Virgin Media 2013 Annual Report Download - page 56

VIRGIN MEDIA INC.
(See note 1)
Notes to Consolidated Financial Statements — (Continued)
December 31, 2013, 2012 and 2011
II - 31
(e) The amount reported in the estimated fair value column for the VM Convertible Notes represents the estimated fair value
of the remaining VM Convertible Notes outstanding as of December 31, 2013, including both the debt and equity
components.
(f) Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are generally due within one
year. At December 31, 2013, the amount owed pursuant to these arrangements includes £3.0 million 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 $1.0 billion (£603.6 million) principal amount of 6.50% convertible senior notes (the
VM Convertible Notes), pursuant to an indenture (as supplemented, the VM Convertible Notes Indenture). The VM Convertible
Notes mature on November 15, 2016, unless the VM Convertible Notes are exchanged or repurchased prior thereto pursuant to
the terms of the VM Convertible Notes Indenture.
As a result of the application of acquisition accounting in connection with the LG/VM Transaction, the $2,716.8 million
(£1,748.7 million on the date of the LG/VM Transaction) estimated fair value of the VM Convertible Notes at June 7, 2013 was
allocated between the respective debt and equity components. The portion allocated to the debt component of $1,056.8 million
(£680.2 million on the date of the LG/VM Transaction) was measured based on the estimated fair value of a debt instrument that
has the same terms as the VM Convertible Notes without the conversion feature. The amount allocated to the debt component
resulted in a premium to the principal amount of the VM Convertible Notes. The $1,660.0 million (£1,068.5 million on the date
of the LG/VM Transaction) portion allocated to the equity component at June 7, 2013 was recorded as a derivative instrument
included within current liabilities in our consolidated balance sheet. The equity component is accounted for as an embedded
derivative that requires bifurcation from the debt instrument due to the fact that the conversion option is indexed to Liberty Global
shares.
The VM Convertible Notes are exchangeable under certain conditions for (subject to further adjustment as provided in the
VM Convertible Notes Indenture and subject to our right to settle in cash or a combination of Liberty Global ordinary shares and
cash) 13.4339 Class A ordinary shares of Liberty Global, 10.0312 Class C ordinary shares of Liberty Global and $910.51 (£549.59)
in cash (without interest) for each $1,000 (£603.61) in principal amount of VM Convertible Notes exchanged. The circumstances
under which the VM Convertible Notes are exchangeable are more fully described in the VM Convertible Notes Indenture,
including, for example, based on the relationship of the value of the LG/VM Transaction Consideration to the conversion price of
the VM Convertible Notes. Based on the trading prices of Liberty Global’s Class A and Class C ordinary shares during a specified
period, as provided for in the VM Convertible Notes Indenture, the VM Convertible Notes are currently exchangeable. Because
the LG/VM Transaction constituted a “Fundamental Change” and a “Make-Whole Fundamental Change” under the VM Convertible
Notes Indenture, a holder of the VM Convertible Notes who exchanged such notes at any time from June 7, 2013 through July 9,
2013 received 13.8302 Class A ordinary shares of Liberty Global, 10.3271 Class C ordinary shares of Liberty Global and $937.37
(£565.81) in cash (without interest) for each $1,000 (£603.61) in principal amount of VM Convertible Notes exchanged.
As of December 31, 2013, an aggregate of $944.2 million (£569.9 million) principal amount of VM Convertible Notes had
been exchanged following the LG/VM Transaction for 13.1 million Class A ordinary shares of Liberty Global and 9.8 million
Class C ordinary shares of Liberty Global and $885.1 million (£534.3 million) of cash. No gain or loss on extinguishment was
recorded for these exchanges as the debt component of the VM Convertible Notes was measured at fair value shortly before the
exchanges pursuant to the application of acquisition accounting in connection with the LG/VM Transaction. After giving effect
to all exchanges completed, the remaining principal amount outstanding under the VM Convertible Notes was $54.8 million (£33.1
million) as of December 31, 2013. The fair value of the derivative liability at December 31, 2013 was £67.3 million.
The VM Convertible Notes are senior unsecured obligations of our company that rank equally in right of payment with all of
our existing and future senior and unsecured indebtedness and ranks senior in right to all of our existing and future subordinated
indebtedness. The VM Convertible Notes are effectively subordinated to all existing and future indebtedness and other obligations
of our subsidiaries. The VM Convertible Notes Indenture does not contain any financial or restrictive covenants. The VM
Convertible Notes are non-callable.