued Liberty Global share-based incentive awards (Virgin Media Replacement Awards) to employees and former directors of our company in exchange for corresponding Old Virgin Media...

  • Page 73
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Number of shares PSARs - Liberty Global Class A Ordinary shares Weighted average base price Weighted average remaining contractual term in years Aggregate intrinsic value in ...

  • Page 74
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Number of shares PSUs - Old Virgin Media Weighted average grant-date fair value per share Weighted average remaining contractual term in years Outstanding at January 1, 2013 ...Granted...Forfeited...Released from restrictions...

  • Page 75
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Number of shares RSUs - Old Virgin Media Weighted average grant-date fair value per share Weighted average remaining contractual term in years Outstanding at January 1, 2013 ...Granted...Forfeited...Released from restrictions...

  • Page 76
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Number of shares SARs - Liberty Global Class A ordinary shares Weighted average base price Weighted average remaining contractual term in years Aggregate intrinsic value in ...

  • Page 77
    ....3 million) was redenominated from U.S. dollars to pound sterling. The net increase during the period from June 8 to December 31, 2013 primarily relates to a cash loan of £2,290.6 million (equivalent at the transaction date) and a non-cash loan relating to deferred financing costs of £40.6 million...

  • Page 78
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Transaction date, whereby a subsidiary of Liberty Global contributed cash to Virgin Media that was subsequently used to repay amounts outstanding under the MergerCo Bridge Facility Agreement; (ii) a note receivable from Lynx Europe...

  • Page 79
    ... the U.K. Annual service cost for these employee benefit plans is determined using the projected unit credit actuarial method. The trustees of the plans that maintain funded plans have established investment policies for plan assets. The investment strategies are long-term in nature and designed to...

  • Page 80
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Ensure that funds are available to pay benefits as they become due; Maximize the total returns on plan assets subject to prudent risk taking; and Preserve or improve the funded ...

  • Page 81
    ... for each asset class are reviewed annually and revised, as necessary, to reflect changes in the financial markets. To compute the expected return on plan assets, the subsidiaries apply an expected rate of return to the fair value of the plan assets. The weighted average assumptions used in...

  • Page 82
    ... outflows in respect of certain liabilities. The fair value of this insurance contract is presented as an asset of the plan and is measured based on the future cash flows to be received under the contract discounted using the same discount rate used to measure the associated liabilities. II - 57

  • Page 83
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 A reconciliation of the beginning and ending balances of our plan assets measured at fair value using Level 3 inputs is as follows (in millions): Predecessor: Balance at January ...

  • Page 84
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 (14) Accumulated Other Comprehensive Earnings (Loss) Accumulated other comprehensive earnings (loss) included in our consolidated balance sheets and statements of equity reflect ...

  • Page 85
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 The components of other comprehensive earnings (loss), net of taxes... ...Net unrealized losses on cash flow hedges ...Reclassification of cash flow hedge losses to net income...

  • Page 86
    ... make cash payments in future periods with respect to non-cancelable operating leases, programming contracts, purchases of customer premises equipment and other items. The pound sterling equivalents of such commitments as of December 31, 2013 are presented below: Payments due during: 2014 2015 2016...

  • Page 87
    ... in September 2014. Other Regulatory Issues. Digital cable distribution, broadband internet, fixed-line telephony and mobile businesses are subject to significant regulation and supervision by various regulatory bodies in the jurisdictions in which we operate, and other U.K. and European Union (EU...

  • Page 88
    ...been restated to reflect this change. We operate in one geographical area, the U.K., within which we provide digital cable, broadband internet, fixed-line telephony and mobile services to residential and/or business customers. Our revenue by major category is set forth below (in millions): Successor...

  • Page 89
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 (17) Condensed Consolidating Financial Information - Senior Notes We present the following condensed consolidating financial information as of December 31, 2013 and December 31, ...

  • Page 90
    ... Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Successor December 31, 2013 Successor Company ASSETS Virgin Media Finance Other guarantors All other subsidiaries Balance sheets VMIH VMIL in millions Eliminations Total Current assets: Cash and cash equivalents...

  • Page 91
    ... Media Finance Other guarantors All other subsidiaries Balance sheets VMIH VMIL Eliminations Total in millions ASSETS Current assets: Cash and cash equivalents...£ Other current assets ...Total current assets ...Property and equipment, net ...Goodwill ...Investments in, and loans to, parent...

  • Page 92
    .... (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Successor Period from June 8 to December 31, 2013 Successor Company Virgin Media Finance Other guarantors All other subsidiaries Statements of operations VMIH VMIL in millions Eliminations...

  • Page 93
    ...Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor Period from January 1 to June 7, 2013 Predecessor Company Virgin Media Finance Other guarantors All other subsidiaries Statements of operations...income taxes ...Income tax expense...Earnings (loss) after income taxes ......

  • Page 94
    ...Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor (a) Year ended December 31, 2012 Predecessor Company Virgin Media Finance Other guarantors All other subsidiaries Statements of operations... taxes...Income tax benefit (expense) ...Earnings (loss) after income taxes......

  • Page 95
    .... (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor Year ended December 31, 2011 Predecessor Company Virgin Media Finance Other guarantors All other subsidiaries Statements of operations VMIH VMIL Eliminations Total in millions...

  • Page 96
    ...December 31, 2013 Successor Company Virgin Media Finance Other guarantors All other subsidiaries Statements of cash flows VMIH in millions VMIL Total Cash flows from operating activities: Net cash provided (used) by operating activities...£ Cash flows from investing activities: Loan to related...

  • Page 97
    ... and capital lease obligations...Investments from (loans to) parent and subsidiary companies...Payment of financing costs and debt premiums ...Other financing activities, net ...Net cash provided (used) by financing activities ...Effect of exchange rates on cash and cash equivalents...Net increase...

  • Page 98
    ... (loans to) parent and subsidiary companies...Net cash paid related to derivative instruments...Payment of financing costs and debt premiums...Repurchase of common stock...Other financing activities, net ...Net cash provided (used) by financing activities...Effect of exchange rates on cash and cash...

  • Page 99
    ... (loans to) parent and subsidiary companies ...Net cash received related to derivative instruments...Payment of financing costs and debt premiums ...Repurchase of common stock ...Other financing activities, net ...Net cash provided (used) by financing activities ...Effect of exchange rates on cash...

  • Page 100
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 (18) Condensed Consolidating Financial Information - Senior Secured Notes We present the following condensed consolidating financial information as of December 31, 2013 and ...

  • Page 101
    VIRGIN MEDIA INC. (See note 1) Notes to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Successor December 31, 2013 Balance sheets ASSETS Successor Company Virgin Media Secured Finance NonGuarantors Guarantors in millions Eliminations Total Current assets: Cash and...

  • Page 102
    ... Secured Finance NonGuarantors Guarantors in millions Eliminations Total Current assets: Cash and cash equivalents ...£ Other current assets ...Total current assets ...Property and equipment, net ...Goodwill ...Investments in, and loans to, parent and subsidiary companies ...Deferred income taxes...

  • Page 103
    ...to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Successor Period from June 8 to December 31, 2013 Successor Company Virgin Media Secured Finance NonGuarantors Guarantors in millions Statements of operations Eliminations Total Revenue ...£ Operating costs and...

  • Page 104
    ... to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor Period from January 1 to June 7, 2013 Predecessor Company Virgin Media Secured Finance NonGuarantors Guarantors in millions Statements of operations Eliminations Total Revenue...£ Operating costs...

  • Page 105
    ... to Consolidated Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor (a) Year ended December 31, 2012 Predecessor Company Virgin Media Secured Finance NonGuarantors Guarantors in millions Statements of operations Eliminations Total Revenue...£ Operating costs and...

  • Page 106
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Predecessor Year ended December 31, 2011 Predecessor Company Virgin Media Secured Finance NonGuarantors Guarantors in millions Statements of operations Eliminations Total Revenue ...£ Operating costs and expenses: Operating...

  • Page 107
    ... 8 to December 31, 2013 Virgin Media NonSecured Guarantors Guarantors Finance in millions Total Cash flows from operating activities: (98.4) £ Net cash provided (used) by operating activities...£ Cash flows from investing activities: (65.7) Loan to related-party ...Capital expenditures...- Other...

  • Page 108
    ... and capital lease obligations ...Investments from (loans to) parent and subsidiary companies...Payment of financing costs and debt premiums ...Other financing activities, net...Net cash provided (used) by financing activities ...Effect of exchange rates on cash and cash equivalents ...Net increase...

  • Page 109
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Statements of cash flows Predecessor Company Predecessor (a) Year ended December 31, 2012 Virgin Media NonSecured Guarantors Guarantors Finance in millions Total Cash flows from operating activities: Net cash provided (used...

  • Page 110
    ... Financial Statements - (Continued) December 31, 2013, 2012 and 2011 Statements of cash flows Predecessor Company Predecessor Year ended December 31, 2011 Virgin Media NonSecured Guarantors Guarantors Finance in millions Total Cash flows from operating activities: Net cash provided (used...

  • Page 111
    ...of broadband internet service through analysis of speed, market conditions and other factors. Our digital cable service offerings include basic and premium programming and incremental product and service offerings such as enhanced pay-per-view programming (including digital cable-on-demand), digital...

  • Page 112
    ...equity markets, as well as other outcomes that might adversely impact our company. The digital cable, broadband internet and fixed-line telephony businesses in which we operate are capital intensive. Significant additions to our property and equipment are required to add customers to our network and...

  • Page 113
    ... and (iii) increased share-based compensation expense; conforming accounting policy changes, primarily to align to Liberty Global's accounting policy for the recognition of installation fees received on B2B contracts, as further described in note 1 to our consolidated financial statements; and...

  • Page 114
    ... Predecessor Period from January 1 to June 7, 2013 Combined Year ended December 31, 2013 Predecessor Year ended December 31, 2012 Increase (decrease) Consolidated Statements of Operations £ % Revenue...£ Operating costs and expenses: Operating (other than depreciation and amortization)...SG...

  • Page 115
    ...category is set forth below: Year ended December 31, 2013 2012 in millions Increase (decrease) £ % Subscription revenue: Digital cable ...£ 976.7 Broadband internet ...871.8 Fixed-line telephony ...979.3 Cable subscription revenue...2,827.8 Mobile ...440.3 Total subscription revenue...3,268.1 B2B...

  • Page 116
    ... of broadband internet services and (2) lower-priced tiers of digital cable services and (e) higher ARPU due to increased penetration of TiVoenabled set-top boxes and (ii) an adverse change in RGU mix attributable to lower proportions of digital cable RGUs. In addition, fixed-line telephony revenue...

  • Page 117
    ...of (i) growth in digital services and (ii) rate increases for live sports content and, to a lesser degree, other premium content; A decrease in interconnect and access costs of £22.1 million or 5.9%, due primarily to the net effect of (i) lower mobile and fixed-line telephony termination rates, (ii...

  • Page 118
    ... to the common stock of Old Virgin Media. A summary of the share-based compensation expense that is included in our SG&A expenses is set forth below: Year ended December 31, 2013 2012 in millions Performance-based incentive awards...£ Other share-based incentive awards...Total (a a) 13.0 94...

  • Page 119
    ...a capital lease during the second quarter of 2012. We expect to incur additional restructuring costs during 2014 as the integration process with Liberty Global continues. Interest expense - third-party Our third-party interest expense increased £22.1 million or 5.5% during 2013, as compared to 2012...

  • Page 120
    ... an increase in the value of the pound sterling relative to the U.S. dollar. In addition, the loss during 2012 includes a net gain of £6.3 million resulting from changes in our credit risk valuation adjustments. These amounts primarily represent activity related to the Virgin Media Capped Calls and...

  • Page 121
    ...category is set forth below: Year ended December 31, 2012 2011 in millions Increase (decrease) £ % Subscription revenue: Digital cable ...£ 886.9 Broadband internet ...800.3 Fixed-line telephony ...998.3 Cable subscription revenue...2,685.5 Mobile ...437.9 Total subscription revenue...3,123.4 B2B...

  • Page 122
    ... (a) higher ARPU due to April 2012 price increases for certain broadband internet, digital cable and telephony services, (b) lower ARPU due to lower usage of fixed-line telephony and (c) higher ARPU due to the launch of TiVo-enabled set-top boxes and (ii) an adverse change in RGU mix attributable to...

  • Page 123
    ... call center costs mainly from the insourcing of certain customer care functions; An increase in programming and related costs of £24.6 million or 5.1%, due primarily to the impact of (i) growth in digital videos services and (ii) an increase of £3.8 million due to the impact of an accrual release...

  • Page 124
    ... to the common stock of Old Virgin Media. A summary of the share-based compensation expense that is included in our SG&A expenses is set forth below: Year ended December 31, 2012 2011 in millions Performance-based incentive awards ...£ Other share-based incentive awards ...Total...£ 7.2 18.6 25...

  • Page 125
    ... with decreases in market interest rates in the pound sterling market and (ii) losses associated with an increase in the value of the pound sterling relative to the U.S. dollar. In addition, the loss during 2012 includes a net gain of £6.3 million resulting from changes in our credit risk valuation...

  • Page 126
    ... may be limited by tax and legal considerations and other factors. Liquidity of Virgin Media Our sources of liquidity at the parent level include (i) our cash and cash equivalents, (ii) funding from Lynx Europe 2, our immediate parent, (and ultimately from Liberty Global or other Liberty Global...

  • Page 127
    ... Statements of Cash Flows below. Our subsidiaries may also require funding in connection with (i) the repayment of outstanding debt, (ii) acquisitions and other investment opportunities or (iii) distributions or loans to Virgin Media, Liberty Global or other Liberty Global subsidiaries. No...

  • Page 128
    ... 31, 2013 (a) Predecessor Year ended December 31, 2012 Change Net cash provided by operating activities ...£ Net cash used by investing activities...Net cash provided (used) by financing activities ...Effect of exchange rate changes on cash ...Net increase (decrease) in cash and cash equivalents...

  • Page 129
    ... as reported in the consolidated statements of cash flows is set forth below: Year ended December 31, 2013 in millions 2012 Property and equipment additions ...£ Assets acquired under capital leases...Assets acquired under capital-related vendor financing arrangements ...Changes in current...

  • Page 130
    ...pound sterling equivalents of our contractual commitments as of December 31, 2013 are presented below: Payments due during: 2014 2015 2016 2017 in millions 2018 Thereafter Total Debt (excluding interest) ...£ Capital leases (excluding interest)...Programming obligations ...Network and connectivity...

  • Page 131
    ... balance sheet other than debt and capital lease obligations. Amounts are based on interest rates, interest payment dates and contractual maturities in effect as of December 31, 2013. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments...

  • Page 132
    ... activities that are capitalized include (i) the initial connection (or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of...

  • Page 133
    ... the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than...

  • Page 134
    ... limited to, expected future cash flows, market comparables and discount rates, remaining useful lives of long-lived assets, replacement or reproduction costs of property and equipment and the amounts to be recovered in future periods from acquired net operating losses and other deferred tax assets...

  • Page 135
    ... change in the future due to liquidity or other relevant considerations, we could decide that it would be prudent to repatriate significant funds or other assets from one or more of our subsidiaries, even though we would incur a tax liability in connection with any such repatriation. If our plans...

  • Page 136
    ... changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks. Cash We invest our cash in highly liquid...

  • Page 137
    ... From time to time, we may also use interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At December 31, 2013, we effectively paid a fixed...

  • Page 138
    ...early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set-off of amounts due under such derivative contracts against present...

  • Page 139
    ...with Derivative Instruments The following table provides information regarding the projected cash flows associated with our derivative instruments at December 31, 2013. The pound sterling equivalents presented below are based on interest rates and exchange rates that were in effect as of December 31...