UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 10-Q

________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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.)

65 Bleecker Street, 6th Floor, New York, NY		10012
(Address of principal executive offices)		(Zip Code)

(212) 906-8440

(Registrant’s telephone number, including area code)

________________________

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 ý No ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of October 29, 2012, there were 268,425,983 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 Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this report with the reduced disclosure format. See “Note Concerning Virgin Media Investment Holdings Limited and Virgin Media Investments Limited” in this Form 10-Q.

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VIRGIN MEDIA INC.

FORM 10-Q

QUARTER ENDED September 30, 2012

INDEX



	Page
PART I—FINANCIAL INFORMATION	5
Item 1. Financial Statements	5
Virgin Media Inc.
Condensed Consolidated Balance Sheets—September 30, 2012 and December 31, 2011	5
Condensed Consolidated Statements of Comprehensive Income —Three and Nine Months ended September 30, 2012 and 2011	6
Condensed Consolidated Statements of Cash Flows—Nine Months ended September 30, 2012 and 2011	7
Notes to Condensed Consolidated Financial Statements	8
Virgin Media Investment Holdings Limited
Condensed Consolidated Balance Sheets—September 30, 2012 and December 31, 2011	41
Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months ended September 30, 2012 and 2011	42
Condensed Consolidated Statements of Cash Flows— Nine Months ended September 30, 2012 and 2011	43
Virgin Media Investments Limited
Condensed Consolidated Balance Sheets— September 30, 2012 and December 31, 2011	44
Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months ended September 30, 2012 and 2011	45
Condensed Consolidated Statements of Cash Flows— Nine Months ended September 30, 2012 and 2011	46
Virgin Media Investment Holdings Limited and Virgin Media Investments Limited
Combined Notes to Condensed Consolidated Financial Statements	47
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	59
Item 3. Quantitative and Qualitative Disclosures about Market Risk	77
Item 4. Controls and Procedures	79
PART II—OTHER INFORMATION	80
Item 1. Legal Proceedings	80
Item 1A. Risk Factors	80
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3. Defaults Upon Senior Securities	81
Item 4. Mine Safety Disclosures	81
Item 5. Other Information	81
Item 6. Exhibits	82
SIGNATURES	83

In this quarterly report on Form 10-Q, unless we have indicated otherwise, or the context otherwise requires, references to “Virgin Media,” “the Company,” “we,” “us,” “our” and similar terms refer to the consolidated business of Virgin Media Inc. and its subsidiaries (including Virgin Media Investment Holdings Limited, or VMIH, Virgin Media Investments Limited, or VMIL, and their respective subsidiaries).

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“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Various statements contained in this document constitute “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “think,” “strategy,” and similar expressions identify these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include the following:


•	We 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 our businesses cannot be predicted;


•	Our fixed line telephony revenue is declining and unlikely to improve;


•	A failure in our network and information systems could significantly disrupt our operations, which could have a material adverse effect on those operations, our business, our results of operations and financial conditions;


•	Unauthorized access to our network resulting in piracy could result in a loss of revenue


•	We rely on third-party suppliers and contractors to provide necessary hardware, software or operational support and are sometimes reliant on them in a way which could economically disadvantage us;


•	The “Virgin” brand is not under our control and the activities of the Virgin Group and other licensees could have a material adverse effect on the goodwill of customers towards us as a licensee;


•	Our inability to provide popular programming or to obtain it at a reasonable cost could potentially have a material adverse effect of the number of customers or reduce margins;


•	Adverse economic developments could reduce customer spending for our TV, broadband, and telephony services and could therefore have a material adverse effect on our revenue;


•	We are subject to currency and interest rate risks;


•	We are subject to tax in more than one tax jurisdiction and our structure poses various tax risks;


•	Virgin Mobile relies on Everything Everywhere's network to carry its communications traffic;


•	We do not insure the underground portion of our cable network and various pavement-based electronics associated with our cable network;


•	We are subject to significant regulation, and changes in the U.K. and EU laws, regulations or governmental policy affecting the conduct of our business may have a material adverse effect on our ability to set prices, enter new markets or control our costs;


•	We have substantial indebtedness which may have a material adverse effect on our available cash flow, our ability to obtain additional financing if necessary in the future, our flexibility in reacting to competitive and technological changes and our operations;


•	We may not be able to fund our debt service obligation in future; and


•	The covenants under our debt agreements place certain limitations on our ability to finance future operations and how we manage our business

These and other factors are discussed in more detail under “Risk Factors” and elsewhere in our annual report on Form 10-K for the year ended December 31, 2011, or the 2011 Annual Report, as filed with the U.S. Securities and Exchange Commission, or SEC, on February 21, 2012. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.

Note Concerning Virgin Media Investment Holdings Limited and Virgin Media Investments Limited

VMIH is a company incorporated in England and Wales, with its registered office at Media House, Bartley Wood Business Park, Bartley Way, Hook, Hampshire, RG27 9UP, England. VMIH is a wholly-owned subsidiary of Virgin Media Finance PLC, or Virgin Media Finance, and a wholly-owned indirect subsidiary of Virgin Media. VMIH is not an accelerated filer. VMIH is one of the guarantors of the unsecured senior notes issued by Virgin Media Finance. VMIH's guarantees of these notes are not deemed to be unconditional. Separate condensed financial statements for VMIH have been included in this quarterly report on Form 10-Q pursuant to the rules and regulations of the SEC. VMIH is also one of the guarantors of the senior secured notes issued by Virgin Media Secured Finance PLC, or Virgin Media Secured Finance. VMIH carries on the same business as Virgin Media, and is the principal borrower under Virgin Media's senior credit facility.

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VMIL was formed on December 18, 2009, as a wholly-owned subsidiary of VMIH. On December 30, 2009, VMIL acceded as a senior subordinated guarantor of the unsecured senior notes issued by Virgin Media Finance, on the same terms as VMIH. As VMIL's guarantees are not deemed to be unconditional, separate condensed financial statements for VMIL have been included in this quarterly report on Form 10-Q pursuant to the rules and regulations of the SEC. VMIL is also one of the guarantors of the senior secured notes issued by Virgin Media Secured Finance.

Unless otherwise indicated, the discussion contained in this report applies to VMIH and VMIL as well as Virgin Media.

Financial Information and Currency of Financial Statements

All of the financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The reporting currency of our consolidated financial statements is U.K. pounds sterling.

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PART I—FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)



	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	£	113.4		£	300.4
Restricted cash	1.9			1.9
Accounts receivable - trade, less allowances for doubtful accounts of £8.8 (2012) and £10.9 (2011)	456.8			435.4
Derivative financial instruments	10.5			9.5
Prepaid expenses and other current assets	97.1			97.0
Total current assets	679.7			844.2
Fixed assets, net	4,546.5			4,602.7
Goodwill and other indefinite-lived assets	2,017.5			2,017.5
Derivative financial instruments	385.4			347.9
Deferred financing costs, net of accumulated amortization of £58.0 (2012) and £44.0 (2011)	64.7			75.7
Other assets	52.2			50.8
Total assets	£	7,746.0		£	7,938.8
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	£	333.7		£	304.4
Accrued expenses and other current liabilities	340.5			373.1
Derivative financial instruments	7.8			16.7
VAT and employee taxes payable	86.1			88.4
Interest payable	103.2			106.8
Deferred revenue	310.1			311.8
Current portion of long term debt	81.3			76.6
Total current liabilities	1,262.7			1,277.8
Long term debt, net of current portion	5,711.3			5,778.5
Derivative financial instruments	106.9			53.6
Deferred revenue and other long term liabilities	169.1			190.0
Total liabilities	7,250.0			7,299.9
Commitments and contingent liabilities
Shareholders’ equity
Common stock - $0.01 par value; authorized 1,000.0 (2012 and 2011) shares; issued and outstanding 268.4 (2012) and 286.7 (2011) shares	1.4			1.6
Additional paid-in capital	3,618.7			3,866.6
Accumulated other comprehensive income	23.2			30.0
Accumulated deficit	(3,147.3		)	(3,259.3		)
Total shareholders’ equity	496.0			638.9
Total liabilities and shareholders’ equity	£	7,746.0		£	7,938.8

See accompanying notes.

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited) (in millions, except per share data)



	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenue	£	1,027.7		£	1,000.0		£	3,060.8		£	2,968.1
Costs and expenses
Operating costs (exclusive of depreciation shown separately below)	403.3			401.7			1,223.4			1,202.7
Selling, general and administrative expenses	201.7			200.0			626.1			598.9
Restructuring and other charges	(0.8		)	6.2			4.1			7.7
Depreciation	243.5			235.6			716.7			694.6
Amortization	0.0			28.1			0.0			90.3
	847.7			871.6			2,570.3			2,594.2
Operating income	180.0			128.4			490.5			373.9
Other income (expense)
Interest expense	(100.2		)	(107.6		)	(304.4		)	(335.3		)
Loss on extinguishment of debt	0.0			(18.3		)	(58.6		)	(47.2		)
Share of income from equity investments	0.0			3.6			0.0			18.6
Loss on disposal of equity investments	0.0			(8.0		)	0.0			(8.0		)
Gain (loss) on derivative instruments	44.0			(59.3		)	67.9			(40.5		)
Foreign currency gains (losses)	0.3			(13.0		)	(5.5		)	0.8
Interest income and other, net	0.2			0.5			6.5			83.8
Income (loss) from continuing operations before income taxes	124.3			(73.7		)	196.4			46.1
Income tax expense	(0.4		)	(0.1		)	(0.8		)	(17.2		)
Income (loss) from continuing operations	123.9			(73.8		)	195.6			28.9
Loss from discontinued operations, net of tax	0.0			0.0			0.0			(1.2		)
Net income (loss)	£	123.9		£	(73.8	)	£	195.6		£	27.7
Per share amounts
Income (loss) from continuing operations
Basic earnings per share	£	0.46		£	(0.24	)	£	0.71		£	0.09
Diluted earnings per share	£	0.41		£	(0.24	)	£	0.68		£	0.09
Net income (loss)
Basic earnings per share	£	0.46		£	(0.24	)	£	0.71		£	0.09
Diluted earnings per share	£	0.41		£	(0.24	)	£	0.68		£	0.09
Dividends per share (in U.S. dollars)	$	0.04		$	0.04		$	0.12		$	0.12
Total comprehensive income (loss)	£	115.4		£	(83.8	)	£	188.8		£	(6.3	)

See accompanying notes.

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VIRGIN MEDIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in millions)



	Nine months ended September 30,
	2012			2011
Operating activities:
Net income	£	195.6		£	27.7
Loss from discontinued operations	0.0			1.2
Income from continuing operations	195.6			28.9
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	716.7			784.9
Non-cash interest	29.6			14.1
Share-based compensation	17.1			17.2
Loss on extinguishment of debt, net of prepayment premiums	10.5			31.7
Income from equity accounted investments, net of dividends received	0.0			(0.6		)
Unrealized (gains) losses on derivative instruments	(77.3		)	29.6
Foreign currency (gains) losses	(1.1		)	0.3
Loss on disposal of equity investments	0.0			8.0
Income taxes	4.1			21.7
Other	0.0			5.3
Changes in operating assets and liabilities	(87.6		)	(86.4		)
Net cash provided by operating activities	807.6			854.7
Investing activities:
Purchase of fixed and intangible assets	(572.4		)	(479.3		)
Proceeds from sale of fixed assets	2.1			1.5
Principal repayments on loans to equity investments	0.0			108.2
Acquisitions, net of cash acquired	(0.6		)	(14.6		)
Disposal of equity investments, net	(2.5		)	241.0
Other	0.0			2.5
Net cash used in investing activities	(573.4		)	(140.7		)
Financing activities:
New borrowings, net of financing fees	415.6			977.2
Repurchase of common stock	(330.2		)	(447.0		)
Proceeds from employee stock option exercises, net of taxes reimbursed	(0.6		)	14.4
Principal payments on long term debt	(414.3		)	(1,265.7		)
Principal payments on capital leases	(71.8		)	(62.7		)
Proceeds from settlement of cross-currency interest rate swaps	2.3			65.5
Dividends paid	(20.7		)	(23.7		)
Net cash used in financing activities	(419.7		)	(742.0		)
Cash flow from discontinued operations:
Net cash used in operating activities	0.0			(10.4		)
Net cash used in discontinued operations	0.0			(10.4		)
Effect of exchange rate changes on cash and cash equivalents	(1.5		)	(2.8		)
Decrease in cash and cash equivalents	(187.0		)	(41.2		)
Cash and cash equivalents, beginning of period	300.4			479.5
Cash and cash equivalents, end of period	£	113.4		£	438.3
Supplemental disclosure of cash flow information
Cash paid during the period for interest	£	268.6		£	324.5

See accompanying notes.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2011, which we filed with the SEC on February 21, 2012, and which we refer to herein as the 2011 Annual Report.

Note 2—Recent Accounting Guidance

We adopted new guidance regarding the presentation of comprehensive income on January 1, 2012 and have presented total comprehensive income in the condensed consolidated statements of comprehensive income for the current and prior periods. This guidance did not have a material impact on our financial statements.

We adopted new guidance regarding fair value measurement disclosure requirements on January 1, 2012 and applied it on a prospective basis. This guidance did not have a material impact on our financial statements.

Note 3—Long Term Debt

On March 13, 2012, our wholly owned subsidiary, Virgin Media Finance PLC issued $500 million aggregate principal amount of 5.25% senior notes due 2022 at par. The proceeds of $495.5 million, net of fees, were received on March 13, 2012. Interest is payable on February 15 and August 15 each year, beginning on August 15, 2012. The senior notes due 2022 rank pari passu with Virgin Media Finance PLC's outstanding senior notes due 2016 and 2019. On March 28, 2012, we used the net proceeds from these new senior notes, and cash on our balance sheet, to redeem $500 million of the principal amount of the $1,350 million 9.50% senior notes due 2016. We recognized a loss on extinguishment of debt of £58.6 million as a result of this redemption, which represented the difference between the consideration paid to redeem $500 million of the 9.50% senior notes due 2016 and the carrying value of those notes, and the write-off of associated deferred finance costs.

On June 28, 2012, we borrowed £100.0 million under our revolving credit facility of £450.0 million. We repaid this amount in full on September 28, 2012.

During October 2012 our wholly owned subsidiary, Virgin Media Finance PLC, effected both a cash tender for certain of our senior notes and a new issuance of senior notes, as more fully described in note 13, Subsequent Events.

If the trading price of our common stock exceeds 120% of the conversion price of our 6.50% convertible senior notes due 2016, or the convertible notes, for 20 out of the last 30 trading days of a calendar quarter, holders of the convertible notes may elect to convert their convertible notes during the following quarter. This condition was achieved in the three months ended September 30, 2012. If conversions of this nature occur, we may deliver cash, common stock, or a combination of both, at our election, to settle our obligations. We have classified this debt as long-term debt in the condensed consolidated balance sheet as of September 30, 2012 because we determined, in accordance with the Derivatives and Hedging Topic of the FASB ASC, that we have the ability to settle the obligations in equity in all circumstances, except in the case of a fundamental change (as defined in the indenture governing the convertible notes).

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 3—Long Term Debt (continued)

Long term debt repayments, excluding capital leases, as of September 30, 2012, were due as follows (in millions):



Year ending September 30:
2013	£	0.1
2014	0.0
2015	750.0
2016	668.9
2017	618.5
Thereafter	3,483.1
Total debt payments	£	5,520.6

On October 27, 2010, we entered into capped call option transactions, or conversion hedges, with certain counterparties relating to our convertible notes. The conversion hedges are intended to offset a portion of the dilutive effects that could potentially be associated with conversion of the convertible notes at maturity and provide us with the option to receive the number of shares of our common stock (or in certain circumstances cash) with a value equal to the excess of (a) the value owed by us (up to the cap price of $35.00 per share) to convertible notes investors pursuant to the terms of the notes on conversion of up to 90% of the notes over (b) the aggregate face amount of such converted notes upon maturity of the convertible notes. The conversion hedges also provide various mechanisms for settlement in our common stock and/or cash in certain circumstances, based primarily on the settlement method elected for the notes. These conversion hedges have an initial strike price of $19.22 per share of our stock, which is the conversion price provided under the terms of our convertible notes, and a cap price of $35.00 per share of our stock. We paid £205.4 million in respect of the conversion hedges during 2010. The cost of these transactions was not deductible for U.S. federal income tax purposes, and the proceeds, if any, received upon exercise of the options will not be taxable for U.S. federal income tax purposes.

The conversion hedges do not qualify for equity classification under U.S. GAAP as there are potential circumstances in which cash settlement may be required at the discretion of the counterparties. As such, the fair value of the conversion hedges, which was estimated to be £219.9 million as of September 30, 2012, has been included as a non-current derivative financial asset in the condensed consolidated balance sheets. Refer to note 4 for additional discussion of the fair value measurement of the conversion hedges.

Note 4—Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The types of inputs used to measure fair value are classified into the following hierarchy:



Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3		Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Fair Value Measurements (continued)

The tables below present our assets and liabilities measured at fair value as at September 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy into which those measurements fall (in millions):



	September 30, 2012
	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments, excluding conversion hedges	£	0.0	£	176.0	£	0.0	£	176.0
Conversion hedges	0.0		0.0		219.9		219.9
Total	£	0.0	£	176.0	£	219.9	£	395.9
Liabilities
Derivative financial instruments	£	0.0	£	114.7	£	0.0	£	114.7
Total	£	0.0	£	114.7	£	0.0	£	114.7



	December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instruments, excluding conversion hedges	£	0.0	£	219.2	£	0.0	£	219.2
Conversion hedges	0.0		0.0		138.2		138.2
Total	£	0.0	£	219.2	£	138.2	£	357.4
Liabilities
Derivative financial instruments	£	0.0	£	70.3	£	0.0	£	70.3
Total	£	0.0	£	70.3	£	0.0	£	70.3

In estimating 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 affect our operating results and financial position. When deemed appropriate, we minimize our risks from interest and foreign currency exchange rate fluctuations through the use of derivative financial instruments such as foreign currency forward rate contracts, interest rate swaps and cross-currency interest rate swaps. These contracts are valued using internal models based on observable inputs, counterparty valuations, or market transactions in either the listed or over-the-counter markets, adjusted for non-performance risk. As such, these derivative instruments are classified within level 2 in the fair value hierarchy.

The fair values of our derivative financial instruments are disclosed in note 5.

Valuation of conversion hedges: Because the conversion hedges do not qualify for equity classification, the fair values have been included as a non-current derivative financial asset in the condensed consolidated balance sheets. The conversion hedges may only be exercised by us upon maturity of the convertible notes. As of September 30, 2012, the fair value of these instruments was estimated to be £219.9 million, using the Black-Scholes Merton valuation technique. The fair values of the conversion hedges are primarily impacted by the price of our stock on the measurement date, but are also impacted by the remaining duration of the options, the strike price ($19.22 per share) of the instrument, the expected volatility of our stock, the cap price ($35.00 per share) of the instrument, the dividend yield on our stock, exchange rates, and counterparty non-performance risk. The table below presents the estimated impact on the September 30, 2012 fair value of a hypothetical 20% increase and decrease in our stock price, holding all other inputs constant (in millions):



	September 30, 2012
Estimated fair value of conversion hedges as reported	£	219.9
Estimated fair value of conversion hedges assuming a 20% increase in our stock price	£	269.1
Estimated fair value of conversion hedges assuming a 20% decrease in our stock price	£	152.5

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 4—Fair Value Measurements (continued)

We have determined that the overall valuation of the conversion hedges falls within level 3 of the fair value hierarchy as the assumption for the expected volatility of our stock price over the term of the options is based on an unobservable input and is deemed to be significant to the determination of fair value. Other impacts are not significant or are observable. We utilized expected volatility assumptions of 26% and 32% in the valuation of each component of the conversion hedges as of September 30, 2012. An increase in this input in isolation would generally result in a higher value of the conversion hedges while a decrease in this input would result in a lower value of the conversion hedges. Non-performance risk is based on quoted credit default swaps for counterparties to the contracts. The inclusion of counterparty non-performance risk resulted in a decrease to the fair values of the conversion hedges of £16.1 million and £25.0 million as of September 30, 2012 and December 31, 2011, respectively.

The following table presents a reconciliation of the beginning and ending balances of the conversion hedges (in millions):



Balance at December 31, 2011	£	138.2
Unrealized gain included in gain (loss) on derivative instruments	45.3
Unrealized currency translation adjustment included in other comprehensive income	(4.9		)
Balance at March 31, 2012	£	178.6
Unrealized loss included in gain (loss) on derivative instruments	(10.6		)
Unrealized currency translation adjustment included in other comprehensive income	3.6
Balance at June 30, 2012	£	171.6
Unrealized gain included in gain (loss) on derivative instruments	54.4
Unrealized currency translation adjustment included in other comprehensive income	(6.1		)
Balance at September 30, 2012	£	219.9

Future changes in fair values of the conversion hedges will be reported as gains (losses) on derivative instruments in the condensed consolidated statements of comprehensive income.

Long-term debt: The carrying value of our senior credit facility approximates its fair value and is excluded from the table below. The fair values of our senior notes, convertible notes and senior secured notes in the table below are based on the market prices in active markets which incorporate non-performance risk. As such, these measurements are classified within Level 1 in the fair value hierarchy.

The carrying values of the $500 million 5.25% and £650 million 5.50% senior secured notes due 2021 include increases of £45.5 million and £106.3 million, respectively, at September 30, 2012 and increases of £45.7 million and £77.9 million at December 31, 2011, respectively, at December 31, 2011, as a result of our application of fair value hedge accounting to these instruments.

The carrying amounts and fair values of our long term debt, excluding capital leases, were as follows (in millions):



	September 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
6.50% U.S. dollar convertible senior notes due 2016	£	540.8	£	1,069.4	£	551.1	£	869.1
9.50% U.S. dollar senior notes due 2016	515.6		587.0		849.2		966.4
9.50% euro senior notes due 2016	139.2		162.1		145.3		170.1
8.375% U.S. dollar senior notes due 2019	366.3		420.4		380.6		416.9
8.875% sterling senior notes due 2019	345.5		393.8		345.2		378.9
5.25% U.S. dollar senior notes due 2022	309.3		327.9		0.0		0.0
6.50% U.S. dollar senior secured notes due 2018	611.8		677.2		635.4		663.5
7.00% sterling senior secured notes due 2018	865.6		945.0		864.5		923.1
5.25% U.S. dollar senior secured notes due 2021	353.0		354.0		353.1		321.8
5.50% sterling senior secured notes due 2021	751.2		711.8		722.4		640.3

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5 - Derivative Financial Instruments and Hedging Activities

Strategies and Objectives for Holding Derivative Instruments

Our operations are materially impacted by changes in interest rates and foreign currency exchange rates. In an effort to manage these risks, we periodically enter into various derivative instruments including interest rate swaps, cross-currency interest rate swaps and foreign exchange forward rate contracts. We recognize all derivative instruments as either assets or liabilities at fair value on our consolidated balance sheets, and certain changes in the fair value of derivative instruments in our condensed consolidated statements of comprehensive income.

We have entered into cross-currency interest rate swaps and foreign currency forward rate contracts to manage interest rate and foreign exchange rate currency exposures with respect to our U.S. dollar ($) and euro (€) denominated debt obligations. Additionally, we have entered into interest rate swaps to manage interest rate exposures resulting from variable and fixed rates of interest we pay on our U.K. pound sterling (£) denominated debt obligations. We have also entered into U.S. dollar forward rate contracts to manage our foreign exchange rate currency exposures related to certain committed and forecasted purchases.

Whenever it is practical to do so, we designate a derivative contract as either a cash flow or fair value hedge for accounting purposes. These relationships are referred to as “Accounting Hedges” below. When a derivative contract is not designated as an Accounting Hedge, it is treated as an economic hedge with mark-to-market movements and realized gains or losses recognized through gains (losses) on derivative instruments in the condensed consolidated statements of comprehensive income. These derivatives are referred to as “Economic Hedges” below. We do not enter into derivatives for speculative or trading purposes.

During the three and nine months ended September 30, 2012, we recognized gains of £42.0 million and £70.4 million on derivative instruments, respectively, relating to derivative instruments that were not designated or qualifying as a hedging instrument.

The conversion hedges are intended to offset a portion of the dilutive effects that could potentially be caused by the conversion of the convertible notes at maturity and provide us with the option to receive the number of shares of our common stock (or in certain circumstances cash) with a value equal to the excess of (a) the value owed by us (up to the cap price of $35.00 per share) to convertible senior note investors pursuant to the terms of the notes on conversion of up to 90% of the notes over (b) the aggregate face amount of such converted notes upon maturity of the convertible senior notes.

We believe that those relationships designated as Accounting Hedges will be highly effective throughout their term in offsetting changes in cash flow or fair value attributable to the hedged risk. If we determine it is probable that forecasted transactions to which a hedge contract relates will not occur, we discontinue hedge accounting prospectively and immediately reclassify any amounts accumulated in other comprehensive income to income. We perform, at least quarterly, both a prospective and retrospective assessment of the effectiveness of our hedge contracts, including assessing the possibility of counterparty default. If we determine that a hedging relationship is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in the fair value of the derivative in gains (losses) on derivative instruments in the condensed consolidated statements of comprehensive income. As a result of our effectiveness assessment at September 30, 2012, we believe our derivative contracts that are designated and qualify for hedge accounting will continue to be highly effective in offsetting 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 or over-the-counter markets, adjusted for non-performance risk. Non-performance is based on quoted credit default swaps for counterparties to the contracts and swaps. These derivative instruments are classified within level 2 in the fair value hierarchy, because we consider all of the significant inputs are observable. Derivative instruments which are subject to master netting arrangements are not offset and we have not provided, nor do we require, cash collateral with any counterparty.

Refer to note 4 for a discussion of the conversion hedges.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

The fair values of our derivative instruments recorded on our condensed consolidated balance sheets were as follows (in millions):



	September 30, 2012		December 31, 2011
Included within current assets:
Accounting Hedges
Foreign currency forward rate contracts	£	0.0	£	0.1
Economic Hedges
Foreign currency forward rate contracts	0.0		1.6
Interest rate swaps	2.2		0.2
Cross-currency interest rate swaps	2.6		7.6
Forward share repurchase contracts	5.7		0.0
	£	10.5	£	9.5
Included within non-current assets:
Accounting Hedges
Interest rate swaps	£	104.4	£	78.0
Cross-currency interest rate swaps	39.0		94.3
Economic Hedges
Interest rate swaps	0.0		3.1
Cross-currency interest rate swaps	22.1		34.3
Conversion hedges	219.9		138.2
	£	385.4	£	347.9
Included within current liabilities:
Economic Hedges
Foreign currency forward rate contracts	£	0.6	£	0.0
Interest rate swaps	4.0		7.5
Cross-currency interest rate swaps	3.2		9.2
	£	7.8	£	16.7
Included within non-current liabilities:
Accounting Hedges
Cross-currency interest rate swaps	£	60.2	£	7.3
Economic Hedges
Interest rate swaps	41.4		38.4
Cross-currency interest rate swaps	5.3		7.9
	£	106.9	£	53.6

Cross-Currency Interest Rate Swaps—Hedging the Interest Payments of Senior Notes and Senior Secured Notes

During the three months ended March 31, 2012, we terminated the cross-currency interest rate swaps on the $500 million 9.50% senior notes due 2016 that were redeemed in the quarter. We also entered into new cross-currency interest rate swaps to mitigate the foreign exchange rate risk associated with the $500 million 5.25% senior notes due 2022.

As of September 30, 2012, we had outstanding cross-currency interest rate swaps to mitigate the interest 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.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

The terms of our outstanding cross-currency interest rate swaps at September 30, 2012, were as follows:



Hedged item/Maturity date	Hedge type	Notional amount due from counterparty		Notional amount due to counterparty		Weighted average interest rate due from counterparty	Weighted average interest rate due to counterparty
		(in millions)		(in millions)
$850m senior notes due 2016
August 2016	Accounting	$	850.0	£	526.7	9.50%	9.98%
$1,000m convertible senior notes due 2016
November 2016	Economic	$	1,000.0	£	516.9	6.50%	6.91%
$600m senior notes due 2019
October 2019	Accounting	$	264.3	£	159.8	8.38%	9.03%
October 2011 to October 2019	Accounting	$	335.7	£	203.0	8.38%	9.00%
$1,000m senior secured notes due 2018
January 2018	Accounting	$	1,000.0	£	615.7	6.50%	7.02%
$500m senior secured notes due 2021
January 2021	Accounting	$	500.0	£	308.9	5.25%	6 month LIBOR + 1.94%
$500m senior notes due 2022
February 2022	Accounting	$	500.0	£	313.6	5.25%	5.80%
		$	4,450.0	£	2,644.6
€180m senior notes due 2016
August 2016	Accounting	€	180.0	£	158.6	9.50%	10.18%
		€	180.0	£	158.6
Other
December 2012	Economic	€	56.7	£	40.3	3 month EURIBOR + 2.38%	3 month LIBOR + 2.69%
December 2013	Economic	€	43.3	£	30.8	3 month EURIBOR + 2.88%	3 month LIBOR + 3.26%
		€	100.0	£	71.1

December 2012	Economic	£	38.8	€	56.7	3 month LIBOR + 2.40%	3 month EURIBOR + 2.38%
December 2013	Economic	£	29.7	€	43.3	3 month LIBOR + 2.90%	3 month EURIBOR + 2.88%
		£	68.5	€	100.0

All of our cross-currency interest rate swaps include exchanges of the notional amounts at the start and end of the contract except for the contract maturing in November 2016 hedging the $1,000 million convertible senior notes due 2016.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

Interest Rate Swaps—Hedging of Interest Rate Sensitive Obligations

As of September 30, 2012, we had outstanding interest rate swap agreements to manage the exposure to variability in future cash flows on the interest payments associated with our senior credit facility, which accrue at variable rates based on LIBOR. We have also entered into interest rate 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 of our outstanding interest rate swap contracts at September 30, 2012 were as follows:



Hedged item/Maturity date	Hedge type	Notional amount		Weighted average interest rate due from counterparty	Weighted average interest rate due to counterparty
		(in millions)
Senior credit facility
October 2012 to December 2015	Economic	£	200.0	6 month LIBOR	2.91%
October 2012 to December 2015	Economic	200.0		6 month LIBOR	2.87%
October 2012 to December 2015	Economic	200.0		6 month LIBOR	2.79%
£650m senior secured notes due 2021
January 2021	Accounting	£	650.0	5.50%	6 month LIBOR + 1.84%
Other
March 2013	Economic	£	300.0	3 month LIBOR	3.28%
March 2013	Economic	300.0		1.86%	3 month LIBOR

Foreign Currency Forward Rate Contracts—Hedging Committed and Forecasted Transactions

As of September 30, 2012, we had outstanding foreign currency forward rate contracts to purchase U.S. dollars to hedge committed and forecasted purchases. The terms of our outstanding foreign currency forward rate contracts at September 30, 2012 were as follows:



Hedged item/Maturity date	Hedge type	Notional amount due from counterparty		Notional amount due to counterparty		Weighted average exchange rate
		(in millions)		(in millions)
Committed and forecasted purchases
October 2012 to December 2012	Economic	$	36.0	£	22.9	1.5743
January 2013 to June 2013	Economic	$	72.0	£	44.5	1.6177

Cash Flow Hedging

For derivative instruments that are designated and qualify as cash flow Accounting Hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. In our consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. Cash flows from derivative contracts that are not designated as Accounting Hedges are recognized as operating activities in the condensed consolidated statement of cash flows. If we discontinue hedge accounting for an instrument, subsequent cash flows are classified based on the nature of the instrument.

Gains or losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized as gains or losses on derivative instruments in the condensed consolidated statement of comprehensive income in the period in which they occur. During the three and nine months ended September 30, 2012 and 2011, we recognized no gain or loss relating to ineffectiveness on our cash flow hedges.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

The following table presents the effective amount of gain or (loss) recognized in other comprehensive income (loss) and amounts reclassified to earnings during the three and nine months ended September 30, 2012 (in millions):



	Total		Interest rate swaps	Cross- currency interest rate swaps		Forward foreign exchange contracts		Tax Effect
Balance at December 31, 2011	(32.4	)	3.3	(25.2	)	0.1		(10.6	)
Amounts recognized in other comprehensive income (loss)	(66.4	)	—	(66.4	)	—		—
Amounts reclassified to earnings impacting:
Foreign exchange gain	60.4		—	60.4		—		—
Interest expense	1.4		—	1.4		—		—
Balance at March 31, 2012	(37.0	)	3.3	(29.8	)	0.1		(10.6	)
Amounts recognized in other comprehensive income (loss)	31.5		—	31.4		—		0.1
Amounts reclassified to earnings impacting:
Foreign exchange loss	(31.1	)	—	(31.1	)	—		—
Interest expense	1.9		—	1.9		—		—
Operating costs	(0.1	)	—	—		(0.1	)	—
Balance at June 30, 2012	(34.8	)	3.3	(27.6	)	—		(10.5	)
Amounts recognized in other comprehensive income (loss)	(75.6	)	—	(75.8	)	—		0.2
Amounts reclassified to earnings impacting:
Foreign exchange gain	54.5		—	54.5		—		—
Interest expense	2.5		—	2.5		—		—
Balance at September 30, 2012	(53.4	)	3.3	(46.4	)	—		(10.3	)

Assuming no change in interest rates or foreign exchange rates for the next twelve months, the amount of pre-tax income or losses that would be reclassified from other comprehensive income (loss) to earnings would be losses of £0.9 million relating to interest rate swaps, losses of £8.9 million relating to cross-currency interest rate swaps, and income of £0.0 million relating to forward foreign exchange contracts.

Fair Value Hedging

For derivative instruments that are designated in qualifying fair value Accounting Hedge relationships, the gain or loss on the derivative, inclusive of counterparty non-performance risk, is reported in earnings. The difference between these movements and changes in the fair value of the hedged debt obligations due to changes in the hedged risks is referred to as hedge ineffectiveness. In our condensed consolidated balance sheet, changes in the value of the hedged debt obligations due to changes in the hedged risks are included as adjustments to the carrying value of the debt.

In our condensed consolidated statement of cash flows, we recognize the cash flows resulting from derivative contracts that are treated as Accounting Hedges in the same category where the cash flows from the underlying exposure are recognized. All other cash flows from derivative contracts are recognized as operating activities in the condensed consolidated statement of cash flows.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 5—Derivative Financial Instruments and Hedging Activities (continued)

comprehensive income in the period in which they occur. We recognized hedge ineffectiveness gains of £2.0 million and losses of £2.5 million for the three and nine months ended September 30, 2012, respectively, and losses of £6.1 million and £7.9 million for the three and nine months ended September 30, 2011, respectively.

Note 6—Shareholders' Equity and Share-Based Compensation

On July 27, 2011, we announced a second phase capital structure optimization program which includes the application of, in aggregate, up to £850 million for purposes of repurchasing our common stock and debt and for effecting associated derivative transactions until December 31, 2012. Our second phase capital structure optimization program consists of the application of up to £625 million in repurchases of our common stock and up to £225 million for transactions relating to our debt and convertible debt, including related derivative transactions. In addition, on October 27, 2011, we announced our intention to expend up to a further £250 million on share repurchases from the proceeds from the sale of our UKTV joint venture companies to a subsidiary of Scripps Network Interactive Inc. Our capital structure optimization programs may be effected 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.

During the three months ended March 31, 2012, we entered into a capped Accelerated Stock Repurchase (ASR) to purchase $250 million (£157.3 million) of our common stock. We received 10.2 million shares of common stock in connection with the ASR at an average purchase price per share of $24.58. The ASR was terminated on March 26, 2012 and the shares of common stock so acquired were cancelled.

During the third quarter of 2012, we entered into a further ASR to purchase $175.0 million (£112.7 million) of our common stock. We received 5.9 million shares of common stock in connection with this ASR during the quarter at an average purchase price per share of $27.78, and the stock so acquired was cancelled. The specific number of shares ultimately repurchased through the ASR is based generally on the daily volume-weighted average share price of our common stock over the duration of the ASR, subject to a provision that establishes a minimum number of repurchased shares. The final settlement of the repurchase contemplated by the ASR occurred on October 26, 2012. Further details of this final settlement are provided in note 13, Subsequent Events.

During the nine months ended September 30, 2012, we repurchased 4.2 million shares of common stock in connection with the second phase capital structure optimization program, at an average purchase price per share of $22.54 ($94.9 million, or £60.3 million, in aggregate), through open market repurchases. The shares of common stock so acquired were cancelled.

During the three months ended September 30, 2011, we repurchased 14.2 million shares of common stock in connection with the second phase capital structure optimization program, at an average purchase price per share of $24.44 ($346.9 million, or £215.4 million, in aggregate), of which approximately 5.1 million shares were purchased through open market repurchases at an average rate purchase price per share of $24.85 ($127.0 million, or £77.6 million, in aggregate) and approximately 9.1 million shares were purchased through capped accelerated stock repurchase programs at an average rate purchase price per share of $24.20 ($219.9 million, or £137.8 million, in aggregate). The shares of common stock acquired in connection with this program were cancelled.

During the nine months ended September 30, 2011, we repurchased 12.0 million shares of common stock in connection with the first phase capital structure optimization program, at an average purchase price per share of $28.83 ($345.5 million, or £212.6 million, in aggregate), through open market repurchases. Approximately 14.2 million shares of common stock were repurchased in connection with the second phase capital structure optimization program, at an average purchase price per share of $24.44 ($346.9 million, or £215.4 million, in aggregate), of which approximately 5.1 million shares were purchased through open market repurchases at an average rate purchase price per share of $24.85 ($127.0 million, or £77.6 million, in aggregate) and approximately 9.1 million shares were purchased through capped accelerated stock repurchase programs at an average rate purchase price per share of $24.20 ($219.9 million, or £137.8 million, in aggregate). The shares of common stock acquired in connection with both programs were cancelled.

Total share based compensation expense included within selling, general and administrative expenses in the condensed consolidated statements of comprehensive income was £3.4 million and £17.1 million for the three and nine months ended September 30, 2012, respectively, and £2.9 million and £17.2 million for the same periods in 2011.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 7—Income Per Common Share

Basic net income per common share is computed by dividing the net income for the three and nine months ended September 30, 2012 and 2011 by the weighted average number of shares outstanding during the respective periods. Diluted net income per common share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method for options, sharesave options, shares of restricted stock held in escrow and restricted stock units, and the if-converted method for shares potentially issuable under our convertible notes.

The weighted average number of shares outstanding for the three and nine months ended September 30, 2012 and 2011 is computed as follows (in millions):



	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
Number of shares outstanding at start of period	273.5		313.2		286.4		321.3
Issue of common stock (average number outstanding during the period)	0.4		1.3		1.4		3.3
Purchase of treasury shares (weighted average)	(4.1	)	(4.1	)	(11.7	)	(9.1	)
Weighted average number of shares outstanding	269.8		310.4		276.1		315.5

The following table sets forth the components of basic and diluted income per common share (in millions):



	Three months ended September 30,					Nine months ended September 30,
	2012		2011			2012		2011
Numerator for basic income per common share from continuing operations	£	123.9	£	(73.8	)	£	195.6	£	28.9
Interest on convertible notes, net of tax	10.3		0.0			30.8		0.0
Numerator for diluted income per common share from continuing operations	£	134.2	£	(73.8	)	£	226.4	£	28.9
Weighted average number of shares:
Denominator for basic income per common share	269.8		310.4			276.1		315.5
Effect of dilutive securities:
Share based awards to employees	4.7		0.0			4.5		4.7
Shares issuable under convertible notes	52.0		0.0			52.0		0.0
Denominator for diluted income per common share	326.5		310.4			332.6		320.2

The following table sets forth the number of potential common shares excluded from the calculation of the denominator for diluted income per common share (in millions):



	Three months ended September 30,		Nine months ended September 30,
	2012	2011	2012	2011
Stock options	3.8	10.9	4.2	6.7
Sharesave options	0.0	0.8	0.0	0.3
Restricted stock held in escrow	0.1	0.6	0.1	0.6
Restricted stock units	3.0	3.6	3.0	3.6
Shares issuable under convertible notes	0.0	52.0	0.0	52.0

In the three and nine months ended September 30, 2012, certain share based awards to employees have been excluded from the calculation of the diluted weighted average number of shares because generally their exercise prices exceeded our average share price during the calculation period.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 7—Income Per Common Share (continued)

In the three and nine months ended September 30, 2012, certain restricted stock held in escrow and certain restricted stock units have been excluded from the calculation of the diluted weighted average number of shares because these shares are contingently issuable based on the achievement of performance and/or market conditions that have not been achieved as of September 30, 2012.

Stock Option Grants

All options outstanding under our stock incentive plans have a ten year term and become fully exercisable within five years of continued employment. We have historically issued new shares upon exercise of the options and expect to continue to do so. For performance-based option grants, the performance objectives are based upon both quantitative and qualitative objectives, including earnings and stock price performance, amongst others. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific 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 the proceeds of these savings to exercise the options granted under the plan. We intend to issue new shares upon exercise of the options.

Restricted Stock Grants

The shares of restricted stock granted under our stock incentive plans have a term of up to three and a half years and vest based on time or performance, subject to continued employment. For performance-based restricted stock grants, the performance objectives are based upon quantitative and qualitative objectives, including earnings, operational performance and achievement of strategic goals, amongst others, and vest after a one to three year period. These objectives may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.

Restricted Stock Unit and Performance Share Grants

The restricted stock units and performance shares granted under our stock incentive plans have a term of up to three and a half years and vest based on performance, subject to continued employment. These targets may be absolute or relative to prior performance or to the performance of other entities, indices or benchmarks and may be expressed in terms of progression within a specific range.

Convertible Notes

Holders of our U.S. dollar denominated 6.50% convertible senior notes due 2016 may tender their notes for conversion at any time on or after August 15, 2016 through to the second scheduled trading date preceding the maturity date. Prior to August 15, 2016, holders may convert their notes, at their option, only under the following circumstances: (i) in any quarter, if the closing sale price of Virgin Media Inc.'s common stock during at least 20 of the last 30 trading days of the prior quarter was more than 120% of the applicable conversion price per share of common stock on the last day of such prior quarter; (ii) if, for five consecutive trading days, the trading price per $1,000 principal amount of notes was less 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 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, stock repurchases where the price exceeds market values, the issuance of certain rights or warrants or certain cash dividends or distributions.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 8—Comprehensive Income

Comprehensive income comprises (in millions):



	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net income (loss) for period	£	123.9		£	(73.8	)	£	195.6		£	27.7
Currency translation adjustment	9.5			(11.2		)	12.4			(11.8		)
Net unrealized (losses) gains on derivatives, net of tax	(75.6		)	41.5			(110.5		)	(24.0		)
Reclassification of derivative losses (gains) to net income, net of tax	57.0			(39.8		)	89.5			2.3
Pension liability adjustment, net of tax	0.6			(0.5		)	1.8			(0.5		)
	£	115.4		£	(83.8	)	£	188.8		£	(6.3	)

The components of accumulated other comprehensive income, net of taxes, were as follows (in millions):



	September 30, 2012			December 31, 2011
Foreign currency translation	£	162.3		£	149.9
Pension liability adjustment	(85.7		)	(87.5		)
Net unrealized losses on derivatives	(53.4		)	(32.4		)
	£	23.2		£	30.0

Note 9—Contingent Liabilities

We are involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employee and employee benefits which arise in the ordinary course of our business. In accordance with the Contingencies Topic of the FASB ASC, we recognize a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have adequate provisions for any such matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Additionally, when we believe it is at least reasonably possible that a liability has been incurred in excess of any recorded liabilities we provide an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made. While litigation is inherently unpredictable, we believe that we have valid defenses with respect to legal matters pending against us.

Our revenue generating activities are subject to Value Added Tax, or VAT. The U.K. tax authorities have challenged our VAT treatment of certain of these activities. As a result, we have estimated contingent losses totaling £30.8 million as of September 30, 2012 that are not accrued for, as we deem them to be reasonably possible, but not probable, of resulting in a liability. We currently expect an initial hearing on these matters to take place in 2013.

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 10—Industry Segments

Our reporting segments are based on our method of internal reporting along with the criteria used by our chief executive officer, who is our chief operating decision maker (CODM), to evaluate segment performance, the availability of separate financial information and overall materiality considerations. We have two reporting segments, Consumer and Business, as described below.

Our Consumer segment is our primary segment, consisting of the distribution of television programming, broadband and fixed line telephone services to residential customers on our cable network, the provision of broadband and 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 solutions to businesses, public sector organizations and service providers in the U.K.

Segment contribution, which is operating income before network operating costs, corporate costs, depreciation, amortization, goodwill and intangible asset impairments and restructuring and other charges, is management's measure of segment profit. Segment contribution excludes the impact of certain costs and expenses that are not directly attributable to the reporting segments, such as the costs of operating the network, corporate costs and depreciation and amortization. Restructuring and other charges, and goodwill and intangible asset impairments are excluded from segment contribution as management believes they are not characteristic of our underlying business operations. Assets are reviewed on a consolidated basis and are not allocated to segments for management reporting since the primary asset of the business is the cable network infrastructure, which is shared by our Consumer and Business segments.

Segment information for the three and nine months ended September 30, 2012 and 2011 was as follows (in millions):



	Three months ended September 30, 2012						Three months ended September 30, 2011
	Consumer		Business		Total		Consumer		Business		Total
Revenue	£	859.1	£	168.6	£	1,027.7	£	846.0	£	154.0	£	1,000.0
Segment contribution	£	521.9	£	95.5	£	617.4	£	493.5	£	90.1	£	583.6
	Nine months ended September 30, 2012						Nine months ended September 30, 2011
	Consumer		Business		Total		Consumer		Business		Total
Revenue	£	2,555.8	£	505.0	£	3,060.8	£	2,503.8	£	464.3	£	2,968.1
Segment contribution	£	1,522.3	£	278.4	£	1,800.7	£	1,473.0	£	274.5	£	1,747.5

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 10—Industry Segments (continued)

The reconciliation of total segment contribution to consolidated operating income and net income is as follows (in millions):



	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Total segment contribution	£	617.4		£	583.6		£	1,800.7		£	1,747.5
Other operating and corporate costs	194.7			185.3			589.4			581.0
Restructuring and other charges	(0.8		)	6.2			4.1			7.7
Depreciation	243.5			235.6			716.7			694.6
Amortization	0.0			28.1			0.0			90.3
Consolidated operating income	180.0			128.4			490.5			373.9
Other income (expense)
Interest expense	(100.2		)	(107.6		)	(304.4		)	(335.3		)
Loss on extinguishment of debt	0.0			(18.3		)	(58.6		)	(47.2		)
Share of income from equity investments	0.0			3.6			0.0			18.6
Loss on disposal of equity investments	0.0			(8.0		)	0.0			(8.0		)
Gain (loss) on derivative instruments	44.0			(59.3		)	67.9			(40.5		)
Foreign currency gains (losses)	0.3			(13.0		)	(5.5		)	0.8
Interest income and other, net	0.2			0.5			6.5			83.8
Income tax expense	(0.4		)	(0.1		)	(0.8		)	(17.2		)
Income (loss) from continuing operations	123.9			(73.8		)	195.6			28.9
Loss from discontinued operations, net of tax	0.0			0.0			0.0			(1.2		)
Net income (loss)	£	123.9		£	(73.8	)	£	195.6		£	27.7

Note 11—Condensed Consolidating Financial Information—Senior Notes

We present the following condensed consolidating financial information as of September 30, 2012 and December 31, 2011 and for the three and nine months ended September 30, 2012 and 2011 as required by Rule 3-10(d) of Regulation S-X.

Virgin Media Finance PLC is the issuer of the following senior notes:


•	$850 million aggregate principal amount of 9.50% senior notes due 2016


•	€180 million aggregate principal amount of 9.50% senior notes due 2016


•	$600 million aggregate principal amount of 8.375% senior notes due 2019


•	£350 million aggregate principal amount of 8.875% senior notes due 2019


•	$500 million aggregate principal amount of 5.25% senior notes due 2022

Virgin Media Inc. and certain of its subsidiaries, namely Virgin Media Group LLC, Virgin Media Holdings Inc., Virgin Media (UK) Group, Inc. and Virgin Media Communications Limited, have guaranteed the senior notes on a senior basis. Each of Virgin Media Investment Holdings Limited, or VMIH, and Virgin Media Investments Limited, or VMIL, are conditional guarantors and have guaranteed the senior notes on a senior subordinated basis.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)



	September 30, 2012
Balance sheets	Company		Virgin Media Finance			Other guarantors			VMIH		VMIL		All other subsidiaries			Adjustments			Total
	(in millions)
Cash and cash equivalents	£	12.3	£	1.0		£	0.2		£	0.0	£	0.0	£	99.9		£	0.0		£	113.4
Restricted cash	0.0		0.0			0.0			0.0		0.0		1.9			0.0			1.9
Other current assets	6.3		0.0			0.0			8.7		0.0		549.4			0.0			564.4
Total current assets	18.6		1.0			0.2			8.7		0.0		651.2			0.0			679.7
Fixed assets, net	0.0		0.0			0.0			0.0		0.0		4,546.5			0.0			4,546.5
Goodwill and intangible assets, net	0.0		0.0			(15.0		)	0.0		0.0		2,032.5			0.0			2,017.5
Investments in, and loans to, parent and subsidiary companies	819.8		441.7			(672.2		)	1,767.4		2,581.7		(2,204.1		)	(2,734.3		)	0.0
Other assets, net	226.2		20.4			0.2			165.7		0.0		89.8			0.0			502.3
Total assets	£	1,064.6	£	463.1		£	(686.8	)	£	1,941.8	£	2,581.7	£	5,115.9		£	(2,734.3	)	£	7,746.0
Current liabilities	£	27.6	£	39.9		£	3.0		£	91.6	£	0.0	£	2,010.8		£	(910.2	)	£	1,262.7
Long-term debt, net of current portion	540.8		1,675.9			0.0			0.0		0.0		3,494.6			0.0			5,711.3
Other long-term liabilities	0.2		0.0			0.0			101.8		0.0		174.0			0.0			276.0
Total liabilities	568.6		1,715.8			3.0			193.4		0.0		5,679.4			(910.2		)	7,250.0
Shareholders’ equity (deficit)	496.0		(1,252.7		)	(689.8		)	1,748.4		2,581.7		(563.5		)	(1,824.1		)	496.0
Total liabilities and shareholders’ equity (deficit)	£	1,064.6	£	463.1		£	(686.8	)	£	1,941.8	£	2,581.7	£	5,115.9		£	(2,734.3	)	£	7,746.0

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)



	December 31, 2011
Balance sheets	Company		Virgin Media Finance			Other guarantors			VMIH		VMIL		All other subsidiaries			Adjustments			Total
	(in millions)
Cash and cash equivalents	£	16.2	£	1.9		£	0.3		£	0.1	£	0.0	£	281.9		£	0.0		£	300.4
Restricted cash	0.0		0.0			0.0			0.0		0.0		1.9			0.0			1.9
Other current assets	0.3		0.0			1.0			16.3		0.0		524.3			0.0			541.9
Total current assets	16.5		1.9			1.3			16.4		0.0		808.1			0.0			844.2
Fixed assets, net	0.0		0.0			0.0			0.0		0.0		4,602.7			0.0			4,602.7
Goodwill and intangible assets, net	0.0		0.0			(15.0		)	0.0		0.0		2,032.5			0.0			2,017.5
Investments in, and loans to, parent and subsidiary companies	1,042.2		330.2			(841.2		)	1,474.5		2,217.5		(2,902.6		)	(1,320.6		)	0.0
Other assets, net	146.1		23.5			0.0			208.4		0.0		96.4			0.0			474.4
Total assets	£	1,204.8	£	355.6		£	(854.9	)	£	1,699.3	£	2,217.5	£	4,637.1		£	(1,320.6	)	£	7,938.8
Current liabilities	£	14.6	£	52.2		£	13.6		£	101.2	£	0.0	£	1,897.8		£	(801.6	)	£	1,277.8
Long-term debt, net of current portion	551.1		1,720.3			0.0			0.0		0.0		3,507.1			0.0			5,778.5
Other long-term liabilities	0.2		0.0			0.0			45.8		0.0		197.6			0.0			243.6
Total liabilities	565.9		1,772.5			13.6			147.0		0.0		5,602.5			(801.6		)	7,299.9
Shareholders’ equity (deficit)	638.9		(1,416.9		)	(868.5		)	1,552.3		2,217.5		(965.4		)	(519.0		)	638.9
Total liabilities and shareholders’ equity (deficit)	£	1,204.8	£	355.6		£	(854.9	)	£	1,699.3	£	2,217.5	£	4,637.1		£	(1,320.6	)	£	7,938.8

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)



	Three months ended September 30, 2012
Statements of comprehensive income	Company			Virgin Media Finance			Other guarantors			VMIH			VMIL		All other subsidiaries			Adjustments			Total
	(in millions)
Revenue	£	0.0		£	0.0		£	0.0		£	0.0		£	0.0	£	1,027.7		£	0.0		£	1,027.7
Operating costs	0.0			0.0			0.0			0.0			0.0		(403.3		)	0.0			(403.3		)
Selling, general and administrative expenses	(4.1		)	0.0			0.0			0.0			0.0		(197.6		)	0.0			(201.7		)
Restructuring and other charges	0.0			0.0			0.0			0.0			0.0		0.8			0.0			0.8
Depreciation and amortization	0.0			0.0			0.0			0.0			0.0		(243.5		)	0.0			(243.5		)
Operating income (loss)	(4.1		)	0.0			0.0			0.0			0.0		184.1			0.0			180.0
Interest expense	(29.7		)	(38.8		)	(2.7		)	(83.1		)	0.0		(234.6		)	288.7			(100.2		)
Loss on extinguishment of debt	0.0			0.0			0.0			0.0			0.0		0.0			0.0			0.0
Share of income from equity investments	0.0			0.0			0.0			0.0			0.0		0.0			0.0			0.0
Loss on disposal of equity investments	0.0			0.0			0.0			0.0			0.0		0.0			0.0			0.0
Gain (loss) on derivative instruments	51.6			0.0			0.0			(7.6		)	0.0		0.0			0.0			44.0
Foreign currency gains(losses)	0.4			(1.8		)	(1.7		)	(17.2		)	0.0		(5.8		)	26.4			0.3
Interest income and other, net	0.0			38.3			3.9			40.5			0.0		206.2			(288.7		)	0.2
Income tax (expense) benefit	0.0			0.0			0.1			(0.1		)	0.0		(0.4		)	0.0			(0.4		)
Income (loss) from continuing operations	18.2			(2.3		)	(0.4		)	(67.5		)	0.0		149.5			26.4			123.9
Equity in net income (loss) of subsidiaries	105.7			102.1			106.2			143.2			142.8		0.0			(600.0		)	0.0
Net income (loss)	£	123.9		£	99.8		£	105.8		£	75.7		£	142.8	£	149.5		£	(573.6	)	£	123.9
Total comprehensive income (loss)	£	115.4		£	81.8		£	89.3		£	57.7		£	143.6	£	150.3		£	(522.7	)	£	115.4

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)



	Three months ended September 30, 2011
Statements of comprehensive income	Company			Virgin Media Finance			Other guarantors			VMIH			VMIL		All other subsidiaries			Adjustments			Total
	(in millions)
Revenue	£	0.0		£	0.0		£	0.0		£	0.0		£	0.0	£	1,000.0		£	0.0		£	1,000.0
Operating costs	0.0			0.0			0.0			0.0			0.0		(401.7		)	0.0			(401.7		)
Selling, general and administrative expenses	(1.2		)	0.0			0.0			0.0			0.0		(198.8		)	0.0			(200.0		)
Restructuring and other charges	0.0			0.0			0.0			0.0			0.0		(6.2		)	0.0			(6.2		)
Depreciation and amortization	0.0			0.0			0.0			0.0			0.0		(263.7		)	0.0			(263.7		)
Operating income (loss)	(1.2		)	0.0			0.0			0.0			0.0		129.6			0.0			128.4
Interest expense	(15.6		)	(45.4		)	(7.6		)	(90.5		)	0.0		(263.4		)	314.9			(107.6		)
Loss on extinguishment of debt	0.0			(15.5		)	0.0			18.1			0.0		(20.9		)	0.0			(18.3		)
Share of income from equity investments	0.0			0.0			0.0			0.0			0.0		3.6			0.0			3.6
Loss on disposal of equity investments	0.0			0.0			0.0			0.0			0.0		(8.0		)	0.0			(8.0		)
Loss on derivative instruments	(53.6		)	0.0			0.0			(3.9		)	0.0		(1.8		)	0.0			(59.3		)
Foreign currency (losses) gains	0.0			1.9			(5.6		)	9.2			0.0		(18.5		)	0.0			(13.0		)
Interest income and other, net	0.2			44.9			8.5			45.1			0.0		216.7			(314.9		)	0.5
Income tax (expense) benefit	0.0			0.0			(1.2		)	0.0			0.0		1.1			0.0			(0.1		)
(Loss) income from continuing operations	(70.2		)	(14.1		)	(5.9		)	(22.0		)	0.0		38.4			0.0			(73.8		)
Equity in net (loss) income of subsidiaries	(3.6		)	9.6			2.4			31.7			134.9		0.0			(175.0		)	0.0
Net (loss) income	£	(73.8	)	£	(4.5	)	£	(3.5	)	£	9.7		£	134.9	£	38.4		£	(175.0	)	£	(73.8	)
Total comprehensive (loss) income	£	(83.8	)	£	(3.3	)	£	(3.8	)	£	10.9		£	134.4	£	37.9		£	(176.1	)	£	(83.8	)

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)



	Nine months ended September 30, 2012
Statements of comprehensive income	Company			Virgin Media Finance			Other guarantors			VMIH			VMIL		All other subsidiaries			Adjustments			Total
	(in millions)
Revenue	£	0.0		£	0.0		£	0.0		£	0.0		£	0.0	£	3,060.8		£	0.0		£	3,060.8
Operating costs	0.0			0.0			0.0			0.0			0.0		(1,223.4		)	0.0			(1,223.4		)
Selling, general and administrative expenses	(11.6		)	0.0			0.0			0.0			0.0		(614.5		)	0.0			(626.1		)
Restructuring and other charges	0.0			0.0			0.0			0.0			0.0		(4.1		)	0.0			(4.1		)
Depreciation and amortization	0.0			0.0			0.0			0.0			0.0		(716.7		)	0.0			(716.7		)
Operating income (loss)	(11.6		)	0.0			0.0			0.0			0.0		502.1			0.0			490.5
Interest expense	(82.2		)	(121.7		)	(8.1		)	(257.6		)	0.0		(714.4		)	879.6			(304.4		)
Loss on extinguishment of debt	0.0			(58.6		)	0.0			0.0			0.0		0.0			0.0			(58.6		)
Gain (loss) on derivative instruments	91.5			0.0			0.0			(23.6		)	0.0		0.0			0.0			67.9
Foreign currency (losses) gains	0.0			(7.7		)	(6.0		)	(25.4		)	0.0		2.1			31.5			(5.5		)
Interest income and other, net	0.0			124.6			11.6			137.2			0.0		612.7			(879.6		)	6.5
Income tax expense (benefit)	0.0			0.0			0.1			(0.3		)	0.0		(0.6		)	0.0			(0.8		)
Income (loss) from continuing operations	(2.3		)	(63.4		)	(2.4		)	(169.7		)	0.0		401.9			31.5			195.6
Equity in net income (loss) of subsidiaries	197.9			246.7			200.3			384.9			383.3		0.0			(1,413.1		)	0.0
Net income (loss)	£	195.6		£	183.3		£	197.9		£	215.2		£	383.3	£	401.9		£	(1,381.6	)	£	195.6
Total comprehensive income (loss)	£	188.8		£	164.1		£	180.7		£	196.0		£	385.5	£	404.1		£	(1,330.4	)	£	188.8

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VIRGIN MEDIA INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

Note 11—Condensed Consolidating Financial Information—Senior Notes (continued)

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VIRGIN MEDIA INVESTMENT HOLDINGS LTD 10-Q