LONDON, Aug. 8, 2007 (PRIME NEWSWIRE) -- Virgin Media Inc. (Nasdaq:VMED) announces results for the quarter ended June 30, 2007.
Quarterly highlights
-- Better than expected performance in TV of 2,200 net additions --
despite disruption caused by Sky basics dispute
-- On-net RGU per customer rises for 6th consecutive quarter
following merger
-- Broadband customers increase by 51,000 to reach 3.5m -- still the
UK's largest residential broadband provider
-- Virgin Mobile contract customers increased by 53,000 to 299,000
-- V+ households rise by 53,000 to 167,000
-- Triple play penetration up to 45.2% from 37.1% a year ago
-- OCF of 315.3m pounds (Q1-07: 305.7m pounds)
-- Operating income of 3.0m pounds (Q1-07: operating loss 15.3m
pounds)
Operational review
-- Transforming content offering
-- 6 Setanta Sports channels included in top tier basic TV
package
-- Virgin 1 to air in the Autumn on all multichannel TV
platforms
-- New Virgin Media sports broadband portal featuring exclusive
Premier League and Football League Internet clips
-- Strong VOD performance
-- 44% of digital TV base now use VOD on a monthly basis
-- 14 VOD monthly views per user, up 43% year-to-date
-- Working with BBC to become first TV platform to offer
iPlayer
-- Virgin Media portal 9th most visited UK site so far this year
(Comscore)
-- Completing upgrade of top broadband tier to 20Mb for all our
current 10Mb customers
-- Decisive action taken on fixed line telephony -- improving
subscriber trend throughout Q2
-- Developing new retail sales channels -- new deals with Carphone
Warehouse and Comet to sell our cable products
Steve Burch, Chief Executive Officer of Virgin Media, said: "The second quarter results show encouraging broadband and mobile contract growth, a resilient performance by our TV business and signs that our fixed line telephony business is starting to react to renewed management focus. The new partnership with Setanta, the planned launch of sports and entertainment channels and our growing VOD platform makes us the superior pay TV offering in the country. Along with our enhanced broadband portal, we have significantly improved our content offering; while improved product bundling and further merger benefits mean the cash outlook for the rest of the year and beyond remains strong."
Conference call details
There will be a conference call for analysts and investors today at 0900 EST/ 1400 UK time. Analysts and investors can dial in to the presentation by calling +1 617 213 8847 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, August 15, 2007. The dial-in replay number for the U.S. is: +1 617 801 6888 and the international dial-in replay number is: +44 (0) 20 7365 8427, passcode: 64045487.
Notes to the financial and operational results for the three months ended June 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.
Unless otherwise indicated, all historical references to mobile operational statistics including customer and subscriber figures are on a pro forma basis assuming the acquisition of Virgin Mobile occurred on January 1, 2006. Unless otherwise indicated, mobile customer information prior to acquisition has been taken, without adjustment, from Virgin Mobile's historical information.
No pro forma financial information has been presented in respect of the acquisition of Virgin Mobile, which closed on July 4, 2006.
SUMMARY FINANCIAL RESULTS (unaudited)
-------------------------------------
Q2 2007 Q1 2007 Q2 2006
------- ------- -------
(a) (a) (a)
Revenue
Cable
Consumer 619.3 637.3 644.7
Business 155.8 163.0 160.1
------- ------- -------
775.1 800.3 804.8
Mobile 146.3 141.0 --
Content 73.6 80.6 79.5
------- ------- -------
Total Revenue 995.0 1,021.9 884.3
OCF 315.3 305.7 293.3
Operating income/(loss) 3.0 (15.3) 6.3
GROUP OPERATIONS STATISTICS ('000s)
----------------------------------- Pro forma
(incl. Virgin
Mobile)
Q2 2007 Q1 2007 Q2 2006
-------- -------- --------
Group RGUs
On-net TV 3,396.6 3,390.0 3,293.1
On-net Digital TV 3,125.3 3,081.1 2,836.2
Broadband
On-net 3,191.9 3,146.4 2,902.3
Off-net 275.2 270.5 235.0
-------- -------- --------
3,467.1 3,416.9 3,137.3
Mobile
Prepay 4,115.9 4,215.2 4,292.8
Contract 299.1 246.3 96.2
-------- -------- --------
4,415.0 4,461.5 4,389.0
Telephone
On-net 3,993.8 4,050.6 4,233.0
Off-net 75.5 65.1 47.7
-------- -------- --------
4,069.3 4,115.7 4,280.7
-------- -------- --------
Total RGUs 15,348.0 15,384.1 15,100.1
======== ======== ========
Net RGU adds
On-net TV 2.2 36.1 8.3
On-net Digital TV 40.0 75.2 73.8
Broadband
On-net 45.8 87.9 104.9
Off-net 4.7 9.7 10.2
-------- -------- --------
50.5 97.6 115.1
Mobile
Prepay (99.3) (115.5) 61.4
Contract 52.8 54.2 3.9
-------- -------- --------
(46.5) (61.3) 65.3
Telephone
On-net (56.9) (63.4) (21.6)
Off-net 10.4 20.6 (5.5)
-------- -------- --------
(46.5) (42.8) (27.1)
Note
Data cleanse activity in Q2-07 resulted in an increase of 4,200 RGUs,
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.
(a) amounts are in millions of pounds sterling
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2007
TOTAL REVENUE
Total revenue in the second quarter was 995.0 million pounds (Q1 2007: 1,021.9m pounds). The majority of the decline from the previous quarter was due to a reduction in Cable segment revenue, as discussed below.
CABLE SEGMENT REVENUE
Consumer
Consumer revenue in the second quarter was 619.3 million pounds (Q1 2007: 637.3m pounds). The on-net customer base was 4.7 million at June 30, 2007, down 70,300 on the previous quarter. The revenue decline primarily reflected the net customer loss and a decrease in ARPU.
Customer losses included an estimated 40,000 due to the impact of Sky's removal of its basic channels from our platform on March 1, 2007. Losses were also affected by the loss of fixed line telephony subscribers.
RGU per customer grew to 2.23 from 2.20 in the quarter and triple play penetration increased to 45.2% from 42.9% reflecting our drive to encourage bundling and focus on better quality customers.
ARPU fell from 42.75 pounds to 42.16 pounds in the quarter, due mainly to a decline in telephony usage and use of retention discounts, which were partially offset by the increase in RGU per customer.
Gross customer additions in the second quarter were 191,900, up from 184,300 in the first quarter.
Churn in the second quarter was 1.8%, up from 1.6% in the previous quarter. Total gross disconnections of 262,200, were up 31,000 compared to the previous quarter due mainly to the impact of Sky's removal of its basic channels. We expect the churn impact from this issue to be largely contained within the second quarter. Without the impact of this issue, we estimate that churn would have been flat at 1.6%.
We continue to enhance our consumer propositions to exploit our unique quad-play capability, our state-of-the-art network and to differentiate our content offering.
We are significantly improving our content offering. We have announced an innovative and ground-breaking deal with Setanta to include, for no additional charge, six Setanta Sports channels in our basic XL package, which currently has 1.4 million subscribers. 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. We have an exclusive deal with Setanta to be the only basic package provider of their sports channels. We believe this additional sports content will be extremely compelling for existing and new TV subscribers and will help to further strengthen our platform and growth. It means that Virgin Media customers can receive all live Premier League football matches at a lower price point than through any of our competitors and will be able to receive all the live Premier League matches through one provider, Virgin Media, rather than needing separate contracts with Sky and Setanta.
We have also announced that we are working with Setanta to launch a new sports news channel, which will be included in all of our TV packages.
Our sports offerings are also being complemented by our Virgin Media broadband portal, which will have exclusive rights to offer near-live clips of all Premier League and Football League matches over the Internet. Access to the clips is free to all consumers at www.virginmedia.com, regardless of their existing TV and broadband platform. We will be using our branded portal to cross-promote our entire product range as well as grow advertising revenues. Our broadband portal is already the 9th most visited in the UK, based on research from Comscore.
We continue to build our Video On Demand ("VOD") offering which is available to all of our 3.1 million digital TV subscribers. Over 44% 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 are currently 13.7 compared to 9.6 at the start of the year. In the United States, Comcast, which has the largest VOD platform in the world and has been operating for several years, has around 70% of its customer base using VOD with 27 average views per month.
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 in the second half of the year 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.
In Autumn 2007, we will rebrand our current Freeview channel, Ftn, as Virgin 1 and increase its programming budget to acquire and commission the very best U.S. and UK programming. Our strategy is to maximize advertising revenues from the eight 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 heavy cross promotion and exclusive content to differentiate us from our competitors.
To maximize its reach, Virgin 1 will also be available on satellite as well as our own Virgin Media cable platform. Cable customers will enjoy the richest experience that integrates Virgin 1's linear offering with VOD channels and other innovative on-demand functionality.
An example of the strong programming is the hit drama 'The Riches'. The Riches stars Eddie Izzard and Minnie Driver, who has just been nominated for an Emmy award for her performance in this series. Virgin 1 will be the exclusive UK home of The Riches, which is on its second season in the U.S., and is set for a third.
Other recently acquired U.S. content for Virgin 1 includes the forthcoming blockbuster U.S. drama, 'The Sarah Connor Chronicles', inspired by 'The Terminator' movie franchise. Virgin 1 will also be the new home of the 'Star Trek' franchise -- from 'Star Trek: The Next Generation' all the way through to 'Star Trek: Enterprise', totaling 624 hours of science fiction programming.
We have continued to focus on marketing and developing our new Virgin Media brand and consumer acceptance continues to grow. We have sponsored the current "Big Brother" series and are also the main sponsors of the 2007 V Festival, a major UK music festival headlined by The Killers and The Foo Fighters.
We have significantly expanded our high street retail presence through direct and indirect channels. We have signed distribution deals to sell our consumer products in 780 Carphone Warehouse stores and 334 Comet stores. This is in addition to the existing agreement we have with the Dixons group and its 730 retail stores. We also added four new Virgin Media branded stores, to complement the three existing Virgin Mobile stores that are already successfully selling all of our consumer products.
Broadband
On-net broadband net additions in the quarter were 45,800, down from 87,900 in the previous quarter. Growth in the quarter was negatively affected by increased churn relating to the loss of the Sky basic channels. As stated above, we expect the churn impact from this issue to be largely contained within the second quarter.
Virgin Media now has 3.2 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 2,200 in the quarter, down from 36,100 in the previous quarter. Growth was affected by churn relating to the loss of Sky basic channels in March, with most of this churn occurring in April.
Despite the impact of the Sky basics dispute, digital TV net additions were 40,000, following net additions of 75,200 in the previous quarter.
We grew our V+ DVR subscriber base by 46% in the quarter, with net additions of 52,600. At the quarter end we had 166,800 V+ subscribers, representing 5.3% penetration of our digital television base.
Telephony
Telephony net subscriber losses in the quarter were 56,900, an improvement compared with 63,400 net losses in the first quarter, despite the impact of the Sky basics issue. Encouragingly, an improvement was seen as the quarter progressed, with only 7,200 telephony net disconnections in June.
Recent improvements are also 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 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 have rebalanced 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 16.2 million pounds (Q1 2007: 17.3m pounds). At the quarter-end, we had 275,200 off-net broadband subscribers, with growth of 4,700 in the quarter. We also added 10,400 off-net telephony subscribers during the quarter and now have a base of 75,500.
We have signed an agreement with Cable & Wireless to become our unbundled local loop (LLU) network provider on a wholesale basis, providing us with access to 4 million homes outside of our addressable areas. This will enable us to launch an IPTV (Internet Protocol Television) service including pay broadcast channels and VOD to customers outside of our cable areas on unbundled exchanges.
A key benefit from our off-net strategy will be our ability to offer a Virgin Media branded quad-play to the significant number of cable customers who churn because they are moving out of our addressable areas.
Business
Business revenue was 155.8 million pounds, down 7.2 million pounds compared to the previous quarter primarily due to a 4.1 million pound decline in wholesale revenues as anticipated in our first quarter earnings release and a decline of 2.9 million pounds in retail voice revenues. Underlying retail data growth of 1.4 million pounds was masked by a 1.5 million pound decline in LAN solutions revenue due to the timing of completion on our contract to install the LAN infrastructure for the Heathrow airport extension.
The decline in wholesale revenue related to the completion in the first quarter of the build of a Wide Transmission Network (WTN) for a wholesale mobile customer. We expect no further significant declines from this contract this year.
The majority of the revenue decline in the quarter related to lower margin products, and therefore the revenue decline was largely offset by a decline in costs.
CABLE SEGMENT OCF
Cable segment OCF in the quarter was 282.5 million pounds, up 15.7 million pounds compared to the previous quarter. This was due mainly to a reduction in branding and marketing spend following the extensive activities supporting the rebrand to Virgin Media in the first quarter.
We expect Cable segment OCF to grow in the second half of the year, partly due to a number of cost reduction initiatives as we continue to extract merger and integration synergies from the cable business.
We are also undertaking a number of initiatives for restructuring of our cost base, which should achieve further significant cost savings in 2008.
MOBILE SEGMENT
Mobile Revenue
Mobile revenue in the quarter was 146.3 million pounds (Q1 2007: 141.0m pounds), comprising 142.3 million pound service revenue (Q1 2007: 136.0m pounds) and 4.0 million pound equipment revenue (Q1 2007: 5.0m pounds). The service revenue improvement was due to an improved contract mix and an increase in mobile monthly ARPU.
We continued to grow the number of higher ARPU contract customers, with net additions of 52,800 in the quarter compared to 3,900 in the same quarter last year as reported by Virgin Mobile prior to its acquisition. This was largely driven by our cross-sell to Virgin Media cable customers with 52,400 sales during the quarter. The number of lower ARPU prepay customers fell by 99,300 during the quarter due mainly to our focus on high quality connections in preference to volume and continued up-selling of prepay customers to contract tariffs.
Overall mobile ARPU increased to 10.70 pounds in the second quarter (Q1 2007: 10.07 pounds) driven by the improved contract mix and higher prepay ARPU.
Mobile OCF
Mobile OCF was 32.7 million pounds in the quarter, up from 26.7 million pounds in the previous quarter. The increase was primarily due to the increase in mobile ARPU. We expect Mobile OCF to be considerably lower in the third quarter due to 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 73.6 million pounds (Q1 2007: 80.6m pounds), comprising 25.9 million pounds from VMtv and 47.7 million pounds from Sit-up. VMtv sells programming to the Virgin Media cable segment. As a result, for consolidation purposes, 6.1 million pounds of inter segment revenue has been eliminated.
VMtv revenue, after inter segment elimination, was down 3.4 million pounds from the previous quarter. This was mainly due to the non-recurrence of a one off sale of rights in the first quarter.
VMtv's channels, headed by LivingTV, grew the number of commercial impacts in the quarter to 7.2 million, an increase of 20% compared to the same quarter last year, reflecting the strong performance of its channels.
As stated above, in Autumn 2007, VMtv will rebrand its current Freeview channel, Ftn, as Virgin 1.
Sit-up revenue was 47.7 million pounds (Q1 2007: 51.3m pounds). Revenue was up 5.8% on the same quarter last year.
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 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. Its most popular channel, UKTV Gold, was the most popular basic pay TV channel in the country as measured by viewing share in the second quarter.
UKTV's total revenues were 49.5 million pounds in the second quarter, and 99.1 million pounds for the first half of the year, arising principally from subscription and advertising revenue.
Virgin Media accounts for its interest in UKTV under the equity method and recognized a share of net income of 5.4 million pounds in the second quarter and 12.5 million pounds for the first half 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 156.7 million pounds at June 30, 2007. This loan effectively acts as a revolving facility for UKTV. Virgin Media receives cash payments from UKTV in the form of dividends, interest payments, loan capital repayments and payments for consortium tax relief. These items totaled 11.2 million pounds in the quarter and 18.0 million pounds in the first half of the year.
Virgin Media's investment in UKTV is carried on the balance sheet at 376.4 million pounds, which includes the outstanding 156.7 million pound loan.
Content OCF
Content segment OCF in the quarter was 0.1 million pounds, down 12.1 million pounds from the prior quarter due mainly to the non-recurrence of a 7.9 million pound accrual reversal that occurred in the first quarter in relation to the settlement of a legal claim and higher programming costs.
OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION AND OTHER CHARGES (OCF)
OCF was 315.3 million pounds in the second quarter (Q1 2007: 305.7m pounds). The increase was due to the increases in Cable and Mobile OCF being partially offset by the decrease in Content OCF as discussed above. OCF was up 22.0 million pounds compared to the same quarter last year, due mainly to the acquisition of Virgin Mobile, offset by a decline in Content OCF.
OCF is expected to increase in the second half of the year mainly due to Cable segment cost reductions as discussed above.
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 3.0 million pounds (Q1 2007: 15.3m pounds loss) with the increase mainly due to increased OCF and lower other charges (which relate primarily to costs in connection with our restructuring programs initiated in respect of the merger with Telewest.) This also compares with operating income of 6.3 million pounds in the second quarter of 2006 with the decrease due mainly to higher depreciation and amortization in respect of our acquisition of Virgin Mobile, offset by increased OCF and lower other charges.
Net loss was 119.0 million pounds (Q1 2007: 120.3m pounds) and compares with a net loss of 195.8 million pounds in the second quarter of 2006. The decrease in net loss compared to the second quarter of 2006 is mainly due to the absence of foreign currency transaction losses on U.S. dollar hedging arrangements (offsetting gains were recorded as a component of equity during Q2 2006).
CAPITAL EXPENDITURE
Fixed asset additions (accrual basis) during the quarter were 156.2 million pounds, up 1.3 million pounds from the previous quarter.
Compared to the second quarter of 2006, fixed asset additions (accrual basis) were up 22.3 million pounds.
The total purchase of fixed assets and intangible assets was 133.6 million pounds in the quarter, compared to 152.6 million pounds in the previous quarter and 128.1 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 June 30, 2007, long term debt (net of current portion) was 6,063 million pounds. This consisted of 4,970 million pounds outstanding under our Senior Credit Facility, 1,013 million pounds of Senior Notes, and 80 million pounds of capital leases and other indebtedness. Cash and cash equivalents were 277 million pounds.
Cash interest paid (exclusive of amounts capitalized) was 140.0 million pounds in the quarter and 402.6 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
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 of pounds sterling, except share and per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
---------------- ------------------
2007 2006 2007 2006
------- ------- -------- --------
Revenue 995.0 884.3 2,016.9 1,495.7
Costs and expenses
Operating costs (exclusive
of depreciation shown
separately below) 435.1 367.5 884.4 622.4
Selling, general and
administrative expenses 244.6 223.5 511.5 381.6
Other charges 3.1 12.1 14.7 20.5
Depreciation 231.6 219.3 463.7 368.6
Amortization 77.6 55.6 154.9 92.4
------- ------- -------- --------
992.0 878.0 2,029.2 1,485.5
------- ------- -------- --------
Operating income (loss) 3.0 6.3 (12.3) 10.2
Other income (expense)
Interest income and other, net 7.8 8.6 14.8 17.2
Interest expense (128.1) (135.6) (246.6) (219.4)
Share of income from equity
investments 5.3 3.1 12.5 4.5
Foreign currency transaction
gains (losses) 2.3 (94.1) 5.6 (104.1)
Loss on extinguishment of debt (1.1) -- (1.1) (32.4)
(Losses) gains on derivative
instruments (1.0) 5.7 (1.5) (3.5)
------- ------- -------- --------
Loss before income taxes,
minority interest and cumulative
effect of change in accounting
principle (111.8) (206.0) (228.6) (327.5)
Income tax (expense) benefit (7.2) 9.9 (10.7) 9.9
Minority interest -- 0.3 -- 0.7
Cumulative effect of change in
accounting principle -- -- -- 1.2
------- ------- -------- --------
Net loss (119.0) (195.8) (239.3) (315.7)
======= ======= ======== ========
Basic and diluted net loss
per share (in pounds sterling) (0.37) (0.68) (0.74) (1.20)
======= ======= ======== ========
Dividends per share
(in U.S. Dollars) $ 0.03 $ 0.01 $ 0.05 $ 0.01
======= ======= ======== ========
Average number of shares
outstanding (in millions) 325.5 287.9 324.8 262.4
======= ======= ======== ========
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in millions of pounds sterling)
June 30, Dec 31,
2007 2006
-------- --------
(Unaudited) (See Note)
Assets
Current assets
Cash and cash equivalents 277.1 418.5
Restricted cash 5.9 6.0
Accounts receivable - trade, less
allowances for doubtful accounts of 32.4
(2007) and 51.8 (2006) 447.6 461.2
Inventory 80.5 65.3
Prepaid expenses and other current assets 125.2 87.4
-------- --------
Total current assets 936.3 1,038.4
Fixed assets, net 5,878.2 6,026.3
Goodwill and other indefinite-lived
intangible assets 2,509.1 2,516.5
Intangible assets, net 968.5 1,120.5
Equity investments 377.3 371.5
Other assets, net of accumulated amortization
of 33.5 (2007) and 21.8 (2006) 211.4 170.3
-------- --------
Total assets 10,880.8 11,243.5
======== ========
Liabilities and shareholders' equity
Current liabilities
Accounts payable 385.3 379.6
Accrued expenses and other current
liabilities 420.3 485.5
VAT and employee taxes payable 72.9 82.8
Restructuring liabilities 114.4 126.8
Interest payable 109.1 158.2
Deferred revenue 267.9 268.0
Current portion of long term debt 30.4 141.9
-------- --------
Total current liabilities 1,400.3 1,642.8
Long term debt, net of current portion 6,062.8 6,017.2
Deferred revenue and other long term
liabilities 287.1 276.2
Deferred income taxes 81.7 77.2
-------- --------
Total liabilities 7,831.9 8,013.4
-------- --------
Commitments and contingent liabilities
Shareholders' equity
Common stock - $.01 par value; authorized
1,000.0 and 1,000.0 (2007 and 2006) shares;
issued 327.7 (2007) and 326.4 (2006)
and outstanding 325.7 (2007) and 323.9
(2006) shares
Common stock 1.8 1.8
Additional paid-in capital 4,321.7 4,303.4
Accumulated other comprehensive income 164.1 116.0
Accumulated deficit (1,438.7) (1,191.1)
-------- --------
Total shareholders' equity 3,048.9 3,230.1
-------- --------
Total liabilities and shareholders' equity 10,880.8 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
(All amounts in millions of pounds sterling) (unaudited)
Six months ended
June 30,
--------------------
2007 2006
------- -------
Net cash provided by operating activities 224.4 243.8
------- -------
Investing activities
Purchase of fixed and intangible assets (286.2) (263.4)
Income from equity investments 6.2 13.6
Acquisitions, net of cash acquired (1.0) (2,013.7)
Other 2.1 5.1
------- -------
Net cash used in investing activities (278.9) (2,258.4)
------- -------
Financing activities
New borrowings, net of financing fees 874.5 6,665.8
Principal payments on long term debt and
capital leases (954.7) (4,963.5)
Proceeds from employee stock option
exercises 4.0 30.3
Dividends paid (8.3) (1.6)
------- -------
Net cash (used in) provided by financing
activities (84.5) 1,731.0
------- -------
Effect of exchange rate changes on cash and
cash equivalents (2.4) (9.9)
Decrease in cash and cash equivalents (141.4) (293.5)
Cash and cash equivalents, beginning of
period 418.5 735.2
------- -------
Cash and cash equivalents, end of period
277.1 441.7
======= =======
Supplemental disclosure of cash flow
information
Cash paid during the period for interest
exclusive of amounts capitalized 295.0 219.5
QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of pounds sterling, except share and per share data)
(unaudited)
Three months ended
-----------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2007 2007 2006 2006 2006
-----------------------------------------------
Revenue 995.0 1,021.9 1,081.6 1,024.9 884.3
Costs and expenses
Operating costs (ex-
clusive of deprecia-
tion shown separately
below) 435.1 449.3 510.4 440.0 367.5
Selling, general and
administrative
expenses 244.6 266.9 258.2 267.1 223.5
Other charges 3.1 11.6 15.6 30.9 12.1
Depreciation 231.6 232.1 207.9 222.6 219.3
Amortization 77.6 77.3 80.3 73.9 55.6
-----------------------------------------------
Total costs and
expenses 992.0 1,037.2 1,072.4 1,034.5 878.0
-----------------------------------------------
Operating income
(loss) 3.0 (15.3) 9.2 (9.6) 6.3
Other income (expense)
Interest income and
other, net 7.8 7.0 10.4 7.1 8.6
Interest expense (128.1) (118.5) (124.8) (113.2) (135.6)
Share of income from
equity investments 5.3 7.2 4.1 3.9 3.1
Foreign currency trans-
action gains (losses) 2.3 3.3 7.7 6.3 (94.1)
(Loss) gain on ex-
tinguishment of debt (1.1) -- 0.1 (0.5) --
(Losses) gains on
derivative instru-
ments (1.0) (0.5) 3.2 1.6 5.7
-----------------------------------------------
Loss from continuing
operations before
income taxes, minority
interest and cumulative
effect of change in
accounting principle (111.8) (116.8) (90.1) (104.4) (206.0)
Income tax (expense)
benefit (7.2) (3.5) 1.0 0.9 9.9
Minority interest -- -- 1.0 (0.7) 0.3
-----------------------------------------------
Loss from continuing
operations (119.0) (120.3) (88.1) (104.2) (195.8)
-----------------------------------------------
Discontinued operations
Income from discontinued
operations before
income taxes -- -- -- -- --
(Loss) gain on dis-
posal of assets -- -- (0.2) 8.1 --
Income tax expense -- -- -- -- --
-----------------------------------------------
Income from discon-
tinued operations -- -- (0.2) 8.1 --
-----------------------------------------------
Cumulative effect of
change in accounting
principle -- -- (33.8) -- --
-----------------------------------------------
Net loss (119.0) (120.3) (122.1) (96.1) (195.8)
===============================================
Basic and diluted loss
from continuing
operations per share
(in pounds sterling) (0.37) (0.37) (0.27) (0.32) (0.68)
Basic and diluted in-
come from discontinued
operations per share
(in pounds sterling) -- -- -- 0.02 --
Basic and diluted loss
from cumulative effect
of change in accounting
principle per share
(in pounds sterling) -- -- (0.10) -- --
-----------------------------------------------
Basic and diluted net
loss per share (in
pounds sterling) (0.37) (0.37) (0.37) (0.30) (0.68)
===============================================
Average number of
shares outstanding
(in millions) 325.5 324.2 323.8 322.0 287.9
===============================================
B) GROUP RESIDENTIAL OPERATIONS STATISTICS
(data in 000's)
Pro
Forma (1)
Q2-07 Q1-07 Q4-06 Q3-06 Q2-06
-----------------------------------------------------
Group RGUs
Opening
RGUs 15,384.1 15,354.5 15,272.0 15,100.1 15,007.4
Data
Cleanse (2) 4.2 -- -- -- (69.0)
Adjusted
Opening
RGUs 15,388.3 15,354.5 15,272.0 15,100.1 14,938.4
Net RGU
adds (40.3) 29.6 82.5 171.9 161.7
----------------------------------------------------
Closing Group
RGUs 15,348.0 15,384.1 15,354.5 15,272.0 15,100.1
Group RGUs
Telephone
On-net 3,993.8 4,050.6 4,114.0 4,178.3 4,233.0
Off-net 75.5 65.1 44.5 43.4 47.7
----------------------------------------------------
4,069.3 4,115.7 4,158.5 4,221.7 4,280.7
On-net TV 3,396.6 3,390.0 3,353.9 3,315.4 3,293.1
On-net
DTV 3,125.3 3,081.1 3,005.9 2,922.0 2,836.2
Broadband
On-net 3,191.9 3,146.4 3,058.5 2,980.4 2,902.3
Off-net 275.2 270.5 260.8 242.8 235.0
----------------------------------------------------
3,467.1 3,416.9 3,319.3 3,223.2 3,137.3
Mobile
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
----------------------------------------------------
Total RGUs 15,348.0 15,384.1 15,354.5 15,272.0 15,100.1
Net RGU adds (2)
Telephone
On-net (56.9) (63.4) (64.3) (54.6) (21.6)
Off-net 10.4 20.6 1.1 (4.3) (5.5)
----------------------------------------------------
(46.5) (42.8) (63.2) (58.9) (27.1)
On-net TV 2.2 36.1 38.5 22.2 8.3
On-net
DTV 40.0 75.2 83.9 85.8 73.8
Broadband
On-net 45.8 87.9 78.1 78.1 104.9
Off-net 4.7 9.7 18.0 7.8 10.2
----------------------------------------------------
50.5 97.6 96.1 85.9 115.1
Mobile
Prepay (99.3) (115.5) (60.2) 98.1 61.4
Contract 52.8 54.2 71.3 24.6 3.9
----------------------------------------------------
(46.5) (61.3) 11.1 122.7 65.3
----------------------------------------------------
Total Net
RGU adds (40.3) 29.6 82.5 171.9 161.7
Notes
(1) Subscriber information for Q2-06 is on a pro forma combined basis
assuming that the acquisition of Virgin Mobile had occurred on
January 1, 2006.
(2) Data cleanse activity in Q2-07 resulted in an increase of 4,200
RGUs, 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.
Data cleanse activity in Q2-06 resulted in a decrease of 69,000
RGUs, a decrease of approximately 13,500 Telephone, 24,400
Broadband and 31,100 TV RGUs. Data cleanse activity in Q2-06 is
a result of more closely aligning customer definitions between
old NTL and old Telewest together with the removal of
approximately 20,000 inactive backlog customers in old NTL.
RESIDENTIAL CABLE OPERATIONS STATISTICS
(excluding Off-net and Mobile)
(data in 000's except percentages, RGU/Customer and ARPU)
Q2-07 Q1-07 Q4-06 Q3-06 Q2-06
------------------------------------------------
Customers
Opening Customers 4,807.6 4,854.5 4,891.5 4,928.7 4,983.8
Data Cleanse (1) -- -- -- -- (36.2)
Adjusted Opening
Customers 4,807.6 4,854.5 4,891.5 4,928.7 4,947.6
Gross customer adds 191.9 184.3 213.5 229.2 192.3
Total Customer
disconnections (262.2) (231.2) (250.5) (266.5) (211.2)
Net customer adds (70.3) (46.9) (37.0) (37.3) (18.9)
------------------------------------------------
Closing Customers 4,737.3 4,807.6 4,854.5 4,891.5 4,928.7
Monthly customer
churn % 1.8% 1.6% 1.7% 1.8% 1.5%
Cable RGUs
Opening RGUs 10,587.0 10,526.4 10,474.1 10,428.4 10,405.7
Data Cleanse (1) 4.2 -- -- -- (69.0)
Adjusted Opening
RGUs 10,591.2 10,526.4 10,474.1 10,428.4 10,336.7
Net RGU adds (8.9) 60.6 52.3 45.7 91.7
------------------------------------------------
Closing RGUs 10,582.3 10,587.0 10,526.4 10,474.1 10,428.4
Net RGU Adds (1)
Telephone (56.9) (63.4) (64.3) (54.6) (21.6)
Television 2.2 36.1 38.5 22.2 8.3
DTV 40.0 75.2 83.9 85.8 73.8
Broadband 45.8 87.9 78.1 78.1 104.9
------------------------------------------------
Total Net RGU Adds (8.9) 60.6 52.3 45.7 91.7
Revenue Generating Units
(RGUs)
Telephone 3,993.8 4,050.6 4,114.0 4,178.3 4,233.0
Television 3,396.6 3,390.0 3,353.9 3,315.4 3,293.1
DTV 3,125.3 3,081.1 3,005.9 2,922.0 2,836.2
Broadband 3,191.9 3,146.4 3,058.5 2,980.4 2,902.3
------------------------------------------------
Total RGUs 10,582.3 10,587.0 10,526.4 10,474.1 10,428.4
RGU/Customer 2.23 2.20 2.17 2.14 2.12
Bundled Customers
Dual RGU 1,563.0 1,657.7 1,725.7 1,798.3 1,838.9
Triple RGU 2,141.0 2,061.2 1,972.8 1,892.1 1,830.4
Percentage of dual
or triple RGUs 78.2% 77.4% 76.2% 75.4% 74.4%
Percentage of
triple RGUs 45.2% 42.9% 40.6% 38.7% 37.1%
Cable ARPU (a) 42.16 42.75 42.82 42.48 42.21
ARPU calculation:
On-net revenues (a) 603,100 620,000 626,700 625,400 628,400
Average customers 4,768.0 4,834.9 4,878.8 4,907.4 4,962.3
Homes Marketable
On-net
Telephone 12,349.5 12,348.2 12,431.4 12,427.1 12,312.7
ATV 12,697.4 12,696.2 12,509.7 12,505.5 12,661.1
DTV 12,046.5 12,045.2 11,986.3 11,982.2 12,009.7
Broadband 11,803.0 11,801.7 11,819.6 11,815.4 11,766.2
Total homes 12,697.4 12,696.2 12,509.7 12,505.5 12,661.1
Penetration of Homes
Marketable On-net
Telephone 32.3% 32.8% 33.1% 33.6% 34.4%
Television - Total 26.8% 26.7% 26.8% 26.5% 26.0%
Television - DTV 25.9% 25.6% 25.1% 24.4% 23.6%
Broadband 27.0% 26.7% 25.9% 25.2% 24.7%
Total Customer 37.3% 37.9% 38.8% 39.1% 38.9%
Note
(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
comprising 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.
Data cleanse activity in Q2-06 resulted in a decrease of 36,200
customers and 69,000 RGUs, a decrease of approximately 13,500
Telephone, 24,400 Broadband and 31,100 TV RGUs. Data cleanse activity
in Q2-06 is a result of more closely aligning customer definitions
between old NTL and old Telewest together with the removal of
approximately 20,000 inactive backlog customers in old NTL.
(a) amounts in pounds sterling
CABLE SEGMENT OFF-NET OPERATIONS STATISTICS
(data in 000's)
Q2-07 Q1-07 Q4-06 Q3-06 Q2-06
------------------------------------------------
Off-net RGUs
Opening RGUs
Telephone (1) 65.1 44.5 43.4 47.7 53.2
Broadband 270.5 260.8 242.8 235.0 224.8
------------------------------------------------
335.6 305.3 286.2 282.7 278.0
Net RGU adds
Telephone (1) 10.4 20.6 1.1 (4.3) (5.5)
Broadband 4.7 9.7 18.0 7.8 10.2
------------------------------------------------
15.1 30.3 19.1 3.5 4.7
Closing 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
Note
(1) Off-net Telephone RGUs in Q2-06, Q3-06 and Q4-06 have been
restated from previously reported numbers.
MOBILE OPERATIONS STATISTICS
(data in 000's except ARPU)
Q2-07 Q1-07 Q4-06 Q3-06 Q2-06 (1)
------------------------------------------------
Mobile Customers (2)
Opening Customers
Prepay 4,215.2 4,330.7 4,390.9 4,292.8 4,231.4
Contract 246.3 192.1 120.8 96.2 92.3
------------------------------------------------
4,461.5 4,522.8 4,511.7 4,389.0 4,323.7
Net customer adds
Prepay (99.3) (115.5) (60.2) 98.1 61.4
Contract 52.8 54.2 71.3 24.6 3.9
------------------------------------------------
(46.5) (61.3) 11.1 122.7 65.3
Closing Mobile
Customers (2)
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
Mobile monthly
ARPU (in pounds
sterling) (3) 10.70 10.07 10.59 10.28
ARPU calculation:
Service revenue
(in pounds
sterling) 142,300 136,000 141,800 132,500
Average
customers 4,434.7 4,499.3 4,465.4 4,294.8
Notes
(1) Mobile customer information prior to acquisition has been taken,
without adjustment, from Virgin Mobile's historical information.
(2) 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.
(3) Mobile monthly ARPU is calculated on service revenue for the
periods since acquisition divided by the average number of active
customers for the periods since acquisition, divided by three.
C) SEGMENTAL ANALYSIS
(in millions of pounds sterling) (unaudited)
Three months ended
---------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2007 2007 2006 2006 2006
---------------------------------------------
Revenue
Cable segment
Consumer 620.2 638.1 645.4 643.7 645.1
Business 155.9 163.1 169.0 162.3 160.1
---------------------------------------------
Total 776.1 801.2 814.4 806.0 805.2
Inter segment revenue (1.0) (0.9) (1.2) (0.9) (0.4)
---------------------------------------------
775.1 800.3 813.2 805.1 804.8
---------------------------------------------
Mobile segment
Virgin Mobile 146.3 141.0 151.4 140.4 --
Inter segment revenue -- -- 0.3 -- --
---------------------------------------------
146.3 141.0 151.7 140.4 --
---------------------------------------------
Content segment
Virgin Media TV 32.0 35.2 40.5 37.8 40.1
Sit-up 47.7 51.3 82.0 47.5 45.1
---------------------------------------------
Total 79.7 86.5 122.5 85.3 85.2
Inter segment revenue (6.1) (5.9) (5.8) (5.9) (5.7)
---------------------------------------------
73.6 80.6 116.7 79.4 79.5
---------------------------------------------
---------------------------------------------
Total revenue 995.0 1,021.9 1,081.6 1,024.9 884.3
---------------------------------------------
Segment OCF (1)
Cable segment OCF 282.5 266.8 296.8 296.3 284.5
Mobile segment OCF 32.7 26.7 14.2 16.0 --
Content segment OCF 0.1 12.2 2.0 5.5 8.8
---------------------------------------------
OCF (Total) 315.3 305.7 313.0 317.8 293.3
---------------------------------------------
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 of pounds sterling)
(unaudited)
Three months ended
----------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2007 2007 2006 2006 2006
----------------------------------------------
NCTA Fixed Asset
Additions
CPE 58.9 62.5 59.0 57.8 48.6
Scaleable
infrastructure 35.7 33.5 44.9 45.0 46.0
Commercial 18.5 15.4 18.5 16.5 19.6
Line extensions 0.0 0.0 0.9 1.3 1.0
Upgrade/rebuild 4.0 3.5 0.8 0.5 1.3
Support capital 29.6 38.0 49.5 18.0 16.3
----------------------------------------------
Total NCTA Fixed Asset
Additions 146.7 152.9 173.6 139.1 132.8
Non NCTA Fixed Asset
Additions 9.5 2.0 5.0 8.2 1.1
----------------------------------------------
Total Fixed Asset
Additions (accrual
basis) 156.2 154.9 178.6 147.3 133.9
Changes in liabilities
related to Fixed Asset
Additions (accrual
basis) (22.6) (2.3) (20.8) (13.7) (5.8)
----------------------------------------------
Total Purchase of Fixed
Assets and Intangible
Assets 133.6 152.6 157.8 133.6 128.1
==============================================
Comprising:
Purchase of Fixed
Assets 133.5 151.0 147.8 133.6 128.1
Purchase of Intangible
Assets 0.1 1.6 10.0 -- --
----------------------------------------------
133.6 152.6 157.8 133.6 128.1
==============================================
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
quarters ended June 30 and September 30, 2006 and a correction to
March 31, 2007.
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 of pounds sterling) (unaudited)
Three months ended
-----------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2007 2007 2006 2006 2006
-----------------------------------------
Operating income before
depreciation, amortization
and other charges (OCF) 315.3 305.7 313.0 317.8 293.3
Reconciling items
Depreciation and
amortization (309.2) (309.4) (288.2) (296.5) (274.9)
Other charges (3.1) (11.6) (15.6) (30.9) (12.1)
------------------------------------------
Operating income (loss) 3.0 (15.3) 9.2 (9.6) 6.3
==========================================
(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 (Accruals 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 of pounds sterling)
(unaudited)
Three months ended
------------------------------------------
Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
2007 2007 2006 2006 2006
------ ------ ------ ------ ------
Fixed asset additions
(accrual basis) 156.2 154.9 178.6 147.3 133.9
Changes in liabilities
related to fixed asset
additions
(accrual basis) (22.6) (2.3) (20.8) (13.7) (5.8)
------ ------ ------ ------ ------
Total Purchases of
Fixed Assets and
Intangible Assets 133.6 152.6 157.8 133.6 128.1
====== ====== ====== ====== ======
Comprising:
Purchase of fixed
assets 133.5 151.0 147.8 133.6 128.1
Purchase of intangible
assets 0.1 1.6 10.0 -- --
------ ------ ------ ------ ------
133.6 152.6 157.8 133.6 128.1
====== ====== ====== ====== ======