LONDON, Nov. 7, 2007 (PRIME NEWSWIRE) -- Virgin Media Inc. (Nasdaq:VMED) announces results for the quarter ended September 30, 2007.
Quarterly highlights
* Significant improvement in customer and RGU growth
* 13,000 on-net customer net additions (Q2-07: -70,300)
* 172,900 total RGU net additions (Q2-07: -40,300)
* 122,900 total broadband net additions (Q2-07: 50,500)
* 13,700 total telephony net additions (Q2-07: -46,500)
* 20,400 TV net additions (Q2-07: 2,200)
* 15,900 mobile net additions (Q2-07: -46,500)
* Triple play penetration up to 47.0% from 38.7% a year ago
* VOD views of 23m, up 24% on previous quarter
* OCF of 342m pounds (Q2-07: 315m pounds) includes certain benefits
(as discussed below)
* Operating income of 47m pounds (Q2-07: 3m pounds) includes certain
benefits (as discussed below)
Operational review
* Differentiating on broadband speed and quality
* Completed upgrade of top broadband tier to 20Mb
* Continuing 50Mb trial
* Plan significant increase to existing speeds in 2008
* Assessing DOCSIS 3.0 capability and launch
* Transformed content offering
* 6 Setanta Sports channels included in top tier basic
TV package
* Virgin 1 launched on all multichannel TV platforms
* Virgin Media sports broadband portal launched featuring
exclusive Premier League and Football League Internet clips
* Sports news channel to launch in Q4-07
* 4,300 hours of VOD content now available
Neil Berkett, Acting Chief Executive Officer of Virgin Media, said:
"Our third quarter results show a significant turnaround in customer and RGU growth with our best customer, broadband and telephony growth since the cable merger in March 2006.
"With the cable merger integration expected to be complete by year end, we can focus on continuing to improve the fundamentals, enhancing our products, reducing our churn, and delivering on our competitive strengths."
Conference call details
There will be a conference call for analysts and investors today at 0930 EST/ 1430 UK time. Analysts and investors can dial in to the presentation by calling +1 866 510 0676 in the United States or + 44 (0) 20 7365 8426 for international access, passcode "Virgin Media Inc." for all participants.
The presentation can also be accessed live via webcast on the Company's website, www.virginmedia.com/investors.
The teleconference replay will be available for one week beginning approximately two hours after the end of the call until Wednesday, November 14, 2007. The dial-in replay number for the U.S. is: +1 888 286 8010 and the international dial-in replay number is: +44 (0) 20 7365 8427, passcode: 43262307.
Note to the financial and operational results for the three months ended September 30, 2007
OCF is operating income before depreciation, amortization and other charges and is a non-GAAP financial measure. Please see Appendix E for a reconciliation of non-GAAP financial measures to their nearest GAAP equivalents.
SUMMARY FINANCIAL RESULTS (unaudited)
Q3 2007 Q2 2007 Q3 2006
------------- ------------- -------------
Pounds m Pounds m Pounds m
Revenue
Cable
Consumer 607.7 619.3 642.8
Business 160.0 155.8 162.3
------------- ------------- -------------
767.7 775.1 805.1
Mobile 158.7 146.3 140.4
Content 79.8 73.6 79.4
------------- ------------- -------------
Total Revenue 1,006.2 995.0 1,024.9
OCF 341.5 315.3 317.8
Operating income/(loss) 46.7 3.0 (9.6)
Note
As compared to our second quarter, our OCF and Operating income for
this quarter benefited from a number of items, including lower
incentive-based compensation expense consisting of 8.5 million pounds
relating to a revision to our expected company incentive scheme
payments and 7.3 million pounds relating to stock-based compensation
expense; a reduction in Consumer bad debt expense of
7.5 million pounds due to operational improvements in our billing
and collections resulting from the integration of our systems and
processes; and gains of 4.7 million pounds resulting from the
settlement of long standing contractual issues. In addition to the
above items, Operating income also benefited from a
17.1 million pounds reduction in our lease exit provisions due
primarily to the successful sublease of one of our larger vacant
properties.
GROUP OPERATIONS STATISTICS ('000s)
Q3 2007 Q2 2007 Q3 2006
------------- ------------- -------------
Group RGUs
On-net TV 3,417.0 3,396.6 3,315.4
On-net Digital TV 3,167.0 3,125.3 2,922.0
Broadband
On-net 3,307.7 3,191.9 2,980.4
Off-net 282.3 275.2 242.8
------------ ------------- -------------
3,590.0 3,467.1 3,223.2
Mobile
Prepay 4,102.1 4,115.9 4,390.9
Contract 328.8 299.1 120.8
------------ ------------- -------------
4,430.9 4,415.0 4,511.7
Telephone
On-net 3,992.5 3,993.8 4,178.3
Off-net 90.5 75.5 43.4
------------ ------------- -------------
4,083.0 4,069.3 4,221.7
------------ ------------- -------------
Total RGUs 15,520.9 15,348.0 15,272.0
============ ============= =============
Net RGU adds
On-net TV 20.4 2.2 22.2
On-net Digital TV 41.7 40.0 85.8
Broadband
On-net 115.8 45.8 78.1
Off-net 7.1 4.7 7.8
------------ ------------- -------------
122.9 50.5 85.9
Mobile
Prepay (13.8) (99.3) 98.1
Contract 29.7 52.8 24.6
------------ ------------- -------------
15.9 (46.5) 122.7
Telephone
On-net (1.3) (56.9) (54.6)
Off-net 15.0 10.4 (4.3)
------------ ------------- -------------
13.7 (46.5) (58.9)
Note
Data cleanse activity in Q2-07 resulted in an increase of 4,200 RGUs,
comprised of an increase of approximately 4,400 Television and 100
Telephone RGUs and a decrease of approximately 300 Broadband RGUs.
Net RGU adds above and in this announcement exclude the data cleanse
increases/decrease.
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
TOTAL REVENUE
Total revenue in the third quarter was 1,006.2 million pounds (Q2 2007: 995.0m pounds). The increase was due to growth in Mobile and Content revenue offset by a decline in Cable revenue, as discussed below.
CABLE SEGMENT REVENUE
Consumer
Consumer revenue in the third quarter was 607.7 million pounds (Q2 2007: 619.3m pounds). The on-net customer base was 4.8 million at September 30, 2007, with net additions of 13,000 in the quarter. This represents a return to positive customer growth and is the best net additions performance since the cable merger in March 2006. The revenue decline primarily reflected a decrease in ARPU, being partially offset by customer growth.
RGU per customer grew to 2.26 from 2.23 in the quarter and triple play penetration increased to 47.0% from 45.2% in the quarter reflecting our drive to encourage bundling.
ARPU fell from 42.16 pounds to 41.55 pounds in the quarter, due primarily to strong price competition as we continued to offer compelling acquisition price points and offered discounts to existing customers. This was partially offset by growth in RGU per customer.
Gross customer additions in the third quarter were 256,500, up by 34% from 191,900 in the second quarter and up by 12% from 229,200 in the same quarter last year as a result of our quality products, compelling price points and improved sales efficiency.
Churn in the third quarter was 1.7%, down from 1.8% in both the previous quarter and the same quarter last year.
We continue to enhance our consumer propositions to exploit our unique quad-play capability, our advanced network and to differentiate our content offering.
We have completed our 20Mb broadband upgrade and have moved to the next stage of our 50Mb trial. We intend to increase broadband speeds in 2008 to significantly differentiate our offering from DSL. To that end, we are currently reviewing the implementation of DOCSIS 3.0 broadband standards.
We have significantly improved our content offering with the inclusion of six Setanta Sports channels for no additional charge in our basic XL package. Setanta has the rights to broadcast 46 Premier League football matches per season, 60 Scottish Premier League matches plus 25 FA Cup games per season from the 2008/9 season, along with other football, golf, rugby, racing, and motor sport events.
We are launching a new sports news channel, in partnership with Setanta later this month, which will be included in all of our TV packages.
Our sports offerings are also being complemented by our Virgin Media broadband portal, which has exclusive rights to offer near-live clips of all Premier League and Football League matches over the internet.
We continue to build our Video On Demand ("VOD") offering which is available to all of our 3.2 million digital TV subscribers. 45% of our customers are now using our VOD service on a monthly basis compared to 36% at the start of the year. Average views per user per month in the third quarter were 17 compared to 10 at the start of the year. Total monthly views were 23 million on average in the quarter, up 23% on the previous quarter.
Unlike other providers, our range of VOD content is extensive including over 500 movies, highlights from the previous week's primetime schedule, over 1,000 hours of top TV series and over 1,000 music videos and concerts available every day. We have VOD content available from HBO, Buena Vista, Warner, BBC, Channel 4 and Alliance Atlantis, as well as Virgin Media Television ("VMtv"). Further major content additions are expected as we strengthen our line up and add even more choice for our customers. We are working with the BBC on the launch of their iPlayer application, which will give VOD access to hundreds of hours of BBC content. We expect Virgin Media to be the first TV platform to launch this service, which will be heavily marketed by the BBC.
On October 1, 2007, we launched Virgin 1 on our own cable platform as well as satellite and Freeview. Our strategy is to maximise advertising revenues from the nine million home Freeview platform and to cross-promote Virgin Media's unique VOD content and functionality, as well as other products and services. This will see VMtv accelerate its transformation from a linear pay-TV operator to a provider of a mix of free, pay and on-demand content that adds value to Virgin Media through cross promotion and exclusive content to differentiate us from our competitors.
Broadband
On-net broadband net additions in the quarter were 115,800, up strongly from 45,800 in the previous quarter.
Virgin Media now has 3.3 million cable broadband subscribers, which, together with 0.3 million off-net broadband subscribers, makes us the largest residential broadband provider in the UK.
Television
Total TV net additions were 20,400 in the quarter, up from 2,200 in the previous quarter. Digital TV net additions were 41,700, following net additions of 40,000 in the previous quarter.
We grew our V+ DVR subscriber base by 14% in the quarter, with net additions of 23,000. At the quarter end we had 190,200 V+ subscribers, representing 6% penetration of our digital television base.
Telephony
On-net telephony net subscriber losses in the quarter were just 1,300, a significant improvement compared with 56,900 net losses in the second quarter.
Recent improvements are due to a refocus in the way we market and sell our bundles, to ensure that telephony is emphasized at the point of sale. We have also reduced telephony churn.
We continued our strategy of increasing the number of subscribers on flat rate packages to grow subscribers and reduce the impact of declining fixed line telephony usage. We are continuing to rebalance our pricing by reducing prices of our two main fixed rate packages and increasing some variable call rates.
Off-net
Consumer off-net revenue, which is included in total consumer revenue, was 17.3 million pounds (Q2 2007: 16.2m pounds). At the quarter end, we had 282,300 off-net broadband subscribers, with growth of 7,100 in the quarter. We also added 15,000 off-net telephony subscribers during the quarter and now have a base of 90,500.
Business
Business revenue was 160.0 million pounds, up 4.2 million pounds compared to the previous quarter primarily due to growth in data revenue. The majority of this increase was due to greater LAN solutions data revenue from our infrastructure contract at the UK's largest airport together with continued growth from our other retail Ethernet and IPVPN data products.
Our wholesale revenues were flat versus the prior quarter following completion of the expected contractual declines highlighted in the first two quarters of 2007.
Across both our retail and wholesale sales channels, total data revenues were 99.0 million pounds representing 62% of total Business division revenue and up from 94.9 million pounds and 61% in the prior quarter.
CABLE SEGMENT OCF
Cable segment OCF in the quarter was 303.5 million pounds, up 21.0 million pounds compared to the previous quarter. As compared to the second quarter, Cable OCF benefited from a number of items, including a reduction in Consumer bad debt expense of 7.5 million pounds due to operational improvements in our billing and collections resulting from the integration of our systems and processes, lower incentive-based compensation expense relating to a revision to our expected company incentive scheme payments and 7.3 million pounds relating to stock-based compensation expense, primarily due to stock and option forfeitures. We do not expect the same benefits to recur in the fourth quarter.
MOBILE SEGMENT
Mobile Revenue
Mobile revenue in the quarter was 158.7 million pounds (Q2 2007: 146.3m pounds), comprising 147.3 million pounds service revenue (Q2 2007: 142.3m pounds) and 11.4 million pounds equipment revenue (Q2 2007: 4.0m pounds). The service revenue improvement was primarily due to subscriber growth, an improved contract mix and an increase in mobile monthly ARPU. Equipment revenue growth was due to growth in customer connections.
We continued to grow the number of higher ARPU contract customers, with net additions of 29,700 in the quarter compared to 52,800 in the previous quarter. Contract sales are largely driven by our cross-sell to Virgin Media cable customers. Net additions fell compared to the previous quarter due to a short-term tariff change. The original tariff has since been reintroduced and sales have improved. The number of prepay customers fell by 13,800 during the quarter compared to a second quarter loss of 99,300. This significant improvement was achieved by our decision to re-engage in a more favorable prepay market. We will continue to exercise economic discipline and responsible investment in respect of the prepay market.
Overall mobile ARPU increased to 11.11 pounds in the third quarter (Q2 2007: 10.70 pounds) driven by the improved contract mix and higher prepay ARPU.
Mobile OCF
Mobile OCF was 31.5 million pounds in the quarter, down from 32.7 million pounds in the previous quarter. The increase in revenue was offset by an increase in subscriber acquisition costs associated with higher new customer additions. As compared to the second quarter, Mobile OCF benefited from lower incentive-based compensation expense relating to a revision to our expected company incentive scheme payments. We do not expect the same benefit to recur in the fourth quarter.
We also expect Mobile OCF to be considerably lower in the fourth quarter due to seasonally higher customer connections driving increased acquisition costs.
CONTENT SEGMENT
Content Revenue
The Content segment consists of VMtv and Sit-up.
Total Content segment revenue, after inter segment elimination, was 79.8 million pounds (Q2 2007: 73.6m pounds), comprising 27.0 million pounds (Q2 2007: 25.9m pounds) from VMtv and 52.8 million pounds (Q2 2007: 47.7m pounds) from Sit-up. VMtv sells programming to the Virgin Media cable segment. As a result, for consolidation purposes, 6.2 million pounds of inter segment revenue has been eliminated.
VMtv revenue of 27.0 million pounds, after inter segment elimination, was up 1.1 million pounds from the previous quarter due to increased subscription and advertising revenue.
VMtv's channels grew the number of commercial impacts for the year-to-date to 22.3 billion, an increase of 19% compared to the same period last year, reflecting the strong performance of its channels.
On October 1, 2007, VMtv launched Virgin 1 on cable, satellite and Freeview. Our strategy is to maximise advertising revenues from the Freeview platform and to cross-promote Virgin Media's unique VOD content and functionality, as well as other products and services.
Sit-up revenue was 52.8 million pounds, up 11% on the same quarter last year due to an increase in the average selling price of goods sold. We expect Sit-up revenue to be seasonally higher in the fourth quarter.
Content OCF
Content segment OCF in the quarter was 6.5 million pounds, up 6.4 million pounds from the prior quarter primarily due to gains of 4.7 million pounds as a result of the settlement of long standing contractual issues along with benefits from lower incentive-based compensation expense resulting from a revision to our expected company incentive scheme payments as compared to the second quarter. We do not expect the same benefits to recur in the fourth quarter.
UKTV Joint Venture
Virgin Media owns 50% of the companies that comprise UKTV, a group of joint ventures formed with BBC Worldwide. UKTV produces a portfolio of multi-channel television channels based on the BBC's program library and other acquired programming and which are carried on Virgin Media's cable platform and also satellite. Some channels are also available on Freeview. UKTV is the second largest pay-TV operator in the UK by viewing share.
Virgin Media accounts for its interest in UKTV under the equity method and recognized a share of net income of 5.9 million pounds in the third quarter and 18.4 million pounds for the first nine months of the year. UKTV's financial results are therefore not consolidated in Virgin Media's revenue, operating income or OCF.
UKTV is funded by a loan from Virgin Media, which was 148.3 million pounds at September 30, 2007. This loan effectively acts as a revolving facility for UKTV. Virgin Media receives cash payments from UKTV in the form of loan capital payments of 14.5 million pounds for the first nine months of the year. Virgin Media also receives dividends, interest payments and payments for consortium tax relief from UKTV.
Virgin Media's investment in UKTV is carried on the balance sheet at 371.2 million pounds, which includes the outstanding 148.3 million pounds loan.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION AND OTHER CHARGES (OCF)
OCF was 341.5 million pounds in the third quarter (Q2 2007: 315.3m pounds). Growth was due to the increase in Cable and Content OCF being partially offset by the small decrease in Mobile OCF as discussed above.
As compared to our second quarter, our OCF for this quarter benefited from a number of items, including lower incentive-based compensation expense consisting of 8.5 million pounds relating to a revision to our expected company incentive scheme payments and 7.3 million pounds relating to stock-based compensation expense; a reduction in Consumer bad debt expense of 7.5 million pounds due to operational improvements in our billing and collections resulting from the integration of our systems and processes; and gains of 4.7 million pounds resulting from the settlement of long standing contractual issues.
We do not expect the same benefits to recur in the fourth quarter. Consequently, we expect OCF in the fourth quarter to be significantly below the third quarter amount.
OCF is a non-GAAP financial measure. See Appendix E for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
Operating Income/Loss and Net Loss
Operating income was 46.7 million pounds (Q2 2007: 3.0m pounds) with the increase mainly due to the increase in OCF as discussed above and lower other charges (which relate primarily to costs in connection with our restructuring programs initiated in respect of the merger with Telewest.) Other (income) charges in the quarter included a credit of 17.1 million pounds relating to a reduction in property provisions due primarily to the successful sublease of one of our larger vacant properties.
Operating income of 46.7 million pounds compared to a loss of 9.6 million pounds in the third quarter of 2006 with the increase due mainly to the benefits and lower other charges discussed above.
Net loss was 61.0 million pounds (Q2 2007: 119.0m pounds) and compares with a net loss of 96.1 million pounds in the third quarter of 2006. The decrease in net loss compared to the previous quarter was mainly due to growth in operating income. Net loss fell compared to the same quarter last year mainly due to improved operating income, partially offset by increased interest expense.
CAPITAL EXPENDITURE
Fixed asset additions (accrual basis) during the quarter were 128.2 million pounds, down 28.0 million pounds from the previous quarter.
Compared to the third quarter of 2006, fixed asset additions (accrual basis) were down 19.1 million pounds.
The total purchase of fixed assets and intangible assets was 137.8 million pounds in the quarter, compared to 133.6 million pounds in the previous quarter and 133.6 million pounds in the same quarter last year.
Fixed asset additions (accrual basis) is a non-GAAP financial measure. See Appendix E for reconciliations of non-GAAP financial measures to their nearest GAAP equivalents.
DEBT
As of September 30, 2007, long term debt (net of current portion) was 6,071 million pounds. This consisted of 4,977 million pounds outstanding under our Senior Credit Facility, 1,010 million pounds of Senior Notes, and 84 million pounds of capital leases and other indebtedness. Cash and cash equivalents were 364 million pounds.
Cash interest paid (exclusive of amounts capitalized) was 85.8 million pounds in the quarter and 440.1 million pounds for the last twelve months.
"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," "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: (1) the ability to compete with a range of other communications and content providers; (2) the ability to manage customer churn; (3) the effect of technological changes on our businesses; (4) the continued right to use the Virgin name and logo; (5) the ability to maintain and upgrade our networks in a cost-effective and timely manner; (6) possible losses in revenues due to systems failures; (7) the ability to provide attractive programming at a reasonable cost; (8) the reliance on single-source suppliers for some equipment, software and services and third party distributors of our mobile services; (9) the functionality or market acceptance of new products that we may introduce; (10) the ability to obtain and retain expected synergies from the merger of our legacy NTL and Telewest businesses and the acquisition of Virgin Mobile; (11) rates of success in executing, managing and integrating key acquisitions, including the merger with Telewest and the acquisition of Virgin Mobile; (12) the ability to achieve business plans for the combined company; (13) the ability to fund debt service obligations through operating cash flow; (14) the ability to obtain additional financing in the future and react to competitive and technological changes; (15) the ability to comply with restrictive covenants in our indebtedness agreements; and (16) the extent to which our future earnings will be sufficient to cover our fixed charges.
These and other factors are discussed in more detail under "Risk Factors" and elsewhere in Virgin Media's Form 10-K filed with the SEC on March 1, 2007. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.
Virgin Mobile Acquisition
On July 4, 2006, we completed the acquisition of Virgin Mobile Holdings (UK) plc, or Virgin Mobile. Virgin Mobile is the largest mobile virtual network operator in the United Kingdom. We have entered into a long-term trademark license agreement with Virgin Enterprises Limited pursuant to which we have changed the name of our parent company, and re-branded our existing consumer and part of our content businesses with the Virgin brand.
Non-GAAP Financial Measures
We use non-GAAP financial measures with a view to providing investors with a better understanding of the operating results and underlying trends to measure past and future performance and liquidity.
We evaluate operating performance based on several non-GAAP financial measures, including (i) operating income before depreciation, amortization and other charges (OCF), and (ii) fixed asset additions (accrual basis), as we believe these are important measures of the operational strength of our business and our liquidity. Since these measures are not calculated in accordance with GAAP, they should not be considered as substitutes for operating income (loss) and purchase of fixed assets and purchase of intangible assets, respectively.
Please see Appendix E for a discussion of our use of non-GAAP financial measures and reconciliations to their nearest GAAP equivalents.
Appendices
A) FINANCIAL STATEMENTS
* Condensed Consolidated Statements of Operations
* Condensed Consolidated Balance Sheets
* Condensed Consolidated Statements of Cash Flows
* Quarterly Condensed Consolidated Statements of Operations
* Additional Cash Flow Information
B) Group Residential Operations Statistics
C) Segmental Analysis
D) Fixed Asset Additions (Accrual Basis)
E) Use of Non-GAAP Financial Measures and Reconciliations to GAAP
Appendices
----------
A) FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions pounds, except share and per share data) (unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenue 1,006.2 1,024.9 3,023.1 2,520.6
Costs and expenses
Operating costs
(exclusive of
depreciation shown
separately below) 454.0 440.0 1,338.4 1,062.4
Selling, general and
administrative expenses 210.7 267.1 722.2 648.7
Other (income) charges (8.9) 30.9 5.8 51.4
Depreciation 225.7 222.6 689.4 591.2
Amortization 78.0 73.9 232.9 166.3
--------- --------- --------- ---------
959.5 1,034.5 2,988.7 2,520.0
--------- --------- --------- ---------
Operating income (loss) 46.7 (9.6) 34.4 0.6
Other income (expense)
Interest income
and other, net 10.8 7.1 25.6 24.3
Interest expense (127.9) (113.2) (374.5) (332.6)
Share of income from
equity investments 6.0 3.9 18.5 8.4
Foreign currency
transaction gains (losses) 2.2 6.3 7.8 (97.8)
Loss on extinguishment of debt -- (0.5) (1.1) (32.9)
Gains (losses) on
derivative instruments 0.8 1.6 (0.7) (1.9)
--------- --------- --------- ---------
Loss from continuing
operations before income taxes,
minority interest
and cumulative effect
of change in accounting
principle (61.4) (104.4) (290.0) (431.9)
Income tax benefit (expense) 0.4 0.9 (10.3) 10.8
Minority interest -- (0.7) -- --
Cumulative effect of change
in accounting principle -- -- -- 1.2
--------- --------- --------- ---------
Loss from continuing
operations (61.0) (104.2) (300.3) (419.9)
--------- --------- --------- ---------
Discontinued operations
Gain on disposal of assets -- 8.1 -- 8.1
--------- --------- --------- ---------
Income from
discontinued operations -- 8.1 -- 8.1
--------- --------- --------- ---------
Net loss (61.0) (96.1) (300.3) (411.8)
========= ========= ========= =========
Basic and diluted loss from
continuing operations
per share (in Pounds) (0.19) (0.32) (0.92) (1.49)
========= ========= ========= =========
Basic and diluted income from
discontinued operations
per share (in Pounds) -- 0.02 -- 0.03
========= ========= ========= =========
Basic and diluted
net loss per share
(in Pounds) (0.19) (0.30) (0.92) (1.46)
========= ========= ========= =========
Dividends per share
(in U.S. Dollars) $0.04 $0.02 $0.09 $0.03
========= ========= ========= =========
Average number of shares
outstanding (in millions) 326.4 322.0 325.4 282.5
========= ========= ========= =========
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions pounds)
Sept. 30, Dec. 31,
2007 2006
--------- ---------
(Unaudited)(See Note)
Assets
Current assets
Cash and cash equivalents 364.0 418.5
Restricted cash 5.9 6.0
Accounts receivable - trade, less allowances
for doubtful accounts of 21.9 pounds (2007)
and 51.8 pounds (2006) 452.0 461.2
Inventory 95.9 65.3
Prepaid expenses and other current assets 120.3 87.4
--------- ---------
Total current assets 1,038.1 1,038.4
Fixed assets, net 5,780.3 6,026.3
Goodwill and other indefinite-lived
intangible assets 2,508.2 2,516.5
Intangible assets, net 892.4 1,120.5
Equity investments 372.2 371.5
Other assets, net of accumulated amortization
of 39.2 pounds (2007) and 21.8 pounds (2006) 175.7 170.3
--------- ---------
Total assets 10,766.9 11,243.5
========= =========
Liabilities and shareholders' equity
Current liabilities
Accounts payable 368.3 379.6
Accrued expenses and other current liabilities 403.0 485.5
VAT and employee taxes payable 79.8 82.8
Restructuring liabilities 93.6 126.8
Interest payable 148.8 158.2
Deferred revenue 261.5 268.0
Current portion of long term debt 28.7 141.9
--------- ---------
Total current liabilities 1,383.7 1,642.8
Long term debt, net of current portion 6,071.1 6,017.2
Deferred revenue and other
long term liabilities 270.3 276.2
Deferred income taxes 82.1 77.2
--------- ---------
Total liabilities 7,807.2 8,013.4
--------- ---------
Commitments and contingent liabilities
Shareholders' equity
Common stock - $.01 par value; authorized
1,000.0 (2007) and 1,000.0 (2006) shares;
issued 328.4 (2007) and 326.4 (2006) and
outstanding 327.0 (2007) and 323.9 (2006)
shares 1.8 1.8
Additional paid-in capital 4,328.9 4,303.4
Accumulated other comprehensive income 135.2 116.0
Accumulated deficit (1,506.2) (1,191.1)
--------- ---------
Total shareholders' equity 2,959.7 3,230.1
--------- ---------
Total liabilities and shareholders' equity 10,766.9 11,243.5
========= =========
Note: The balance sheet at December 31, 2006 has been derived
from the audited financial statements at that date.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions pounds) (unaudited)
Nine months ended
September 30,
--------------------
2007 2006
--------- ---------
Net cash provided by
operating activities 448.1 512.2
--------- ---------
Investing activities
Purchase of fixed and intangible assets (424.0) (397.0)
Income from equity investments 14.5 7.3
Acquisitions, net of cash acquired (1.0) (2,447.7)
Other 6.4 6.0
--------- ---------
Net cash used in investing activities (404.1) (2,831.4)
--------- ---------
Financing activities
New borrowings, net of financing fees 874.5 8,923.9
Principal payments on long term debt and
capital leases (966.8) (7,064.7)
Proceeds from employee stock
option exercises 11.4 35.2
Dividends paid (14.8) (5.1)
--------- ---------
Net cash (used in) provided
by financing activities (95.7) 1,889.3
--------- ---------
Effect of exchange rate changes
on cash and cash equivalents (2.8) (3.1)
Decrease in cash and cash equivalents (54.5) (433.0)
Cash and cash equivalents, beginning of period 418.5 735.2
--------- ---------
Cash and cash equivalents, end of period 364.0 302.2
========= =========
Supplemental disclosure of cash flow information
Cash paid during the period for interest
exclusive of amounts capitalized 380.8 267.8
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions pounds, except share and per share data) (unaudited)
Three months ended
------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2007 2007 2007 2006 2006
------------------------------------------
Revenue 1,006.2 995.0 1,021.9 1,081.6 1,024.9
Costs and expenses
Operating costs
(exclusive of
depreciation shown
separately below) 454.0 435.1 449.3 510.4 440.0
Selling, general and
administrative expenses 210.7 244.6 266.9 258.2 267.1
Other (income) charges (8.9) 3.1 11.6 15.6 30.9
Depreciation 225.7 231.6 232.1 207.9 222.6
Amortization 78.0 77.6 77.3 80.3 73.9
------------------------------------------
Total costs
and expenses 959.5 992.0 1,037.2 1,072.4 1,034.5
------------------------------------------
Operating income (loss) 46.7 3.0 (15.3) 9.2 (9.6)
Other income (expense)
Interest income
and other, net 10.8 7.8 7.0 10.4 7.1
Interest expense (127.9) (128.1) (118.5) (124.8) (113.2)
Share of income from
equity investments 6.0 5.3 7.2 4.1 3.9
Foreign currency
transaction gains 2.2 2.3 3.3 7.7 6.3
(Loss) gain on
extinguishment of debt -- (1.1) -- 0.1 (0.5)
Gains (losses) on
derivative instruments 0.8 (1.0) (0.5) 3.2 1.6
------------------------------------------
Loss from continuing
operations before income
taxes, minority interest
and cumulative effect
of change in accounting
principle (61.4) (111.8) (116.8) (90.1) (104.4)
Income tax benefit
(expense) 0.4 (7.2) (3.5) 1.0 0.9
Minority interest -- -- -- 1.0 (0.7)
------------------------------------------
Loss from continuing
operations (61.0) (119.0) (120.3) (88.1) (104.2)
------------------------------------------
Discontinued operations
(Loss) gain on disposal
of assets -- -- -- (0.2) 8.1
------------------------------------------
(Loss) income from
discontinued
operations -- -- -- (0.2) 8.1
------------------------------------------
Cumulative effect
of change in accounting
principle -- -- -- (33.8) --
------------------------------------------
Net loss (61.0) (119.0) (120.3) (122.1) (96.1)
==========================================
Basic and diluted
loss from continuing
operations per share
(in Pounds) (0.19) (0.37) (0.37) (0.27) (0.32)
Basic and diluted
income from discontinued
operations per share
(in Pounds) -- -- -- -- 0.02
Basic and diluted
loss from cumulative
effect of change in
accounting principle
per share (in Pounds) -- -- -- (0.10) --
------------------------------------------
Basic and diluted net loss
per share (in Pounds) (0.19) (0.37) (0.37) (0.37) (0.30)
==========================================
Average number of shares
outstanding (in millions) 326.4 325.5 324.2 323.8 322.0
==========================================
ADDITIONAL QUARTERLY CONDENSED CASH FLOW INFORMATION
(in millions pounds) (unaudited)
Three months ended
------------------------------------
Sep 30, Jun 30, Mar 31,
2007 2007 2007
------------------------------------
Operating activities
Net loss (61.0) (119.0) (120.3)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and amortization 303.7 309.2 309.4
Non-cash compensation (0.2) 7.1 7.2
Share of income from equity
investments (3.3) (3.6) (5.6)
Deferred income taxes -- 7.2 5.5
Other 5.7 6.9 5.8
Changes in operating assets
and liabilities (21.2) (89.4) (96.0)
-----------------------------------
Net cash provided by
operating activities 223.7 118.4 106.0
-----------------------------------
Investing activities
Purchase of fixed and
intangible assets (137.8) (133.6) (152.6)
Income from equity investments 8.3 1.1 5.1
Acquisitions, net of cash acquired -- -- (1.0)
Other 4.3 1.5 0.6
-----------------------------------
Net cash used in investing
activities (125.2) (131.0) (147.9)
-----------------------------------
Financing activities
New borrowings, net of
financing fees -- 874.6 (0.1)
Principal payments on long
term debt and capital leases (12.1) (947.2) (7.5)
Proceeds from employee stock
option exercises 7.4 3.6 0.4
Dividends paid (6.5) (5.0) (3.3)
-----------------------------------
Net cash used in
financing activities (11.2) (74.0) (10.5)
-----------------------------------
Effect of exchange rate
changes on cash
and cash equivalents (0.4) (1.4) (1.0)
Increase (decrease) in cash
and cash equivalents 86.9 (88.0) (53.4)
Cash and cash equivalents,
beginning of period 277.1 365.1 418.5
-----------------------------------
Cash and cash equivalents,
end of period 364.0 277.1 365.1
===================================
Supplemental disclosure of
cash flow information
Cash paid during the period
for interest exclusive of
amounts capitalized 85.8 140.0 155.0
Non-cash interest
and amortization of deferred
financing costs for the period 42.1 (11.9) (36.5)
B) GROUP RESIDENTIAL OPERATIONS STATISTICS
(data in 000's)
Q3-07 Q2-07 Q1-07 Q4-06 Q3-06
--------------------------------------------------
Group RGUs
Opening RGUs 15,348.0 15,384.1 15,354.5 15,272.0 15,100.1
Data Cleanse (1) -- 4.2 -- -- --
Adjusted Opening
RGUs 15,348.0 15,388.3 15,354.5 15,272.0 15,100.1
Net RGU adds 172.9 (40.3) 29.6 82.5 171.9
--------------------------------------------------
Closing Group
RGUs 15,520.9 15,348.0 15,384.1 15,354.5 15,272.0
Group RGUs
Telephone
On-net 3,992.5 3,993.8 4,050.6 4,114.0 4,178.3
Off-net 90.5 75.5 65.1 44.5 43.4
--------------------------------------------------
4,083.0 4,069.3 4,115.7 4,158.5 4,221.7
On-net TV 3,417.0 3,396.6 3,390.0 3,353.9 3,315.4
On-net DTV 3,167.0 3,125.3 3,081.1 3,005.9 2,922.0
Broadband
On-net 3,307.7 3,191.9 3,146.4 3,058.5 2,980.4
Off-net 282.3 275.2 270.5 260.8 242.8
--------------------------------------------------
3,590.0 3,467.1 3,416.9 3,319.3 3,223.2
Mobile
Prepay 4,102.1 4,115.9 4,215.2 4,330.7 4,390.9
Contract 328.8 299.1 246.3 192.1 120.8
--------------------------------------------------
4,430.9 4,415.0 4,461.5 4,522.8 4,511.7
--------------------------------------------------
Total RGUs 15,520.9 15,348.0 15,384.1 15,354.5 15,272.0
Net RGU adds (1)
Telephone
On-net (1.3) (56.9) (63.4) (64.3) (54.6)
Off-net 15.0 10.4 20.6 1.1 (4.3)
--------------------------------------------------
13.7 (46.5) (42.8) (63.2) (58.9)
On-net TV 20.4 2.2 36.1 38.5 22.2
On-net DTV 41.7 40.0 75.2 83.9 85.8
Broadband
On-net 115.8 45.8 87.9 78.1 78.1
Off-net 7.1 4.7 9.7 18.0 7.8
--------------------------------------------------
122.9 50.5 97.6 96.1 85.9
Mobile
Prepay (13.8) (99.3) (115.5) (60.2) 98.1
Contract 29.7 52.8 54.2 71.3 24.6
--------------------------------------------------
15.9 (46.5) (61.3) 11.1 122.7
--------------------------------------------------
Total Net RGU adds 172.9 (40.3) 29.6 82.5 171.9
Note
(1) Data cleanse activity in Q2-07 resulted in an increase of
4,200 RGUs, comprised of an increase of approximately 4,400
Television and 100 Telephone RGUs and a decrease of
approximately 300 Broadband RGUs. Net RGU adds above exclude
the data cleanse increases/decrease.
RESIDENTIAL CABLE OPERATIONS STATISTICS (excluding Off-net and Mobile)
(data in 000's except percentages, RGU/Customer and ARPU)
Q3-07 Q2-07 Q1-07 Q4-06 Q3-06
--------------------------------------------------
Customers
Opening Customers 4,737.3 4,807.6 4,854.5 4,891.5 4,928.7
Gross customer adds 256.5 191.9 184.3 213.5 229.2
Total Customer
disconnections (243.5) (262.2) (231.2) (250.5) (266.5)
Net customer adds 13.0 (70.3) (46.9) (37.0) (37.3)
--------------------------------------------------
Closing Customers 4,750.3 4,737.3 4,807.6 4,854.5 4,891.5
Monthly customer
churn % 1.7% 1.8% 1.6% 1.7% 1.8%
Cable RGUs
Opening RGUs 10,582.3 10,587.0 10,526.4 10,474.1 10,428.4
Data Cleanse (1) -- 4.2 -- -- --
Adjusted Opening
RGUs 10,582.3 10,591.2 10,526.4 10,474.1 10,428.4
Net RGU adds 134.9 (8.9) 60.6 52.3 45.7
--------------------------------------------------
Closing RGUs 10,717.2 10,582.3 10,587.0 10,526.4 10,474.1
Net RGU Adds (1)
Telephone (1.3) (56.9) (63.4) (64.3) (54.6)
Television 20.4 2.2 36.1 38.5 22.2
DTV 41.7 40.0 75.2 83.9 85.8
Broadband 115.8 45.8 87.9 78.1 78.1
--------------------------------------------------
Total Net RGU Adds 134.9 (8.9) 60.6 52.3 45.7
Revenue Generating
Units (RGUs)
Telephone 3,992.5 3,993.8 4,050.6 4,114.0 4,178.3
Television 3,417.0 3,396.6 3,390.0 3,353.9 3,315.4
DTV 3,167.0 3,125.3 3,081.1 3,005.9 2,922.0
Broadband 3,307.7 3,191.9 3,146.4 3,058.5 2,980.4
--------------------------------------------------
Total RGUs 10,717.2 10,582.3 10,587.0 10,526.4 10,474.1
RGU / Customer 2.26 2.23 2.20 2.17 2.14
Bundled Customers
Dual RGU 1,506.0 1,563.0 1,657.7 1,725.7 1,798.3
Triple RGU 2,230.5 2,141.0 2,061.2 1,972.8 1,892.1
Percentage of dual
or triple RGUs 78.7% 78.2% 77.4% 76.2% 75.4%
Percentage of
triple RGUs 47.0% 45.2% 42.9% 40.6% 38.7%
Cable ARPU
(in Pounds) 41.55 42.16 42.75 42.82 42.48
ARPU calculation:
On-net revenues
(in Pounds) 590,500 603,100 620,000 626,700 625,400
Average customers 4,737.1 4,768.0 4,834.9 4,878.8 4,907.4
Homes Marketable
On-net (2)
Telephone 12,353.5 12,349.5 12,348.2 12,431.4 12,427.1
ATV 12,701.5 12,697.4 12,696.2 12,509.7 12,505.5
DTV 12,050.5 12,046.5 12,045.2 11,986.3 11,982.2
Broadband 11,807.0 11,803.0 11,801.7 11,819.6 11,815.4
Total homes 12,701.5 12,697.4 12,696.2 12,509.7 12,505.5
Penetration of Homes
Marketable On-net
Telephone 32.3% 32.3% 32.8% 33.1% 33.6%
Television - Total 26.9% 26.8% 26.7% 26.8% 26.5%
Television - DTV 26.3% 25.9% 25.6% 25.1% 24.4%
Broadband 28.0% 27.0% 26.7% 25.9% 25.2%
Total Customer 37.4% 37.3% 37.9% 38.8% 39.1%
Notes
(1) Data cleanse activity in Q2-07 did not result in a change
in customer numbers but did result in an increase of 4,200 RGUs
comprised of an increase of approximately 4,400 Television and
100 Telephone RGUs and a decrease of approximately 300
Broadband RGUs. Net RGU adds above exclude the data
cleanse increases/decrease.
(2) Homes marketable on-net represents management's estimate of
homes passed by our cable network that are capable of taking
our respective products.
CABLE SEGMENT OFF-NET OPERATIONS STATISTICS
(data in 000's)
Q3-07 Q2-07 Q1-07 Q4-06 Q3-06
-------------------------------------------
Off-net RGUs
Opening RGUs
Telephone (1) 75.5 65.1 44.5 43.4 47.7
Broadband 275.2 270.5 260.8 242.8 235.0
-------------------------------------------
350.7 335.6 305.3 286.2 282.7
Net RGU adds
Telephone (1) 15.0 10.4 20.6 1.1 (4.3)
Broadband 7.1 4.7 9.7 18.0 7.8
-------------------------------------------
22.1 15.1 30.3 19.1 3.5
Closing RGUs
Telephone (1) 90.5 75.5 65.1 44.5 43.4
Broadband 282.3 275.2 270.5 260.8 242.8
-------------------------------------------
372.8 350.7 335.6 305.3 286.2
Note
(1) Off-net Telephone RGUs in Q3-06 and Q4-06 have been restated
from previously reported numbers.
MOBILE OPERATIONS STATISTICS
(data in 000's except ARPU)
Q3-07 Q2-07 Q1-07 Q4-06 Q3-06
--------------------------------------------
Mobile Customers (1)
Opening Customers
Prepay 4,115.9 4,215.2 4,330.7 4,390.9 4,292.8
Contract 299.1 246.3 192.1 120.8 96.2
--------------------------------------------
4,415.0 4,461.5 4,522.8 4,511.7 4,389.0
Net customer adds
Prepay (13.8) (99.3) (115.5) (60.2) 98.1
Contract 29.7 52.8 54.2 71.3 24.6
--------------------------------------------
15.9 (46.5) (61.3) 11.1 122.7
Closing Mobile
Customers (1)
Prepay 4,102.1 4,115.9 4,215.2 4,330.7 4,390.9
Contract 328.8 299.1 246.3 192.1 120.8
--------------------------------------------
4,430.9 4,415.0 4,461.5 4,522.8 4,511.7
Mobile monthly ARPU
(in Pounds) (2) 11.11 10.70 10.07 10.59 10.28
ARPU calculation:
Service revenue
(in Pounds) 147,300 142,300 136,000 141,800 132,500
Average customers 4,417.9 4,434.7 4,499.3 4,465.4 4,294.8
Notes
(1) Mobile customer information is for active customers. Prepay
customers are defined as active customers if they have made an
outbound event in the preceding 90 days. Contract customers are
defined as active customers if they have been provisioned
and have not been disconnected.
(2) Mobile monthly ARPU is calculated on service revenue for the
period divided by the average number of active customers for
the period, divided by three.
C) SEGMENTAL ANALYSIS
(in millions pounds)
(unaudited)
Three months ended
--------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2007 2007 2007 2006 2006
--------------------------------------------
Revenue
Cable segment
Consumer 608.4 620.2 638.1 645.4 643.7
Business 160.1 155.9 163.1 169.0 162.3
--------------------------------------------
Total 768.5 776.1 801.2 814.4 806.0
Inter segment revenue (0.8) (1.0) (0.9) (1.2) (0.9)
--------------------------------------------
767.7 775.1 800.3 813.2 805.1
--------------------------------------------
Mobile segment
Virgin Mobile 158.7 146.3 141.0 151.4 140.4
Inter segment revenue -- -- -- 0.3 --
--------------------------------------------
158.7 146.3 141.0 151.7 140.4
--------------------------------------------
Content segment
Virgin Media TV 33.2 32.0 35.2 40.5 37.8
Sit-up 52.8 47.7 51.3 82.0 47.5
--------------------------------------------
Total 86.0 79.7 86.5 122.5 85.3
Inter segment revenue (6.2) (6.1) (5.9) (5.8) (5.9)
--------------------------------------------
79.8 73.6 80.6 116.7 79.4
--------------------------------------------
--------------------------------------------
Total revenue 1,006.2 995.0 1,021.9 1,081.6 1,024.9
--------------------------------------------
Segment OCF (1)
Cable segment OCF 303.5 282.5 266.8 296.8 296.3
Mobile segment OCF 31.5 32.7 26.7 14.2 16.0
Content segment OCF 6.5 0.1 12.2 2.0 5.5
--------------------------------------------
OCF (Total) 341.5 315.3 305.7 313.0 317.8
--------------------------------------------
Note:
(1) Segment OCF includes inter segment revenue and costs
as applicable. OCF (Total) is a non-GAAP financial measure - see
Appendix E.
D) FIXED ASSET ADDITIONS (ACCRUAL BASIS)
(in millions pounds) (unaudited)
Three months ended
--------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2007 2007 2007 2006 2006
--------------------------------------------
NCTA Fixed Asset
Additions
CPE 49.1 58.9 62.5 59.0 57.8
Scaleable infrastructure 28.4 35.7 33.5 44.9 45.0
Commercial 17.1 18.5 15.4 18.5 16.5
Line extensions 0.1 -- -- 0.9 1.3
Upgrade/rebuild 2.1 4.0 3.5 0.8 0.5
Support capital 25.1 29.6 38.0 49.5 18.0
--------------------------------------------
Total NCTA Fixed Asset
Additions 121.9 146.7 152.9 173.6 139.1
Non NCTA Fixed Asset
Additions 6.3 9.5 2.0 5.0 8.2
--------------------------------------------
Total Fixed Asset
Additions
(accrual basis) 128.2 156.2 154.9 178.6 147.3
Changes in liabilities
related to Fixed Asset
Additions (accrual basis) 9.6 (22.6) (2.3) (20.8) (13.7)
--------------------------------------------
Total Purchase of Fixed
Assets and Intangible
Assets 137.8 133.6 152.6 157.8 133.6
============================================
Comprising:
Purchase of Fixed Assets 137.7 133.5 151.0 147.8 133.6
Purchase of Intangible
Assets 0.1 0.1 1.6 10.0 --
--------------------------------------------
137.8 133.6 152.6 157.8 133.6
============================================
Note: Virgin Media is not a member of NCTA and is providing this
information solely for comparative purposes. Fixed Asset Additions
(accrual basis) are from continuing operations. See Appendix E for a
discussion of the use of Fixed Asset Additions (accrual basis) as a
non-GAAP financial measure and the reconciliation of Fixed Asset
Additions (accrual basis) to GAAP Purchase of Fixed Assets and
Purchase of Intangible Assets.
Certain NCTA Fixed Asset Additions have been reallocated for the
quarter ended September 30, 2006. Scaleable infrastructure and
Commercial figures for the quarter ended March 31, 2007 were
transposed and have been corrected above.
E) USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS TO GAAP
The presentation of this supplemental information is not meant
to be considered in isolation or as a substitute for other
measures of financial performance reported in accordance with
GAAP. These non-GAAP financial measures reflect an additional
way of viewing aspects of our operations that, when viewed with
our GAAP results and the accompanying reconciliations to
corresponding GAAP financial measures, provide a more complete
understanding of factors and trends affecting our business. We
encourage investors to review our financial statements and
publicly-filed reports in their entirety and to not rely on any
single financial measure.
(i) Operating income before depreciation, amortization and other
charges (OCF)
Operating income before depreciation, amortization and other
charges, which we refer to as OCF or OCF (Total), is not a
financial measure recognised under GAAP. OCF represents our
earnings before interest, taxes, depreciation and amortization,
other charges, share of income from equity investments, loss on
extinguishment of debt, loss on derivative instruments and
foreign currency transaction gains (losses). Our management,
including our chief executive officer, who is our chief operating
decision maker, considers OCF as an important indicator of our
operational strength and performance. OCF excludes the impact of
costs and expenses that do not directly affect our cash flows. Other
charges, including restructuring charges, are also excluded from
OCF as management believes they are not characteristic of our
underlying business operations. OCF is most directly comparable to
the GAAP financial measure operating income (loss). Some of the
significant limitations associated with the use of OCF as compared
to operating income (loss) are that OCF does not consider the amount
of required reinvestment in depreciable fixed assets and ignores
the impact on our results of operations of items that management
believes are not characteristic of our underlying business
operations.
We believe OCF is helpful for understanding our performance and
assessing our prospects for the future, and that it provides
useful supplemental information to investors. In particular,
this non-GAAP financial measure reflects an additional way of
viewing aspects of our operations that, when viewed with our GAAP
results and the reconciliation to operating income (loss) shown
below, provides a more complete understanding of factors and
trends affecting our business. Because GAAP financial measures
are not standardized, it may not be possible to compare OCF with
other companies' GAAP financial measures that have the same
or similar names.
Reconciliation of operating income before depreciation,
amortization and other charges (OCF) to GAAP operating income (loss)
(in millions pounds) (unaudited)
Three months ended
--------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2007 2007 2007 2006 2006
--------------------------------------------
Operating income
before depreciation,
amortization and other
charges (OCF) 341.5 315.3 305.7 313.0 317.8
Reconciling items
Depreciation and
amortization (303.7) (309.2) (309.4) (288.2) (296.5)
Other income (charges) 8.9 (3.1) (11.6) (15.6) (30.9)
--------------------------------------------
Operating income (loss) 46.7 3.0 (15.3) 9.2 (9.6)
============================================
(ii) Fixed Asset Additions (Accrual Basis)
Our primary measure of expenditures for fixed assets is Fixed
Asset Additions (Accrual Basis). Fixed Assets Additions (Accrual
Basis) is defined as the purchase of fixed assets and intangible
assets as measured on an accrual basis. Our business is
underpinned by significant investment in network infrastructure
and information technology. Our management therefore considers
Fixed Asset Additions (Accrual Basis) an important component in
evaluating our liquidity and financial condition since purchases
of fixed assets are a necessary component of ongoing operations.
Fixed Asset Additions (Accrual Basis) is most directly
comparable to the GAAP financial measures purchase of fixed
assets and purchase of intangible assets, as reported in the
Statement of Cash Flows. The significant limitations associated
with the use of Fixed Assets (Accrual Basis) as compared to
purchase of fixed assets and purchase of intangible assets is
that Fixed Asset Additions (Accrual Basis) excludes timing
differences from payments of liabilities related to purchase of
fixed assets and purchase of intangible assets. We exclude these
amounts from Fixed Asset Additions (Accrual Basis) because
timing differences from payments of liabilities are more related
to the cash management treasury function than to our management
of fixed asset purchases for long-term operational performance
and liquidity. We compensate for the limitation by separately
measuring and forecasting working capital.
Reconciliation of fixed asset additions (accrual basis) to GAAP
purchase of fixed assets and purchase of intangible assets
(in millions pounds) (unaudited)
Three months ended
--------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2007 2007 2007 2006 2006
------- ------- ------- ------- --------
Fixed asset additions
(accrual basis) 128.2 156.2 154.9 178.6 147.3
Changes in liabilities
related to fixed
asset additions
(accrual basis) 9.6 (22.6) (2.3) (20.8) (13.7)
------- ------- ------- ------- --------
Total Purchases of Fixed
Assets and Intangible
Assets 137.8 133.6 152.6 157.8 133.6
======= ======= ======= ======= ========
Comprising:
Purchase of fixed assets 137.7 133.5 151.0 147.8 133.6
Purchase of intangible
assets 0.1 0.1 1.6 10.0 --
------- ------- ------- ------- --------
137.8 133.6 152.6 157.8 133.6
======= ======= ======= ======= ========