**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended March 31, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**CommissionFile No. 000-50886**

**NTL INCORPORATED**

(Exact name of registrantas specified in its charter)

| **Delaware**                                  |   | **59-3778247**      |
|-----------------------------------------------|--------|---------------------|
| (State or other jurisdiction of incorporation |   | (I.R.S. Employer    |
| or organization)                              |   | Identification No.) |
| **909 Third Avenue,  Suite 2863**        |   | ** **          |
| **New York, New York**                        |   | **10022**           |
| (Address of principal executive offices)      |   | (Zip Code)          |

**(212) 906-8440**

(Registrant’s telephonenumber, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):**

| Large accelerated filer x | Accelerated filer o | Non-accelerated filer o |
|---------------------------|---------------------|-------------------------|

 

**Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes **o No x

APPLICABLE ONLY TO ISSUERSINVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by acourt. Yes x  No o

The number of shares outstanding of the registrant’scommon stock as of May 5, 2006 was 288,622,040.

 

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**NTL INCORPORATED**

**FORM 10-Q**

**QUARTER ENDED MARCH 31,2006**

**INDEX**
|                                                                                                             | ** ** | **Page** |
|-------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I. FINANCIAL INFORMATION                                                                          |       | 4        |   |
| Item 1. Financial Statements                                                                                |       | 4        |   |
| Condensed Consolidated  Balance Sheets—March 31, 2006 and December 31, 2005                  |       | 4        |   |
| Condensed Consolidated  Statements of Operations—Three months ended March 31, 2006 and 2005       |       | 5        |   |
| Condensed Consolidated  Statements of Cash Flows—Three months ended March 31, 2006 and 2005  |       | 6        |   |
| Notes to Condensed  Consolidated Financial Statements                                                       |       | 7        |   |
| Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations         |       | 21       |   |
| Item 3. Quantitative and  Qualitative Disclosures about Market Risk                                         |       | 35       |   |
| Item 4. Controls and Procedures                                                                             |       | 37       |   |
| PART II. OTHER INFORMATION                                                                             |       | 38       |   |
| Item 1. Legal Proceedings                                                                                   |       | 38       |   |
| Item 2. Unregistered Sales  of Equity Securities and Use of Proceeds                                        |       | 38       |   |
| Item 3. Defaults Upon Senior  Securities                                                                    |       | 38       |   |
| Item 4. Submission of  Matters to a Vote of Security Holders                                                |       | 38       |   |
| Item 5. Other Information                                                                                   |       | 38       |   |
| Item 6. Exhibits                                                                                            |       | 39       |   |
| SIGNATURES                                                                                                  |       | 40       |   |

 

2

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**“SafeHarbor” Statement under the Private Securities Litigation Reform Act of 1995:**

Variousstatements contained in this document constitute “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995. Words like “believe,” “anticipate,” “should,” “intend,” “plan,”“will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” andsimilar expressions identify these forward-looking statements, whichinvolve known and unknown risks, uncertainties and other factors that may causeour actual results, performance or achievements or industry results to bematerially different from those contemplated, projected, forecasted, estimatedor budgeted, whether expressed or implied, by these forward-lookingstatements. These factors include:

·       thefailure to obtain and retain expected synergies from the merger of the legacyNTL and Telewest businesses and from the proposed transaction with VirginMobile;

·       rates ofsuccess in executing, managing and integrating key acquisitions, including themerger with Telewest and the proposed transaction with Virgin Mobile;

·       theability to achieve business plans for the combined company;

·       theability to manage and maintain key customer relationships;

·       theability to fund debt service obligations through operating cash flow;

·       theability to obtain additional financing in the future and react to competitiveand technological changes;

·       theability to comply with restrictive covenants in NTL’s indebtedness agreements;

·       the abilityto control customer churn;

·       theability to compete with a range of other communications and content providers;

·       the effectof technological changes on NTL’s businesses;

·       thefunctionality or market acceptance of new products that NTL may introduce;

·       possiblelosses in revenues due to systems failures;

·       theability to maintain and upgrade NTL’s networks in a cost-effective and timelymanner;

·       thereliance on single-source suppliers for some equipment and software;

·       theability to provide attractive programming at a reasonable cost; and

·       the extentto which NTL’s future earnings will be sufficient to cover its fixed charges.

These and otherfactors are discussed in more detail under “Risk Factors” and elsewhere in our Form 10-Kthat was filed with the SEC on February 28, 2006 and the Form 10-Kof NTL Holdings Inc. that was filed with the SEC on March 1, 2006. Weassume no obligation to update our forward-looking statements to reflectactual results, changes in assumptions or changes in factors affecting thesestatements.

**NoteConcerning Effect of Merger**

On March 3, 2006, NTL Holdings Inc.(formerly known as NTL Incorporated) merged with a subsidiary of NTLIncorporated (formerly known as Telewest Global, Inc.). Because thistransaction is accounted for as a reverse acquisition, the financial statementsincluded in this Form 10-Q for the period through March 3, 2006are those of the corporation now known as NTL Holdings Inc. For the periodsince March 3, 2006 these financial statements reflect the acquisition ofTelewest Global, Inc. (“Telewest”). See note 1 to the financialstatements.

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**PART I—FINANCIALINFORMATION**

**ITEM 1.**                FINANCIALSTATEMENTS

**NTL INCORPORATEDCONDENSED CONSOLIDATED BALANCE SHEETS (in millions)**

| ** **                                                                                                        | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                        | ** ** | **(Unaudited)**          | ** ** | **(See Note)**         | ** ** |
| **Assets**                                                                                                        |       |                     |       |                        |       |   |   |   |   |
| Current assets                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                         |       |                     | £     | 518.3                       |       |   |   | £ | 735.2 |   |   |
| Restricted cash                                                                                                   |       |                     | 7.5        |                        |       |   | 3.4 |   |   |
| Marketable securities                                                                                             |       |                     | —     |                        |       |   | 96.9 |   |   |
| Accounts receivable—trade, less allowances for doubtful accounts of  £39.7 (2006) and £41.7 (2005) |       |                     | 344.5      |                        |       |   | 191.8 |   |   |
| Inventory for re-sale                                                                                             |       |                     | 9.1        |                        |       |   | — |   |   |
| Prepaid expenses and other current assets                                                                         |       |                     | 119.7      |                        |       |   | 112.4 |   |   |
| Total current assets                                                                                              |       |                     | 999.1      |                        |       |   | 1,139.7 |   |   |
| Fixed assets, net                                                                                                 |       |                     | 6,227.0    |                        |       |   | 3,294.9 |   |   |
| Goodwill                                                                                                          |       |                     | 1,350.5    |                        |       |   | — |   |   |
| Reorganization value in excess of amounts allocable to identifiable  assets                                       |       |                     | 193.0      |                        |       |   | 193.0 |   |   |
| Customer lists, net                                                                                               |       |                     | 1,017.2    |                        |       |   | 247.6 |   |   |
| Other intangible assets, net                                                                                      |       |                     | 71.2       |                        |       |   | 2.4 |   |   |
| Investments in and loans to affiliates, net                                                                       |       |                     | 370.5      |                        |       |   | — |   |   |
| Programming inventory                                                                                             |       |                     | 37.4       |                        |       |   | — |   |   |
| Other assets, net of accumulated amortization of £10.5 (2006) and  £32.2 (2005)                         |       |                     | 131.1      |                        |       |   | 110.9 |   |   |
| **Total assets**                                                                                                  |       |                     | £     | 10,397.0                    |       |   |   | £ | 4,988.5 |   |   |
| **Liabilities and  shareholders’ equity**                                                                    |       |                     |       |                        |       |   |   |   |   |
| Current liabilities                                                                                               |       |                     |       |                        |       |   |   |   |   |
| Accounts payable                                                                                                  |       |                     | £     | 309.4                       |       |   |   | £ | 176.9 |   |   |
| Accrued expenses and other current liabilities                                                                    |       |                     | 581.5      |                        |       |   | 291.1 |   |   |
| Interest payable                                                                                                  |       |                     | 56.7       |                        |       |   | 37.8 |   |   |
| Deferred revenue                                                                                                  |       |                     | 233.0      |                        |       |   | 103.2 |   |   |
| Current portion of long-term debt                                                                                 |       |                     | 53.5       |                        |       |   | 0.8 |   |   |
| Total current liabilities                                                                                         |       |                     | 1,234.1    |                        |       |   | 609.8 |   |   |
| Long-term debt, net of current portion                                                                            |       |                     | 5,849.9    |                        |       |   | 2,279.2 |   |   |
| Deferred revenue and other long-term liabilities                                                                  |       |                     | 169.1      |                        |       |   | 134.3 |   |   |
| Deferred income taxes                                                                                             |       |                     | 138.8      |                        |       |   | 9.2 |   |   |
| Minority interest                                                                                                 |       |                     | 0.6        |                        |       |   | 1.0 |   |   |
| Total liabilities                                                                                                 |       |                     | 7,392.5    |                        |       |   | 3,033.5 |   |   |
| Commitments and contingent  liabilities                                                                           |       |                     |       |                        |       |   |   |   |   |
| Shareholders’ equity                                                                                         |       |                     |       |                        |       |   |   |   |   |
| Common stock                                                                                                      |       |                     | 1.6        |                        |       |   | 1.2 |   |   |
| Additional paid-in capital                                                                                        |       |                     | 3,744.2    |                        |       |   | 2,671.0 |   |   |
| Treasury stock                                                                                                    |       |                     | —     |                        |       |   | (114.0 | ) |   |
| Accumulated other comprehensive income                                                                            |       |                     | 27.3       |                        |       |   | 45.5 |   |   |
| Accumulated deficit                                                                                               |       |                     | (768.6     | )                           |       |   | (648.7 | ) |   |
| Total shareholders’ equity                                                                                   |       |                     | 3,004.5    |                        |       |   | 1,955.0 |   |   |
| **Total liabilities and shareholders’ equity**                                                               |       |                     | £     | 10,397.0                    |       |   |   | £ | 4,988.5 |   |   |

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Note: The balancesheet at December 31, 2005 has been derived from the audited financialstatements at that date.

See accompanying notes.

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**NTL INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited) (in millions, except per share data)**

| ** **                                                                                                                           | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **Revenue**                                                                                                                          |       | £                                           | 611.4      |   | £ | 497.8 |   |
| **Costs and expenses**                                                                                                               |       |                                             |       |   |   |
| Operating costs (exclusive of depreciation shown  separately below)                                                                  |       | (254.9                                           | )          | (206.9 | ) |
| Selling, general and administrative expenses                                                                                         |       | (158.1                                           | )          | (119.8 | ) |
| Other charges                                                                                                                        |       | (8.4                                             | )          | (0.4 | ) |
| Depreciation                                                                                                                         |       | (149.3                                           | )          | (130.3 | ) |
| Amortization                                                                                                                         |       | (36.8                                            | )          | (27.4 | ) |
|                                                                                                                                 |       | (607.5                                           | )          | (484.8 | ) |
| **Operating  income**                                                                                                                |       | 3.9                                              |       | 13.0 |   |
| **Other income (expense)**                                                                                                           |       |                                             |       |   |   |
| Interest income and other, net                                                                                                       |       | 8.6                                              |       | 6.5 |   |
| Interest expense                                                                                                                     |       | (83.8                                            | )          | (70.1 | ) |
| Share of income from equity investments                                                                                              |       | 1.4                                              |       | — |   |
| Foreign currency transaction losses                                                                                                  |       | (10.0                                            | )          | (4.0 | ) |
| Loss on extinguishment of debt                                                                                                       |       | (32.4                                            | )          | — |   |
| Losses on derivative instruments                                                                                                     |       | (9.2                                             | )          | — |   |
| **Loss  from continuing operations before income taxes, minority interest and  cumulative effect of change in accounting principle** |       | (121.5                                           | )          | (54.6 | ) |
| Income tax  expense                                                                                                                  |       | —                                           |       | (11.3 | ) |
| Minority interest  income                                                                                                            |       | 0.4                                              |       | — |   |
| Cumulative effect  of change in accounting principle                                                                                 |       | 1.2                                              |       | — |   |
| Loss from continuing operations                                                                                                      |       | (119.9                                           | )          | (65.9 | ) |
| **Discontinued operations**                                                                                                          |       |                                             |       |   |   |
| Income from  discontinued operations before income taxes                                                                             |       | —                                           |       | 7.3 |   |
| Gain on disposal  of assets                                                                                                          |       | —                                           |       | 514.6 |   |
| Income tax  expense                                                                                                                  |       | —                                           |       | (0.2 | ) |
| **Income from discontinued operations**                                                                                              |       | —                                           |       | 521.7 |   |
| **Net  (loss) income**                                                                                                               |       | £                                           | (119.9     | ) | £ | 455.8 |   |
| **Basic and diluted (loss) from continuing  operations per share**                                                                   |       | £                                           | (0.51      | ) | £ | (0.30 | ) |
| **Basic  and diluted income from discontinued operations per share**                                                                 |       | £                                           | —     |   | £ | 2.41 |   |
| **Basic  and diluted net (loss) income per share**                                                                                   |       | £                                           | (0.51      | ) | £ | 2.11 |   |
| **Average number of shares  outstanding**                                                                                            |       | 236.5                                            |       | 216.5 |   |

 

See accompanying notes.

5

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**NTL INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) (in millions)**

| ** **                                                    | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **Net  cash provided by operating activities**                |       | £                                           | 207.3      |   | £ | 157.4 |   |
| **Investing activities**                                      |       |                                             |       |   |   |
| Purchase of fixed assets                                      |       | (135.3                                           | )          | (73.8 | ) |
| Investments in and loans to affiliates                        |       | 4.9                                              |       | — |   |
| Acquisition of subsidiaries, net of cash acquired             |       | (1,999.2                                         | )          | — |   |
| Proceeds from the sale of fixed assets                        |       | 0.7                                              |       | — |   |
| Decrease (increase) in restricted cash                        |       | 4.2                                              |       | (2.0 | ) |
| Proceeds from sale of broadcast operations, net               |       | —                                           |       | 1,221.4 |   |
| Net cash (used in) provided by investing activities           |       | (2,124.7                                         | )          | 1,145.6 |   |
| **Financing activities**                                      |       |                                             |       |   |   |
| Proceeds from employee stock option exercises                 |       | 27.2                                             |       | 0.4 |   |
| Purchase of stock                                             |       | —                                           |       | (69.2 | ) |
| New borrowings                                                |       | 5,000.0                                          |       | — |   |
| Principal payments on long-term debt                          |       | (3,241.3                                         | )          | (500.2 | ) |
| Financing fees                                                |       | (80.0                                            | )          | — |   |
| Net cash provided by (used in) financing activities           |       | 1,705.9                                          |       | (569.0 | ) |
| **Cash flow from discontinued  operations**                   |       |                                             |       |   |   |
| Net cash used by operating activities                         |       | —                                           |       | (6.0 | ) |
| Net cash used by investing activities                         |       | —                                           |       | (3.0 | ) |
| Net cash used in discontinued operations                      |       | —                                           |       | (9.0 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | (5.4                                             | )          | (7.4 | ) |
| (Decrease)  increase in cash and cash equivalents             |       | (216.9                                           | )          | 717.6 |   |
| Cash and cash  equivalents, beginning of period               |       | 735.2                                            |       | 125.2 |   |
| Cash and cash  equivalents, end of period                     |       | £                                           | 518.3      |   | £ | 842.8 |   |

 

See accompanying notes.

6

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**Note 1—Basisof Presentation**

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and with the rules and regulations of the Securities andExchange Commission. Accordingly, they do not include all of the informationand footnotes required by accounting principles generally accepted in theUnited States for complete financial statements. In the opinion of management,all adjustments (consisting of normal recurring accruals) considered necessaryfor a fair presentation have been included. Operating results for the threemonths ended March 31, 2006 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2006. For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the Annual Report on Form 10-K for NTL HoldingsInc. for the year ended December 31, 2005.

On March 3, 2006, NTL Holdings Inc. (“NTLHoldings”), formerly known as NTL Incorporated, merged with a subsidiary of NTLIncorporated (formerly known as Telewest Global, Inc, or “Telewest”). Themerger has been accounted for as a reverse acquisition in which NTL Holdings istreated as the accounting acquirer, primarily because NTL Holdings shareholdersowned approximately 75% of the common stock upon completion of the merger. Followingthe merger, Telewest changed its name to NTL Incorporated. As a result, thehistorical financial statements of NTL Holdings became the historical financialstatements of NTL Incorporated as of the completion of the merger. Therefore,the results for the quarter ended March 31, 2005 reflect the operationsand cash flows of NTL Holdings only and the balance sheet at December 31, 2005reflects the financial position of NTL Holdings only. The results of operationsand cash flows for Telewest, the acquired company for accounting purposes, areincluded in the consolidated financial statements from March 3, 2006, thedate on which the merger was completed.

Certain prior periodbalances have been reclassified to conform to the current period presentation.

**Note 2—Acquisitionsand Disposals**

*Reverse Acquisitionof Telewest*

On March 3, 2006 NTL Holdings (formerly known asNTL Incorporated) merged with a subsidiary of NTL Incorporated (formerly knownas Telewest) and the merger  has beenaccounted for as a reverse acquisition of Telewest using the purchase method.This merger created the UK’s largest provider of residential broadband and theUK’s leading provider of triple play services. In connection with thistransaction, Telewest changed its name to NTL Incorporated.

The total purchase price of approximately£3.5 billion includes cash of approximately £2.3 billion, common stockvalued at £1.1 billion, stock options with a fair value of£33.3 million and estimated direct transaction costs of£25.1 million. The average market price per share of common stock utilizedin determining the value of new common stock issued of £13.00 ($22.90) is basedon an average of the closing prices of Telewest common stock for a range oftrading days (September 29, September 30, October 3, October 4and October 5, 2005) around the announcement date of the proposed merger (October 3,2005). The cash payment of £2.3 billion was based on the redemption valueof $16.25 (£9.30) per share of Telewest redeemable common stock issued inexchange for Telewest common stock in the transaction and 246.0 millionshares of Telewest redeemable common stock so issued.

The outstanding options to purchase shares of NTLHoldings Inc. common stock were exchanged for options to purchase shares of NTLIncorporated new common stock with the same terms and conditions. 

7

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 2—Acquisitionsand Disposals (Continued)**

The outstanding options topurchase shares of Telewest common stock were converted into options topurchase shares of NTL Incorporated new common stock at an option pricecalculated in accordance with the formula in the merger agreement. Inaccordance with the terms of Telewest’s equity-based plans, a significantproportion of Telewest’s outstanding options that were granted prior to March 3,2006 vested upon completion of the merger. All vested and unvested options ofTelewest have been recorded at their fair value by using the Black-Scholesoption pricing model.

Basedon a preliminary independent valuation, which may change upon receipt of thefinal valuation, the total purchase price of approximately £3.5 billion hasbeen allocated as follows (in millions) (unaudited):

| ** ** | ** ** | **Acquisition  Date** | ** ** |
|------------|------------|-----------------------|------------|

| Cash and cash  equivalents, including restricted cash |   |   | £   | 303.1   |   |   |
|-------------------------------------------------------|--------|--------|----------|---------|--------|--------|
| Accounts  receivable                                  |   |   | 155.2    |    |   |
| Prepaid expenses  and other current assets            |   |   | 47.8     |    |   |
| Fixed assets                                          |   |   | 2,966.5  |    |   |
| Programming  inventory                                |   |   | 33.4     |    |   |
| Investments in  and loans to affiliates               |   |   | 374.9    |    |   |
| Amortizable  intangible assets:                       |   |   |     |    |   |
| Customer lists                                        |   |   | 804.8    |    |   |
| Trade names                                           |   |   | 16.3     |    |   |
| Licences                                              |   |   | 37.4     |    |   |
| Intangible assets  with indefinite lives:             |   |   |     |    |   |
| Goodwill                                              |   |   | 1,350.5  |    |   |
| Trade names                                           |   |   | 17.1     |    |   |
| Accounts payable                                      |   |   | (144.9   | )       |   |
| Long term debt,  including current portion            |   |   | (1,873.6 | )       |   |
| Other current  liabilities                            |   |   | (460.9   | )       |   |
| Other long-term  liabilities                          |   |   | (39.3    | )       |   |
| Deferred income  taxes                                |   |   | (129.5   | )       |   |
| Total purchase price                                  |   |   | £   | 3,458.8 |   |   |

 

The allocation of thepurchase price to assets acquired and liabilities assumed is preliminary,pending finalization of valuations performed by third party experts,finalization of management’s integration plan pertaining to the acquiredbusiness and completion of a review of certain historical matters.

*Amortizableintangible assets*

Of the total purchase price, approximately £858.5million has been allocated to amortizable intangible assets including customerlists, trade names and licenses. Customer lists represent existing contractsthat relate primarily to underlying customer relationships pertaining to theservices provided by Telewest. NTL expects to amortize the fair value of theseassets on a straight-line basis over weighted average estimated useful lives ofbetween 5 and 8 years.

8

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 2—Acquisitionsand Disposals (Continued)**

Trade names represent the Telewest and Blueyonderbrand names and the names of the Content segment’s TV channels. The fair valueof these assets was determined utilizing a relief from royalty method. Weexpect to amortize the fair value of these assets on a straight-line basis overweighted average estimated useful lives of between 1 and 9 years.

Licences representcontracts to broadcast television content over a digital broadcasting system inthe United Kingdom. The fair value of these contracts was determined utilizingthe income approach. NTL expects to amortize the fair value of these assets ona straight-line basis over a weighted average estimated useful life ofapproximately 4 years.

*Pro forma results*

The pro forma results for the three month period endedMarch 31, 2006 include the results of Telewest from January 1, 2006through March 3, 2006 (the acquisition date). The unaudited pro formafinancial information is not intended to represent or be indicative of theconsolidated results of operations or financial condition of NTL that wouldhave been reported had the acquisition been completed as of the datespresented, and should not be taken as representative of the future consolidatedresults of operations or financial condition of NTL.

The following pro formafinancial information presents the combined results of operations of NTL andTelewest as if the acquisition had occurred as of the beginning of the periodspresented (in millions, except per share data) (unaudited):

| ** **                                                                                                                       | ** ** | **Three months ended  March 31** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Revenue                                                                                                                          |       | £                                          | 888.8      |   | £ | 833.2 |   |
| Costs and expenses                                                                                                               |       |                                            |       |   |   |
| Operating costs (exclusive of depreciation shown  separately below)                                                              |       | (369.0                                          | )          | (327.5 | ) |
| Selling, general and administrative expenses                                                                                     |       | (242.8                                          | )          | (205.0 | ) |
| Other charges                                                                                                                    |       | (8.9                                            | )          | (0.4 | ) |
| Depreciation                                                                                                                     |       | (210.4                                          | )          | (220.0 | ) |
| Amortization                                                                                                                     |       | (58.6                                           | )          | (60.0 | ) |
|                                                                                                                             |       | (889.7                                          | )          | (812.9 | ) |
| Operating (loss) income                                                                                                          |       | (0.9                                            | )          | 20.3 |   |
| Loss from continuing operations before income taxes  and cumulative effect of change in accounting principle                     |       | (149.8                                          | )          | (146.2 | ) |
| Loss from continuing operations                                                                                                  |       | (147.4                                          | )          | (157.5 | ) |
| Discontinued operations:                                                                                                         |       |                                            |       |   |   |
| Income from discontinued operations                                                                                              |       | —                                          |       | 521.7 |   |
| Net (loss) income                                                                                                                |       | £                                          | (147.4     | ) | £ | 364.2 |   |
| (Loss) income from continuing operations before  income taxes and cumulative effect of change in accounting principle per  share |       | £                                          | (0.53      | ) | £ | (0.51 | ) |
| Net (loss) income per share                                                                                                      |       | £                                          | (0.52      | ) | £ | 1.28 |   |

 

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 2—Acquisitionsand Disposals (Continued)**

The pro forma financialinformation above includes the following material, non-recurring charges: write-offsof historical deferred finance charges of £32.4 million in the three monthsended March 31, 2006 and £57.8 million in the three months ended March 31,2005; acquisition-related charges of £16.3 million in the three monthsended March 31, 2006; other charges including restructuring charges, of£8.9 million in the three months ended March 31, 2006 and £0.4 millionin the three months ended March 31, 2005.

*Proposed Acquisition ofVirgin Mobile*

On April 4, 2006, we announced that we hadreached agreement with the independent board of directors of Virgin Mobile (UK)Holdings plc (“Virgin Mobile”) on the terms of a cash offer, with a sharealternative offer and a share and cash alternative offer, to be made by theCompany and one of its wholly-owned subsidiaries to acquire 100% of the sharesof Virgin Mobile (the “Offer”). Virgin Mobile is the largest mobile virtualnetwork operator in the United Kingdom, with 4.3 million customers.

Virgin Mobile shareholders may elect to receive, foreach share of Virgin Mobile, (a) £3.72 in cash, (b) 0.23245 shares ofour common stock, or (c) 0.18596 shares of our common stock plus £0.67 incash. Virgin Group Investments Limited and Virgin Entertainment InvestmentHoldings Ltd. have irrevocably agreed to elect alternative (c) above inrespect of Virgin Group’s aggregate beneficial interest in approximately 71.2%of Virgin Mobile’s shares. Other shareholders holding an additional 0.82% ofthe Company have also irrevocably agreed to accept the Offer.

We and Virgin Mobile intend to implement the Offerthrough a U.K. Scheme of Arrangement. A document outlining the terms of the Offerand the Scheme of Arrangement in greater detail was posted to Virgin Mobileshareholders on or around April 28, 2006. Virgin Mobile shareholders will beasked at a meeting of shareholders to approve the Scheme of Arrangement. Thecourt will then be asked to confirm the fairness of the Scheme. The transactiondoes not require approval by our shareholders.

We will finance the cash portion of the Offer(approximately £414 million, assuming that all of the shareholders other thanthose affiliated with the Virgin Group take cash), the refinancing of VirginMobile’s outstanding indebtedness (approximately £193 million as at September 30,2005) and transactional expenses through £475 million of additional bankborrowings committed under its existing facility and cash on hand.

We have also entered intoa trade mark license agreement with Virgin Enterprises Limited under which wewill be entitled to use certain Virgin trade marks within the United Kingdomand Ireland. The agreement is an exclusive license covering a number of aspectsof our consumer business, including the provision of communications services(such as internet, television, fixed line telephony, and upon the acquisitionof Virgin Mobile, mobile telephony), the acquisition and branding of sports,movie and other premium television content, and the branding and sale ofcertain communications equipment related to our consumer businesses, such as settop boxes and cable modems. The agreement provides for a royalty of 0.25% perannum of our revenue from the relevant businesses, subject to a minimum annualroyalty of £8.5 million (the royalty would have been approximately £9million based on combined historical NTL and Telewest 2005 revenues includingrevenue from Virgin Mobile and our subsidiary Virgin.Net). The agreementreplaces the existing license agreement under which our subsidiary Virgin.netis entitled to use the Virgin brand in relation to its internet business and,on the acquisition of Virgin Mobile, will replace 

10

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 2—Acquisitionsand Disposals (Continued)**

theexisting Virgin Mobile license agreement. The agreement has a term of 30 years,although we can terminate it after 10 years on one year’s notice, and it issubject to earlier termination by us in certain other 

circumstances, including (subject to specifiedpayments) a change of control. The agreement also entitles us to use acorporate name that includes the Virgin name. Under the U.K. Takeover Code, thelicense agreement is subject to approval by a majority of the shareholders ofVirgin Mobile other than those associated with affiliates of the Virgin Group.

*Disposal ofBroadcast and Ireland operations*

On December 1, 2004, we reached an agreement forthe sale of our broadcast operations. The sale completed on January 31,2005. The broadcast operations are accounted for as a discontinued operationand therefore, Broadcast’s results of operations have been removed from ourresults of continuing operations for the three months ended March 31,2005. The results of operations of Broadcast have been excluded from the componentsof “Loss from continuing operations” and shown under the caption “Income fromdiscontinued operations before income taxes” in the Statements of Operations.Upon the sale, we recorded a gain on disposal of £514.6 million.

On May 9, 2005, we sold our operations in theRepublic of Ireland, comprising all of the ordinary shares of ntlCommunications (Ireland) Limited and ntl Irish Networks Limited and certainadditional assets, to MS Irish Cable Holdings B.V., an affiliate of MorganStanley & Co. International Limited, for an aggregate purchase priceof €333.4 million,or £225.5 million. The Ireland operations are accounted for as adiscontinued operation and therefore, Ireland’s results of operations have beenremoved from our results of continuing operations for the three months ended March 31,2005. The results of operations of Ireland have been excluded from thecomponents of “Loss from continuing operations” and shown under the caption “Incomefrom discontinued operations before income taxes” in the Statements ofOperations.

As aresult of the sale of our broadcast and Ireland operations, we have accountedfor the broadcast and Ireland operations as discontinued operations in 2005. Theresults of operations for the broadcast and Ireland operations have beenexcluded from the components of loss from continuing operations and shown in aseparate caption, titled income from discontinued operations, and the assetsand liabilities of the broadcast and Ireland operations are reported as assetsheld for sale and liabilities of discontinued operations, respectively. Revenuefrom the broadcast operations reported in discontinued operations for the threemonths ended March 31, 2005 was £21.4 million. Pre-tax income frombroadcast operations, reported as pre-tax income from discontinued operations,for the three months ended March 31, 2005, was £4.1 million. Revenuefrom the Ireland operations reported in discontinued operations for the threemonths ended March 31, 2005 was £19.2 million. Pre-tax income from Irelandoperations, reported as pre-tax income from discontinued operations, forthe three months ended March 31, 2005 was £3.2 million.

11

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 3—Goodwill andIntangible Assets**

Goodwilland intangible assets consist of (in millions):

| ** **                                                                  | ** ** | **Estimated  Useful Life** | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **(Unaudited)**                 | ** ** |
| Goodwill and intangible  assets not subject to amortization:                |       |                            |       |                     |       |                        |       |   |   |   |   |
| Goodwill                                                                    |       |                            |       |                     | £     | 1,350.5                     |       |   |   | £ | — |   |   |
| Reorganization value in excess of amounts allocable  to identifiable assets |       |                            |       |                     | 193.0      |                        |       |   | 193.0 |   |   |
| Trade names                                                                 |       |                            |       |                     | 17.1       |                        |       |   | — |   |   |
|                                                                        |       |                            |       |                     | £     | 210.1                       |       |   |   | £ | 193.0 |   |   |
| Intangible assets  subject to amortization:                                 |       |                            |       |                     |       |                        |       |   |   |   |   |
| Costs                                                                       |       |                            |       |                     |       |                        |       |   |   |   |   |
| Trade names and licenses                                                    |       | 1 – 9  years               |       |                     | £     | 56.0                        |       |   |   | £ | 3.2 |   |   |
| Customer lists                                                              |       | 5 – 8  years               |       |                     | 1,365.9    |                        |       |   | 560.6 |   |   |
|                                                                        |       |                            |       |                     | 1,421.9    |                        |       |   | 563.8 |   |   |
| Accumulated  amortization                                                   |       |                            |       |                     |       |                        |       |   |   |   |   |
| Trade names and licenses                                                    |       |                            |       |                     | 1.9        |                        |       |   | 0.8 |   |   |
| Customer lists                                                              |       |                            |       |                     | 348.7      |                        |       |   | 313.0 |   |   |
|                                                                        |       |                            |       |                     | 350.6      |                        |       |   | 313.8 |   |   |
|                                                                        |       |                            |       |                     | £     | 1,071.3                     |       |   |   | £ | 250.0 |   |   |

 

Estimated aggregateamortization expense for each of the five succeeding fiscal years fromDecember 31, 2005 is as follows: £214.5 million in 2006, £234.0 million in2007, £162.8 million in 2008, £131.6 million in 2009 and £124.3 in 2010.

**Note 4—Long-TermDebt**

Long-termdebt consists of (in millions):

| ** **                             | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| 8.75% US Dollar  Senior Notes due 2014 |       |                     | £     | 244.4                       |       |   |   | £ | 247.3 |   |   |
| 9.75% Sterling  Senior Notes due 2014  |       |                     | 375.0      |                        |       |   | 375.0 |   |   |
| 8.75% Euro Senior  Notes due 2014      |       |                     | 157.0      |                        |       |   | 155.0 |   |   |
| Senior credit  facility                |       |                     | 3,200.0    |                        |       |   | 1,463.0 |   |   |
| Senior bridge  facility                |       |                     | 1,809.0    |                        |       |   | — |   |   |
| Capital leases                         |       |                     | 111.7      |                        |       |   | 38.2 |   |   |
| Other                                  |       |                     | 6.3        |                        |       |   | 1.5 |   |   |
|                                   |       |                     | 5,903.4    |                        |       |   | 2,280.0 |   |   |
| Less: current  portion                 |       |                     | (53.5      | )                           |       |   | (0.8 | ) |   |
|                                   |       |                     | £     | 5,849.9                     |       |   |   | £ | 2,279.2 |   |   |

 

12

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**(Continued)**

**Note 4—Long-Term Debt(Continued)**

Theeffective interest rates on the variable interest rate debt were as follows:

| ** **              | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Senior credit  facility |       |                     | 6.2        | %                           |       |   | 6.9 | % |   |
| Senior bridge facility  |       |                     | 10.8       | %                           |       |   | — |   |   |

 

On March 3, 2006 we prepaid £1,358.1 millionin respect of NTL Holding’s senior credit facility, £1,686.9 million in respectof Telewest’s existing senior credit facilities and £102.0 million in respectof Flextech’s senior credit facility. All of these facilities were repaid infull utilizing borrowings under our new senior credit facilities.

Our new senior credit facilities provide for a seniorsecured credit facility in an aggregate principal amount of £3,775 million,comprising a £3.2 billion 5-year amortizing Tranche A term loanfacility, a £175 million 5-year amortizing Tranche A-1 term loanfacility, a £300 million 6 1/2 year bullet Tranche B-1 term loanfacility, and a £100 million 5-yearmulticurrency revolving credit facility. Tranche A has been drawn in fullwhereas Tranches A-1 and B-1 remain undrawn as these tranches canonly be issued for purposes of financing the purchase price for ourpotential acquisition of Virgin Mobile.Wemust satisfy certain conditions precedent typical for a transaction of thistype in order to draw on these two tranches. We announced an offer on April 4,2006 to acquire all outstanding shares of Virgin Mobile through a U.K. schemeof arrangement but no assurances can be made that such offer will be successfulor that we will use these facilities to fund such offer.

Our bridge facilities comprise a 1-year(automatically extendable to a 10-year) senior subordinated bridgefacility in an aggregate principal amount of £1.8 billion made availableto one of our subsidiaries, Neptune Bridge Borrower LLC. This facility has beendrawn in full in the U.S. dollar equivalent of $3,146.4 million and theproceeds were used in connection with the reverse acquisition of Telewest.

The U.S. dollar-denominated8.75% senior notes due 2014, the sterling-denominated 9.75% senior notes due2014, and the euro-denominated 8.75% senior notes due 2014 were issued by NTLCable PLC on April 13, 2004.

**Note 5—EmployeeBenefit Plans**

Thecomponents of net periodic pension cost in the three months ended March 31,2006 and 2005 were as follows (in millions) (unaudited):

| ** **                      | ** ** | **Three months  ended  March 31,** | ** ** |
|---------------------------------|------------|----------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                     | ** ** | **2005** | ** ** |
| Service costs                   |       | £                                       | 0.7        |   | £ | 1.0 |   |
| Interest costs                  |       | 3.9                                          |       | 3.6 |   |
| Expected return  on plan assets |       | (4.2                                         | )          | (3.4 | ) |
| Settlements and  curtailments   |       | 0.3                                          |       | (0.1 | ) |
| Net periodic benefit  costs     |       | £                                       | 0.7        |   | £ | 1.1 |   |

 

13

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**(Continued)**

**Note 5—EmployeeBenefit Plans (Continued)**

***Employer Contributions***

We previously disclosed inour financial statements for the year ended December 31, 2005, that weexpected to contribute £2.2 million to our pension plans in 2006. For thethree months ended March 31, 2006 we contributed £0.5 million to ourpension plans. We anticipate contributing an additional £1.7 million tofund our pension plans in 2006 for a total of £2.2 million.

**Note 6—Other ChargesIncluding Restructuring Charges**

Other charges of £8.4 million for the threemonths ended March 31, 2006, relate to our historical restructuring programsand restructuring programs initiated in respect of the reverse acquisition of Telewest.As part of our integration with Telewest we are performing an internal reviewand have begun programs to drive efficiencies throughout the combinedorganization. Liabilities with respect to Telewest property lease exit costsand Telewest involuntary employee termination costs were recognized on thebalance sheet of the acquired entity in accordance with EITF 95-3 *“Recognition of Liabilities in Connection with Purchase Combinations”*.Liabilities with respect to NTL property exit costs and involutary employeetermination costs under the restructuring program are recorded in the periodthe liability is incurred or the plan is communicated to employees. As of March 31,2006, we have incurred £12.8 million, and we expect to incur a total ofapproximately £133 million, of costs to fully execute this program.

The following tablessummarize our historical restructuring provisions and the restructuringprovisions resulting from the reverse acquisition of Telewest at March 31,2006 (in millions) (unaudited):

| **Historical Restructuring Provisions** | ** ** | ** ** | ** ** | **Involuntary  Employee  Termination  and Related  Costs** | ** ** | **Lease  Exit  Costs** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|-----------|------------|
| Balance,  December 31, 2005                  |       |       | £     | —                                                          |       |                   | £     | 45.3      |       | £ | 45.3 |   |
| Charged to  expense                               |       |       | —     |                                                            |       | 1.1                    |       | 1.1       |       |
| Utilized                                          |       |       | —     |                                                            |       | (1.0                   | )          | (1.0      | )          |
| Balance, March 31,  2006                     |       |       | £     | —                                                          |       |                   | £     | 45.4      |       | £ | 45.4 |   |

 

| **Acquisition restructuring provisions**                         | ** ** | ** ** | ** ** | **Involuntary  Employee  Termination  and Related  Costs** | ** ** | **Lease  Exit  Costs** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|-----------|------------|
| Balance,  December 31, 2005                                           |       |       | £     | —                                                          |       |                   | £     | —    |       | £ | — |   |
| Provisions  resulting from business acquisition recognized under EITF 95-3 |       |       | 34.8       |                                                            |       | 33.2                   |       | 68.0      |       |
| Charged to  expense                                                        |       |       | 3.4        |                                                            |       | 3.9                    |       | 7.3       |       |
| Utilized                                                                   |       |       | (12.8      | )                                                               |       | —                 |       | (12.8     | )          |
| Balance, March 31,  2006                                              |       |       | £     | 25.4                                                            |       |                   | £     | 37.1      |       | £ | 62.5 |   |

 

14

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**(Continued)**

**Note 7—Stockholders’Equity and Share Based Compensation**

In connection with thereverse acquisition, each share of NTL Holdings Inc (formerly known as NTLIncorporated) common stock issued and outstanding immediately prior to the effectivetime of the acquisition was converted into the right to receive 2.5 sharesof NTL Incorporated new common stock. On March 3, 2006, we issued212,931,048 of common stock for this purpose. For accounting purposes, theacquisition of NTL Holdings Inc. has been treated as a reverse acquisition.Accordingly, the 212,931,048 shares issued to acquire NTL Holdings, Inc.have been treated as outstanding from January 1, 2004 (as adjusted forhistorical issuances and repurchases during the period from January 1,2004 to March 3, 2006). In addition, on March 3, 2006, each share ofTelewest Global Inc’s common stock issued and outstanding immediately prior tothe acquisition was converted into 0.2875 shares of NTL Incorporated new commonstock, (and redeemable stock that was redeemed). These 70,728,375 shares of NTLIncorporated new common stock have been treated as issued on the acquisitiondate.

In accordance with thepreceding paragraph, the outstanding shares as of December 31, 2005 andweighted average shares outstanding for the three months ended March 31,2005 were restated as follows (in millions):

*Outstanding shares:*

| ** **                                                                                                               | ** ** | **Number  of shares** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| December 31, 2005  outstanding shares as previously reported by NTL Holdings, (formerly known as  NTL Incorporated) |       |                       | 85.2       |   |   |
| Multiplied by share exchange  ratio in reverse acquisition                                                               |       |                       | 2.5        |   |   |
| Shares at  December 31, 2005 (after giving effect to reverse acquisition)                                           |       |                       | 212.9      |   |   |
| Effect of the reverse  acquisition—conversion of NTL Incorporated (formerly known as Telewest Global  Inc) shares   |       |                       | 70.7       |   |   |
| Issuances and purchases  during the period                                                                               |       |                       | 4.5        |   |   |
| March 31, 2006  outstanding shares                                                                                  |       |                       | 288.1      |   |   |

 

*For three months ended March 31, 2005;*

| Weighted average shares  outstanding as previously reported |   |   | 86.6  |   |   |
|-------------------------------------------------------------|--------|--------|-------|--------|--------|
| Share exchange ratio in  reverse acquisition                |   |   | 2.5   |   |   |
| Weighted average shares  outstanding , as restated          |   |   | 216.5 |   |   |

 

Asat March 31, 2006, we had authorized shares totaling one billion andissued and outstanding shares totaling 288.1 million.

15

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**(Continued)**

**Note 7—Stockholders’Equity and Share Based Compensation (Continued)**

Basic and diluted earnings per share is computed byrespectively dividing the loss from continuing operations, income fromdiscontinued operations and the net (loss) income by the weighted averagenumber of shares outstanding during the three months ended March 31, 2006and 2005. Outstanding warrants, options to purchase 38.5 million shares and 0.8 millionshares of restricted stock at March 31, 2006 are excluded from thecalculation of diluted earnings per share, since the inclusion of suchwarrants, options and shares is anti-dilutive. The average number of sharesoutstanding for the three months ended March 31, 2006 is computed asfollows (in millions):

| ** **                                       | ** ** | **Number of  Shares** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|
| Number of shares  outstanding at start of period |       |                       | 212.9      |   |   |
| Issues of common  stock                          |       |                       | 23.6       |   |   |
| Repurchase of  stock                             |       |                       | —     |   |   |
| Average shares  outstanding                      |       |                       | 236.5      |   |   |

 

The following tablesummarizes the activity of NTL Incorporated option plans for the 2006 interimperiod. All values are adjusted for the 2.5 conversion of shares on the reverseacquisition of Telewest.

| ** **                                  | ** ** | **Options to  purchase  common stock** | ** ** | **Weighted average  exercise price** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| Outstanding at  the beginning of the period |       |                                             | 7,756,241  |                                           |       |   | $ | 14.89 |   |   |
| Granted:                                    |       |                                             |       |                                           |       |   |   |   |   |
| As part of the purchase transaction         |       |                                             | 5,193,645  |                                           |       |   | $ | 14.17 |   |   |
| Other                                       |       |                                             | 4,234,394  |                                           |       |   | $ | 19.11 |   |   |
| Exercised                                   |       |                                             | (3,866,528 | )                                              |       |   | $ | 12.78 |   |   |
| Forfeited,  expired or cancelled            |       |                                             | (635,267   | )                                              |       |   | $ | 19.10 |   |   |
| Outstanding at  the end of the period       |       |                                             | 12,682,485 |                                           |       |   | $ | 16.44 |   |   |
| Exercisable at  the end of the period       |       |                                             | 4,141,340  |                                           |       |   | $ | 14.04 |   |   |

 

As disclosed in the 2005 Annual Report on Form 10-Kfor NTL Holdings, we adopted Statement of Financial Accounting Standards (SFAS)No. 123 (revised 2004), *Share-Based Payment*effective January 1, 2006. As a result, we have recorded a cumulativeeffect of a change in accounting principle of £1.2 million to reducecompensation expense recognized in previous periods.

Totalshare based compensation expense included in sales, general and administrativeexpenses in the statement of operations was £6.3 million and £3.0 millionfor the quarters ended March 31, 2006 and 2005, respectively.

16

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)**

**(Continued)**

**Note 7—Stockholders’Equity and Share Based Compensation (Continued)**

The following tablesummarizes the activity of NTL Incorporated restricted stock plans for the 2006interim period. All values are adjusted for the share exchange ratio of 2.5 onthe reverse acquisition of Telewest.

| ** **                                  | ** ** | **Common stock** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| Outstanding at  the beginning of the period |       |                  | 75,330     |   |   |
| Granted                                     |       |                  | 762,500    |   |   |
| Awards vested and  shares issued            |       |                  | (10,415    | ) |   |
| Forfeited,  expired or cancelled            |       |                  | —     |   |   |
| Outstanding at the end  of the period       |       |                  | 827,415    |   |   |

 

**Note 8—Comprehensive(Loss) Income**

Comprehensive(loss) income comprises (in millions) (unaudited):

|                                               | ** ** | **Three months  ended March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Net (loss) income  for period                 |       | £                                           | (119.9     | ) | £ | 455.8 |   |
| Currency  translation adjustment              |       | (17.0                                            | )          | (4.7 | ) |
| Net unrealized  (losses) gains on derivatives |       | (1.2                                             | )          | 7.6 |   |
| Comprehensive (loss)  income                  |       | £                                           | (138.1     | ) | £ | 458.7 |   |

 

Thecomponents of accumulated other comprehensive income, net of taxes, were asfollows (in millions) (unaudited);

|                                       | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Foreign currency  translation         |       |                     | £     | 47.5                        |       |   |   | £ | 64.5 |   |   |
| Pension liability  adjustments        |       |                     | (18.2      | )                           |       |   | (18.2 | ) |   |
| Net unrealized  losses on derivatives |       |                     | (2.0       | )                           |       |   | (0.8 | ) |   |
|                                  |       |                     | £     | 27.3                        |       |   |   | £ | 45.5 |   |   |

 

17

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 9—Income taxes**

At each period end, it isnecessary for us to make certain estimates and assumptions to compute theprovision for income taxes including, but not limited to the expected operatingincome (or loss) for the year, projections of the proportion of income (orloss) earned and taxed in the United Kingdom and the extent to which thisincome (or loss) may also be taxed in the United States, permanent andtemporary differences, the likelihood of deferred tax assets being recoveredand the outcome of contingent tax risks. At each interim period, managementuses the best information available to develop these estimates and assumptions,which are used to compute the forecast effective tax rate for the full yearwhich is applied in computing the income tax expense or benefit for the interimperiod. In accordance with generally accepted accounting principles, the impactof revisions to these estimates are recorded as income tax expense or benefitin the period in which they become known. Accordingly, the accounting estimatesused to compute the provision for income taxes have and will change as newevents occur, as more experience is acquired, as additional information isobtained and our tax environment changes. To the extent that the estimatechanges during a subsequent quarter the effect of the change on prior quartersas well as on the current quarter is included in income tax expense for thecurrent quarter.

**Note 10—Commitmentsand Contingent Liabilities**

At March 31,2006, we were committed to pay approximately £326.2 million for equipment andservices and for investments in and loans to affiliates. This amount includesapproximately £11.1 million for operations and maintenance contracts and othercommitments from April 1, 2007 to 2013. The aggregate amount of the fixedand determinable portion of these obligations for the succeeding five fiscal yearsis as follows (in millions) (unaudited):

| Year ended March 31 |   |   |   |
|------------------------------------|--------|--------|--------|
| 2007                               |   | £ | 315.1  |   |
| 2008                               |   | 8.5    |   |
| 2009                               |   | 2.6    |   |
| 2010                               |   | — |   |
| 2011                               |   | — |   |
| Thereafter                         |   | — |   |
|                               |   | £ | 326.2  |   |

 

We are involved in certain disputes and litigationarising in the ordinary course of our business. None of these matters areexpected to have a material adverse effect on our financial position, results ofoperations or cash flows.

18

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 10—Commitments and Contingent Liabilities(Continued)**

Our banks have providedguarantees in the form of performance bonds on our behalf as part of ourcontractual obligations. The fair value of the guarantees has been calculatedby reference to the monetary value for each performance bond. The amount ofcommitment expires over the following periods (in millions) (unaudited):

| Year ended March 31 |   |   |   |
|------------------------------------|--------|--------|--------|
| 2007                               |   | £ | 15.4   |   |
| 2008                               |   | 1.5    |   |
| 2009                               |   | — |   |
| 2010                               |   | — |   |
| 2011                               |   | — |   |
| Thereafter                         |   | 8.5    |   |
|                               |   | £ | 25.4   |   |

 

**Note 11—Recent AccountingPronouncements**

In May 2005,the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards (“SFAS”) No. 154,*Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20and FASB Statement No. 3*. SFAS 154 replaces AccountingPrinciples Board (“APB”) Opinion No. 20,*Accounting Changes*, and SFAS 3,*Reporting Accounting Changes in Interim Financial Statements*, andchanges the requirements for the accounting for, and reporting of, a change inaccounting principle. This statement carries forward without change theguidance contained in Opinion 20 for reporting the correction of an error inpreviously issued financial statements and a change in accounting estimate.SFAS 154 is effective for accounting changes and corrections of errors infiscal years beginning after December 31, 2005. Early adoption ispermitted for accounting changes and corrections of errors made in fiscal yearsbeginning after the date SFAS 154 is issued. The adoption of SFAS 154 did nothave a material impact on our consolidated financial statements.

**Note 12—SegmentInformation**

Our reportable segments are based on our method ofinternal reporting. Our primary business segment is our Cable segment, whichconsists of our television, broadband and telephony business. We also operate aContent segment through our wholly owned subsidiaries Flextech Limited (“Flextech’’)and sit-up Limited (“sit-up”), which supply TV programming to the UKpay-television broadcasting market including our televised shopping unit sit-upTV, which markets and retails a wide variety of consumer products using anauction-based format. Our segments operate entirely in the United Kingdom andno one customer represents more than 5% of our overall revenue.

Segment operating income before depreciation,amortization and other charges, which we refer to as Segment OCF ismanagement’s measured segment profit as permitted under SFAS 131, *“Disclosures about Segments of an Enterprise and Related Information”.*Our management, including our chief executive officer who is our chiefoperating decision maker, considers Segment OCF as an important indicator of theoperational strength and performance of our segments. Segment OCF excludes theimpact of costs and expenses that do not directly affect our cash flows. Othercharges, including restructuring charges, are also 

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**NTL INCORPORATED**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)**

**Note 12—SegmentInformation (Continued)**

excluded from Segment OCFas management believes they are not characteristic of our underlying businessoperations.

Segmentinformation for the three month periods ended March 31, 2006 is as follows(in millions) (unaudited):

|                                               | ** ** | **Three months ended March 31, 2006** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Cable**                                                      | ** ** | **Content** | ** ** | **Elims.** | ** ** | **Total** | ** ** |
| Revenue                                       |       | £                                                         | 584.2      |   |   | £ | 27.2 |   |   |   | £ | — |   |   | £ | 611.4 |   |
| Inter segment  revenue                        |       | 0.3                                                            |       |   | 1.8 |   |   |   | (2.1 | ) |   | — |   |
| Operating costs                               |       | (237.6                                                         | )          |   | (19.1 | ) |   |   | 1.8 |   |   | (254.9 | ) |
| Selling, general  and administrative expenses |       | (151.5                                                         | )          |   | (6.9 | ) |   |   | 0.3 |   |   | (158.1 | ) |
| Segment OCF                                   |       | 195.4                                                          |       |   | 3.0 |   |   |   | — |   |   | 198.4 |   |
| Depreciation,  amortization and other charges |       | (193.0                                                         | )          |   | (1.5 | ) |   |   | — |   |   | (194.5 | ) |
| Operating income                              |       | £                                                         | 2.4        |   |   | £ | 1.5 |   |   |   | £ | — |   |   | £ | 3.9 |   |
| Identifiable assets                           |       | £                                                         | 9,612.1    |   |   | £ | 784.9 |   |   |   | £ | — |   |   | £ | 10,397.0 |   |

 

In 2005, the Company did not have any operations inthe Content segment and all of its operations related to the Cable segment.

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**ITEM2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*The following discussion should be read in conjunctionwith the Condensed Consolidated Financial Statements and related notes thatappear elsewhere in this document.*

**OVERVIEW**

We are one of the leading communications and contentdistribution companies in the United Kingdom (U.K.), providing internetaccess, telephone and television services to 5.0 million residential on-netcustomers, including 2.8 million broadband customers. We also provideinternet and telephone services to our residential customers who are notconnected to our cable network via access to other companies’telecommunications networks and via an internet service provider operated byour subsidiary, Virgin Net Limited. We offer what we refer to as a “triple play”bundle of internet, telephone and television services through competitivelypriced bundled packages. We also provide a range of voice services tobusinesses and public sector organizations, as well as a variety of datacommunications solutions from high speed internet access to fully managedbusiness communications networks and communication transport services. Theseservices are delivered through our wholly owned local access communications networkpassing approximately 12.7 million homes in the U.K. The design andcapability of our network provides us with the ability to offer “triple play”bundled services to residential customers and a broad portfolio of reliable,competitive communications solutions to business customers.

Through our wholly ownedsubsidiaries, Flextech Limited, (“Flextech”) and sit-up Limited (“sit-up”), weprovide basic television channels and related services to the U.K.multi-channel broadcasting market and a wide variety of consumer products bymeans of sit-up’s auction based shopping channels.

***Acquisitions and Disposals***

*Reverse Acquisitionof Telewest*

On March 3, 2006 NTL Holdings Inc. (formerlyknown as NTL Incorporated) merged with a subsidiary of NTL Incorporated(formerly known as Telewest Global, Inc. or Telewest) and the merger hasbeen accounted for as a reverse acquisition of Telewest using the purchasemethod. This merger created the U.K.’s largest provider of residential broadbandand triple play services. In connection with this transaction, Telewest changedits name to NTL Incorporated.

The total purchase price of approximately£3.5 billion includes cash of approximately £2.3 billion, commonstock valued at £1.1 billion, stock options with a fair value of£33.3 million and estimated direct transaction costs of£25.1 million. The average market price per share of common stock utilizedin determining the value of new common stock issued of £13.00 ($22.90) is basedon an average of the closing prices of Telewest common stock for a range oftrading days (September 29, September 30, October 3, October 4and October 5, 2005) around the announcement date of the proposed merger (October 3,2005). The cash payment of £2.3 billion was based on the redemption valueof $16.25 (£9.30) per share of Telewest redeemable common stock issued inexchange for Telewest common stock in the transaction and 246.0 millionshares of Telewest redeemable common stock so issued.

The outstanding options topurchase shares of NTL Holdings Inc. common stock were exchanged for options topurchase shares of NTL Incorporated new common stock with the same terms andconditions. The outstanding options to purchase shares of Telewest common stockwere converted into options to purchase shares of NTL Incorporated new commonstock at an option price calculated in accordance with the formula in themerger agreement. In accordance with the terms of Telewest’s equity-basedplans, a significant proportion of Telewest’s outstanding options that weregranted prior to March 3, 2006 vested 

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uponcompletion of the merger. All vested and unvested options of Telewest have beenrecorded at their fair value by using the Black-Scholes option pricing model.

*ProposedAcquisition of Virgin Mobile*

On April 4, 2006, we announced that we hadreached agreement with the independent board of directors of Virgin Mobile (UK)Holdings plc (“Virgin Mobile”) on the terms of a cash offer, with a sharealternative offer and a share and cash alternative offer, to be made by us andone of our wholly-owned subsidiaries to acquire 100% of the shares of VirginMobile (the “Offer”). Virgin Mobile is the largest mobile virtual networkoperator in the United Kingdom, with 4.3 million customers.

Virgin Mobile shareholders may elect to receive, foreach share of Virgin Mobile, (a) £3.72 in cash, (b) 0.23245 shares ofour common stock, or (c) 0.18596 shares of our common stock plus £0.67 incash. Virgin Group Investments Limited and Virgin Entertainment InvestmentHoldings Ltd. have irrevocably agreed to elect alternative (c) above inrespect of Virgin Group’s aggregate beneficial interest in approximately 71.2%of Virgin Mobile’s shares. Other shareholders holding an additional 0.82% ofthe Company have also irrevocably agreed to accept the Offer.

We and Virgin Mobile intend to implement the Offerthrough a U.K. Scheme of Arrangement. A document outlining the terms of the Offerand the Scheme of Arrangement was posted to Virgin Mobile shareholders on oraround April 28, 2006. Virgin Mobile shareholders will be asked at ameeting of shareholders to approve the Scheme of Arrangement. The court willthen be asked to confirm the fairness of the Scheme. The transaction does notrequire approval by our shareholders.

We will finance the cash portion of the Offer(approximately £414 million, assuming that all of the shareholders other thanthose affiliated with the Virgin Group take cash), the refinancing of VirginMobile’s outstanding indebtedness (approximately £193 million as at September 30,2005) and transactional expenses through £475 million of additional bankborrowings committed under its existing facility and cash on hand.

We have also entered intoa trademark license agreement with Virgin Enterprises Limited under which wewill be entitled to use certain Virgin trade marks within the United Kingdomand Ireland. The agreement is an exclusive license covering a number of aspectsof our consumer business, including the provision of communications services(such as internet, television, fixed line telephony, and upon the acquisitionof Virgin Mobile, mobile telephony), the acquisition and branding of sports,movie and other premium television content, and the branding and sale ofcertain communications equipment related to our consumer businesses, such asset top boxes and cable modems. The agreement provides for a royalty of 0.25%per annum of our revenue from the relevant businesses, subject to a minimumannual royalty of £8.5 million (the royalty would have been approximately £9million based on combined historical NTL and Telewest 2005 revenues including revenuefrom Virgin Mobile and our subsidiary Virgin.Net). The agreement replaces the existinglicense agreement under which our subsidiary Virgin.net is entitled to use theVirgin brand in relation to its internet business and, on the acquisition ofVirgin Mobile, will replace the existing Virgin Mobile license agreement. Theagreement has a term of 30 years, although we can terminate it after 10 yearson one year’s notice, and it is subject to earlier termination by us in certainother circumstances, including (subject to specified payments) a change ofcontrol. The agreement also entitles us to use a corporate name that includesthe Virgin name. Under the U.K. Takeover Code, the license agreement is subjectto approval by a majority of the shareholders of Virgin Mobile other than thoseassociated with affiliates of the Virgin Group.

*Sale of Broadcastand Irish Operations*

On January 31, 2005, we sold our broadcastoperations, a provider of commercial television and radio transmissionservices, to a consortium led by Macquarie Communications Infrastructure Group.The cash 

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proceeds from the salewere approximately £1.3 billion. Our broadcast operations provided siteleasing, broadcast transmission, satellite, media, public safety communicationsand other network services, utilizing broadcast transmission infrastructure,wireless communications and other facilities.

On May 9, 2005, we sold our telecommunicationsoperations in the Republic of Ireland to MS Irish Cable Holdings B.V., anaffiliate of Morgan Stanley, for an aggregate purchase price of €333.4 million,or £225.5 million.

As a result of the sale ofour broadcast and Ireland operations, we have accounted for the broadcast andIreland operations as discontinued operations in 2005. Financial informationfor prior periods presented in this report is restated accordingly. The resultsof operations for the broadcast and Ireland operations have been excluded fromthe components of loss from continuing operations and shown in a separatecaption, titled income from discontinued operations, and the assets andliabilities of the broadcast and Ireland operations are reported as assets heldfor sale and liabilities of discontinued operations, respectively. Revenue fromthe broadcast operations reported in discontinued operations for the threemonths ended March 31, 2005 was £21.4 million. Pre-tax income frombroadcast operations, reported as pre-tax income from discontinued operations,for the three months ended March 31, 2005, was £4.1 million. Revenuefrom the Ireland operations reported in discontinued operations for the threemonths ended March 31, 2005 was £19.2 million. Pre-tax income from Irelandoperations, reported as pre-tax income from discontinued operations, forthe three months ended March 31, 2005 was £3.2 million.

**Critical AccountingPolicies**

*BusinessCombinations*

We are required to allocate the purchase price ofacquired companies to the tangible and intangible assets acquired andliabilities assumed based on their fair values. We engage third party appraisalfirms to assist us in determining the fair values of assets acquired andliabilities assumed. Such a valuation requires management to make significantestimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain of theintangible assets include but are not limited to: future expected cash flowsfrom customer contracts, customer lists; the trademark’s brand awareness andmarket position, as well as assumptions about the period of time the brand willcontinue to be used in the combined company’s product portfolio; and discountrates. Management’s assumptions about fair value are based upon assumptionsbelieved to be reasonable, but which are inherently uncertain and unpredictable.Assumptions may be incomplete or inaccurate, and unanticipated events andcircumstances may occur, which may affect management’s estimates.

Other estimates associatedwith the accounting for these acquisitions may change as additional informationbecomes available regarding the assets acquired and liabilities assumed. Inparticular, liabilities in relation to tax exposures or liabilities torestructure the pre-acquisition business, including the exit of properties andtermination of employees, are subject to change as management completes itsassessment of pre-merger operations and begins to execute the approved plan.

***Factors Affecting Our Business***

Our Cable segmentresidential customers account for the majority of our total revenue. The numberof residential customers, the number and types of services that each customeruses and the prices we charge for these services drive our revenue. Our profitis driven by the relative margins on the types of services we provide to thesecustomers. For example, broadband internet is more profitable than analoguetelevision services. Our packaging of services and our pricing are designed toencourage our customers to use multiple services like dual telephone andbroadband. Factors affecting our profitability include customer churn, averagerevenue per user, or ARPU, and competition.

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*Summary Statistics*

Selectedstatistics for residential customers of NTL, excluding customers off ournetwork and virgin.net customers for the three months ended March 31, 2006as well as the four prior quarters, are set forth in the table below.

| ** **                                        | ** ** | **For the three months ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                        | ** ** | **March 31,  2006**                           | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** |
| Opening customers                                 |       | 3,089,800                                          |       |   | 3,097,300 |   |   |   | 3,055,900 |   |   | 3,008,100 |   | 2,975,300 |   |
| Data cleanse(1)                                   |       | —                                             |       |   | (18,100 | ) |   |   | — |   |   | — |   | — |   |
| Adjusted opening  customers                       |       | 3,089,800                                          |       |   | 3,079,200 |   |   |   | 3,055,900 |   |   | 3,008,100 |   | 2,975,300 |   |
| Increase in  customers on acquisition of Telewest |       | 1,880,400                                          |       |   | — |   |   |   | — |   |   | — |   | — |   |
| Customer  additions                               |       | 167,100                                            |       |   | 162,800 |   |   |   | 182,400 |   |   | 171,400 |   | 157,000 |   |
| Customer  disconnects                             |       | (153,500                                           | )          |   | (142,200 | ) |   |   | (141,000 | ) |   | (123,600 | ) | (124,200 | ) |
| Net customer movement                             |       | 13,600                                             |       |   | 20,600 |   |   |   | 41,400 |   |   | 47,800 |   | 32,800 |   |
| Reduction in  customer count(2)                   |       | —                                             |       |   | (10,000 | ) |   |   | — |   |   | — |   | — |   |
| Closing customers                                 |       | 4,983,800                                          |       |   | 3,089,800 |   |   |   | 3,097,300 |   |   | 3,055,900 |   | 3,008,100 |   |
| Churn(3)                                          |       | 1.4                                                | %          |   | 1.6 | % |   |   | 1.6 | % |   | 1.5 | % | 1.5 | % |
| Revenue  generating units(4)                      |       |                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Television                                        |       | 3,315,900                                          |       |   | 1,942,700 |   |   |   | 1,940,100 |   |   | 1,961,900 |   | 1,960,000 |   |
| DTV (included in Television)                      |       | 2,786,500                                          |       |   | 1,445,100 |   |   |   | 1,409,300 |   |   | 1,405,100 |   | 1,387,900 |   |
| Telephone                                         |       | 4,268,100                                          |       |   | 2,573,100 |   |   |   | 2,598,600 |   |   | 2,593,200 |   | 2,571,700 |   |
| Broadband                                         |       | 2,821,700                                          |       |   | 1,625,200 |   |   |   | 1,546,300 |   |   | 1,408,600 |   | 1,324,900 |   |
| Total Revenue  Generating  Units                  |       | 10,405,700                                         |       |   | 6,141,000 |   |   |   | 6,085,000 |   |   | 5,963,700 |   | 5,856,600 |   |
| RGU/Customers                                     |       | 2.09                                               | x          |   | 1.99 | x |   |   | 1.96 | x |   | 1.95 | x | 1.95 | x |
| Internet dial-up  and DTV access(5)               |       | 140,400                                            |       |   | 123,700 |   |   |   | 145,900 |   |   | 182,500 |   | 203,800 |   |
| Average revenue per  user(6)                      |       | £                                             | 40.92      |   |   | £ | 38.96 |   |   |   | £ | 38.99 |   |   | £ | 39.69 |   | £ | 40.75 |   |
|                                                   |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Data cleanse activity inthe three months ended December 31, 2005 resulted in a decrease of 18,100customers.

(2)          Review of inactivebacklog customers in the three months ended December 31, 2005 resulted inan adjustment to remove an additional 10,000 customers, representingapproximately 12,300 RGUs.

(3)          Customer churn iscalculated by taking the total disconnects during the month and dividing themby the average number of customers during the month. Average monthly churnduring a quarter is the average of the three monthly churn calculations withinthe quarter.

(4)          Each telephone,television and broadband internet subscriber directly connected to our networkcounts as one RGU. Accordingly, a subscriber who receives both telephone andtelevision service counts as two RGUs. RGUs may include subscribers receivingsome services for free or at a reduced rate in connection with incentiveoffers.

(5)          Dial-up internetcustomers exclude metered customers who have not used the service within thelast 30 days and include virgin.net customers.

(6)          Average Revenue PerUser, or ARPU, is calculated on a monthly basis by dividing total revenuegenerated from the provision of telephone, cable television and internetservices to customers who are directly connected to our network in that month,exclusive of VAT, by the average number of 

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customers directlyconnected to our network in that month. Quarterly ARPU is the average of thethree months in that quarter.

***Customer Churn.******  ***Customer churnis a measure of the number of customers who stop using our services. Anincrease in our customer churn can lead to increased costs and reduced revenue.We continue to focus on improving our customer service and enhancing andexpanding our service offerings to existing customers in an effort to manageour customer churn rate. Although our ability to reduce our customer churn ratebeyond a base level is limited by factors like customers moving outside ournetwork service area, in particular during the summer season, managing ourcustomer churn rate is a significant component of our business plan. Ourcustomer churn rate may increase if we are unable to deliver our services overour network without interruption or if we fail to match offerings by ourcompetitors.

***ARPU.******  ***AverageRevenue Per User, or ARPU, is a measure we use to evaluate how effectively weare realizing potential revenue from customers. We believe that our “tripleplay” offering of telephone service, broadband access to the internet and DTVwill prove attractive to our existing customer base and allow us to increaseour ARPU by facilitating the sale of multiple services to each customer.

***Competition.******  ***Our ability toacquire and retain customers and increase revenue depends on our competitivestrength. There is significant competition in our markets, including throughother broadband service providers, telephone services offered by BT,alternative internet access services like DSL, which is offered by BT, digitalsatellite television services offered by BSkyB and digital terrestrialtelevision offered by Freeview. If competitive forces prevent us from chargingthe prices for these services that we plan to charge, or if our competition isable to attract our customers or potential customers we are targeting, ourresults of operations will be adversely affected.

***CapitalExpenditures.******  ***Our business requires substantialcapital expenditures on a continuing basis for various purposes, includingexpanding, maintaining and upgrading our network, investing in new customeracquisitions, and offering new services. If we do not continue to invest in ournetwork, our ability to retain and acquire customers may be hindered.Therefore, our liquidity and the availability of cash to fund capital projectsare important drivers of our revenue. When our liquidity is restricted, so isour ability to meet our capital expenditure requirements. We believe that ourcash on hand, together with cash from operations, and if required, drawdownsunder our revolving credit facility, will be sufficient for our cashrequirements through March 31, 2007.

***Currency Movements.******  ***We encountercurrency exchange rate risks because all of our revenue and substantially allof our operating costs are earned and paid primarily in U.K. pounds sterling,but we pay interest and principal obligations with respect to a portion of ourexisting indebtedness in U.S. dollars and euros. To the extent that thepound sterling declines in value against the U.S. dollar or the euro, theeffective cost of servicing our U.S. dollar debt or euro debt will be higher.As of March 31, 2006, £2,053 million, or 35% of our long-term debt,was denominated in U.S. dollars and £157 million, or 3%, of our long-termdebt was denominated in euros. To mitigate the risk from these exposures, wehave implemented a cash flow hedging program. The objective of this program isto reduce the volatility of our cash flows and earnings caused by changes inunderlying rates.

***Seasonality.******  ***Some revenuestreams are subject to seasonal factors. For example, telephone usage revenueby customers and businesses tends to be slightly lower during summer holidaymonths. Our customer churn rates include persons who disconnect service becauseof moves, resulting in a seasonal increase in our churn rates during the summermonths when higher levels of U.K. house moves occur and students leave theiraccommodations between school years. As well, our Content segment includes homeshopping channels operated by sit-up that are affected by seasonal changes thatare common in the retail industry.

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RESULTS OF OPERATIONS

***Three months ended March 31, 2006 and 2005***

**Historical Resultsfrom Continuing Operations**

*Revenue*

For the three months endedMarch 31, 2006, consolidated revenue increased by 22.8% to£611.4 million from £497.8 million for the three months ended March 31,2005. This increase is primarily due to the reverse acquisition of Telewest andthe inclusion of its revenues from March 3, 2006.

*Expenses*

*OperatingCosts.**  *Forthe three months ended March 31, 2006 and 2005, operating costs, includingnetwork expenses, increased by 23.2% to £254.9 million from£206.9 million. This increase is primarily attributable to the reverse acquisitionof Telewest. Operating costs as a percentage of revenue remained broadlyconstant, increasing only slightly to 41.7% for the three months ended March 31,2006, from 41.6% for the same period in 2005.

*Selling, general andadministrative expenses.**  *For the three months ended March 31, 2006,selling, general and administrative expenses increased by 32.0% to £158.1million from £119.8 million for the three months ended March 31,2005. This increase is primarily attributable to the reverse acquisition ofTelewest. Selling, general and administrative expenses as a percentage ofrevenue increased to 25.9% for the three months ended March 31, 2006, from24.1% for the same period in 2005 primarily due to increased allowances fordoubtful accounts, an increase in marketing expense and costs incurred inplanning and implementing the merger integration activities.

*Other charges*

Other charges of £8.4 million in the three monthsended March 31, 2006 relate to our historical restructuring programs andrestructuring programs initiated in respect of the reverse acquisition ofTelewest.

Thefollowing tables summarize our historical restructuring provisions and therestructuring provisions resulting from the reverse acquisition of Telewest at March 31,2006 (in millions):

| **Historical Restructuring Provisions** | ** ** | ** ** | ** ** | **Involuntary  Employee  Termination  and Related  Costs** | ** ** | **Lease  Exit  Costs** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|-----------|------------|
| Balance,  December 31, 2005                  |       |       | £     | —                                                          |       |                   | £     | 45.3      |       | £ | 45.3 |   |
| Charged to expense                                |       |       | —     |                                                            |       | 1.1                    |       | 1.1       |       |
| Utilized                                          |       |       | —     |                                                            |       | (1.0                   | )          | (1.0      | )          |
| Balance, March 31, 2006                      |       |       | £     | —                                                          |       |                   | £     | 45.4      |       | £ | 45.4 |   |

 

| **Acquisition restructuring provisions**                              | ** ** | ** ** | ** ** | **Involuntary  Employee  Termination  and Related  Costs** | ** ** | **Lease  Exit  Costs** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|-----------|------------|
| Balance, December 31, 2005                                                 |       |       | £     | —                                                          |       |                   | £     | —    |       | £ | — |   |
| Provisions resulting from business acquisition  recognized under EITF 95-3 |       |       | 34.8       |                                                            |       | 33.2                   |       | 68.0      |       |
| Charged to expense                                                              |       |       | 3.4        |                                                            |       | 3.9                    |       | 7.3       |       |
| Utilized                                                                        |       |       | (12.8      | )                                                               |       | —                 |       | (12.8     | )          |
| Balance, March 31, 2006                                                    |       |       | £     | 25.4                                                            |       |                   | £     | 37.1      |       | £ | 62.5 |   |

 

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*Depreciationexpense*

For the three months endedMarch 31, 2006, depreciation expense increased to £149.3 million from£130.3 million for the three months ended March 31, 2005. Thisincrease is primarily attributable to the reverse acquisition of Telewest andrelated fair value adjustment to the property and equipment acquired. Excludingthe impact of the reverse acquisition of Telewest, depreciation expense hasdecreased due to the absence of depreciation on some assets that became fullydepreciated in 2005.

*Amortizationexpense*

For the three months endedMarch 31, 2006, amortization expense increased to £36.8 million from£27.4 million for the three months ended March 31, 2005. The increase inamortization expense relates to additional intangible assets arising from the reverseacquisition of Telewest during the quarter.

*Interest expense*

For the three months ended March 31, 2006,interest expense increased to £83.8 million from £70.1 million for thethree months ended March 31, 2005, primarily as a result of the additionalborrowing as a result of the reverse acquisition of Telewest.

We paid interest in cash of £65.5 million for thethree months ended March 31, 2006, and £14.0 million for the threemonths ended March 31, 2005. The increase in cash interest paymentsresulted from the effects of the new senior credit facility and senior bridgefacility in respect to the reverse acquisition of Telewest and changes intiming of interest payments.

*Loss onextinguishment of debt*

The loss on extinguishmentof debt of £32.4 million in the three months ended March 31, 2006, relatesto the write off of deferred financing costs on the senior credit facility thatwas repaid upon completion of the refinancing for the reverse acquisition ofTelewest.

*Loss fromderivative instruments*

The loss from derivativeinstruments of £9.2 million in the three months ended March 31, 2006,mainly relates to the termination of derivative instruments in respect of theforeign currency tranche of the senior credit facility that was repaid uponcompletion of the refinancing for the reverse acquisition of Telewest.

*Foreign currencylosses*

The foreign currencylosses of £10.0 million in the three months ended March 31, 2006, largelycomprise foreign exchange losses of £30.1 million as a result of thetermination of the forward contracts partly off set by gains of £19.1 millionon the repayment of the Euro and US Dollar denominated tranche of the seniorcredit facilities on completion of the refinancing for the reverse acquisitionof Telewest.

*Income tax expense*

For the three months ended March 31, 2006, incometax expense was nil as compared with £11.3 million for the same period in2005.

**Pro Forma CombinedCompany Results**

The following discussion describes the pro formacombined results of operations as if the reverse acquisition of Telewest hadoccurred on January 1, 2006 in respect of the three months ended March 31,2006 and on January 1, 2005 in respect of the three months ended March 31,2005. The results of operations for the three months ended March 31, 2006include the results of operations of Telewest from 

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March 3, 2006 (theacquisition date). Adjustments have been made to the combined results ofoperations primarily to reflect amortization of purchased intangibles as if theacquisition had occurred at the beginning of the periods presented.

Thepro forma results of operations of the combined company were as follows (inmillions) (unaudited);

| ** **               | ** ** | **Three months ended March 31** | ** ** |
|--------------------------|------------|------------------------------------------------|------------|
| ** **               | ** ** | **2006**                                       | ** ** | **2005** | ** ** | **% change** | ** ** |
| Revenue                  |       | £                                         | 888.8      |   | £ | 833.2 |   |   | 6.7 |   |   |
| Costs and expenses       |       |                                           |       |   |   |   |   |   |   |
| Operating costs          |       | (369.0                                         | )          | (327.5 | ) |   | 12.7 |   |   |
| SG&A                 |       | (242.8                                         | )          | (205.0 | ) |   | 18.4 |   |   |
| Other charges            |       | (8.9                                           | )          | (0.4 | ) |   | n/a |   |   |
| Depreciation             |       | (210.4                                         | )          | (220.0 | ) |   | (4.4 | ) |   |
| Amortization             |       | (58.6                                          | )          | (60.0 | ) |   | (2.3 | ) |   |
| Operating (loss)  income |       | £                                         | (0.9       | ) | £ | 20.3 |   |   | (104.4 | ) |   |

 

*Revenue*

On a pro forma combinedbasis, revenue increased by 6.7% from the three month period ended March 31,2005. The revenue increase from the comparative quarter in the prior year isprincipally due to the acquisition of Sit-Up Ltd by Telewest in May 2005together with an increased number of broadband subscribers.

*Operating Costs*

On a pro forma combinedbasis our operating costs increased by 12.7% from the three month period ended March 31,2005 primarily due to the inclusion of operating costs from sit-up, which wasacquired by Telewest in May 2005.

*Selling, generaland administrative expenses*

On a pro forma combinedbasis our selling, general and administrative expenses increased by 18.4% fromthe three month period ended March 31, 2005. The 18.4% increase from March 31,2005 is principally due to costs incurred in connection with the reverseacquisition of Telewest, including investment banking, legal and accountingfees and insurance costs and the inclusion of selling, general andadministrative expenses in respect of sit-up, which was acquired by Telewest inMay 2005.

*Other charges*

On a pro forma combinedbasis, other charges increased by £8.5 million from the three month period endedMarch 31, 2005. The £8.9 million charge in the three months ended March 31,2006 primarily represents employee termination costs and property exit costs inconnection with a restructuring program with respect to the integration of theNTL and Telewest operations.

*Depreciation andAmortization*

On a pro forma combinedbasis, depreciation decreased by 4.4% and amortization decreased by 2.3% fromthe three month period ended March 31, 2005. The decreases are principallythe result of the absence of depreciation for tangible and intangible assetsfully depreciated in 2005.

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**Segment Information**

A description of the products and services, as well asyear-to-date financial data, for each segment can be found above in Note 12 tothe Consolidated Condensed Financial Statements. The segment results for thethree-month period ended March 31, 2006 include the results of Telewestfrom March 3, 2006 (the acquisition date). The following discussion relatesto the results of operations of each of our segments on a pro forma combinedbasis as if the reverse acquisition of Telewest had occurred at the beginningof the periods presented and combine Telewest’s historical Content and sit-upsegments into the combined company’s Content segment. The reportable segmentsdisclosed in this Form 10-Q are based on our managementorganizational structure as of March 31, 2006. Future changes to thisorganizational structure may result in changes to the reportable segmentsdisclosed.

Segment operating incomebefore depreciation, amortization and other charges, which we refer to asSegment OCF is management’s measured segment profit as permitted under SFAS131, *“Disclosures about Segments of an Enterprise andRelated Information”.* Our management, including our chief executiveofficer who is our chief operating decision maker, considers Segment OCF as animportant indicator of the operational strength and performance of our segments.Segment OCF excludes the impact of costs and expenses that do not directlyaffect our cash flows. Other charges, including restructuring charges, are alsoexcluded from Segment OCF as management believes they are not characteristic ofour underlying business operations.

*Cable Segment*

Thesummary pro forma combined results of operations of our Cable segment were asfollows (in millions) (unaudited):

| ** **                                    | ** ** | **Three months ended March 31**                                                                  | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **         2006         ** | ** ** | **         2005         ** | ** ** |
| Revenue                                       |       |                                                                                                                 | £     | 802.3 |   |   |   | £ | 804.1 |   |   |
| Inter segment revenue                         |       |                                                                                                                 | 0.5        |   |   |   | 0.7 |   |   |
| Segment OCF                                   |       |                                                                                                                 | 267.6      |   |   |   | 296.7 |   |   |
| Depreciation,  amortization and other charges |       |                                                                                                                 | (271.2     | ) |   |   | (274.4 | ) |   |
| Operating (loss) income                       |       |                                                                                                                 | £     | (3.6 | ) |   |   | £ | 22.3 |   |   |

 

*Revenue*

Our pro forma Cablesegment revenue by customer type for the three months ended March 31, 2006and 2005 was as follows (in millions) (unaudited):

| ** **        | ** ** | **2006** | ** ** | **2005** | ** ** | **Increase/  (Decrease)** | ** ** |
|-------------------|------------|----------|------------|----------|------------|---------------------------|------------|
| **Revenue:**      |       |     |       |     |       |                      |       |   |   |
| Consumer          |       | £   | 636.7      |     | £     | 629.8                     |       |   | 1.1 | % |   |
| Business          |       | 165.6    |       | 174.3    |       |                      | (5.0       | )% |   |
| **Total revenue** |       | £   | 802.3      |     | £     | 804.1                     |       |   | (0.2 | )% |   |

 

*Consumer:*   Forthe three months ended March 31, 2006, pro forma revenue from residentialcustomers increased by 1.1% to £636.7 million from £629.8 million for the threemonths ended March 31, 2005. This increase is driven largely by growth inthe number of broadband internet subscribers together with television andtelephony price rises offset by lower telephony usage.

*Business:*   Forthe three months ended March 31, 2006, pro forma revenue from businesscustomers decreased by 5.0% to £165.6 million from £174.3 million for thethree months ended March 31, 2005. This decrease is attributable todeclines in telephony voice revenue and business project revenue, partiallyoffset 

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by greater datainstallation and rental revenue. A smaller decline was recorded in wholesalebusiness where the loss of a large contract was partially offset by an increasein internet, mobile and carrier traffic.

*Segment OCF*

For the three months endedMarch 31, 2006, pro forma Cable segment OCF decreased by 9.8% to £267.6million from £296.7 million for the three months ended March 31, 2005. Thedecrease in OCF is primarily due to increased selling, general andadministrative expenses, which included charges of £20.9 million relating tothe reverse acquisition of Telewest, consisting of legal and professionalcharges of £11.7 million and executive compensation costs and insuranceexpenses of £9.2 million. In addition, marketing and communications and baddebt expense increased compared with the three months ended March 31, 2005.

*Pro forma SummaryStatistics*

Selectedpro forma combined statistics for residential customers of NTL and Telewestexcluding customers off our network and virgin.net customers for the threemonths ended March 31, 2006 as well as the four prior quarters are setforth in the table below. Amounts shown assume the merger of NTL and Telewesthad occurred on January 1, 2005.

| ** **                            | ** ** | **For the three months ended** | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|
| ** **                            | ** ** | **March 31,  2006**                           | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** |
| Opening customers                     |       | 4,958,000                                          |       | 4,945,400 |   | 4,893,100 |   | 4,830,600 |   | 4,774,900 |   |
| Data cleanse(1)                       |       | —                                             |       | (18,100 | ) | — |   | — |   | — |   |
| Adjusted opening customers            |       | 4,958,000                                          |       | 4,927,300 |   | 4,893,100 |   | 4,830,600 |   | 4,774,900 |   |
| Customer additions                    |       | 218,100                                            |       | 248,900 |   | 271,900 |   | 250,800 |   | 235,700 |   |
| Customer disconnects                  |       | (192,300                                           | )          | (208,200 | ) | (219,600 | ) | (188,300 | ) | (180,000 | ) |
| Net customer movement                 |       | 25,800                                             |       | 40,700 |   | 52,300 |   | 62,500 |   | 55,700 |   |
| Reduction in customer  count(2)       |       | —                                             |       | (10,000 | ) | — |   | — |   | — |   |
| Closing customers                     |       | 4,983,800                                          |       | 4,958,000 |   | 4,945,400 |   | 4,893,100 |   | 4,830,600 |   |
| Churn(3)                              |       | 1.3                                                | %          | 1.4 | % | 1.5 | % | 1.4 | % | 1.3 | % |
| Revenue generating units(4)           |       |                                               |       |   |   |   |   |   |   |   |   |
| Television                            |       | 3,315,900                                          |       | 3,310,300 |   | 3,288,700 |   | 3,293,600 |   | 3,280,500 |   |
| DTV(included in  Television)          |       | 2,786,500                                          |       | 2,715,900 |   | 2,637,500 |   | 2,594,600 |   | 2,537,600 |   |
| Telephone                             |       | 4,268,100                                          |       | 4,260,000 |   | 4,285,000 |   | 4,282,400 |   | 4,249,300 |   |
| Broadband                             |       | 2,821,700                                          |       | 2,630,300 |   | 2,466,500 |   | 2,261,400 |   | 2,111,600 |   |
| Total Revenue Generating  Units  |       | 10,405,700                                         |       | 10,200,600 |   | 10,040,200 |   | 9,837,500 |   | 9,641,400 |   |
| RGU/Customers                         |       | 2.09                                               | x          | 2.06 | x | 2.03 | x | 2.01 | x | 2.00 | x |
| Internet dial-up  and DTV access(5)   |       | 140,400                                            |       | 181,600 |   | 219,000 |   | 273,000 |   | 319,100 |   |
| Average revenue per user(6)           |       | £                                             | 41.50      |   | £ | 41.27 |   | £ | 41.28 |   | £ | 41.63 |   | £ | 42.48 |   |
|                                       |            |                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Data cleanse activity inthe three months ended December 31, 2005 resulted in a decrease of 18,100customers.

(2)          Review of inactivebacklog customers in the three months ended December 31, 2005 resulted inan adjustment to remove an additional 10,000 customers, representingapproximately 12,300 RGUs.

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(3)          Customer churn iscalculated by taking the total disconnects during the month and dividing themby the average number of customers during the month. Average monthly churnduring a quarter is the average of the three monthly churn calculations withinthe quarter.

(4)          Each telephone,television and broadband internet subscriber directly connected to our networkcounts as one RGU. Accordingly, a subscriber who receives both telephone andtelevision service counts as two RGUs. RGUs may include subscribers receivingsome services for free or at a reduced rate in connection with incentiveoffers.

(5)          Dial-up internetcustomers exclude metered customers who have not used the service within thelast 30 days and include virgin.net customers.

(6)          AverageRevenue Per User, or ARPU, is calculated on a monthly basis by dividing totalrevenue generated from the provision of telephone, cable television andinternet services to customers who are directly connected to our network inthat month, exclusive of VAT, by the average number of customers directlyconnected to our network in that month. Quarterly ARPU is the average of thethree months in that quarter.

*Content Segment*

Thesummary pro forma combined results of operations of our Content segment were asfollows (in millions) (unaudited):

| ** **                                    | ** ** | **Three months  ended March 31** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Revenue                                       |       | £                                          | 86.5       |   | £ | 29.1 |   |
| Inter segment  revenue                        |       | 5.3                                             |       | 4.9 |   |
| Segment OCF                                   |       | 9.4                                             |       | 4.0 |   |
| Depreciation,  amortization and other charges |       | (6.7                                            | )          | (6.0 | ) |
| Operating income (loss)                       |       | £                                          | 2.7        |   | £ | (2.0 | ) |

 

*Revenue*

For the three months endedMarch 31, 2006, pro forma revenue in the Content segment increased by197.3% to £86.5 million from £29.1 million for the three months endedMarch 31, 2005. This increase is driven largely by the inclusion in thethree months ended March 31, 2006 of sit-up which was acquired by Telewestin May 2005, and contributed revenue of £51.9 million in the first quarterof 2006. Increased revenue from Flextech of £5.5 million was principally due toincreased share of the advertising revenue market, a cumulative effect of therelative strength of the viewing performance of the Flextech TV channels,partially offset by a seasonal decline (the Easter period being in the secondquarter of 2006 as compared to the first quarter in 2005.)

*Segment OCF*

For the three months endedMarch 31, 2006, pro forma Content segment OCF increased by 135.0% to £9.4 millionfrom £4.0 million for the three months ended March 31, 2005. The increasein Content pro forma segment OCF is primarily due to the increase in revenue inFlextech partially offset by increased marketing costs.

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**Statement of CashFlows**

Cash flow informationprovided below is for our continuing operations.

*Three Months endedMarch 31, 2006 and 2005*

For the three months ended March 31, 2006, cashprovided by operating activities increased to £207.3 million from £157.4 millionfor the three months ended March 31, 2005. This increase is primarilyattributable to the reverse acquisition of Telewest and an improvement inworking capital offset by an increase in cash paid for interest. For the threemonths ended March 31, 2006, cash paid for interest, exclusive of amountscapitalized, increased to £65.5 million from £14.0 million during thesame period in 2005. This increase resulted from the higher levels ofborrowings and repayment of existing facilities following the reverseacquisition of Telewest.

For the three months ended March 31, 2006, cashused in investing activities was £2,124.7 million compared with cashprovided by investing activities of £1,145.6 million for the three monthsended March 31, 2005. The cash used in investing activities in the threemonths ended March 31, 2006 includes £1,999.2 million for the reverseacquisition of Telewest, net of cash acquired of £294.9 million. The cashprovided by investing activities in the three months ended March 31, 2005includes £1.2 billion from the sale of our broadcast operations. Purchasesof fixed assets increased to £135.3 million for the three months ended March 31,2006 from £73.8 million for the same period in 2005 primarily because ofthe timing of cash payments and the reverse acquisition of Telewest.

Cash provided by financingactivities for the three months ended March 31, 2006 was £1,705.9 millioncompared to cash used in investing activities of £569.0 million in the threemonths ended March 31, 2005. The principal sources of cash provided by financingactivities for the three months ended March 31, 2006 were the new £3.2billion senior credit facilities and the £1.8 billion bridge loan offset by therepayment of our previous senior credit facilities. For the three months ended March 31,2005, cash used in financing activities related to the repurchases of ourcommon stock in the open market for £69.2 million and the prepayment of£500 million on our senior credit facility.

**LIQUIDITY ANDCAPITAL RESOURCES**

*New Senior CreditFacilities and Bridge Facilities*

On March 3, 2006 we prepaid £1,358.1 millionin respect of NTL Holding’s senior credit facility, £1,689.9 million in respectof Telewest’s existing senior credit facilities and £102.0 in respect ofFlextech’s senior credit facility.  Allof these facilities were repaid in full utilizing borrowings under our newsenior credit facilities.

Our new senior credit facilities provide for a seniorsecured credit facility in an aggregate principal amount of £3,775 billion,comprising a £3.2 billion 5-year amortizing Tranche A term loanfacility, a £175 million 5-year amortizing Tranche A-1 term loanfacility, a £300 million 61¤2 year bulletTranche B-1 term loan facility, and a £100 million 5-yearmulticurrency revolving credit facility. Tranche A has been drawn in full torefinance our old credit facilities. Tranches A-1 and B-1 remainundrawn and can only be used to finance the purchase price for our potentialacquisition of Virgin Mobile Holdings (UK) plc. We must satisfy certainconditions precedent typical for a transaction of this type in order to draw onthese two tranches. We announced  anoffer on April 4, 2006 to acquire all outstanding shares of Virgin Mobilethrough a U.K. scheme of arrangement but no assurances can be made that suchoffer will be successful or that we will use these facilities to fund suchoffer.

Our bridge facilities comprise a 1-year(automatically extendable to a 10-year) senior subordinated bridgefacility in an aggregate principal amount of £1.8 billion made availableto one of our subsidiaries, 

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Neptune Bridge BorrowerLLC. This facility has been drawn in full in the U.S. dollar equivalent of$3,146.4 million and the proceeds were used in connection with the reverseacquisition of Telewest.

Priorto the maturity date of the bridge facilities, loans under the bridgefacilities will bear interest at a rate per annum equal to (i) thethree-month reserve-adjusted LIBOR plus (ii) an initial spread of 600basis points (such spread being subject to quarterly increases of 50 basispoints if the loans are not yet repaid). Notwithstanding the foregoing, theinterest rate per annum payable shall not exceed 11.5%.

*AlternativeFinancing Structure*

We have the optionby delivery of written notice to the lenders and the satisfaction of certainconditions to restructure the senior credit facilities and bridge facility,permitting some or all of the financing to subsist at the level of our U.K.operating group rather than at the level of our U.S. holding group. As aresult:

·       thebridge facilities would be reduced by £1.2 billion and an incremental trancheof term debt equal in principal amount to such reduction would be added to thesenior facilities as a new Tranche B; and

·       theremainder of the commitment under the bridge facilities would be taken out witha high yield bond offering (or bridge facility commitment in anticipation ofthe same) by NTL Cable. This debt would rank pari passu with NTL Cable’sexisting high yield debt.

We have requested a ruling from the IRS to confirm theU.S. federal income tax treatment of this proposed alternative financingstructure. No assurancescan be made that we will implement such alternative financing structure.

*Senior Notes*

The U.S.dollar-denominated 8.75% senior notes due 2014 were issued by NTL Cable PLC on April 13,2004 and have a principal amount at maturity of $425 million. The sterling-denominated9.75% senior notes due 2014 were issued by NTL Cable PLC on April 13, 2004and have a principal amount at maturity of £375 million. The euro-denominated8.75% senior notes due 2014 were issued by NTL Cable PLC on April 13, 2004and have a principal amount at maturity of €225million.

*Restrictions underour existing debt agreements*

The agreementsgoverning the senior notes and our senior credit facility significantly and, insome cases absolutely, restrict our ability and the ability of most of oursubsidiaries to:

·       incuror guarantee additional indebtedness;

·       paydividends or make other distributions, or redeem or repurchase equity interestsor subordinated obligations;

·       makeinvestments;

·       sellassets, including the capital stock of subsidiaries;

·       enterinto sale/leaseback transactions;

·       createliens;

·       enterinto agreements that restrict the restricted subsidiaries’ ability to paydividends, transfer assets or make intercompany loans;

·       mergeor consolidate or transfer all or substantially all of its assets; and

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·       enterinto transactions with affiliates.

Our business is capital intensive, we are highlyleveraged, and we have historically incurred operating losses and negative cashflow, partly as a result of our construction costs, operating expenditures andinterest costs. We require significant amounts of capital to connect customersto our network, expand and upgrade our network, offer new services andintegrate our billing systems and customer databases. We must also regularlyservice interest payments with cash flows from operations. Our ability tosustain operations, meet financial covenants under our indebtedness, and makerequired payments on our indebtedness could be impaired if we are unable tomaintain or achieve various financial performance measures. Our ability toservice our capital needs, to service our obligations under our indebtednessand to fund our ongoing operations will depend upon our ability to generatecash.

Although we expect to generate positive cash flow inthe future, we cannot assure you that this will be the case. We believe thatour cash on hand, together with cash from operations and unused creditfacilities, will be sufficient for our cash requirements through at least March 31,2007. However, our cash requirements after March 31, 2007 may exceed thesesources of cash. This may require that we obtain additional financing in excessof the financing incurred in the refinancing transaction. We may not be able toobtain financing at all, or on favorable terms, or we may be contractuallyprevented by the terms of the senior notes or our senior credit facility fromincurring additional indebtedness.

We are a holding company with no independentoperations or significant assets other than our investments in oursubsidiaries. As a result, we will depend upon the receipt of sufficient fundsfrom our subsidiaries to meet our obligations. In addition, the terms of ourand our subsidiaries’ existing and future indebtedness and the laws of thejurisdictions under which those subsidiaries are organized limit the payment ofdividends, loan repayments and other distributions to us under manycircumstances.

Our debt agreements andthe debt agreements of some of our subsidiaries contain restrictions on ourability to transfer cash between groups of our subsidiaries. As a result ofthese restrictions, although our overall liquidity may be sufficient to satisfyour obligations, we may be limited by covenants in some of our debt agreementsfrom transferring cash to other subsidiaries that might require funds. Inaddition, cross-default provisions in our other indebtedness may betriggered if we default on any of these debt agreements.

**CONTRACTUALOBLIGATIONS AND COMMERCIAL COMMITMENTS**

Thefollowing table includes aggregate information about our contractualobligations as of March 31, 2006, and the periods in which payments aredue (in millions).

| ** **                       | ** ** | ** **    | ** ** | **Payments Due by Period** | ** **  |
|----------------------------------|------------|---------------|------------|-------------------------------------------|-------------|
| ** **                       | ** ** | ** **    | ** ** | **Less than**                        | ** **  | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| **Contractual Obligations** | ** ** | ** **    | ** ** | **Total**                                 | ** **  | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Long-Term Debt  Obligations      |       | £5,791.7 |       |                                      | £      | 3.5 |   |   | £ | 810.9 |   | £ | 2,032.3 |   |   | £ | 2,945.0 |   |   |
| Capital Lease  Obligations       |       | 201.4         |       |                                      | 62.4        |   |   | 35.3 |   | 9.0 |   |   | 94.7 |   |   |
| Operating Lease  Obligations     |       | 475.2         |       |                                      | 64.1        |   |   | 106.1 |   | 83.8 |   |   | 221.2 |   |   |
| Purchase  Obligations            |       | 326.2         |       |                                      | 315.1       |   |   | 11.1 |   | — |   |   | — |   |   |
| Total                            |       | £6,794.5 |       |                                      | £445.1 |   |   | £963.4 |   | £2,125.1 |   |   | £ | 3,260.9 |   |   |
|                                  |            |               |            |                                           |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Thefollowing table includes information about our commercial commitments as of March 31,2006. Commercial commitments are items that we could be obligated to pay in thefuture. They are not required to be included in the consolidated balance sheet(in millions).

| ** **                                 | ** ** | ** ** | ** ** | **Amount of Commitment Expiration per Period** | ** ** |
|--------------------------------------------|------------|------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | ** ** | ** ** | ** Less than **                                          | ** ** | **1-3** | ** ** | **3-5** | ** ** | ** More than ** | ** ** |
| **Other Commercial Commitments** | ** ** | ** ** | ** ** | **Total**                                                               | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Guarantees                                 |       | £     | 24.6       |                                                                    |       | £ | 14.7 |   |   |   | £ | 1.4 |   |   |   | £ | — |   |   |   | £ | 8.5 |   |   |
| Lines of Credit                            |       | —     |       |                                                                    | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Standby Letters  of Credit                 |       | 0.8        |       |                                                                    | 0.7        |   |   |   | 0.1 |   |   |   | — |   |   |   | — |   |   |
| Standby  Repurchase Obligations            |       | —     |       |                                                                    | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Other Commercial  Commitments              |       | —     |       |                                                                    | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Total Commercial  Commitments              |       | £     | 25.4       |                                                                    |       | £ | 15.4 |   |   |   | £ | 1.5 |   |   |   | £ | — |   |   |   | £ | 8.5 |   |   |
|                                            |            |            |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Guarantees relate toperformance bonds provided by banks on our behalf as part of our contractualobligations. The fair value of the guarantees has been calculated by referenceto the monetary value of each bond.

**ITEM 3.**   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, includingchanges in foreign currency exchange rates and interest rates. Market risk isthe potential loss arising from adverse changes in market rates and prices,such as foreign currency exchange and interest rates. As some of ourindebtedness accrues interest at variable rates, we have exposure to volatilityin future cash flows and earnings associated with variable interest ratepayments.

Also, all of our revenues and a substantial portion ofour operating costs are earned and paid in pounds sterling but we pay interestand principal obligations on some of our indebtedness in U.S. dollars andeuros. As of March 31, 2006, £2,053 million, or 35% of our long-term debt,was denominated in U.S. dollars and £157 million, or 3%, of ourlong-term debt was denominated in euros. As a result, we have exposure tovolatility in future cash flows and earnings associated with changes in foreignexchange rates on payments of principal and interest on a portion of ourindebtedness.

To mitigate the risk from these exposures, we haveimplemented a cash flow hedging program. The objective of this program is toreduce the volatility of our cash flows and earnings caused by changes inunderlying rates. To achieve this objective we have entered into a number ofderivative instruments. The derivative instruments utilized comprise interestrate swaps, cross-currency interest rate swaps and foreign currencyforward contracts. We do not enter into derivative instruments for trading orspeculative purposes.

The fair market values of long-term fixed interestrate debt and the amount of future interest payments on variable interest ratedebt are subject to interest rate risk.

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Thefollowing table provides information as of March 31, 2006 about ourlong-term fixed and variable interest rate debt that is sensitive to changes ininterest rates and foreign currency exchange rates (in millions).

| ** **                                    | ** ** | **Nine months  ended  December 31,** | ** ** | **Year ended December 31,** | ** ** | ** **          | ** ** | ** **          | ** ** | **Fair Value  March 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------|------------|---------------------|------------|---------------------|------------|-------------------------------------|------------|
|                                               | ** ** | **2006**                                       | ** ** | **2007**                                   | ** ** | **2008**            | ** ** | **2009**            | ** ** | **2010**                            | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **2006** | ** ** |
| **Long-term debt including  current portion** | ** ** |                                           | ** ** | ** **                                 |       | ** **          | ** ** | ** **          | ** ** | ** **                          | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| US Dollars                                    |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   |   | ** ** |   |   |   |   |   | ** ** |   |
| Fixed rate                                    |       |                                           | —     |                                       |       | —              |       | —              |       | —                              |       | — |   |   | $ | 425.0 | ** ** |   | $ | 425.0 |   |   | $ | 435.6 | ** ** |   |
| Average interest rate                         |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 8.75% | ** ** |   |   |   |   |   | ** ** |   |
| Average forward exchange rate                 |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 0.55 | ** ** |   |   |   |   |   | ** ** |   |
| Pound Sterling                                |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   |   | ** ** |   |   |   |   |   | ** ** |   |
| Fixed rate                                    |       |                                           | —     |                                       |       | —              |       | —              |       | —                              |       | — |   |   | £ | 375.0 | ** ** |   | £ | 375.0 |   |   | £ | 394.6 | ** ** |   |
| Average interest rate                         |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 9.75% | ** ** |   |   |   |   |   | ** ** |   |
| Euro                                          |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   |   | ** ** |   |   |   |   |   | ** ** |   |
| Fixed rate                                    |       |                                           | —     |                                       |       | —              |       | —              |       | —                              |       | — |   |   | € | 225.0 | ** ** |   | € | 225.0 |   |   | € | 238.5 | ** ** |   |
| Average interest rate                         |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 8.75% | ** ** |   |   |   |   |   | ** ** |   |
| Average forward exchange rate                 |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 0.75 | ** ** |   |   |   |   |   | ** ** |   |
| Pound Sterling                                |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   |   | ** ** |   |   |   |   |   | ** ** |   |
| Variable Rate                                 |       |                                           | —     |                                       |       | £              | 225.0      |                | £     | 450.0                               |       | £ | 700.0 |   | £ | 1,050.0 |   |   | £ | 775.0 | ** ** |   | £ | 3,200.0 |   |   | £ | 3,200.0 | ** ** |   |
| Average interest rate                         |       |                                           |       |                                       |       | Libor  plus  1.625% |       | Libor  plus  1.625% |       | Libor  plus  1.625%                 |       | Libor  plus  1.625% |   |   | Libor  plus   1.625% | ** ** |   |   |   |   |   | ** ** |   |
| US Dollars                                    |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   |   | ** ** |   |   |   |   |   | ** ** |   |
| Variable Rate                                 |       |                                           | —     |                                       |       | —              |       | —              |       | —                              |       | — |   |   | $ | 3,146.4 | ** ** |   | $ | 3,146.4 |   |   | $ | 3,146.4 | ** ** |   |
| Average interest rate                         |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | Libor  plus  6% | ** ** |   |   |   |   |   | ** ** |   |
| Average forward  exchange rate                |       |                                           |       |                                       |       |                |       |                |       |                                |       |   |   |   | 0.54 | ** ** |   |   |   |   |   | ** ** |   |
|                                               |            |                                                |            |                                            |            |                     |            |                     |            |                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**ITEM 4.   CONTROLSAND PROCEDURES**

*(a)*                                Disclosure Controls andProcedures.

Ourmanagement, with the participation of our chief executive officer and chieffinancial officer, has evaluated the effectiveness of our disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended,which we refer to as the Exchange Act) as of the end of the period covered bythis report. Based on such evaluation, our chief executive officer and chieffinancial officer have concluded that, as of the end of such period, thesecontrols and procedures are effective to ensure that information required to bedisclosed by the registrant in the reports the registrant files or submitsunder the Exchange Act is recorded, processed, summarized, and reported withinthe time periods specified in the Securities and Exchange Commission’s rules andforms. These disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by the registrant in the reports that it files or submits isaccumulated and communicated to the registrant’s management, including ourchief executive officer and chief financial officer, as appropriate to allowtimely decisions regarding required disclosure.

*(b)*                               Changes in InternalControl Over Financial Reporting.

On March 3, 2006, we completed the reverse acquisitionof Telewest. Our management has not yet completed its evaluation of theeffectiveness of Telewest’s internal control over financial reporting. As aconsequence of our integration of Telewest, we expect to make material changesto our internal control over financial reporting and we will disclose allmaterial changes resulting from this transaction in our future quarterly andannual reports. Other than as stated above, there were no changes in ourinternal control over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to whichthis report relates that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

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**PART II—OTHERINFORMATION**

**ITEM 1.     LEGAL PROCEEDINGS**

We are involved indisputes and litigation arising in the ordinary course of our business. We are alsoinvolved in various disputes and legal proceedings, none of which is a materialpending legal proceeding that exclusive of interest and costs, is anticipatedto exceed 10% of our and our subsidiaries’ current assets on a consolidatedbasis, or is otherwise reportable in response to this item.

**ITEM 2.**                UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM 3.**                DEFAULTSUPON SENIOR SECURITIES

None.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

On March 2, 2006, NTL Incorporated (then known asTelewest Global, Inc., or “Telewest”) held a special meeting of itsstockholders to (i) consider and vote upon a proposal to amend and restate thecertificate of incorporation of Telewest to reclassify each share of Telewestcommon stock into (a) 0.2875 shares of Telewest common stock and (b) one shareof Telewest Class B redeemable common stock and (ii) consider and vote upon aproposal to authorize the issuance of shares of Telewest Class B redeemablecommon stock in the merger of Neptune Bridge Borrower LLC, a wholly ownedsubsidiary of Telewest, with NTL Holdings Inc. (then known as NTLIncorporated), as contemplated by the Amended and Restated Agreement and Planof Merger, dated as of December 14, 2005, as amended by amendment no.1 thereto,or the merger agreement, among Telewest, Neptune Bridge Borrower LLC, NTLHoldings Inc. and, for certain limited purposes, Merger Sub Inc.

The following votes werecast with respect to the proposal to amend and restate the certificate of incorporationof Telewest to reclassify each share of Telewest common stock:

| For: |   | 181,453,780 |   |
|------|--------|-------------|--------|

| Against:          |   | 249,938 |   |
|-------------------|--------|---------|--------|
| Withheld:         |   | 0       |   |
| Abstain:          |   | 3,597   |   |
| Broker Non-Votes: |   | 0       |   |

 

The following votes werecast with respect to the proposal to authorize the issuance of shares ofTelewest Class B redeemable common stock:

| For:              |   | 181,684,644 |   |
|-------------------|--------|-------------|--------|
| Against:          |   | 8,579       |   |
| Withheld:         |   | 0           |   |
| Abstain:          |   | 14,092      |   |
| Broker Non-Votes: |   | 0           |   |

 

**ITEM 5.**                OTHERINFORMATION

None.

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**ITEM 6.**                EXHIBITS
| 31.1 |   | Certification of Chief  Executive Officer, pursuant to Rule 13(a)-14(a) and  Rule 15d-14(a) of the Exchange Act.               |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief Financial Officer, pursuant  to Rule 13(a)-14(a) and Rule 15d-14(a) of the  Exchange Act.               |
| 32.1 |   | Certifications of CEO and CFO Pursuant to 18 U.S.C  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes  Oxley Act of 2002. |

 

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15 (d) of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
|                          | NTL INCORPORATED |
|--------------------------|------------------|
| Date:  May 10, 2006 | By:              | /s/ STEPHEN A. BURCH |
|                     |             | Stephen A. Burch*Chief Executive Officer* |
| Date:  May 10, 2006 | By:              | /s/ JACQUES KERREST |
|                     |             | Jacques Kerrest*Chief Financial Officer* |

 

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