**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-K**

 

| **(Mark One)**                                       |   |                                                                                                |
|------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|
| **ý**                                           |   | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**     |
|                                                 |   |                                                                                                |
| **For the fiscal year ended December 31, 2003** |
|                                                 |
| **or**                                               |
|                                                 |
| **o**                                                |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                 |   |                                                                                                |
| **For the transition period from**                   |   | **to**                                                                                              |   |   |
|                                                 |
| **Commission file number: 0-24792**                  |
|                                                      |        |                                                                                                     |  |  |  |  |

 

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**NTL(Triangle) LLC**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                                                                                |   | **13-4086747**                       |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or Other Jurisdiction of  Incorporation or  Organization)                                                            |   | (I.R.S. Employer Identification No.) |
|                                                                                                                        |   |                                 |
| **ntl House  Bartley Wood Business Park  Hook, Hampshire, RG27 9UP England  011 44 1256 752000**                            |
| (Address, including zip code, and telephone  number, including area code, of Registrant’s principal executive offices) |

 

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**Securitiesregistered pursuant to Section 12(b) of the Act:**

 

**NONE**

 

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**SecuritiesRegistered Pursuant to Section 12(g) of the Act:**

 

**NONE**

 

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Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the Registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past90 days. Yes ý  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendments to this Form 10-K. ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act) Yes o  No ý

 

As of March 23, 2004, there were 800,000 membership interests ofthe Registrant outstanding. The Registrant is an indirect, wholly-ownedsubsidiary of NTL Incorporated, and there is no market for the Registrant’smembership interests.

 

The Registrant meets the conditions set forth in General InstructionsI(1)(a) and I(1)(b) to Form 10-K and is filing this Form 10-K withthe reduced disclosure format set forth in General Instruction I(2) thereto.

 

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**DOCUMENTS INCORPORATED BY REFERENCE**

 

**NONE**

 

 

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**TABLE OF CONTENTS**

 
| **PART  I**                                                                                   |                                                                                        | 4  |
|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|----|
| NTL  CORPORATE STRUCTURE                                                                      | 4                                                                                           |
| Item 1.                                                                                       | Business                                                                                    | 7  |
| Item 2.                                                                                       | Properties                                                                                  | 8  |
| Item 3.                                                                                       | Legal Proceedings                                                                           | 9  |
| Item 4.                                                                                       | Submission of Matters to a Vote of Security  Holders                                        | 10 |
| **PART II**                                                                                   | 11                                                                                          |
| Item 5.                                                                                       | Market for the Registrant’s Common Equity  and Related Shareholder Matters             | 11 |
| Item 6.                                                                                       | Selected Financial Data                                                                     | 12 |
| Item 7.                                                                                       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 13 |
| Item 7A.                                                                                      | Quantitative and Qualitative Disclosures  about Market Risk                                 | 26 |
| Item 8.                                                                                       | Financial Statements and Supplementary Data                                                 | 27 |
| Item 9.                                                                                       | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure       | 28 |
| Item 9A.                                                                                      | Controls and Procedures                                                                     | 28 |
| **PART III**                                                                                  | 29                                                                                          |
| Items  10, 11, 12 and 13.  Omitted pursuant  to General Instruction I(2)(c) to Form 10-K | 29                                                                                          |
| Item 14.                                                                                      | Principal Accountants’ Fees and Services                                               | 29 |
| **PART IV**                                                                                   | 31                                                                                          |
| Item 15.                                                                                      | Exhibits, Financial Statement Schedules and  Reports on Form 8-K                            | 31 |
| SIGNATURES                                                                                    | 33                                                                                          |
| Index to  Consolidated Financial Statements and Financial Statement Schedules                 | F-1                                                                                         |

 

**“Safe Harbor” Statement under the PrivateSecurities Litigation Reform Act of 1995:**

 

Various statements contained in this document constitute“forward-looking statements” as that term is defined under the PrivateSecurities Litigation Reform Act of 1995. Words like “believe,” “anticipate,”“should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,”“positioned,” “strategy,” and similar expressions identify theseforward-looking statements, which involve known and unknown risks,uncertainties and other factors that may cause our actual results, performanceor achievements or industry results to be materially different from thosecontemplated whether expressed or implied, by these forward-looking statements.These factors include those set forth under the caption “Risk Factors” in theForm 10-K filed on March 11, 2004 by our ultimate parent company, NTLIncorporated, or NTL, such as:

 

•                                          potentialadverse developments with respect to NTL’s and our liquidity or results ofoperations;

 

•                                          NTL’ssignificant debt payments commencing in 2005 and its and our other contractualcommitments coming due over the next several years;

 

•                                          thesuccess of NTL’s proposed refinancing transaction;

 

•                                          NTL’sand our ability to fund and execute its and our business plan;

 

•                                          theimpact of new business opportunities requiring significant up-frontinvestments;

 

•                                          ourability to attract and retain customers, increase our overall marketpenetration and react to competition from providers of alternative services;

 

•                                          NTL’sability to integrate its billing systems;

 

•                                          NTL’ssignificant management changes;

 

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•                                          NTL’sand our ability to develop and maintain back-up for its and our criticalsystems;

 

•                                          ourability to respond adequately to technological developments;

 

•                                          NTL’sand our ability to maintain contracts that are critical to our operations;

 

•                                          ourability to continue to design networks, install facilities, obtain and maintainany required governmental licenses or approvals and finance construction anddevelopment, in a timely manner at reasonable costs and on satisfactory termsand conditions;

 

•                                          interestrate and currency exchange rate fluctuations; and

 

•                                          theimpact of NTL’s recent reorganization and subsequent organizationalrestructuring.

 

We assume no obligation to update these forward-looking statementscontained in this Annual Report to reflect actual results, changes inassumptions or changes in factors affecting these statements.

 

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**PARTI**

 

**NTL CORPORATE STRUCTURE**

 

**NTL’s Completed Restructuring**

 

We are an indirect, wholly-owned subsidiary of NTL. On May 8,2002, NTL (then known as NTL Communications Corp.),NTL Europe, Inc. (then known as NTL Incorporated and the formerparent company of NTL Communications Corp.) and certain of theirsubsidiaries filed a pre-arranged joint reorganization plan, referred to inthis Annual Report as the Plan, under Chapter 11 of the US BankruptcyCode. We were not included in the Chapter 11 filing, nor were theoperating subsidiaries of NTL Incorporated and NTL Europe, Inc.The Plan became effective on January 10, 2003, at which timeNTL Incorporated, our indirect parent company, emerged fromChapter 11 reorganization.

 

Pursuant to the Plan, the entity formerly known asNTL Incorporated and its subsidiaries and affiliates were split into twoseparate groups, and NTL Incorporated and NTL Europe, Inc. eachemerged as independent public companies. The entity formerly known asNTL Communications Corp. was renamed “NTL Incorporated” and becamethe holding company for the former NTL group’s principal UK and Ireland assetsincluding our ultimate parent company. Prior to consummation of the Plan, wewere a wholly-owned, indirect subsidiary of the entity then known as NTL Incorporated,which, pursuant to the Plan, was renamed “NTL Europe, Inc.” and whichbecame the holding company for the former NTL group’s continental European andcertain other assets.

 

**Historical Structure of the Company**

 

We are a holding company that holds all of the shares of severalcompanies principally engaged in the development, construction, management andoperation of broadband communications networks for telephone, cable televisionand Internet services in the United Kingdom and Ireland. We own the companiesthat have franchises to provide telecommunications services in Darlington andTeesside (collectively “Teesside”) and Cambridge in the UK, andNTL Communications (Ireland) Limited (formerly Cablelink Limited)(“NTL Ireland”), which owns the companies that provide telecommunicationsservices in Dublin, Galway and Waterford, Ireland.

 

In July 1999, the entity then known as NTL CommunicationsCorp. (now NTL Incorporated), which was at that time an indirectwholly-owned subsidiary of NTL Incorporated, acquired NTL Ireland forIR£535.18 million (£421.9 million). In December 1999, the formerNTL Communications Corp. sold its 100% interest in NTL Ireland to usfor £423.6 million in cash. This transaction was accounted for athistorical cost in a manner consistent with a transfer of entities under commoncontrol, which is similar to that used in a “pooling of interests.”Accordingly, our financial statements include the results of NTL Irelandfrom July 1999.

 

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In November 1999, we converted to a Delaware limited liabilitycompany and thereby changed our name to NTL (Triangle) LLC. Under theDelaware Limited Liability Company Act, we are deemed to be the same entity aswe were prior to the conversion.

 

We are an indirect wholly-owned subsidiary of NTL Incorporated, orNTL, and are reliant upon the support of NTL to continue our operations. Ourexecutive office is located at, ntl House, Bartley Wood Business Park, Hook,Hampshire, RG27 9UP, England.

 

The following chart shows on a condensed basis the corporate structureof NTL through which its operations are conducted as of December 31, 2003.This chart does not show NTL’s operating or other intermediate companies.

 

 

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*                                         IncludesDiamond Holdings Limited, or Diamond Holdings, the issuer of the 10% SeniorNotes due 2008 and 9 1/8% Senior Notes due 2008 andDiamond Cable Communications Limited, the guarantor of those series of Notesand the parent company of Diamond Holdings.

 

**                                  Includesthe subsidiaries which secure NTL’s Senior Credit Facility.

 

***                           Includesus, the issuer of the 11.2% Senior Discount Debentures due 2007, and oursubsidiaries.

 

**Exchange rates**

 

The following table sets forth, for the periods indicated, the high,low, period average and period end noon buying rate in the City of New York forcable transfers as certified for customs purposes by the Federal Reserve Bankof New York expressed as US dollars per £1.00. The noon buying rate of theUK pound on March 23, 2004 was $1.85 per £1.00.

 
| **Year Ended December 31,**   |   | **Period End** |   | **Average(1)** |   | **High** |   | **Low** |   |
|------------------------------------|--------|----------------|--------|----------------|--------|----------|--------|---------|--------|
|                               |   |           |   |           |   |     |   |    |   |
| 1999                               |   | 1.62           |   | 1.61           |   | 1.68     |   | 1.55    |   |
| 2000                               |   | 1.49           |   | 1.51           |   | 1.65     |   | 1.40    |   |
| 2001                               |   | 1.45           |   | 1.44           |   | 1.50     |   | 1.37    |   |
| 2002                               |   | 1.61           |   | 1.51           |   | 1.61     |   | 1.41    |   |
| 2003                               |   | 1.78           |   | 1.64           |   | 1.78     |   | 1.55    |   |
| 2004 (through March 23, 2004) |   | 1.85           |   | 1.83           |   | 1.90     |   | 1.79    |   |

 

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(1)                                  Theaverage rate is the average of the noon buying rates on the last day of eachmonth during the relevant period.

 

The above rates may differ from the actual rates used in thepreparation of the consolidated financial statements and other financialinformation appearing in this Annual Report on Form 10-K. Our inclusion ofthese exchange rates is not meant to suggest that the UK pound amountsactually represent these US dollar amounts or that these amounts couldhave been converted into US dollars at any particular rate, if at all.

 

Unless we otherwise indicate, all US dollar amounts as of December 31,2003 are translated to UK pound sterling at an exchange rate of $1.7842 to£1.00, and all amounts disclosed for the year ended December 31, 2003 arebased on an average exchange rate of $1.6348 to £1.00. All amounts disclosed asof December 31, 2002 are based on an exchange rate of $1.6095 to £1.00,and all amounts disclosed for the year ended December 31, 2002 are basedon an average exchange rate of $1.5025 to £1.00. All amounts disclosed as ofDecember 31, 2001 are based on an exchange rate of $1.4543 to £1.00, andall amounts disclosed for the year ended December 31, 2001 are based on anaverage exchange rate of $1.4392 to £1.00.

 

The assets and liabilities of our Irish subsidiary as ofDecember 31, 2003 have been translated to UK pound sterling 

 

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at an exchange rate of £0.706 to €1, and revenues and expenses for theyear ended December 31, 2003 have been translated to UK poundsterling at an exchange rate of £0.6923 to €1. The assets and liabilities ofour Irish subsidiary as of December 31, 2002 have been translated toUK pound sterling at an exchange rate of £0.6514 to €1, and revenues andexpenses for the year ended December 31, 2002 have been translated toUK pound sterling at an exchange rate of £0.6292 to €1. The assets andliabilities of our Irish subsidiary as of December 31, 2001 have beentranslated to UK pound sterling at an exchange rate of £0.612 to €1, andrevenues and expenses for the year ended December 31, 2001 have beentranslated to UK pound sterling at an exchange rate of £0.622 to €1.

 

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**ITEM1.        BUSINESS**

 

**Recent Developments**

 

On March 8, 2004, NTL entered into a commitment letter with CreditSuisse First Boston, Deutsche Bank, AG London, Goldman Sachs International andMorgan Stanley Senior Funding, Inc relating to a £2.425 billion new creditfacility. The commitment by these lenders is subject to customary conditions aswell as the issuance by NTL Cable PLC, a newly-formed wholly-ownedsubsidiary of NTL, of up to approximately £800 million equivalent insterling, US dollar and euro denominations of ten-year senior notes. Theproceeds of the high-yield bond offering, together with the proceeds from thenew credit facility, will be used to repay in full NTL’s existing senior creditfacilities, the existing notes issued by Diamond Holdings and our debentures.The aim of any new financing is to extend the maturity of NTL’s indebtednessand to reduce NTL’s weighted average cost of debt. NTL cannot provide anyassurance that this refinancing transaction will be consummated.

 

**About NTL (Triangle) LLC**

 

We are a holding company that holds all of the shares of severalcompanies principally engaged in the development, construction, management andoperation of broadband communications networks for telephone, cable televisionand Internet services in the United Kingdom and Ireland. We own the companiesthat have franchises to provide telecommunications services in Darlington andTeesside (collectively “Teesside”) and Cambridge in the UK, andNTL Communications (Ireland) Limited (formerly Cablelink Limited)(“NTL Ireland”), which owns the companies that provide telecommunicationsservices in Dublin, Galway and Waterford, Ireland. We are an indirect,wholly-owned subsidiary of NTL and we are reliant upon the support of NTL andits subsidiaries to continue our operations.

 

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**ITEM2.        PROPERTIES**

 

We do not own or lease any significant real or personal property otherthan through our subsidiaries Teesside, Cambridge and NTL Ireland.

 

Teesside, Cambridge and NTL Ireland own their cable and telephoneplant and equipment and generally own or lease, under long-term leases, thehead-end and switching node sites. We believe that our subsidiaries’ facilitiesare adequate to serve their existing customers.

 

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**ITEM3.        LEGAL PROCEEDINGS**

 

We are subject to legal proceedings and claims that arise in theordinary course of our business, none of which is expected to have a materialadverse effect on our financial position, results of operations or liquidity.

 

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

 

Omitted pursuant to General Instruction I(2)(c) to Form 10-K.

 

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**PARTII**

 

**ITEM 5.        MARKETFOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS**

 

We are an indirect wholly-owned subsidiary of NTL and there is nomarket for our membership interests.

 

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**ITEM 6.        SELECTEDFINANCIAL DATA**

 

The selected consolidated financial information of NTL (Triangle) LLCpresented below under the captions income statement data for the years endedDecember 31, 2003, 2002, 2001, 2000 and 1999, and balance sheet data as ofDecember 31, 2003, 2002, 2001, 2000 and 1999 was derived from ourconsolidated financial statements audited by Ernst & Young LLP. Thisinformation should be read in conjunction with the consolidated financialstatements and notes thereto and the information contained in our ManagementDiscussion and Analysis appearing elsewhere in this Annual Report. Historicalresults are not necessarily indicative of future results.

 
|                               |   | **Year Ended  December 31,** |    |
|------------------------------------|--------|-----------------------------------|---------|
|                               |   | **2003**                          |    | **2002** |   | **2001** |   | **2000** |   | **1999(2)** |   |
|                               |   | **(in  £’000s)**        |    |
|                               |   |                              |    |   |   |   |   |   |   |   |   |
| **Income Statement  Data:**        |   |                              |    |   |   |   |   |   |   |   |   |
| Revenue                            |   | £                            | 217,408 |   | £ | 194,241 |   | £ | 180,893 |   | £ | 160,734 |   | £ | 118,963 |   |
| Operating income (loss)(1)         |   | 367                               |    | (69,427 | ) | (381,049 | ) | (80,556 | ) | (35,999 | ) |
| Equity in net losses of affiliates |   | —                            |    | — |   | — |   | — |   | (6,801 | ) |
| Net (loss) income                  |   | (10,116                           | )       | (70,056 | ) | (431,048 | ) | (139,424 | ) | 329,465 |   |
|                                    |        |                                   |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                               |   | **Year Ended  December 31,** |    |
|----------------------------------------------------|--------|-----------------------------------|---------|
|                                               |   | **2003**                          |    | **2002** |   | **2001** |   | **2000** |   | **1999(2)** |   |
|                                               |   | **(in £’000s)**         |    |
|                                               |   |                              |    |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                            |   |                              |    |   |   |   |   |   |   |   |   |
| Working capital (deficit)                          |   | £                            | (17,184 | ) | £ | (361,462 | ) | £ | (355,147 | ) | £ | (60,568 | ) | £ | (9,467 | ) |
| Total Assets                                       |   | 483,655                           |    | 517,121 |   | 602,729 |   | 920,605 |   | 901,269 |   |
| Long-term debt including loans from  affiliates(3) |   | 372,554                           |    | 398,242 |   | 426,106 |   | 374,972 |   | 293,285 |   |
| Member’s capital                              |   | 48,811                            |    | 38,116 |   | 107,058 |   | 439,627 |   | 547,975 |   |
|                                                    |        |                                   |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Beginning in thefourth quarter of 1999, a subsidiary of NTL Incorporated began charging us forinfrastructure and management support services. We were charged£72.1 million, £70.0 million, £60.8 million, £29.7 millionand £2.9 million in 2003, 2002, 2001, 2000 and 1999, respectively. Thesecharges represent our portion of costs incurred by this subsidiary of NTL forthe benefit of all UK operations within NTL. The charges are made on the basisof an allocation formula appropriate to each category of charge. In the fourthquarter of 2001, we incurred asset impairment charges of £291.6 millionand other charges of £5.7 million. In the fourth quarter of 2002, weincurred asset impairment charges of £19.3 million.

 

(2)                                  In 1999, we sold our50.0% ownership interest in Cable London to Telewest Communications plc for£428.0 million and recognized a gain on the sale of £404.8 million.In addition, the results of operations and financial position include NTLIreland beginning July 1999.

 

(3)                                  As ofDecember 31, 2002 and 2001 there was long-term debt of £323,045,000 and£358,150,000, respectively classified as current.

 

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**ITEM 7.        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Overview**

 

We are a limited liability company established under the laws of theState of Delaware. We are the holding company of subsidiaries that operatebroadband and communications services providing telephone, cable television andInternet services to the home, as well as data, voice and Internet services tobusinesses in the Republic of Ireland and in the East Anglia and North Easternregions of the UK. These interests are held through our subsidiaries CambridgeHolding Company Limited and ntl Communications (Ireland) Limited. We are awholly-owned subsidiary of NTL and we are reliant upon the support of NTL andits subsidiaries to continue our operations.

 

**Selected Operating Data**

 

We set forth in the table below certain of our operating data atDecember 31, 2003 and 2002.

 
|                            |   | **UK  Franchises**          |   | **NTL  Ireland**            |   |
|---------------------------------|--------|-----------------------------|--------|-----------------------------|--------|
|                            |   | **December 31,  2003** |   | **December 31,  2002** |   | **December 31,  2003** |   | **December 31,  2002** |   |
|                            |   |                        |   |                        |   |   |   |   |   |
| Homes passed(1)                 |   | 563,000                     |   | 563,000                     |   | 463,700 |   | 474,900 |   |
| Homes marketable(2)             |   | 520,197                     |   | 503,800                     |   | 463,700 |   | 474,900 |   |
| Total customers(3)              |   | 278,718                     |   | 275,618                     |   | 327,200 |   | 368,512 |   |
| Digital cable subscribers       |   | 88,249                      |   | 79,258                      |   | 58,600 |   | 38,051 |   |
| Analog cable subscribers        |   | 35,825                      |   | 45,415                      |   | 268,600 |   | 311,476 |   |
| MATV/MMDS subscribers(4)        |   | 18,222                      |   | 17,784                      |   | — |   | — |   |
| Broadband internet subscribers  |   | 104,933                     |   | 61,331                      |   | 3,700 |   | 1,737 |   |
| Dial-up internet subscribers    |   | 44,842                      |   | 58,128                      |   | 2,400 |   | 2,500 |   |
| Telephone subscribers           |   | 245,452                     |   | 247,221                     |   | 2,400 |   | 6,436 |   |
| Penetration (homes marketed)(5) |   | 53.6                        | %      | 54.7                        | %      | 70.6 | % | 77.6 | % |
| Annualized Churn(6)             |   | 13.1                        | %      | 15.7                        | %      | 16.1 | % | 7.7 | % |

 

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(1)                                  Homes passed is thenumber of homes that have had ducting buried outside.

 

(2)                                  Homes marketablerefers to the number of homes within our service area that can potentially beserved by our network with minimal connection costs. This is lower than homespassed owing to restrictions imposed by some landlords on accessing some multi-tenantbuildings.

 

(3)                                  NTL Ireland hasintroduced a more rigorous credit policy that led to the involuntarydisconnection of certain customers. This did not have a significant overallimpact on our results of operations or cash flows.

 

(4)                                  Master AntennaTelevision (MATV) subscribers and Multi-channel Multi-point Distribution System(MMDS) subscribers. NTL Ireland offers MMDS television to 70,000 marketablehomes and had 12,718 digital and 4,377 analog MMDS customers atDecember 31, 2003, and had 18,900 MMDS customers at December 31,2002, which are not included in the above statistics.

 

(5)                                  Penetration ratemeasures the number of subscribers for our services divided by the number ofmarketable homes that our services pass.

 

(6)                                  Our customer churnrate is calculated by dividing the number of customers lost in the most recentquarter, multiplied by four, by the average total number of customers weserviced during that quarter.

 

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**Critical Accounting Policies**

 

Our consolidated financial statements and related financial informationare based on the application of accounting principles generally accepted in theUnited States, or GAAP. GAAP requires the use of estimates, assumptions,judgements and subjective interpretations of accounting principles that have animpact on the assets, liabilities, revenues and expense amounts reported, aswell as disclosures about contingencies, risk and financial condition. Thefollowing critical accounting policies have the potential to have a moresignificant impact on our financial statements. An impact could occur becauseof the significance of the financial statement item to which these policiesrelate, or because these policies require more judgement and estimation than othermatters owing to the uncertainty related to measuring, at a specific point intime, transactions that are continuous in nature.

 

***FixedAssets:***

 

•                                          Fixedassets, net, totaled £421.4 million and £444.7 million, representing87.1% and 86.0% of total assets at December 31, 2003 and December 31,2002, respectively. Fixed assets, net are stated at cost less accumulateddepreciation.

 

•                                          Thecost of fixed assets includes amounts capitalized for labor and overheadexpended in connection with the design and installation of our operatingnetwork equipment and facilities. Costs associated with initial customerinstallations, additions of network equipment necessary to enable advancedservices, acquisition of additional fixed assets and replacement of existingfixed assets are capitalized. The costs of reconnecting the same service to apreviously installed premise are charged to expense in the period incurred.Costs for repairs and maintenance are charged to expense as incurred.

 

•                                          Weassign fixed assets and intangible assets useful lives that impact the annualdepreciation and amortization expense. The assignment of useful lives involvessignificant judgements and the use of estimates. Our managers use theirexperience and expertise in applying judgements about appropriate estimates.Changes in technology or changes in intended use of these assets may cause theestimated useful life to change, resulting in higher or lower depreciationcharges or asset impairment charges.

 

***Impairmentof Long-lived Assets:***

 

We review the carrying values of our long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying valuesmay not be recoverable. We assess the recoverability of the carrying value oflong-lived assets by first grouping our long-lived assets with other assets andliabilities at the lowest level for which identifiable cash flows are largelyindependent of the cash flows of other assets and liabilities (the asset group)and, secondly, estimating the undiscounted future cash flows that are directlyassociated with and expected to arise from the use of and eventual dispositionof such asset group. We estimate the undiscounted cash flows over the remaininguseful life of the primary asset within the asset group. If the carrying value ofthe asset group exceeds the estimated undiscounted cash flows, we record animpairment charge to the extent the carrying value of the long-lived assetexceeds its fair value. We determine fair value through quoted market prices inactive markets or, if quoted market prices are unavailable, through theperformance of internal analysis of discounted cash flows or externalappraisals. The undiscounted and discounted cash flow analyses are based on anumber of estimates and assumptions, including the expected period over whichthe asset will be utilized, projected future operating results of the assetgroup, discount rate and long-term growth rate.

 

Goodwill, license acquisition costs and other intangible assets thatare not amortized are reviewed for impairment each year.

 

As of December 31, 2003, we reviewed our long-lived assets forimpairment. We engaged an independent financial adviser to assist in theimpairment review. The independent financial adviser and we determined thatthere was no impairment of our long-lived assets as of December 31, 2003.This determination was based upon various valuation methods, includingdiscounted cash flow analysis, selected comparable market multiples of publiclytraded companies and other applicable ratios and economic information relevantto our operations. Some factors that were incorporated into the impairmentreview included the following:

 

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•                                          10 yearcash flow projections.

 

•                                          Corporateincome tax rates of 30% in the UK and 12.5% in Ireland.

 

•                                          Presentvalue discount factors of between 13.0% and 15.0%.

 

•                                          Residualvalue representing the sum of the value beyond 10 years into perpetuitycalculated using the Gordon Growth Model.

 

Our assessments of impairment of long-lived assets and our periodicreview of the remaining useful lives of our long-lived assets are an integralpart of our ongoing strategic review of the business and operations. Futurechanges in our strategy and other changes in our operations could impact theprojected future operating results that are inherent in our estimates of valueof long-lived assets could change and, therefore, impact the assessments ofimpairment in the future. Additionally, other changes in the estimates andassumptions, including the discount rate and expected long-term growth rate,which drive the valuation techniques employed to estimate the fair value oflong-lived assets could change and, therefore, impact the assessments ofimpairment in the future.

 

***Revenue:***

 

We recognize revenue only when it is realized or realizable and earned.We recognize revenue when all of the following are present:

 

•                                          persuasiveevidence that an arrangement exists between us and our customers;

 

•                                          deliveryhas occurred or the services have been rendered;

 

•                                          theprice for the service is fixed or determinable; and

 

•                                          collectibilityis reasonably assured.

 

Revenues are invoiced and recorded as part of a periodic billing cycle,and are recognized as the services are provided. At the end of each period,adjustments are recorded to defer revenue relating to services billed inadvance and to accrue for earned but unbilled services.

 

•                                          *Telephone service and cable television revenues*are recognized as the services are provided to customers.

 

•                                          *Rental revenue* in respect of line rentalsand rental of equipment provided to customers is recognized on a straight-linebasis over the term of the rental agreement.

 

•                                          *Internet revenue* in respect of broadbandservices provided to customers is recognized as the service is provided.

 

•                                          *Bundled services revenue* is recognized atthe time the services are provided to the customer or the performance of all ofthe services have been completed. We apply the provisions of EITFNo. 00-21 “*Accounting for RevenueArrangements with Multiple Deliverables*” to assess whether thecomponents of the bundled services should be recognized separately.

 

•                                          *Installation revenues* are recognized atthe time the installation has been completed to the extent that those fees areless than direct selling costs. Installation fees in excess of direct sellingcosts are deferred and amortized over the expected life of the customer’sconnection. We apply the provisions of SFAS No. 51 “*Financial Reporting by Cable Television Companies*”in relation to connection and activation fees for telephone service andinternet services, as well as cable television services, on the basis that wemarket and maintain a unified fiber network through which we provide all ofthese services.

 

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***Pensions:***

 

We account for our defined benefit pension plan using Statement ofFinancial Accounting Standards, SFAS No. 87, *Employers’ Accounting for Pensions*and the disclosure rulesunder SFAS No. 132 (Revised) *Employers’Disclosures about Pensions and Other Postretirement Benefits, an Amendment ofFASB Statements 87, 88 and 106*. Under SFAS No. 87, pensionexpense is recognized on an accrual basis over employees’ approximate serviceperiods. Pension expense calculated under SFAS No. 87 is generallyindependent of funding decisions or requirements. We recognized expense for ourdefined benefit pension plans of £0.2 million and £0.1 million in2003 and 2002, respectively. We expect our pension expense to be approximately£0.2 million in 2004.

 

The calculation of pension expense and our pension liability requiresthe use of a number of assumptions. Changes in these assumptions can result indifferent expense and liability amounts, and future actual experience candiffer from the assumptions. We believe that the two most critical assumptionsare the expected long-term rate of return on plan assets and the assumeddiscount rate.

 

When calculating pension expense for 2003 and 2002, we assumed thatplan assets would generate a long-term rate of return of 7.9%. We determine ourexpected long-term rate of return assumption based on historical experience andby evaluating input from the trustee managing the plan assets, including thetrustee’s review of asset class return expectations by several consultants andeconomists as well as long-term inflation assumptions. Our expected long-termrate of return on plan assets is based on a target allocation of assets, whichis based on our goal of earning the highest rate of return while maintainingrisk at acceptable levels. The plan strives to have assets sufficientlydiversified so that adverse or unexpected results from one security class willnot have an unduly detrimental impact on the entire portfolio.

 

We discounted our future pension obligations using a rate of 6.0% atDecember 31, 2003 and 2002. We determined the appropriate discount ratebased on the current rates earned on long-term bonds that receive one of thetwo highest ratings given by a recognized rating agency. The pension liabilityand future pension expense both increase as the discount rate is reduced.Lowering the discount rate by 0.5% would increase our pension liability atDecember 31, 2003 by approximately £0.7 million.

 

Future changes in plan asset returns, assumed discount rates andvarious other factors related to the participants in our pension plans willimpact our future pension expense and liabilities. We cannot predict withcertainty what these factors will be in the future.

 

At December 31, 2003, projected benefit obligations of our pensionplan exceeded plan assets by £1.2 million. We will need to fund thisdeficit in accordance with the laws and regulations of the Republic of Ireland.

 

***OtherPolicies:***

 

•                                          Asubsidiary of NTL provides infrastructure and management support services tous. The related charges represent our portion of costs incurred by thesubsidiary of NTL for the benefit of all UK operations within NTL. The chargesare made on the basis of an allocation formula appropriate to each category ofcharge.

 

•                                          Wemaintain allowances for doubtful accounts and other receivables to reflectestimated losses resulting from the potential inability of our customers tomake payments. These allowances are estimated based on the current aging ofreceivables, prior collection experience and future expectations of conditionsthat might impact the collectibility. If the financial condition of ourcustomers were to deteriorate resulting in an impairment in their ability tomake payments, additions to the allowances may be required.

 

•                                          Ourdetermination of the treatment of contingent liabilities in the financialstatements is based on a view of the expected outcome of the applicablecontingency. We consult legal counsel on matters related to litigation. Weconsult both internal and external experts with respect to other matters thatarise in the ordinary course of business. Examples of these matters that arebased on assumptions, judgments and estimates include amounts to be paid toterminate some agreements included in restructuring charges and the amounts tobe paid to settle some other liabilities. A liability is accrued if thelikelihood of occurrence of an adverse outcome is probable and the amount iscapable of estimation.

 

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•                                          Weincur interconnection and related costs from other carriers relating to theprovision of telephone services. These carriers can make retrospectiveadjustments to charges for these services which requires us to estimate certaincharges for a particular period. Actual charges may differ from thoseestimated.

 

**Results of Operations**

 

We derive our revenue principally from monthly fees and usage charges.Our packaging of services and pricing are designed to encourage our customersto use multiple services like dual telephone and broadband, dual telephone andtelevision or triple telephone, television and Internet access.

 

The principal components of our operating costs and selling, generaland administrative expenses include payroll and other employee related costs;interconnection costs paid to other carriers related to telephone services;television programming costs; marketing and selling costs; repairs andmaintenance; facility related costs, such as rent, utilities and rates; andallowances for doubtful accounts. A significant portion of our costs is chargedto us by a subsidiary of NTL. These charges include costs for the provision ofnetwork services and support, the use of NTL’s national backbone telephonenetwork for carriage of our telephone traffic, as well as the provision oftechnical infrastructure and network capacity by NTL for our subscriptionInternet service and digital cable services, the provision of corporateservices, including finance, legal, human resources and facility services, andfor the provision of IT services, including our use of the related ITequipment.

 

***Factors affectingour business***

 

*Customer Churn.*  An increase in our customer churn can leadto increased costs and reduced revenues. We continue to focus on improving ourcustomer service and enhancing and expanding our service offerings to existingcustomers in an effort to manage our customer churn rate. Customer churn is ameasure of the number of customers who stop using our services. Our annualizedcustomer churn rate is calculated by dividing the number of customers lost inthe most recent quarter, multiplied by four, by the average total number ofcustomers we serviced during that quarter. Although our ability to reduce ourcustomer churn rate beyond a base level is limited by factors like customersmoving outside our network service area, in particular during the summerseason, managing our customer churn rate is a significant component of ourbusiness plan. To help meet these objectives, NTL needs to integrate itsbilling systems and customer databases, including ours, across its entirenetwork. Although NTL is in the process of integrating its billing systems andcustomer databases, including ours, there can be no assurance that it will besuccessful in reaching this goal. In addition, our customer churn rate may alsoincrease if we are unable to deliver our services over our network withoutinterruption.

 

*Competition.*  Our ability to acquire and retain customersand increase revenues depends on our competitive strength. There is significantcompetition in our markets through digital satellite offered by BSkyB anddigital terrestrial television offered by Freeview, as well as throughalternative Internet access services, like DSL, which is offered by BT. Ifcompetitive forces prevent us from charging the prices for these services thatwe plan to charge, or if our competition is able to attract our customers orpotential customers we are targeting, our results of operations will beadversely affected.

 

*Capital Expenditures.*  Our business requires substantial capitalexpenditures on a continuing basis for various purposes, including expandingand upgrading our network, investing in new customer acquisitions, and offeringnew services. If we do not continue to invest in our network, our ability to retainand acquire customers may be hindered. Therefore, our liquidity and theavailability of cash to fund capital projects are important drivers of ourrevenues. When our liquidity is restricted, so is our ability to meet ourcapital expenditure requirements. We believe that our cash on hand, togetherwith cash from operations and cash from NTL, will be sufficient for our cashrequirements in 2004. However, our cash requirements after that time mayexceed, perhaps significantly, these sources of cash.

 

*Currency Movements.*  We encounter currency exchange rate risksbecause substantially all of our revenues and operating costs are earned andpaid primarily in pounds but we pay interest and principal obligations withrespect to a portion of our existing indebtedness in US dollars. To the extentthat the pound declines in value against the US dollar, the effective cost ofservicing our US dollar debt will be higher. Changes in the exchange rateresult in foreign currency gains or losses.

 

*Seasonality.*  Certain revenue streams are subject toseasonal factors. For example, telephone usage revenues in ntl: home and ntl:business tend to be slightly lower during summer holiday months. Our customerchurn rates include persons who

 

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disconnect service owing to moves, resulting in a seasonal increase inour churn rates during the summer months when higher levels of UK house movesoccur and students leave their accommodations between school years.

 

*Integration of Billing Systems.*  NTL is in the process of integrating itsvarious billing systems and customer databases, including ours, in an effort toimprove one of the main tools it uses to provide customer service. NTL hasnumerous billing systems and customer databases owing to the many acquisitionsit has made. NTL is seeking to complete this integration by late 2004. Thetotal project cost is estimated to be approximately £75 million of whichNTL incurred approximately £55 million through December 31, 2003.Approximately £33 million of this amount was incurred in 2003. If theintegration is not successful, we could experience an adverse effect on ourcustomer service, customer churn rate and costs of maintaining these systemsgoing forward. We could also experience operational failures related to billingand collecting revenues from our customers which, depending upon on theseverity of the failure, could have a material adverse effect on our business.

 

***YearsEnded December 31, 2003 and 2002***

 

We present below summarized consolidated financial information for theyears ended December 31, 2003 and 2002 (in £’000s):

 

 
|                                        |   | **Year Ended  December 31,** |    | **Increase  (decrease)** |   |
|---------------------------------------------|--------|-----------------------------------|---------|--------------------------|--------|
|                                        |   | **2003**                          |    | **2002**                 |   | **£** |   | **%** |   |
|                                        |   |                              |    |                     |   |   |   |   |   |
| Revenues                                    |   | £                            | 217,408 |                     | £ | 194,241 |   | 23,167 |   | 11.9 |   |
| Operating costs                             |   | (83,333                           | )       | (88,632                  | )      | (5,299 | ) | (6.0 | ) |
| Selling, general and adminstrative expenses |   | (68,224                           | )       | (67,744                  | )      | 480 |   | 0.7 |   |
| Asset impairment                            |   | —                            |    | (19,301                  | )      | (19,301 | ) | (100.0 | ) |
| Other charges                               |   | (1,676                            | )       | (14,275                  | )      | (12,599 | ) | (88.3 | ) |
| Depreciation and amortization               |   | (63,808                           | )       | (73,716                  | )      | (9,908 | ) | (13.4 | ) |
| Operating income (loss)                     |   | 367                               |    | (69,427                  | )      | (69,794 | ) | (100.5 | ) |
| Interest expense                            |   | (39,984                           | )       | (38,832                  | )      | 1,152 |   | 3.0 |   |
| Interest expense to affiliate               |   | (2,984                            | )       | (3,130                   | )      | (146 | ) | (4.7 | ) |
| Interest income                             |   | 500                               |    | 1,177                    |   | (677 | ) | (57.5 | ) |
| Exchange gains                              |   | 32,420                            |    | 35,019                   |   | (2,599 | ) | (7.4 | ) |
| (Loss) before income taxes                  |   | (9,681                            | )       | (75,193                  | )      | (65,512 | ) | (87.1 | ) |
| Income tax (expense) benefit                |   | (435                              | )       | 5,137                    |   | (5,572 | ) | (108.5 | ) |
| Net (loss)                                  |   | £                            | (10,116 | )                        | £ | (70,056 | ) | (59,940 | ) | (85.6 | ) |

 

*Revenues*

 

Revenue increased by 11.9% to £217.4 million in 2003 from£194.2 million in 2002. Between 2002 and 2003, we have introduced a numberof price increases resulting in an improvement in our revenues. Furthermore, wehave sold additional services to our existing customers and gained morebroadband subscribers. We expect revenue increases in the future to be achievedby further growth in services such as digital television and broadbandservices.

 

*Expenses*

 

*Operating Costs.*  Operating costs decreased by 6.0% to£83.3 million in 2003 from £88.6 million in 2002. Operating costs asa percentage of revenue reduced to 38.3% in 2003 from 45.6% in 2002. We havebenefited from the efficiencies that NTL has gained in the negotiatedreductions in the costs of television programming and reductions in the costsof interconnection owing to the more effective routing of outbound traffic. Inaddition, we have also benefited from a release of certain accruals in respectof favorable resolutions by NTL of billing matters with certain providers ofinterconnect related services. Our operating costs include certain costs thatare charged by a subsidiary of NTL for the provision of network services andsupport, the use of NTL’s national backbone telephone network for carriage ofour telephone traffic, as well as the provision

 

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of technical infrastructure and network capacity by NTL for ourbroadband Internet service and digital cable television services. In 2003 and2002, we were charged £27.2 million and £26.9 million, respectivelyfor these services.

 

*Selling, general and administrative expenses.*    Selling, general and administrativeexpenses increased 0.7% to £68.2 million in 2003 from £67.7 million in2002. However, selling, general and administrative expenses as a percentage ofrevenue reduced to 31.4% in 2003 from 34.9% in 2002. Our selling, general andadministrative expenses include certain costs that are charged by a subsidiaryof NTL for the provision of corporate services, including finance, legal, humanresources and facility services, and for the provision of IT services,including our use of the related IT equipment. In 2003 and 2002, we werecharged £44.9 million and £43.1 million, respectively, for theseservices. The increase in the amounts charged to us resulted from moremarketing and selling activities in 2003, together with higher employee relatedcosts associated with incentive compensation plans. These increases have beenpartly offset by further operational savings.

 

*Asset impairment charges*

 

There were no asset impairment charges in 2003. Asset impairmentcharges of £19.3 million in 2002 were non-cash charges to write-downcertain assets to their estimated fair values based on an assessment that theircarrying value was not recoverable. These charges included license acquisitioncosts of £18.0 million and goodwill of £1.3 million, and weredetermined in accordance with SFAS No. 142.

 

*Other charges*

 

Other charges of £1.7 million in 2003 include £0.9 million ofrestructuring costs incurred by NTL Ireland comprising £0.4 million ofemployee severance for five employees, none of whom are employed by NTL Irelandas of December 31, 2003 and £0.5 million for lease exit costs. Costsof £0.8 million were allocated to us by a subsidiary of NTL. The allocatedcosts are for employee severance and related costs. Other charges of£14.3 million in 2002 include £7.5 million of restructuring costsincurred by NTL Ireland and £6.8 million allocated to us by a subsidiaryof NTL. The restructuring costs incurred by NTL Ireland include£1.1 million of employee severance for 55 employees, none of whom areemployed by NTL Ireland as of December 31, 2003, £1.4 millionfor lease exit costs and £5.0 million for a non-cash write-off of fixedassets. The allocated costs include £4.1 million of employee severance andrelated costs and £2.7 million of recapitalization expense. Chargesallocated to us by a subsidiary of NTL are made on the basis of an allocationformula appropriate to each category of charge that is based on management’sjudgement of a reasonable methodology given the facts and circumstances.

 

The following table summarizes NTL Ireland’s restructuring chargesincluded in other charges that were incurred and utilized in 2003 and 2002 (in£’000s).

 

 

 
|                                               |   | **Employee  severance  and related costs** |   | **Lease exit  costs** |   | **Other** |   | **Total** |   |
|----------------------------------------------------|--------|--------------------------------------------|--------|-----------------------|--------|-----------|--------|-----------|--------|
|                                               |   |                                       |   |                  |   |      |   |      |   |
| Balance, December 31, 2001                    |   | £                                     | 249    |                  | £ | —    |   | £    | — |   | £ | 249 |   |
| Charged to expense                                 |   | 1,139                                      |   | 1,390                 |   | 5,008     |   | 7,537     |   |
| Utilized                                           |   | (1,388                                     | )      | (121                  | )      | (5,008    | )      | (6,517    | )      |
| Balance, December 31, 2002                    |   | —                                     |   | 1,269                 |   | —    |   | 1,269     |   |
| Charged to expense                                 |   | 393                                        |   | 496                   |   | —    |   | 889       |   |
| Utilized                                           |   | (393                                       | )      | (330                  | )      | —    |   | (723      | )      |
| Foreign currency exchange translation  adjustments |   | —                                     |   | 141                   |   | —    |   | 141       |   |
| Balance, December 31, 2003                    |   | £                                     | — |                  | £ | 1,576     |   | £    | — |   | £ | 1,576 |   |

 

*Depreciation and amortization expense*

 

Depreciation and amortization expense decreased by 13.4% to£63.8 million in 2003 from £73.7 million in 2002. During 2003, weevaluated the remaining useful economic lives of our fixed assets. As ofJanuary 1, 2004, we adopted new

 

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useful economic lives. The impact on the annual depreciation expenseupon the adoption of new lives is estimated to increase by approximately£5.3 million in 2004.

 

*Interest expense*

 

Interest expense increased 3.0% to £40.0 million in 2003 from£38.8 million in 2002 and interest expense to affiliate decreased 4.7% to£3.0 million in 2003 from £3.1 million in 2002. We incur interest onour 2007 Senior Discount Debentures, which are denominated in US dollars, aswell as interest on our capital lease obligations. Movements in our interestexpense principally result from fluctuations in the US dollar/UK pound sterlingexchange rate. We also incur interest on NTL Ireland’s loan from an affiliate ofNTL, which is denominated in Euros and the interest rate of which is based onEURIBOR. Movements in interest expense to affiliates result from fluctuationsin the Euro/UK pound sterling exchange rate and movements in the EURIBOR rate.We paid interest in cash of £35.5 million in 2003, and £41.7 millionin 2002.

 

*Exchange gains*

 

In 2003, exchange gains were £32.4 million compared with exchangegains of £35.0 million in 2002. Exchange gains result primarily from theimpact of fluctuations in the UK pound sterling value of our 2007 DiscountDebentures, which are denominated in US dollars. Our results of operations willcontinue to be affected by exchange rate fluctuations.

 

*Income tax benefit (expense)*

 

For the year ended December 31, 2003, income tax expense was£0.4 million as compared with income tax benefit of £5.1 million in2002.

 

*Net (loss)*

 

For the year ended December 31, 2003, net loss was£10.1 million as compared with a net loss of £70.1 million in 2002.The reduction in net loss is attributable to our improved operatingperformance, a reduction in restructuring charges for employee severance; andthe occurrence in 2002 of items that were not repeated in 2003, includinglong-lived asset impairments.

 

***Years EndedDecember 31, 2002 and 2001***

 

We present below summarized consolidated financial information for theyears ended December 31, 2002 and 2001 (in £’000s):

 
|                                        |   | **Year Ended  December 31,** |    | **Increase  (decrease)** |   |
|---------------------------------------------|--------|-----------------------------------|---------|--------------------------|--------|
|                                        |   | **2002**                          |    | **2001**                 |   | **£** |   | **%** |   |
|                                        |   |                              |    |                     |   |   |   |   |   |
| Revenues                                    |   | £                            | 194,241 |                     | £ | 180,893 |   | 13,348 |   | 7.4 |   |
| Operating costs                             |   | (88,632                           | )       | (86,207                  | )      | 2,425 |   | 2.8 |   |
| Selling, general and adminstrative expenses |   | (67,744                           | )       | (77,551                  | )      | (9,807 | ) | (12.6 | ) |
| Asset impairment                            |   | (19,301                           | )       | (291,617                 | )      | (272,316 | ) | (93.4 | ) |
| Other charges                               |   | (14,275                           | )       | (5,651                   | )      | 8,624 |   | 152.6 |   |
| Depreciation and amortization               |   | (73,716                           | )       | (100,916                 | )      | (27,200 | ) | (27.0 | ) |
| Operating (loss)                            |   | (69,427                           | )       | (381,049                 | )      | (311,622 | ) | (81.8 | ) |
| Interest expense                            |   | (38,832                           | )       | (40,466                  | )      | (1,634 | ) | (4.0 | ) |
| Interest expense to affiliate               |   | (3,130                            | )       | (2,951                   | )      | 179 |   | 6.1 |   |
| Interest income                             |   | 1,177                             |    | 504                      |   | 673 |   | 133.5 |   |
| Exchange gains (losses)                     |   | 35,019                            |    | (10,353                  | )      | 45,372 |   | 438.2 |   |
| (Loss) before income taxes                  |   | (75,193                           | )       | (434,315                 | )      | (359,122 | ) | (82.7 | ) |
| Income tax benefit                          |   | 5,137                             |    | 3,267                    |   | 1,870 |   | 57.2 |   |
| Net (loss)                                  |   | £                            | (70,056 | )                        | £ | (431,048 | ) | (360,992 | ) | (83.7 | ) |

 

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*Revenues*

 

Revenues increased 7.4% to £194.2 million in 2002 from£180.9 million in 2001 despite total customers falling in 2002 owing tocapital constraints including reduced capital expenditures to connect newcustomers. The rise in revenue is a result of price increases including theintroduction of charges for our dial-up Internet service (which was previouslyavailable without charge), upselling additional services to customers and fromgrowth in broadband subscribers.

 

*Expenses*

 

*Operating costs.*    Operating costs increased 2.8% to£88.6 million in 2002 from £86.2 million in 2001. However, operatingcosts as a percentage of revenue reduced to 45.6% in 2002 from 47.7% in 2001.This reduction resulted from further economies and efficiencies achieved by NTLfrom integrating our business into the rest of NTL’s UK business. In absoluteterms, operating costs increased from 2001 to 2002 as a result of increases ininterconnection and programming costs owing to usage. Operating costs includecertain costs which are charged by a subsidiary of NTL for the provision ofnetwork services and support, the use of NTL’s national backbone telephonenetwork for carriage of our telephone traffic, as well as the provision of thetechnical infrastructure and network capacity by NTL for our Internet service.In 2002 and 2001, these charges were £26.9 million and £21.3 million,respectively. We have reduced direct transactions with third parties as aresult of the continued integration with NTL. As a result, costs arisingdirectly from third parties declined significantly in 2002, with a rise in thecosts charged from a subsidiary of NTL. Furthermore, commencing the firstquarter of 2002, a subsidiary of NTL began charging us for broadband anddigital television services. In 2002, these charges totaled £2.5 millionand £1.8 million, respectively.

 

*Selling, general and administrative expenses.*    Selling, general and administrativeexpenses decreased 12.6% to £67.7 million in 2002 from £77.6 millionin 2001. Selling, general and administrative expenses as a percentage ofrevenue reduced to 34.9% in 2002 from 42.9% in 2001. These reductions were theresult of further economies of scale and efficiencies achieved by NTL from integratingour business into the rest of NTL’s UK business. Selling, general andadministrative expense includes certain costs which are charged by a subsidiaryof NTL for the provision of corporate services, including finance, legal, HRand facility services, and for the provision of IT services, including our useof the related IT equipment. These charges were £43.1 million and£39.5 million in 2002 and 2001, respectively. The increase in thesecharges is partly owing to the continued integration with NTL. We have reducedour costs incurred directly from third parties, with a rise in the costscharged by a subsidiary of NTL. Also, the increase is partly owing to a rise inthe charge for our use of IT and other capital equipment. During 2002, thischarge increased by approximately £2.9 million. Approximately£1.2 million of this increase was an expense related to the write-off ofcertain projects that had been abandoned.

 

Furthermore, the costs charged by a subsidiary of NTL in 2002 wereaffected by the following:

 

•                                          asa result of capital constraints imposed on its business, NTL reduced itsexpenditure in a number of areas, including those related to expanding itscustomer base, and those related to service arrangements with third partiesthat provide capital improvements as part of their services. These measures, aswell as the significant restructuring of NTL’s business in 2002 in terms ofheadcount reduction and departmental reorganization, have caused NTL toreassess whether for some 2002 expenditures, assumptions and estimates relatingto the allocation of those costs between capital and operating expense need tobe revised. The result of this reassessment was to increase our costs in 2002by £2.9 million; and

 

•                                          duringthe year NTL undertook a review of certain balance sheet accounts whichidentified that there were provisions that were no longer necessary in light ofthe resolution of the issues and other liabilities that such provisions soughtto address. The review resulted in a decrease in our costs by£3.0 million.

 

*Asset impairment charges*

 

Asset impairment charges were £19.3 million and£291.6 million in 2002 and 2001, respectively. Asset impairment charges of£19.3 million in 2002 are non-cash charges to write-down certain assets totheir estimated fair values based on an

 

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assessment that their carrying value was not recoverable. These chargesinclude license acquisition costs of £18.0 million and goodwill of£1.3 million, and were determined in accordance with SFAS No. 142.Asset impairment charges of £291.6 million in 2001 were the result of ananalysis and review of the recoverability of our long-lived assets andassociated goodwill that indicated that the carrying value of certain assetswould not be recoverable. We recognized a charge of £291.6 million in thefourth quarter of 2001 relating to the write-down of goodwill from the 1999acquisition of NTL Ireland.

 

*Other charges*

 

Other charges of £14.3 million in 2002 include £7.5 millionof restructuring costs incurred by NTL Ireland and £6.8 million of costsallocated to us by a subsidiary of NTL. These allocated costs include£4.1 million of employee severance and related costs and £2.7 millionof recapitalization expenses. Other charges of £5.7 million in 2001 wereallocated to us by a subsidiary of NTL. The 2001 charges include£4.2 million in costs related to information technology integration andfor business rationalization consulting, plus £1.5 million for ourallocated share of NTL UK’s restructuring costs. The charges by a subsidiary ofNTL are made on the basis of an allocation formula appropriate to each categoryof charge that is based on management’s judgement of a reasonable methodologygiven the facts and circumstances.

 

The following table summarizes NTL Ireland’s restructuring chargesincluded in other charges that were incurred and utilized in 2001 and 2002. Theemployee severance and related costs in 2001 and 2002 were for approximately 20and 55 employees, respectively, to be terminated, none of who are stillemployed by NTL Ireland as of December 31, 2002 (in £’000s).

 
|                            |   | **Employee  severance and  related costs** |   | **Lease  exit costs** |   | **Fixed  assets** |   | **Total** |   |
|---------------------------------|--------|--------------------------------------------|--------|-----------------------|--------|-------------------|--------|-----------|--------|
|                            |   |                                       |   |                  |   |              |   |      |   |
| Charged to expense              |   | 249                                        |   | —                |   | —            |   | 249       |   |
| Balance, December 31, 2001 |   | 249                                        |   | —                |   | —            |   | 249       |   |
| 2001 provision utilized         |   | (249                                       | )      | —                |   | —            |   | (249      | )      |
| Charged to expense              |   | 1,139                                      |   | 1,390                 |   | 5,008             |   | 7,537     |   |
| 2002 provision utilized         |   | (1,139                                     | )      | (121                  | )      | (5,008            | )      | (6,268    | )      |
| Balance, December 31, 2002 |   | £                                     | — |                  | £ | 1,269             |   | £    | — |   | £ | 1,269 |   |
|                                 |        |                                            |        |                       |        |                   |        |           |        |  |  |  |  |

 

*Depreciation and amortization expense*

 

Depreciation and amortization decreased by £27.2 million to£73.7 million in 2002 from £100.9 million in 2001. This reduction wasprimarily owing to the £30.6 million reduction in amortization expenseresulting from the adoption of SFAS No. 142 on January 1, 2002.Pursuant to SFAS No. 142, we discontinued the amortization of goodwill andother indefinite lived intangible assets. Amortization expense in 2001,measured in accordance with SFAS No. 142, would have been£12.5 million.

 

*Interest expense*

 

Interest expense decreased to £38.8 million in 2002 from£40.5 million in 2001 and interest expense to affiliate increased to£3.1 million in 2002 from £3.0 million in 2001. We incur interest onour 2007 Senior Discount Debentures, which are denominated in US dollars, aswell as interest on our capital lease obligations. Movements in our interestexpense principally result from fluctuations in the US dollar/UK pound sterlingexchange rates. We also incur interest on NTL Ireland’s loan from an affiliateof NTL, which is denominated in Euros and the interest rate of which is basedon EURIBOR. Movements in interest expense to affiliates result fromfluctuations in the Euro/UK pound sterling exchange rates and movements in theEURIBOR rate. We paid interest in cash of £41.7 million in 2002, and£40.8 million in 2001.

 

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*Exchange gains*

 

In 2002, exchange gains were £35.0 million compared with exchangelosses of £10.4 million in 2001. Exchange gains and losses resultprimarily from the impact of fluctuations in the UK pound sterling value of our2007 Discount Debentures, which are denominated in US dollars. Our results ofoperations will continue to be affected by exchange rate fluctuations.

 

*Net (loss)*

 

For the year ended December 31, 2002, net loss was£70.1 million compared with a net loss of £431.0 million in 2001.This change was primarily a result of the asset impairment charges recorded in2001, the adoption of SFAS No. 142 resulting in the cessation ofamortization on goodwill and foreign currency exchange gains and losses.

 

**Consolidated Statement of Cash Flows**

 

***YearEnded December 31, 2003 and 2002***

 

We generated £9.4 million in 2003 from our operating activitiescompared with £16.6 million in 2002. The decline in net cash provided byoperating activities is partly owing to the changes in working capital as aresult of timing of receipts and disbursements offset by our improved operatingperformance.

 

We spent £24.9 million in 2003 and £35.3 million in 2002 onpurchases of fixed assets including connecting new customers to our network.During 2003, we continued to restrict purchases of fixed assets in an effort toconserve cash.

 

In 2003, our member contributed further capital of £20.3 million,including a payment of £2.5 million in respect of prior year tax losses of£50.5 million surrendered to our indirect parent company. After deductingprincipal payments on our capital lease obligations, we raised a net£19.7 million from our financing activities in 2003. During 2002, NTLIreland borrowed a further £2.7 million under their loan agreement with asubsidiary of NTL. After deducting principal payments on our capital leaseobligations, we raised a net £1.7 million from our financing activities in2002.

 

***YearEnded December 31, 2002 and 2001***

 

We generated £16.6 million in 2002 from our operating activitiescompared with using £45.5 million in 2001. The improvement in net cashprovided by operating activities is partly owing to the improvement in ourresults of operations and partly owing to net payments to affiliates andchanges in working capital as a result of timing of receipts and disbursements.

 

We spent £35.3 million in 2002 and £64.2 million in 2001 onpurchases of fixed assets including connecting new customers to our network. Werestricted purchases of fixed assets in 2002 in an effort to conserve cash.

 

During 2002, NTL Ireland borrowed a further £2.7 million undertheir loan agreement with a subsidiary of NTL. After deducting principal paymentson our capital lease obligations, we raised a net £1.7 million in ourfinancing activities in 2002. In 2001, our member contributed further capitalof £99.4 million and NTL Ireland borrowed £43.8 million under theirloan agreement with a subsidiary of NTL.

 

**Liquidity and Capital Resources**

 

We have historically incurred operating losses and negative operatingcash flow. In addition, we have required, and expect to continue to require,significant amounts of capital to finance construction of our networks,connection of customers to the networks, other capital expenditures and forworking capital needs including debt service requirements. We are reliant uponthe support of NTL to continue our operations.

 

As of December 31, 2003, we had approximately £23.0 millionin cash and cash equivalents on hand. We estimate that our capital expendituresand debt service requirements, net of cash from operations, will beapproximately £10 million in 2004. Our management believe that cash andcash equivalents on hand at December 31, 2003, and cash from NTL will besufficient for our cash requirements during 2004. However we expect to requireadditional cash during 2004 owing to the timing of our cash flows.

 

23

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Over the long term, we will continue to require cash to fundoperations, service or repay our remaining debt and implement our strategy. Inorder to fund these requirements, we anticipate that we will use cash flow fromour operations and may also need to issue additional debt or equity securitiesor may need to secure additional bank financing. Given the restrictions onincurring additional debt that are in the indentures governing our outstandingdebentures, there can be no assurance that these sources of funds will beavailable to us.

 

***Descriptionof Outstanding Indebtedness***

 

*Senior Discount Debentures*

 

In November 1995, we issued $517.3 million principal amountat maturity of 11.2% Senior Discount Debentures due November 15, 2007 (the“2007 Discount Debentures”). Interest accreted on the 2007 Discount Debenturesat 11.2% per annum compounded semiannually from November 15, 1995 toNovember 15, 2000, after which date interest became payable in cash oneach May 15 and November 15 through November 15, 2007. The 2007Discount Debentures are redeemable at our option after November 15, 2000.The 2007 Discount Debentures contain restrictive covenants that limit ourability to enter into arrangements for the sale of assets, mergers, theincurrence of additional debt and the payment of dividends.

 

NTL has advised us that it intends to redeem these 2007 discountdebentures if it consummates its proposed refinancing.

 

*Loan Notes payable to NTL*

 

In October 2000, NTL Ireland entered into a loan agreement with asubsidiary of NTL under which £81.5 million and £75.2 million hadbeen borrowed at December 31, 2003 and 2002, respectively. The outstandingborrowings are due in October 2007. Interest is payable quarterly inarrears from March 31, 2001. The annual interest rate is set onJanuary 1 of each year at the 12-month EURIBOR rate plus 1%. The effectiveinterest rate at December 31, 2003 and December 31, 2002 was 3.73%and 4.32%, respectively. Accrued interest of £0.8 million was included indue to affiliates in the consolidated balance sheets at December 31, 2003and 2002.

 

***ContractualObligations and Commercial Commitments***

 

We had no significant commercial commitments as of December 31,2003.

 

The following table includes aggregate information about ourcontractual obligations as of December 31, 2003 and the periods in whichpayments are due (in £ millions).

 
|                               |   |      |   | **Payments  due by period** |   |
|------------------------------------|--------|-----------|--------|-----------------------------|--------|
| **Contractual obligations**        |   | **Total** |   | **Less than  1 year**       |   | **1-3 years** |   | **4-5 years** |   | **After  5 years** |   |
|                               |   |      |   |                        |   |   |   |   |   |   |   |
| Long-term debt                     |   | £    | 289.9  |                        | £ | — |   | £ | — |   | £ | 289.9 |   | £ | — |   |
| Capital lease obligations          |   | 1.9       |   | 0.7                         |   | 0.9 |   | 0.3 |   | — |   |
| Operating leases                   |   | 38.9      |   | 2.7                         |   | 4.9 |   | 3.7 |   | 27.6 |   |
| Unconditional purchase obligations |   | —    |   | —                      |   | — |   | — |   | — |   |
| Other long-term obligations        |   | 81.5      |   | —                      |   | — |   | 81.5 |   | — |   |
| Total contractual cash obligations |   | £    | 412.2  |                        | £ | 3.4 |   | £ | 5.8 |   | £ | 375.4 |   | £ | 27.6 |   |

 

**NTL’s completed Restructuring**

 

On May 8, 2002, NTL (then known as NTL Communications Corp.), NTLEurope, Inc (then known as NTL Incorporated and the former parent company ofNTL Communications Corp.) and certain of their subsidiaries filed apre-arranged joint reorganization plan, referred to in this report as the Plan,under Chapter 11 of the US Bankruptcy Code. We

 

24

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were not included in the Chapter 11 filing. The Plan became effectiveon January 10, 2003, at which time NTL emerged from Chapter 11reorganization.

 

Pursuant to the Plan, NTL Europe and its subsidiaries and affiliateswere split into two separate groups, and NTL and NTL Europe each emerged asindependent public companies. NTL became the holding company for NTL Europe’sprincipal UK and Ireland assets and our ultimate parent company, and NTL Europebecame the holding company for its continental European and certain otherassets. We are no longer affiliated to NTL Europe.

 

**Recent Accounting Pronouncements**

 

In December 2003, the FASB issued Statement of FinancialAccounting Standards No. 132 (Revised), *Employers’Disclosures About Pensions and Other Postretirement Benefits, an Amendment ofFASB Statements 87, 88 and 106.* This statement revises employers’disclosures about pension plans and other postretirement plans, it does notchange the measurement or recognition of these plans required by FASB StatementNo. 87, *Employers’ Accounting forPensions*, No. 88, *Employers’Accounting for Settlement and Curtailments of Defined Benefit Pension Plans andfor Termination Benefits*, and No. 106, *Employers’ Accounting for Postretirment BenefitsOther Than Pensions*. This statement replaces FASB No. 132, *Employers’ Disclosures About Pension and OtherPostretirement Benefits*, and requires additional disclosures tothose in the original Statement No. 132. This statement was developed inresponse to concerns expressed by users of financial statements about theirneeds for more information about pension plan assets, obligations, benefitpayments, contributions and net benefit costs. The statement is effective forfinancial statements with fiscal years ending after December 15, 2003, andfor foreign plans with fiscal years ending after June 15, 2004. We haveadopted the provisions of SFAS 132 (Revised) as of December 31, 2003.

 

25

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**ITEM 7A.     QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to various market risks, including changes in foreigncurrency exchange rates and interest rates. Market risk is the potential lossarising from adverse changes in market rates and prices, like foreign currencyexchange and interest rates. We do not enter into derivative financialinstruments for trading or speculative purposes.

 

We encounter currency exchange rate risks because substantially all ofour revenues and operating costs are earned and paid primarily in pounds andeuros but we pay interest and principal obligations with respect to a portionof our existing indebtedness in U.S. dollars. To the extent that the pounddeclines in value against the U.S. dollar, the effective cost of servicing ourU.S. dollar debt will be higher. Changes in the exchange rate result in foreigncurrency gains or losses.

 

The fair market value of long-term fixed interest rate debt and theamount of future interest payments on variable interest rate debt are subjectto interest rate risk.

 

The following table provides information by maturity as ofDecember 31, 2003, about our long-term fixed and variable interest ratedebt that are sensitive to changes in interest rates and foreign currencyexchange rates (in millions).

 
|                                          |   |     |   |     |   |     |   |                  |   |   |   | **Thereafter** |   | **Total** |   | **Fair value  December 31,  2003** |   |
|-----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|-----------------------|--------|--------|--------|----------------|--------|-----------|--------|-----------------------------------------|--------|
| **Year  Ending December 31,**            |
| **2004**                                      |   | **2005** |   | **2006** |   | **2007** |   | **2008**              |
|                                          |   |     |   |     |   |     |   |                  |   |   |   |           |   |      |   |                                    |   |
| **Long-term debt  including current portion** |   |     |   |     |   |     |   |                  |   |   |   |           |   |      |   |                                    |   |
| US Dollars                                    |   |     |   |     |   |     |   |                  |   |   |   |           |   |      |   |                                    |   |
| Fixed rate                                    |   | —   |   | —   |   | —   |   | $                     | 517.3  |   | — |           | — |      | $      | 517.3                                   |   | $ | 522.5 |   |
| Average interest rate                         |   |     |   |     |   |     |   | 11.2                  | %      |   |   |           |   |      |   |                                    |   |
| Average forward exchange rate                 |   |     |   |     |   |     |   | 0.5966                |   |   |   |           |   |      |   |                                    |   |
| Euro                                          |   |     |   |     |   |     |   |                  |   |   |   |           |   |      |   |                                    |   |
| Variable Rate                                 |   |     |   | —   |   | —   |   | €                | 115.4  |   | — |           | — |      | € | 115.4                                   |   | € | 115.4 |   |
| Average interest rate                         |   |     |   |     |   |     |   | EURIBOR   plus 1 | %      |   |   |           |   |      |   |                                    |   |
| Average forward exchange rate                 |   |     |   |     |   |     |   | 0.7504                |   |   |   |           |   |      |   |                                    |   |
|                                               |        |          |        |          |        |          |        |                       |        |        |        |                |        |           |        |                                         |        |  |  |  |  |  |  |  |  |  |

 

26

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**ITEM 8.        FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

Our consolidated financial statements, the notes thereto and the reportof the independent auditors are on pages F-1 to F-22 of this Annual Report andare incorporated by reference. The following is a summary of the quarterlyresults of operations for the years ended December 31, 2003 and 2002 (in £’000s):

 
|                    |   | **2003**                |       |
|-------------------------|--------|-------------------------|------------|
|                    |   | **Three  Months Ended** |       |
|                    |   | **March 31**       |       | **June 30** |   | **September 30** |   | **December 31** |   |
|                    |   |                    |       |   |   |   |   |   |   |
| Revenues                |   | £                  | 52,783     |   | £ | 54,145 |   | £ | 54,217 |   | £ | 56,263 |   |
| Operating (loss) income |   | (2,192                  | )          | (1,974 | ) | 2,740 |   | 1,793 |   |
| Net (loss) income(1)    |   | (19,290                 | )          | 2,282 |   | (5,966 | ) | 12,858 |   |
|                    |   |                    |       |   |   |   |   |   |   |
|                    |   | **2002**                | ** ** |
|                    |   | **Three  Months Ended** | ** ** |
|                    |   | **March 31**       |       | **June 30** | ** ** | **September 30** | ** ** | **December 31(3)** |   |
|                    |   |                    |       |   |   |   |   |   |   |
| Revenues                |   | £                  | 47,120     |   | £ | 48,565 |   | £ | 48,968 |   | £ | 49,588 |   |
| Operating (loss)        |   | (8,186                  | )          | (5,599 | ) | (10,371 | ) | (45,271 | ) |
| Net (loss) income(2)    |   | (25,973                 | )          | 9,020 |   | (10,599 | ) | (42,504 | ) |

 

----

(1)                                  Included in net(loss) income are foreign exchange (losses) gains of £(6,417) for the threemonths ended March 31, 2003, £15,060 for the three months endedJune 30, 2003, £2,058 for the three months ended September 30, 2003,and £21,719 for the three months ended December 31, 2003.

 

(2)                                  Included in net(loss) income are foreign exchange (losses) gains of £(7,418) for the threemonths ended March 31, 2002, £25,079 for the three months endedJune 30, 2002, £10,701 for the three months ended September 30, 2002,and £6,657 for the three months ended December 31, 2002.

 

(3)                                  In the fourth quarterof 2002, we incurred asset impairment charges of £19.3 million. In 2002,we incurred other charges of £14.3 million as follows: £1.1 millionin the first quarter, £2.2 million in the third quarter and£11.0 million in the fourth quarter.

 

27

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**ITEM9****.        CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

**Notapplicable**

 

**ITEM 9A.     CONTROLSAND PROCEDURES**

 

(a)*  Evaluation of Disclosure Controls andProcedures.*  Our management,with the participation of the Chief Executive Officer and Chief FinancialOfficer of NTL*, have conducted an evaluation of the effectiveness of ourdisclosure controls and procedures, as this term is defined inRule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Actof 1934, as amended, or the Exchange Act, as of the end of the period coveredby this Annual Report. Based on that evaluation, NTL’s Chief Executive Officerand Chief Financial Officer have concluded that, as of the end of the periodcovered by this Annual Report, our disclosure controls and procedures areadequately designed to ensure that the information required to be included inthis Report has been recorded, processed, summarized and reported in a timelybasis.

 

(b)*  Changes in Internal Controls.*  Since the end of the period covered by thisAnnual Report, there have been no changes in our internal controls that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting covered by this Report.

 

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*                                         We have noChief Executive Officer or Chief Financial Officer. Robert Mackenzie and Scott E.Schubert are directors of NTL Group Limited, our sole managing member, and thelatter is the Chief Financial Officer of NTL, our, and NTL Group Limited’s,indirect parent.

 

28

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**PARTIII**

 

**ITEMS10****, 11, 12 AND13**

 

Omitted pursuant to General Instruction I(2)(c) to Form 10-K.

 

**ITEM 14.      PRINCIPALACCOUNTANTS’ FEES AND SERVICES**

 

Ernst & Young LLP are our principal accountants. We are notbilled directly by Ernst & Young for all services, but are allocated aproportion of the fees charged to NTL by Ernst & Young. We provide inthe table below an analysis of the fees charged to NTL by Ernst &Young and allocated to us in the each of the two years ended December 31,2003 and 2002 (in £’000s).

 

 
|               |   | **Year ended  December 31,** |   |
|--------------------|--------|-----------------------------------|--------|
|               |   | **2003**                          |   | **2002** |   |
|               |   |                              |   |   |   |
| Audit fees         |   | £                            | 261    |   | £ | 199 |   |
| Audit-Related fees |   | 10                                |   | 235 |   |
| Tax fees           |   | 295                               |   | 303 |   |
| All other fees     |   | —                            |   | — |   |
|               |   | £                            | 566    |   | £ | 737 |   |

 

*Audit fees.*  Audit fees represent the aggregate servicesprovided by Ernst & Young for professional services rendered for theaudit of our annual financial statements and review of financial statementsincluded in our Form 10-K, including accounting consultations on mattersaddressed during the audit and interim reviews. These fees also include servicesthat are provided in connection with our statutory and regulatory filings.

 

*Audit-Related fees.*  Audit-Related fees represent the aggregatefees charged for assurance and related services by Ernst & Young thatare related to the audit or review of our financial statements, including otheraccounting consultations. Audit-Related services include advice relating to theSarbanes- Oxley Act of 2002 including advice on reporting on internal controlsunder Section 404.

 

29

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*Tax fees.*  Tax fees represent the aggregate feescharged for professional services rendered by Ernst & Young for taxcompliance, tax advice and tax planning. Tax services included compliance workregarding the preparation and filing of our US, UK and Irish tax returns.

 

*All other fees.*  All other fees represent the aggregate feescharged for all other products and services provided by Ernst & Young.

 

**Audit Committee’s pre-approval policies andprocedures**

 

We have no Audit Committee. The Audit Committee of the board ofdirectors of NTL reviews, acts on and reports to the board of directors of NTLwith respect to various auditing and accounting matters. In this capacity, theAudit Committee acts on our behalf as necessary. The current members of NTL’sAudit Committee are Edwin M. Banks, who is its chairman, David Elstein, CharlesK. Gallagher, who the board of directors has determined to be an auditcommittee financial expert, and George R. Zoffinger. The members of NTL’s AuditCommittee are independent within the meaning of the Nasdaq National Marketslisting standards currently applicable to NTL. Immediately following NTL’s 2004annual stockholders’ meeting, Mr. Gallagher will become chairman of NTL’sAudit Committee and Mr. Banks will no longer serve as a member of NTL’sAudit Committee.

 

NTL’s Audit Committee’s policy on pre-approval requirements for auditand other services provided to NTL and us by Ernst & Young is asfollows:

 

•                                          Annually,the Audit Committee agrees the terms, including fees, of the engagement for theservices to be provided by Ernst & Young as part of the recurringannual audit.

 

•                                          Quarterly,the Audit Committee pre-approves the Audit-Related fees, Tax fees and Otherfees for services to be provided by Ernst & Young to us in respect ofservices that are either a continuation of services already pre-approved, orservices which are expected to commence during the following three months.These limits represent amounts that may not be exceeded without approval by theAudit Committee.

 

•                                          Betweenmeetings, the Chairman of the Audit Committee has delegated authority toapprove services on an ad-hoc basis to meet specific needs up to £100,000 perengagement.

 

30

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**PARTIV**

 

**ITEM15.      EXHIBITS****, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM8-K**

 

(a)                                  (1)                                  *Financial Statements—*See Index toFinancial Statements on page F-1.

 

(2)*                                  FinancialStatement Schedules—*See list of Financial Statement Schedules on page F-1.

 

(3)*                                  Exhibits—*SeeExhibit Index on page 32.

 

(b)                                 The Registrant filedno reports on Form 8-K during the quarter ended December 31, 2003.

 

(c)*                                  Exhibits—*SeeExhibit Index on page 32.

 

(d)*                                 FinancialStatement Schedules—*See list of Financial Statement Schedules on page F-1.

 

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**EXHIBIT INDEX**

 
| **Exhibit  No.** |   |                                                                                                                                                                                                                                                                                                                                                                               |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 2.1              |   | Agreement and Plan of Amalgamation dated 4 February 1998  among NTL Incorporated, NTL (Bermuda) Limited and the Company, as amended  (Incorporated by reference to Exhibit 2.1 to the Registration Statement  on S-4 filed by the entity then known as NTL Communications Corp. (now NTL  Incorporated), on September 30, 1998 File No. 333-64727)        |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 2.2              |   | Deed of Transfer, dated December 13, 1999 (Incorporated by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed  by the Company on December 28, 1999, File No. 000-24792)                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 3.1              |   | Certificate of Formation, filed with the Delaware Secretary of State  on November 12, 1999 (Incorporated by reference to Exhibit 3.1 to  the Current Report on Form 8-K filed by the Company on December 9,  1999, File No. 000-24792)                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2              |   | Certificate of Amendment, filed with the Delaware Secretary of State  on November 18, 1999 (Incorporated by reference to Exhibit 3.2 to  the Current Report on Form 8-K filed by the Company on December 9,  1999, File No. 000-24792)                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 3.3              |   | Operating Agreement of NTL (Triangle) LLC, dated as of  November 14, 1999 (Incorporated by reference to Exhibit 3.3 to the  Current Report on Form 8-K filed by the Company on December 9, 1999,  File No. 000-24792)                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 3.4              |   | Corrected Certificate of Conversion, filed with the Delaware  Secretary of State on November 16, (Incorporated by reference to  Exhibit 99.2 to the Current Report on Form 8-K filed by the Company  on December 9, 1999, File No. 000-24792)                                                                                                        |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.1              |   | Instrument defining rights of common membership interests (included  in Exhibit 3.3)                                                                                                                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2              |   | Indenture dated as of November 15, 1995, between the Company and  Bank of Montreal Trust Company, as Trustee, with respect to the Company’s 11.20%  Senior Discount Debentures due 2007 (Incorporated by reference to  Exhibit 4.1 to the Company’s Registration Statement on Form S-1 declared  effective November 9, 1995, File No. 33-96932) |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 21               |   | Omitted pursuant to General Instruction I(2)(b) to Form 10-K                                                                                                                                                                                                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1*            |   | Certification of Chief Executive Officer, pursuant to Rule  13(a)-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934,  as amended, or 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*            |   | Certification of Chief Executive Officer and Chief Financial Officer,  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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*                                         Filed herewith

 

32

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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.

 

Dated: March 29, 2004

 
|   | NTL (TRIANGLE) LLC |
|--------|--------------------|
|   | (REGISTRANT)       |
|   |               |   |
|   | By:                | NTL Group Limited |
|   |               | its Sole Managing Member (on behalf of Registrant) |
|   |               |   |
|   |               |   |
|   |               |   | /s/ ROBERT MACKENZIE |   |
|   |               |   | Robert Mackenzie |   |
|   |               |   | *Director* |   |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 

| **Name**              |   | **Title**                                                                                    |   | **Date**            |
|-----------------------|--------|----------------------------------------------------------------------------------------------|--------|---------------------|
|                  |   |                                                                                         |   |                |
| /s/ ROBERT MACKENZIE  |   |                                                                                         |   |                |
| Robert Mackenzie*     |   | Director and Secretary of NTL Group Limited, the sole managing member  of NTL (Triangle) LLC |   | March 29, 2004 |
|                  |   |                                                                                         |   |                |
| /s/ SCOTT E. SCHUBERT |   |                                                                                         |   |                |
| Scott E. Schubert*    |   | Director of NTL Group Limited, the sole managing member of NTL  (Triangle) LLC*              |   | March 29, 2004 |

 

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*                                         The Companyhas no Chief Executive Officer or Chief Financial Officer. Robert Mackenzie andScott E. Schubert are Directors of NTL Group Limited, the sole managing memberof the Company, and the latter is Chief Financial Officer of NTL Incorporated,the indirect parent of the Company.

 

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**FORM10K—ITEM 15(a) (1)NTL (TRIANGLE) LLC AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULES**

 

The following consolidated financial statements of NTL (Triangle) LLCand subsidiaries are included in Item 8:

 
| Report of Independent Auditors                                                                           | F-2 |
|----------------------------------------------------------------------------------------------------------|-----|
| Consolidated Balance Sheets—December 31, 2003 and 2002                                         | F-3 |
| Consolidated Statements of Operations—Years  ended December 31, 2003, 2002 and 2001            | F-4 |
| Consolidated Statements of Member’s  Capital—Years ended December 31, 2003, 2002 and 2001 | F-5 |
| Consolidated Statements of Cash Flows—Years  ended December 31, 2003, 2002 and 2001            | F-6 |
| Notes to Consolidated Financial Statements                                                               | F-7 |

 

The following consolidated financial statement schedules of NTL (Triangle)LLC and subsidiaries are included in 15(d):

 
| Schedule II Valuation and Qualifying  Accounts | F-22 |
|-----------------------------------------------------|------|

 

All other schedules for which provision is made in the applicableaccounting regulation of the Securities and Exchange Commission are notrequired under the related instructions or are inapplicable and, therefore,have been omitted.

 

F-1

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**REPORT OF INDEPENDENT AUDITORS**

 

Board of Directors and MemberNTL (Triangle) LLC

 

We have audited the accompanying consolidated balance sheets of NTL(Triangle) LLC and subsidiaries as of December 31, 2003 and 2002, and therelated consolidated statements of operations, member’s capital and cash flowsfor each of the three years in the period ended December 31, 2003. Our auditsalso included the financial statement schedule listed in the index at Item15(d). These financial statements and financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and financial statementschedule based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof NTL (Triangle) LLC and subsidiaries as of December 31, 2003 and 2002,and the consolidated results of their operations and their cash flows for eachof the three years in the period ended December 31, 2003, in conformitywith accounting principles generally accepted in the United States of America.Also, in our opinion, the related financial statement schedule, when consideredin relation to the basic financial statements taken as a whole, presents fairlyin all material respects the information set forth therein.

 

As discussed in Note 2 of the consolidated financial statements,as of January 1, 2002, the Company changed its method of accounting forgoodwill and other intangible assets to conform with the provisions ofStatement of Financial Accounting Standards No. 142, *“Goodwill and Other Intangible Assets”.*

 

Ernst & Young LLPLondon, United KingdomMarch 26, 2004

 

F-2

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**NTL (TRIANGLE) LLC AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(in £’000s, except membership interests)**

 
|                                                                                                      |   | **December 31,  2003** |    | **December 31,  2002** | ** ** |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|-----------------------------|------------|
|                                                                                                      |   |                        |    |                        |       |
| **Assets**                                                                                                |   |                        |    |                        |       |
| Current assets                                                                                            |   |                        |    |                        |       |
| Cash and cash equivalents                                                                                 |   | £                      | 22,986  |                        | £     | 18,154 |   |
| Accounts receivable, less allowance for  doubtful accounts of £10,232 (2003) and £10,738 (2002) |   | 19,890                      |    | 21,812                      |       |
| Other current assets                                                                                      |   | 1,392                       |    | 1,998                       |       |
| Total current assets                                                                                      |   | 44,268                      |    | 41,964                      |       |
| Deferred financing costs, net of  accumulated amortization of £30,003 (2003) and £25,823 (2002) |   | 9,595                       |    | 13,775                      |       |
| Fixed assets, net                                                                                         |   | 421,427                     |    | 444,680                     |       |
| Intangible assets, net                                                                                    |   | 8,365                       |    | 16,702                      |       |
| **Total assets**                                                                                          |   | £                      | 483,655 |                        | £     | 517,121 |   |
|                                                                                                      |   |                        |    |                        |       |
| **Liabilities and  member’s capital**                                                                |   |                        |    |                        |       |
| Current liabilities                                                                                       |   |                        |    |                        |       |
| Accounts payable                                                                                          |   | £                      | 7,456   |                        | £     | 5,463 |   |
| Accrued expenses                                                                                          |   | 19,697                      |    | 26,204                      |       |
| Interest payable                                                                                          |   | 4,059                       |    | 4,500                       |       |
| Deferred revenue                                                                                          |   | 16,283                      |    | 14,757                      |       |
| Due to affiliates                                                                                         |   | 13,424                      |    | 28,874                      |       |
| Current portion of long-term debt                                                                         |   | 533                         |    | 323,628                     |       |
| Total current liabilities                                                                                 |   | 61,452                      |    | 403,426                     |       |
| Loans from affiliate                                                                                      |   | 81,500                      |    | 75,197                      |       |
| Long-term debt, less current portion                                                                      |   | 291,054                     |    | —                      |       |
| Commitments and contingent liabilities                                                                    |   |                        |    |                        |       |
| Deferred income taxes                                                                                     |   | 838                         |    | 382                         |       |
| Member’s capital                                                                                     |   |                        |    |                        |       |
| Common membership interests, £.01 par  value—authorized and issued 800,000 interests            |   | 8                           |    | 8                           |       |
| Additional capital                                                                                        |   | 513,790                     |    | 493,537                     |       |
| Accumulated other comprehensive (loss)  income                                                            |   | 1,467                       |    | 909                         |       |
| Accumulated deficit                                                                                       |   | (466,454                    | )       | (456,338                    | )          |
| Total member’s capital                                                                               |   | 48,811                      |    | 38,116                      |       |
| **Total liabilities  and member’s capital**                                                          |   | £                      | 483,655 |                        | £     | 517,121 |   |

 

See notes to consolidated financialstatements.

 

F-3

----

 

**NTL(TRIANGLE) LLC AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in£’000s)**

 
|                                                                |   | **Year ended  December 31,** |    |
|---------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                |   | **2003**                          |    | **2002** |   | **2001** |   |
|                                                                |   |                              |    |   |   |   |   |
| **Revenue**                                                         |   | £                            | 217,408 |   | £ | 194,241 |   | £ | 180,893 |   |
| **Costs and expenses**                                              |   |                              |    |   |   |   |   |
| Operating costs (exclusive of depreciation  shown separately below) |   | (83,333                           | )       | (88,632 | ) | (86,207 | ) |
| Selling, general and administrative  expenses                       |   | (68,224                           | )       | (67,744 | ) | (77,551 | ) |
| Asset impairments                                                   |   | —                            |    | (19,301 | ) | (291,617 | ) |
| Other charges                                                       |   | (1,676                            | )       | (14,275 | ) | (5,651 | ) |
| Depreciation                                                        |   | (55,470                           | )       | (61,214 | ) | (57,863 | ) |
| Amortization                                                        |   | (8,338                            | )       | (12,502 | ) | (43,053 | ) |
|                                                                |   | (217,041                          | )       | (263,668 | ) | (561,942 | ) |
| **Operating income  (loss)**                                        |   | 367                               |    | (69,427 | ) | (381,049 | ) |
| **Other income  (expense)**                                         |   |                              |    |   |   |   |   |
| Interest expense                                                    |   | (39,984                           | )       | (38,832 | ) | (40,466 | ) |
| Interest expense to affiliate                                       |   | (2,984                            | )       | (3,130 | ) | (2,951 | ) |
| Interest income                                                     |   | 500                               |    | 1,177 |   | 504 |   |
| Exchange gains (losses)                                             |   | 32,420                            |    | 35,019 |   | (10,353 | ) |
| **(Loss) before  income taxes**                                     |   | (9,681                            | )       | (75,193 | ) | (434,315 | ) |
| Income tax (expense) benefit                                        |   | (435                              | )       | 5,137 |   | 3,267 |   |
| **Net (loss)**                                                      |   | £                            | (10,116 | ) | £ | (70,056 | ) | £ | (431,048 | ) |

 

See notes to consolidated financialstatements.

 

F-4

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**NTL(TRIANGLE) LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF MEMBER’SCAPITAL**

**(in£’000s)**

 
|                              |   | **Common  Membership  Interests** |   | **Par** |   | **Additional  Capital** |   | **Comprehensive  Income  (Loss)** |     | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Accumulated  Income  (Deficit)** |     | **Total** |     |
|-----------------------------------|--------|-----------------------------------|--------|---------|--------|-------------------------|--------|-----------------------------------|----------|------------------------------------------------------|--------|------------------------------------|----------|-----------|----------|
|                              |   |                              |   |    |   |                    |   |                              |     |                                                 |   |                               |     |      |     |
| Balance, December 31, 2000   |   | 800                               |   | £  | 8      |                    | £ | 394,107                           |     |                                                 |   | £                             | 746      |      | £   | 44,766 |   | £ | 439,627 |   |
| Contributions from NTL Group Ltd. |   |                              |   | —  |   | 99,430                  |   |                              |     | —                                               |   | —                             |     | 99,430    |     |
| Net Loss                          |   |                              |   |    |   |                    |   | £                            | (431,048 | )                                                    | — |                               | (431,048 | )         | (431,048 | ) |
| Currency translation adjustment   |   |                              |   |    |   |                    |   | (951                              | )        | (951                                                 | )      | —                             |     | (951      | )        |
| Comprehensive loss                |   |                              |   |    |   |                    |   | £                            | (431,999 | )                                                    |   |                               |     |      |     |   |
|                              |   |                              |   |    |   |                    |   |                              |     |                                                 |   |                               |     |      |     |
| Balance, December 31, 2001   |   | 800                               |   | 8       |   | 493,537                 |   |                              |     | (205                                                 | )      | (386,282                           | )        | 107,058   |     |
| Contributions from NTL Group Ltd. |   |                              |   |    |   |                    |   |                              |     |                                                 |   |                               |     | —    |     |
| Net Loss                          |   |                              |   |    |   |                    |   | £                            | (70,056  | )                                                    | — |                               | (70,056  | )         | (70,056  | ) |
| Currency translation adjustment   |   |                              |   |    |   |                    |   | 1,114                             |     | 1,114                                                |   | —                             |     | 1,114     |     |
| Comprehensive loss                |   |                              |   |    |   |                    |   | £                            | (68,942  | )                                                    |   |                               |     |      |     |   |
|                              |   |                              |   |    |   |                    |   |                              |     |                                                 |   |                               |     |      |     |
| Balance, December 31, 2002   |   | 800                               |   | 8       |   | 493,537                 |   |                              |     | 909                                                  |   | (456,338                           | )        | 38,116    |     |
| Contributions from NTL Group Ltd. |   |                              |   |    |   | 20,253                  |   |                              |     |                                                 |   |                               |     | 20,253    |     |
| Net Loss                          |   |                              |   |    |   |                    |   | £                            | (10,116  | )                                                    |   |                               | (10,116  | )         | (10,116  | ) |
| Currency translation adjustment   |   |                              |   |    |   |                    |   | 1,502                             |     | 1,502                                                |   |                               |     | 1,502     |     |
| Pension liability adjustment      |   |                              |   |    |   |                    |   | (944                              | )        | (944                                                 | )      | —                             |     | (944      | )        |
| Comprehensive loss                |   |                              |   |    |   |                    |   | £                            | (9,558   | )                                                    |   |                               |     |      |     |   |
|                              |   |                              |   |    |   |                    |   |                              |     |                                                 |   |                               |     |      |     |
| Balance, December 31, 2003   |   | 800                               |   | £  | 8      |                    | £ | 513,790                           |     |                                                 |   | £                             | 1,467    |      | £   | (466,454 | ) | £ | 48,811 |   |

 

See notes to consolidated financialstatements.

 

F-5

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**NTL(TRIANGLE) LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in £’000s)**

 
|                                                                                                     |   | **Year ended  December 31,** |    |
|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                                                     |   | **2003**                          |    | **2002** |   | **2001** |   |
|                                                                                                     |   |                              |    |   |   |   |   |
| **Operating  activities:**                                                                               |   |                              |    |   |   |   |   |
| Net (loss)                                                                                               |   | £                            | (10,116 | ) | £ | (70,056 | ) | £ | (431,048 | ) |
| Adjustments to reconcile net (loss) to net  cash provided by (used in) operating activities:             |   |                              |    |   |   |   |   |
| Depreciation and amortization                                                                            |   | 63,808                            |    | 73,716 |   | 100,916 |   |
| Asset impairments                                                                                        |   | —                            |    | 19,301 |   | 291,617 |   |
| Exchange losses (gains)                                                                                  |   | (31,267                           | )       | (34,925 | ) | 10,372 |   |
| Other                                                                                                    |   | —                            |    | 2,278 |   | 601 |   |
| Changes in operating assets and  liabilities, net of effect from business acquisitions and dispositions: |   |                              |    |   |   |   |   |
| Accounts receivable and other current  assets                                                            |   | 3,232                             |    | 8,646 |   | 281 |   |
| Accounts payable and other current  liabilities                                                          |   | (16,216                           | )       | 17,628 |   | (18,260 | ) |
| **Net cash provided  by (used in) operating activities**                                                 |   | 9,441                             |    | 16,588 |   | (45,521 | ) |
| **Investing  activities:**                                                                               |   |                              |    |   |   |   |   |
| Acquisition, net of cash acquired                                                                        |   | —                            |    | — |   | (2,726 | ) |
| Capital expenditures                                                                                     |   | (24,893                           | )       | (35,321 | ) | (64,192 | ) |
| Net cash (used in) investing activities                                                                  |   | (24,893                           | )       | (35,321 | ) | (66,918 | ) |
| **Financing  activities:**                                                                               |   |                              |    |   |   |   |   |
| Principal payments                                                                                       |   | (583                              | )       | (1,039 | ) | (566 | ) |
| Loans from affiliates                                                                                    |   | —                            |    | 2,706 |   | 43,800 |   |
| Contributions from NTL Group Limited                                                                     |   | 20,253                            |    | — |   | 99,430 |   |
| Net cash provided by financing activities                                                                |   | 19,670                            |    | 1,667 |   | 142,664 |   |
| Effect of exchange rate changes on cash and  cash equivalents                                            |   | 614                               |    | 293 |   | (4 | ) |
| Increase (decrease) in cash and cash  equivalents                                                        |   | 4,832                             |    | (16,773 | ) | 30,221 |   |
| Cash and cash equivalents, beginning of  period                                                          |   | 18,154                            |    | 34,927 |   | 4,706 |   |
| Cash and cash equivalents, end of period                                                                 |   | £                            | 22,986  |   | £ | 18,154 |   | £ | 34,927 |   |
|                                                                                                     |   |                              |    |   |   |   |   |
| **Supplemental cash  flow disclosures**                                                                  |   |                              |    |   |   |   |   |
| Interest paid                                                                                            |   | £                            | 35,462  |   | £ | 41,696 |   | £ | 40,800 |   |

 

See notes to consolidated financialstatements.

 

F-6

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**NTL (TRIANGLE) LLC AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.   Organization and Business**

 

NTL (Triangle) LLC (formerly Comcast UK Cable Partners Limited)(formerly NTL (Bermuda) Limited) (formerly NTL (Bermuda) LLC) (the “Company”)and its subsidiaries are principally engaged in the development, construction,management and operation of broadband communications networks for telephone,cable television and Internet services in the United Kingdom (“UK”) andIreland. The Company owns the companies that have franchise licenses forDarlington and Teesside (collectively, “Teesside”) and Cambridge in the UK, andNTL Communications (Ireland) Limited (formerly Cablelink Limited) (“NTLIreland”), which owns the companies that provide services in Dublin, Galway andWaterford, Ireland.

 

The Company is a wholly owned subsidiary of NTL Incorporated, or NTL,and is reliant upon the support of NTL and NTL’s subsidiaries to continue itsoperations.

 

***NTL’s CompletedRestructuring***

 

On May 8, 2002, NTL Incorporated (formerly known as NTLCommunications Corp.), NTL Europe, Inc. (formerly NTL Incorporated and theformer parent company of NTL Communications Corp.) and certain of theirsubsidiaries filed a pre-arranged joint reorganization plan, referred to inthis Annual Report as the Plan, under Chapter 11 of the US Bankruptcy Code. TheCompany was not included in the Chapter 11 filing, nor were the operatingsubsidiaries of NTL Incorporated and NTL Europe, Inc. The Plan becameeffective on January 10, 2003, or the Effective Date, at which time NTLIncorporated, the Company’s indirect parent company, emerged from Chapter 11reorganization.

 

Pursuant to the Plan, the entity formerly known as NTL Incorporated andits subsidiaries and affiliates were split into two separate groups, with NTLIncorporated and NTL Europe, Inc. each emerging as independent publiccompanies. The entity formerly known as NTL Communications Corp. was renamed“NTL Incorporated” and became the holding company for the former NTL group’sprincipal UK and Ireland assets including the Company. Prior to consummation ofthe Plan, the Company was a wholly-owned, indirect subsidiary of the entitythen known as NTL Incorporated, which, pursuant to the Plan, was renamed “NTLEurope, Inc.” and which became the holding company for the former NTLgroup’s continental European and certain other assets. Pursuant to the Plan, allof the outstanding securities of NTL Incorporated and NTL Europe, Inc. andcertain of its subsidiaries were cancelled, and NTL Incorporated issued sharesof its common stock and Series A warrants and NTL Europe, Inc. issuedshares of its common stock and preferred stock to various former creditors andstockholders of NTL Europe, Inc and its subsidiaries including NTLIncorporated. The precise mix of new securities received by holders of eachparticular type of security of NTL Europe, Inc. and its subsidiaries wasset forth in the Plan. The outstanding notes of Diamond Holdings Limited andNTL (Triangle) LLC were not cancelled and remain outstanding.

 

**2.   Significant Accounting Policies**

 

***Basis ofPresentation***

 

The accompanying consolidated financial statements have been preparedin accordance with accounting principles generally accepted in the UnitedStates.

 

***Use of Estimates***

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Such estimates and assumptions impact, amongothers, the following: the amounts charged to the Company by a subsidiary of NTLfor infrastructure and management support services to the Company, the amountof uncollectible accounts receivable, the amount to be paid to terminatecertain agreements included in restructuring costs, the amount to be paid forother liabilities, the Company’s pension expense and pension fundingrequirements, estimated costs for interconnection, estimates related to theamount of costs to be capitalized in connection with the construction andinstallation

 

F-7

----

 

of the Company’s network and facilities and estimates related to thevalue of investments, long-lived assets and goodwill. Actual results coulddiffer from those estimates.

 

***Principles ofConsolidation***

 

The consolidated financial statements include the accounts of theCompany, its wholly-owned subsidiaries and entities where the Company’sinterest is greater than 50%. Significant intercompany accounts andtransactions have been eliminated in consolidation.

 

***Reclassification***

 

Certain prior period amounts have been reclassified to conform to thecurrent presentation.

 

***Foreign CurrencyTranslation***

 

The functional currencies of the Company’s principal operatingsubsidiaries are the UK Pound Sterling and the Euro, while its reportingcurrency is the UK Pound Sterling. The assets and liabilities of NTL Irelandhave been translated using the exchange rates in effect at the balance sheetdates, and revenues and expenses are translated at the average rates for therespective years. Exchange gains and losses on translation of the Company’s netequity investments in the subsidiaries are reported as a separate component ofaccumulated other comprehensive income (loss) in the statement of member’scapital. Foreign currency transaction gains and losses are recorded in thestatements of operations.

 

***Cash Equivalents***

 

Cash equivalents are short-term highly liquid investments with maturityof three months or less when purchased. There were no cash equivalents atDecember 31, 2003 and 2002.

 

***Trade Receivables***

 

The Company’s trade receivables are stated at outstanding principalbalance, net of allowance for doubtful accounts. The allowance for doubtfulaccounts is £10.2 million at December 31, 2003.

 

***Concentrations ofCredit Risk***

 

The Company’s financial instruments that are exposed to concentrationsof credit risk consist primarily of cash equivalents and trade receivables. TheCompany’s cash equivalents are in high quality securities placed with majorbanks and financial institutions. Concentrations of credit risk with respect totrade receivables are limited because of the large number of customers andtheir dispersion across geographic areas. The Company performs periodic creditevaluations of its customers’ financial condition and generally does notrequire collateral. At December 31, 2003, the Company did not havesignificant credit risk concentrations. No single group or customer representsgreater than 10% of total accounts receivable.

 

***Fixed Assets***

 

Fixed assets, net are stated at cost less accumulated depreciation.

 

The cost of fixed assets includes amounts capitalized for labor andoverhead expended in connection with the design and installation of theCompany’s operating network equipment and facilities. Costs associated withinitial customer installations, additions of network equipment necessary toenable enhanced services, acquisition of additional fixed assets andreplacement of existing fixed assets are capitalized. The costs of reconnectingthe same service to a previously installed premise are charged to expense inthe period incurred. Costs for repairs and maintenance are charged to expenseas incurred.

 

Depreciation is computed by the straight-line method over the estimateduseful lives of the assets. Estimated useful lives are as follows: operatingequipment—3 to 40 years and other equipment—3 to 40 years. During2003, the Company evaluated the remaining useful economic lives of its fixedassets. As of January 1, 2004, the Company adopted new useful economiclives as follows: operating equipment—5 to 30 years and other equipment—5to 30 years. The increase in the

 

F-8

----

 

annual depreciation expense upon the adoption of new lives is estimatedto be approximately £5.3 million in 2004.

 

***Intangible Assets***

 

Intangible assets include goodwill, license acquisition costs, andcustomer lists. Goodwill is the excess of the purchase price over the fairvalue of net assets acquired in business combinations accounted for aspurchases which includes the portion of the purchase price allocated to thevalue of the workforce in place. License acquisition costs represent theportion of purchase price allocated to the cable television andtelecommunications licenses acquired in business combinations. Prior to theadoption of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwillwas amortized on a straight-line basis over the periods benefited of15 years and license acquisition costs were amortized on a straight-linebasis up to 23 years. Upon the adoption of SFAS No. 142, goodwill andlicense acquisition costs are no longer amortized. Instead these assets arereviewed annually (or more frequently under certain conditions) for impairmentin accordance with this statement. Customer lists represent the portion of thepurchase price allocated to the value of the customer base. Customer lists areamortized on a straight-line basis over 5 years.

 

Upon the adoption of SFAS No. 142, the Company performed ananalysis of its intangible assets acquired before July 1, 2001 todetermine whether they should be classified and accounted for as part of orseparate from goodwill. The Company reclassified the carrying value ofworkforce in place included in other intangibles to goodwill. The Companydetermined that license acquisition costs would no longer be subject toamortization since they are deemed to have an indefinite useful life. TheCompany also determined that no changes in the remaining useful lives of thecustomer lists were required.

 

The Company also performed an evaluation for impairment of its goodwilland license acquisition costs as of January 1, 2002 and determined that noimpairment charge was required.

 

The following table shows the Company’s net (loss) as adjusted for theadoption of SFAS No. 142, had SFAS No. 142 been in effect onJanuary 1, 2001 (in £’000s).

 
|                        |   | **December 31,********2001** |     |
|-----------------------------|--------|-----------------------------------|----------|
|                        |   |                              |     |
| Net (loss)—as reported |   | £                            | (431,048 | ) |
| Amortization of:            |   |                              |     |
| Goodwill                    |   | 23,336                            |     |
| License acquisition costs   |   | 7,214                             |     |
| Other                       |   | —                            |     |
|                        |   | 30,550                            |     |
| Net (loss)—as adjusted |   | £                            | (400,498 | ) |

 

***Asset Retirement Obligations***

 

As of January 1, 2003, the Company adopted Statement of FinancialAccounting Standards No. 143, *Accountingfor Asset Retirement Obligations* (“SFAS 143”). SFAS 143addresses financial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the related asset retirementcosts. The adoption of SFAS 143 did not result in any recognition ofliabilities during its fiscal year ended December 31, 2003.

 

The Company accrues for the liability in respect of dilapidations onits leasehold properties over the term of the lease in accordance with SFASNo. 13 “*Accounting for Leases”*.

 

***Impairment ofLong-Lived Assets***

 

Long-lived assets, including fixed assets and amortizable definitelived intangible assets, are reviewed for

 

F-9

----

 

impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. The Company assesses therecoverability of the carrying value of long-lived assets, by first groupingits long-lived assets with other assets and liabilities at the lowest level forwhich identifiable cash flows are largely independent of the cash flows ofother assets and liabilities (the asset group) and, secondly, estimating theundiscounted future cash flows that are directly associated with and expectedto arise from the use of and eventual disposition of such asset group. TheCompany estimates the undiscounted cash flows over the remaining useful life ofthe primary asset within the asset group. If the carrying value of the assetgroup exceeds the estimated undiscounted cash flows, the Company records animpairment charge to the extent the carrying value of the long-lived assetexceeds its fair value. The Company determines fair value through quoted marketprices in active markets or, if quoted market prices are unavailable, throughthe performance of internal analysis of discounted cash flows or externalappraisals. The undiscounted and discounted cash flow analyses are based on anumber of estimates and assumptions, including the expected period over whichthe asset will be utilized, projected future operating results of the assetgroup, discount rate and long-term growth rate.

 

Goodwill, license acquisition costs and other intangible assets thatare not amortized are reviewed for impairment each year.

 

As of December 31, 2003, the Company reviewed its long-livedassets for impairment. The Company engaged an independent financial adviser toassist in the impairment review. The Company and the independent financialadviser determined that there was no impairment of the Company’s long-livedassets as of December 31, 2003. This determination was based upon variousvaluation methods, including discounted cash flow analysis, selected comparablemarket multiples of publicly traded companies and other applicable ratios andeconomic information relevant to the operations of the Company. Certain factorsthat were incorporated into the impairment review included the following:

 

•                                          10 yearcash flow projections.

 

•                                          Corporateincome tax rates of 30% in the UK and 12.5% in Ireland.

 

•                                          Presentvalue discount factors of between 13.0% and 15.0%

 

•                                          Residualvalue representing the sum of the value beyond 10 years into perpetuitycalculated using the Gordon Growth Model.

 

***Restructuring Costs***

 

As of January 1, 2003, the Company adopted SFAS 146 “*Accounting for Costs Associated with Exit or DisposalActivities*” and recognizes a liability for costs associated withrestructuring activities when the liability is incurred. The adoption ofSFAS 146 did not have a significant effect on the results of operations,financial condition or cash flows of the Company.

 

Prior to 2003, the Company recognized a liability for costs associatedwith restructuring activities at the time of a commitment to restructure isgiven in accordance with EITF 94-3 “*LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring)*”.

 

***Revenue Recognition***

 

The Company recognizes revenue only when it is realized or realizableand earned. The Company recognizes revenue when all of the following arepresent:

 

•                                          Persuasiveevidence of an arrangement exists between NTL and its customers;

 

•                                          Deliveryhas occurred or the services have been rendered;

 

•                                          Theprice for the service is fixed or determinable; and

 

•                                          Collectibilityis reasonably assured.

 

F-10

----

 

Revenues are invoiced and recorded as part of a periodic billing cycle,and are recognized as the services are provided. At the end of each period,adjustments are recorded to defer revenue relating to services billed inadvance and to accrue for earned but unbilled services.

 

•                                          *Telephone services and cable television revenues*are recognized as the services are provided to customers.

 

•                                          *Rental revenue* in respect of line rentalsand rental of equipment provided to customers is recognized on a straight-linebasis over the term of the rental agreement.

 

•                                          *Internet revenue* in respect of broadbandservices provided to customers is recognized as the service is provided.

 

•                                          *Bundled services revenue* is recognized atthe time the services are provided to the customer or the performance of all ofthe services have been completed. The Company applies the provisions of EITFNo. 00-21 “*Accounting for RevenueArrangements with Multiple Deliverables*” to assess whether thecomponents of the bundled services should be recognized separately.

 

•                                          *Installation revenues* are recognized atthe time the installation has been completed to the extent that those fees areless than direct selling costs. Installation fees in excess of direct sellingcosts are deferred and amortized over the expected life of the customer’sconnection. The Company applies the provisions of SFAS No. 51 “*Financial Reporting by Cable Television Companies*”in relation to connection and activation fees for telephone services andinternet services, as well as cable television services, on the basis that theCompany markets and maintains a unified fiber network through which the Companyprovides all of these services.

 

***Advertising Expense***

 

The Company charges the cost of advertising to expense as incurred.Advertising costs allocated to the Company were £3.7 million, £1.9 millionand £0.5 million in 2003, 2002 and 2001, respectively.

 

***Pensions***

 

The Company accounts for its defined benefit pension plan usingStatement of Financial Accounting Standards, SFAS No. 87, *Employers’ Accounting for Pensions* and thedisclosure rules under SFAS No. 132 (Revised) *Employers’ Disclosures about Pensions and Other PostretirementBenefits, an Amendment of FASB Statements 87, 88 and 106*. Under SFASNo. 87, pension expense is recognized on an accrual basis over employees’approximate service periods. Pension expense calculated under SFAS No. 87is generally independent of funding decisions or requirements. The Companyrecognized expense for its defined benefit pension plans of £0.2 millionand £0.1 million in 2003 and 2002, respectively. The Company expects itspension expense to be approximately £0.2 million in 2004.

 

The calculation of pension expense and the Company’s pension liabilityrequires the use of a number of assumptions. Changes in these assumptions canresult in different expense and liability amounts, and future actual experiencecan differ from the assumptions. The Company believes that the two mostcritical assumptions are the expected long-term rate of return on plan assetsand the assumed discount rate.

 

When calculating pension expense for 2003 and 2002, the Company assumedthat plan assets would generate a long-term rate of return of 7.9%. The Companydetermines its expected long-term rate of return assumption based on historicalexperience and by evaluating input from the trustee managing the plan assets,including the trustee’s review of asset class return expectations by severalconsultants and economists as well as long-term inflation assumptions. TheCompany’s expected long-term rate of return on plan assets is based on a targetallocation of assets, which is based on its goal of earning the highest rate ofreturn while maintaining risk at acceptable levels. The plan strives to haveassets sufficiently diversified so that adverse or unexpected results from onesecurity class will not have an unduly detrimental impact on the entireportfolio.

 

F-11

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The Company discounted its future pension obligations using a rate of6.0% at December 31, 2003 and 2002. The Company determined the appropriatediscount rate based on the current rates earned on long-term bonds that receiveone of the two highest ratings given by a recognized rating agency. The pensionliability and future pension expense both increase as the discount rate isreduced. Lowering the discount rate by 0.5% would increase the Company’spension liability at December 31, 2003 by approximately £0.7 million.

 

Future changes in plan asset returns, assumed discount rates andvarious other factors related to the participants in the Company’s pension planwill impact its future pension expense and liabilities. The Company cannotpredict with certainty what these factors will be in the future.

 

At December 31, 2003, projected benefit obligations of theCompany’s pension plan exceeded plan assets by £1.2 million. The Companywill need to fund this deficit in accordance with the laws and regulations ofthe Republic of Ireland.

 

**3.   Recent Accounting Pronouncements**

 

In December 2003, the FASB issued Statement of FinancialAccounting Standards No. 132 (Revised), *Employers’Disclosures About Pensions and Other Postretirement Benefits, an Amendment ofFASB Statements 87, 88 and 106.* This statement revises employers’disclosures about pension plans and other postretirement plans, it does notchange the measurement or recognition of these plans required by FASB StatementNo. 87, *Employers’ Accounting forPensions*, No. 88, *Employers’Accounting for Settlement and Curtailments of Defined Benefit Pension Plans andfor Termination Benefits*, and No. 106, *Employers’ Accounting for Postretirment BenefitsOther Than Pensions*. This statement replaces FASB No. 132, *Employers’ Disclosures About Pension and OtherPostretirement Benefits*, and requires additional disclosures tothose in the original Statement No.132. This statement was developed inresponse to concerns expressed by users of financial statements about theirneeds for more information about pension plan assets, obligations, benefitpayments, contributions and net benefit costs. The statement is effective forfinancial statements with fiscal years ending after December 15, 2003, andfor foreign plans with fiscal years ending after June 15, 2004. TheCompany has adopted the provisions of SFAS 132 (Revised) as ofDecember 31, 2003.

 

**4.   Asset Impairments**

 

Asset impairment charges of £19.3 million in 2002 are non-cashcharges to write-down certain assets to their estimated fair values based on anassessment that their carrying value was not recoverable. These charges includelicense acquisition costs of £18.0 million and goodwill of£1.3 million, and were determined in accordance with SFAS No. 142.Asset impairment charges of £291.6 million in 2001 were the result of ananalysis and review of the recoverability of the Company’s long-lived assets andassociated goodwill that indicated that the carrying value of certain assetswould not be recoverable. The Company recognized a charge of£291.6 million in 2001 relating to the write-down of goodwill from the1999 acquisition of NTL Ireland.

 

**5.   Fixed Assets**

 

Fixed assets consist of (in £’000s):

 
|                     |   |                             |   | **December 31,** |    |
|--------------------------|--------|----------------------------------|--------|-----------------------|---------|
|                     |   | **Estimated********useful life** |   | **2003**              |    | **2002** |   |
|                     |   |                             |   |                  |    |   |   |
| Operating equipment      |   | 3-40 years                       |   | £                | 674,449 |   | £ | 631,848 |   |
| Other equipment          |   | 3-40 years                       |   | 64,299                |    | 61,228 |   |
| Construction-in-progress |   |                             |   | 4,835                 |    | 13,053 |   |
|                     |   |                             |   | £                | 743,583 |   | £ | 706,129 |   |
| Accumulated depreciation |   |                             |   | (322,156              | )       | (261,449 | ) |
|                     |   |                             |   | £                | 421,427 |   | £ | 444,680 |   |

 

F-12

----

 

**6.   Intangible Assets**

 

Intangible assets consist of (in £’000s):

 
|                                                                                            |   | **December 31,** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                            |   | **2003**              |   | **2002** |   |
|                                                                                            |   |                  |   |   |   |
| Intangible assets not subject to  amortization:                                                 |   |                  |   |   |   |
| Goodwill                                                                                        |   | £                | 94     |   | £ | 94 |   |
| Intangible assets subject to amortization:                                                      |   |                  |   |   |   |
| Customer lists, net of accumulated  amortization of £28,900 (2003) and £22,055 (2002) |   | 3,422                 |   | 10,267 |   |
| Other, net of accumulated amortization of  £13,661(2003) and £37,990 (2002)           |   | 4,849                 |   | 20,116 |   |
|                                                                                            |   | £                | 8,365  |   | £ | 30,477 |   |

 

Estimated aggregate amortization expense for each of the fivesucceeding fiscal years from December 31, 2003, is as follows: £4.9 millionin 2004, £1.5 million in 2005, £0.9 million in 2006,£0.3 million in 2007 and £0.3 million in 2008.

 

**7.   Long-Term Debt**

 

Long-term debt consists of (in £’000s):

 
|                     |   | **December 31,** |    |
|--------------------------|--------|-----------------------|---------|
|                     |   | **2003**              |    | **2002** |   |
|                     |   |                  |    |   |   |
| 2007 Discount Debentures |   | £                | 289,959 |   | £ | 321,417 |   |
| Capital lease obligation |   | 1,628                 |    | 2,211 |   |
|                     |   | 291,587               |    | 323,628 |   |
| Less: current portion    |   | (533                  | )       | (323,628 | ) |
|                     |   | £                | 291,054 |   | £ | — |   |

 

Owing to uncertainties about the compliance with the terms andconditions of the Company’s debt that would give the holders of the debt theright to accelerate repayment, all of the Company’s long-term debt wasclassified as current at December 31, 2002. Upon the emergence of theCompany’s indirect parent company, NTL Incorporated, from Chapter 11reorganization, such debt was reclassified as long-term.

 

*2007 Discount Debentures*

 

In November 1995 the Company received net proceeds ofapproximately $291.1 million (£186.9 million) from the sale of its2007 Discount Debentures in a public offering ($517.3 million principal atmaturity). Interest accreted on the 2007 Discount Debentures at 11.20% perannum compounded semiannually from November 15, 1995 to November 15,2000, after which date interest became payable in cash on each May 15 andNovember 15 through November 15, 2007. The 2007 Discount Debenturesare redeemable at the Company’s option after November 15, 2000.

 

The 2007 Discount Debentures contain restrictive covenants that limitthe Company’s ability to enter into arrangements for the sale of assets,mergers, the incurrence of additional debt and payment of dividends.

 

F-13

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**8.   Other Charges**

 

Other charges of £1.7 million in 2003 include £0.9 million ofrestructuring costs incurred by NTL Ireland comprising £0.4 million ofemployee severance for five employees and £0.5 million for lease exitcosts. Costs of £0.8 million were allocated to the Company by a subsidiaryof NTL. The allocated costs are for employee severance and related costs. Othercharges of £14.3 million in 2002 include £7.5 million ofrestructuring costs incurred by NTL Ireland and £6.8 million allocated tothe Company by a subsidiary of NTL. The restructuring costs of £7.5 millionincurred by NTL Ireland include £1.1 million of employee severance for 55 employees,none of whom are employed by NTL Ireland as of December 31, 2003, £1.4million for lease exit costs and £5.0 million for a non-cash write-off of fixedassets. The allocated costs include £4.1 million of employee severance andrelated costs and £2.7 million of recapitalization expense. Other chargesof £5.7 million in 2001 were allocated to the Company by a subsidiary ofNTL. The 2001 charges include £4.2 million in costs related to informationtechnology integration and for business rationalization consulting, plus£1.5 million for the Company’s allocated share of NTL UK’s restructuringcosts. Charges allocated to the Company by a subsidiary of NTL are made on thebasis of an allocation formula appropriate to each category of charge that is basedon management’s judgement of a reasonable methodology given the facts andcircumstances.

 

The employee severance and related costs in 2003 and 2002 were forapproximately five and 55 employees, respectively, to be terminated, none ofwho are still employed by NTL Ireland as of December 31, 2003. Thefollowing table summarizes NTL Ireland’s restructuring charges incurred andutilized in 2003, 2002 and 2001 (in £’000s):

 
|                                               |   | **Employee severance  and related costs** |   | **Lease exit costs** |   | **Other** |   | **Total** |   |
|----------------------------------------------------|--------|-------------------------------------------|--------|----------------------|--------|-----------|--------|-----------|--------|
|                                               |   |                                      |   |                 |   |      |   |      |   |
| Balance, December 31, 2001                    |   | £                                    | 249    |                 | £ | —    |   | £    | — |   | £ | 249 |   |
| Charged to expense                                 |   | 1,139                                     |   | 1,390                |   | 5,008     |   | 7,537     |   |
| Utilized                                           |   | (1,388                                    | )      | (121                 | )      | (5,008    | )      | (6,517    | )      |
| Balance, December 31, 2002                    |   | —                                    |   | 1,269                |   | —    |   | 1,269     |   |
| Charged to expense                                 |   | 393                                       |   | 496                  |   | —    |   | 889       |   |
| Utilized                                           |   | (393                                      | )      | (330                 | )      | —    |   | (723      | )      |
| Foreign currency exchange translation  adjustments |   | —                                    |   | 141                  |   | —    |   | 141       |   |
| Balance, December 31, 2003                    |   | £                                    | — |                 | £ | 1,576     |   | £    | — |   | £ | 1,576 |   |

 

**9.   Income Taxes**

 

The expense (benefit) for income taxes consists of the following (in£’000s):

 
|                        |   | **Year Ended December 31,** |   |
|-----------------------------|--------|----------------------------------|--------|
|                        |   | **2003**                         |   | **2002** |   | **2001** |   |
|                        |   |                             |   |   |   |   |   |
| Current income taxes        |   | £                           | — |   | £ | — |   | £ | — |   |
| Deferred income taxes       |   | 435                              |   | (5,137 | ) | (3,267 | ) |
| Total tax expense (benefit) |   | £                           | 435    |   | £ | (5,137 | ) | £ | (3,267 | ) |

 

F-14

----

 

Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.Significant components of deferred tax liabilities and assets are as follows(in £’000s):

 
|                                        |   | **December 31,** |   |
|---------------------------------------------|--------|-----------------------|--------|
|                                        |   | **2003**              |   | **2002** |   |
|                                        |   |                  |   |   |   |
| Deferred tax liabilities:                   |   |                  |   |   |   |
| Intangibles                                 |   | £                | 428    |   | £ | 2,150 |   |
| Depreciation and amortization               |   | 5,805                 |   | 3,132 |   |
| Total deferred tax liabilities              |   | 6,233                 |   | 5,282 |   |
| Deferred tax assets:                        |   |                  |   |   |   |
| Net operating losses                        |   | 18,530                |   | 44,070 |   |
| Property and equipment                      |   | 105,860               |   | 48,690 |   |
| Other                                       |   | 430                   |   | 1,972 |   |
| Total deferred tax assets                   |   | 124,820               |   | 94,732 |   |
| Valuation allowance for deferred tax assets |   | (119,425              | )      | (89,832 | ) |
| Net deferred tax assets                     |   | 5,395                 |   | 4,900 |   |
| Net deferred tax liabilities                |   | £                | 838    |   | £ | 382 |   |

 

At December 31, 2003 and 2002 the Company had a valuationallowance against its deferred tax assets to the extent that it was not morelikely than not that such assets would be realized in the future.

 

During 2003 the Company surrendered approximately £50.5 million ofits prior year tax losses to its indirect parent company in return for apayment of approximately £2.5 million. This resulted in a credit topaid-in capital.

 

At December 31, 2003 the Company has tax net operating lossescarried forward of approximately £87 million. The net operating losseshave an unlimited carry forward under UK and Irish tax laws (subject torestrictions on a loss carried forward where there is a change in groupownership, as occurred on January 10, 2003, and also a major change in thenature or conduct of the business or an increase of capital of the company) butare limited in their use to the type of business which generated the loss.

 

The reconciliation of income taxes computed at the UK statutory ratesto income tax expense (benefit) is as follows (in £’000s):

 
|                                           |   | **Year Ended December 31,** |   |
|------------------------------------------------|--------|----------------------------------|--------|
|                                           |   | **2003**                         |   | **2002** |   | **2001** |   |
|                                           |   |                             |   |   |   |   |   |
| Expected (benefit) at statutory UK rate  (30%) |   | £                           | (2,904 | ) | £ | (22,558 | ) | £ | (129,314 | ) |
| Non-deductible asset impairment                |   | —                           |   | 3,105 |   | 87,485 |   |
| Non-deductible expenses                        |   | 2,254                            |   | 2,567 |   | 2,028 |   |
| UK losses with no tax benefit                  |   | 1,177                            |   | 11,749 |   | 36,534 |   |
| Differences in tax rates—Irish taxes      |   | (92                              | )      | — |   | — |   |
| Total tax expense (benefit)                    |   | £                           | 435    |   | £ | (5,137 | ) | £ | (3,267 | ) |

 

**10.   Fair Values of Financial Instruments**

 

The Company in estimating its fair value disclosures for financialinstruments used the following methods and assumptions:

 

F-15

----

 

*Current assets and current liabilities:*  The carrying amounts of cash and cashequivalents, accounts receivable, other current assets, accounts payable,accrued expenses, interest payable, deferred income and due to affiliatesreported in the consolidated balance sheets approximate fair value owing to theshort-term maturity of these assets and liabilities.

 

*Long-term debt:*  The estimated fair value of the Company’spublicly traded debt is based on quoted market prices. The carrying amount ofthe loans from affiliate approximates the fair value. Interest rates that arecurrently available to the Company for issuance of debt with similar terms andremaining maturity are used to estimate fair value for debt issues for whichquoted market prices are not available. At December 31, 2003 and 2002, theestimated fair values of the Company’s long-term debt were £292.8 millionand £231.4 million, respectively.

 

**11.   Related Party Transactions**

 

In October 2000, NTL Ireland entered into a loan agreement with asubsidiary of NTL under which £81.5 million and £75.2 million hadbeen borrowed at December 31, 2003 and 2002, respectively. The outstandingborrowings are due in October 2007. Interest is payable quarterly inarrears beginning March 31, 2001. The annual interest rate is set onJanuary 1 of each year at the 12-month EURIBOR rate plus 1%. The effectiveinterest rate at December 31, 2003 and 2002 was 3.73% and 4.32%,respectively. Accrued interest of £0.8 million was included in due to affiliatesin the consolidated balance sheet at December 31, 2003 and 2002.

 

Since the acquisition of the Company by NTL in October 1998, asubsidiary of NTL has been providing infrastructure and management supportservices to the Company. Benefits include usage of NTL network assets, networkmaintenance, marketing and shared overhead. Additionally, during 2001 certainelements of the Company’s network operations and customer operations have beenintegrated with NTL’s national and regional operations in order for the Companyto gain the advantage of NTL’s scale.

 

The related charges, which began in the fourth quarter of 1999,represent the Company’s portion of costs incurred by a subsidiary of NTL forthe benefit of all UK operations within NTL. These charges are made on the basisof an allocation formula appropriate to each category of charge. The Companywas charged £72.1 million, £70.0 million and £60.8 million in2003, 2002 and 2001, respectively. For 2003 £27.2 million was included inoperating costs and £44.9 million was included in selling, general andadministrative expense. For 2002 £26.9 million was included in operatingcosts and £43.1 million was included in selling, general andadministrative expense. For 2001 £21.3 million was included in operatingcosts and £39.5 million was included in selling, general andadministrative expense. It is not practicable to determine the amount of theseexpenses that would have been incurred had the Company operated as anunaffiliated entity.

 

As of December 31, 2003 and 2002, the due to affiliates balanceincludes payments made to third parties on behalf of the Company by asubsidiary of NTL. The Company has reduced direct transactions with thirdparties as a result of the continued integration of the Company with NTL. TheCompany has therefore had its liabilities to third parties significantlyreduced, with a rise in amounts due to affiliates. The payments made on behalfof the Company represent attributable expenses incurred by the Company.

 

**12.   Employee Benefit Plan**

 

The Company operates a defined benefit pension plan in the Republic ofIreland. The assets of the Plans are held separately from those of the Companyand are invested in specialized portfolios under the management of aninvestment group. The pension cost is calculated using the projected unitmethod. The Company’s policy is to fund amounts to the defined benefit plansnecessary to comply with the funding requirements as prescribed by the laws andregulations in the Republic of Ireland.

 

F-16

----

 

The Company’s defined benefit pension plan uses a measurement date ofDecember 31:

 

***Obligations andFunded Status***

 
|                                               |   | **Year Ended  December 31,** |   |
|----------------------------------------------------|--------|-----------------------------------|--------|
|                                               |   | **2003**                          |   | **2002** |   |
|                                               |   | **(in £’000s)**         |   |
|                                               |   |                              |   |   |   |
| **Change in Projected  Benefit Obligation**        |   |                              |   |   |   |
| Projected Benefit Obligation at beginning  of year |   | £                            | 4,028  |   | £ | 3,663 |   |
| Service cost                                       |   | 278                               |   | 243 |   |
| Interest cost                                      |   | 248                               |   | 223 |   |
| Employee contributions                             |   | 106                               |   | 92 |   |
| Actuarial loss (gain)                              |   | 1,017                             |   | (345 | ) |
| Benefits paid                                      |   | (97                               | )      | (88 | ) |
| Foreign currency exchange rate changes             |   | 368                               |   | 240 |   |
| Projected Benefit Obligation at end of year        |   | £                            | 5,948  |   | £ | 4,028 |   |

 
|                                            |   | **Year Ended  December 31,** | ** ** |
|-------------------------------------------------|--------|-----------------------------------|------------|
|                                            |   | **2003**                          |       | **2002** | ** ** |
|                                            |   | **(in  £’000s)**        | ** ** |
|                                            |   |                              |       |   |   |
| **Change in Plan  Assets**                      |   |                              |       |   |   |
| Fair value of plan assets at beginning of  year |   | £                            | 3,782      |   | £ | 4,566 |   |
| Actual return on plan assets                    |   | 428                               |       | (1,046 | ) |
| Employer contributions                          |   | 186                               |       | — |   |
| Employee contributions                          |   | 106                               |       | 92 |   |
| Benefits paid                                   |   | (97                               | )          | (88 | ) |
| Foreign currency exchange rate changes          |   | 329                               |       | 258 |   |
| Fair value of plan assets at end of year        |   | £                            | 4,734      |   | £ | 3,782 |   |

 
|                                       |   | **Year Ended  December 31,** | ** ** |
|--------------------------------------------|--------|------------------------------|------------|
|                                       |   | **2003**                     |       | **2002** | ** ** |
|                                       |   | **(in  £’000s)**   | ** ** |
|                                       |   |                         |       |   |   |
| Funded status                              |   | £                       | (1,214     | ) | £ | (247 | ) |
| Unrecognized net losses                    |   | 1,692                        |       | 751 |   |
| Unrecognized prior service costs           |   | —                       |       | — |   |
| Unrecognized transition obligation (asset) |   | (253                         | )          | (253 | ) |
| Net amount recognized                      |   | £                       | 225        |   | £ | 251 |   |

 

F-17

----

 
|                                                                       |   | **Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                       |   | **2003**                          |       | **2002** | ** ** |
|                                                                       |   | **(in  £’000s)**        | ** ** |
|                                                                       |   |                              |       |   |   |
| **Amounts Recognized  in the Statement of Financial Position Consist of:** |   |                              |       |   |   |
| Prepaid benefit cost                                                       |   | £                            | —     |   | £ | 251 |   |
| Accrued benefit liability                                                  |   | (719                              | )          | — |   |
| Accumulated other comprehensive loss                                       |   | 944                               |       | — |   |
| Net amount recognized                                                      |   | £                            | 225        |   | £ | 251 |   |

 

 

The accumulated benefit obligation for the defined benefit plan was£5,452,000 and £3,693,000 at December 31, 2003 and 2002 respectively.

 

***Information forpension plans with an accumulated benefit obligation in excess of plan assets***

 
|                           |   | **Year Ended  December 31,** |   |
|--------------------------------|--------|-----------------------------------|--------|
|                           |   | **2003**                          |   | **2002** |   |
|                           |   | **(in £’000s)**         |   |
|                           |   |                              |   |   |   |
| Accumulated benefit obligation |   | 5,452                             |   | — |   |
| Fair value of plan assets      |   | 4,734                             |   | — |   |

 

***Information forpension plans with an projected benefit obligation in excess of plan assets***

 
|                         |   | **Year Ended  December 31,** |   |
|------------------------------|--------|-----------------------------------|--------|
|                         |   | **2003**                          |   | **2002** |   |
|                         |   | **(in £’000s)**         |   |
|                         |   |                              |   |   |   |
| Projected benefit obligation |   | 5,948                             |   | 4,028 |   |
| Fair value of plan assets    |   | 4,734                             |   | 3,782 |   |

 

***Components of NetPeriodic Benefit Costs***

 
|                                           |   | **Year Ended  December 31,** |   |
|------------------------------------------------|--------|-----------------------------------|--------|
|                                           |   | **2003**                          |   | **2002** |   |
|                                           |   | **(in £’000s)**         |   |
|                                           |   |                              |   |   |   |
| Service cost                                   |   | £                            | 278    |   | £ | 243 |   |
| Interest cost                                  |   | 248                               |   | 223 |   |
| Expected return on plan assets                 |   | (304                              | )      | (371 | ) |
| Amortization of transition obligation  (asset) |   | (21                               | )      | (19 | ) |
| Recognized actuarial loss (gain)               |   | 31                                |   | — |   |
| Total net periodic benefit cost                |   | £                            | 232    |   | £ | 76 |   |

 

F-18

----

 

**Additional Information**

 
|                                                                  |   | **December 31,**     |   |
|-----------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                  |   | **2003**                  |   | **2002** |   |
|                                                                  |   | **(in £’000s)** |   |
|                                                                  |   |                      |   |   |   |
| Increase in minimum liability included in  other comprehensive income |   | £                    | 944    |   | £ | — |   |
|                                                                       |        |                           |        |  |  |  |  |

 

**Assumptions**

 

Weighted-average assumptions used to determine benefit obligations

 
|                          |   | **December 31,** |   |
|-------------------------------|--------|-----------------------|--------|
|                          |   | **2003**              |   | **2002** |   |
|                          |   |                  |   |   |   |
| Discount rate                 |   | 6.0                   | %      | 6.0 | % |
| Rate of compensation increase |   | 4.0                   | %      | 4.0 | % |

 

Weighted-average assumptions used to determine net periodic benefitcosts

 
|                                              |   | **December 31,** |   |
|---------------------------------------------------|--------|-----------------------|--------|
|                                              |   | **2003**              |   | **2002** |   |
|                                              |   |                  |   |   |   |
| Discount rate                                     |   | 6.0                   | %      | 6.0 | % |
| Expected long-term rate of return on plan  assets |   | 7.9                   | %      | 7.9 | % |
| Rate of compensation increase                     |   | 4.0                   | %      | 4.0 | % |

 

Where investments are held in bonds and cash, the expected long-termrate of return is taken to be yields generally prevailing on such assets at themeasurement date. The higher rate of return is expected on equity investments,which is based more on realistic future expectations than on the returns thathave been available historically. The overall expected long-term rate of returnon assets is then the average of these rates taking into account the underlyingassets portfolios of the pension plans.

 

**Plan Assets**

 

The Company’s weighted-average assets allocations at December 31,2003, and 2002, by asset category are as follows:

 
|               |   | **December 31,** |   |
|--------------------|--------|-----------------------|--------|
|               |   | **2003**              |   | **2002** |   |
|               |   |                  |   |   |   |
| **Asset Category** |   |                  |   |   |   |
| Equity Securities  |   | 72.8                  | %      | 72.8 | % |
| Debt Securities    |   | 16.5                  | %      | 16.5 | % |
| Real Estate        |   | 0.0                   | %      | 0.0 | % |
| Other              |   | 10.7                  | %      | 10.7 | % |
| Total              |   | 100.0                 | %      | 100.0 | % |

 

The Company has in place an agreement with the investment managers thattargets an allocation of 72% equities and 28% bonds and cash at December 31,2003. Deviations from these central targets are permitted from time to time.Because

 

F-19

----

 

the main defined benefit pension plan is now closed to new entrants,the investment strategy is moving towards a higher proportion of bonds overtime to reflect the steadily maturing profile of liabilities.

 

There were no shares of NTL Incorporated’s common stock included in theEquity Securities at December 31, 2003 and 2002 respectively.

 

**Cash flows**

 

**Contributions**

 

The Company expects to contribute £201,000 to its pension plan in 2004.

 

**Estimated Future Benefit Payments**

 

The benefits expected to be paid out of the pension plans in total areset out below for each of the next five years and the following five years inaggregate. The benefits expected to be paid are based on the same assumptionsused to measure the Company’s benefit obligation at December 31, 2003 andinclude estimated future employee services.

 
|            |   | **Pension Benefits  (in £’000s)** |   |
|-----------------|--------|---------------------------------------------|--------|
|            |   |                                        |   |
| 2004            |   | 100                                         |   |
| 2005            |   | 103                                         |   |
| 2006            |   | 107                                         |   |
| 2007            |   | 110                                         |   |
| 2008            |   | 114                                         |   |
| Years 2009-2013 |   | 635                                         |   |

 

F-20

----

 

**13.   Commitments and Contingent Liabilities**

 

The Company had no significant commercial commitments as ofDecember 31, 2003.

 

The Company is involved in certain disputes and litigation arising inthe ordinary course of its business. None of these matters are expected to havea material adverse effect on the Company’s financial position, results ofoperations or cash flows.

 

**14.   Leases**

 

A summary of assets held under capital lease are as follows (in£’000s).

 
|                           |   | **December 31,** |   |
|--------------------------------|--------|-----------------------|--------|
|                           |   | **2003**              |   | **2002** |   |
|                           |   |                  |   |   |   |
| Land, buildings and equipment  |   | £                | 11,647 |   | £ | 11,647 |   |
| Less: accumulated depreciation |   | (9,332                | )      | (8,283 | ) |
|                           |   | £                | 2,315  |   | £ | 3,364 |   |

 

Future minimum annual payments at December 31, 2003 are as follows(in £’000s). The table reflects the Company’s contractual obligations.

 
|                                     |   | **Capital********Leases** |   | **Operating********Leases** |   |
|------------------------------------------|--------|---------------------------|--------|-----------------------------|--------|
|                                     |   |                      |   |                        |   |
| Year ended December 31:             |   |                      |   |                        |   |
| 2004                                     |   | £                    | 652    |                        | £ | 2,696 |   |
| 2005                                     |   | 517                       |   | 2,729                       |   |
| 2006                                     |   | 377                       |   | 2,208                       |   |
| 2007                                     |   | 279                       |   | 1,850                       |   |
| 2008                                     |   | 62                        |   | 1,850                       |   |
| Thereafter                               |   | —                    |   | 27,551                      |   |
| Total minimum lease payments             |   | 1,887                     |   | £                      | 38,884 |   |
|                                     |   |                      |   |                        |   |
| Less: amount representing interest       |   | (259                      | )      |                        |   |
| Present value of net minimum obligations |   | 1,628                     |   |                        |   |
| Less: current portion                    |   | (533                      | )      |                        |   |
|                                     |   | £                    | 1,095  |                        |   |   |

 

Leases for buildings, office space and equipment extend through 2031.Total rental expense for the years ended December 31, 2003, 2002, and 2001under operating leases was £2.6 million, £2.9 million and£3.7 million respectively.

 

F-21

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**NTL (TRIANGLE) LLC AND SUBSIDIARIES**

 

**SCHEDULE II—VALUATION AND QUALIFYINGACCOUNTS**

 
|                                 |   | **Balance at********Beginning********of Year** |   | **Additions********Charged to********Costs and********Expenses** |   | **(Deductions********From)  Additions to********Reserves** |   | **Balance********at End of********Year** |   |
|--------------------------------------|--------|------------------------------------------------|--------|------------------------------------------------------------------|--------|------------------------------------------------------------|--------|------------------------------------------|--------|
|                                 |   | **(In £’000s)**                      |   |
|                                 |   |                                           |   |                                                             |   |                                                       |   |                                     |   |
| **Allowance for  Doubtful Accounts** |   |                                           |   |                                                             |   |                                                       |   |                                     |   |
| 2003                                 |   | £                                         | 10,738 |                                                             | £ | 2,761                                                      |   | £                                   | (3,267 | )(a) | £ | 10,232 |   |
| 2002                                 |   | 9,921                                          |   | 9,166                                                            |   | (8,349                                                     | )(b)   | 10,738                                   |   |
| 2001                                 |   | 8,914                                          |   | 6,055                                                            |   | (5,048                                                     | )(c)   | 9,921                                    |   |
|                                      |        |                                                |        |                                                                  |        |                                                            |        |                                          |        |  |  |  |  |

 

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(a)                                  Uncollectibleaccounts written-off, net of recoveries of £4,133,000 and £(866,000) foreignexchange currency translation adjustments.

 

(b)                                 Uncollectible accountswritten-off, net of recoveries of £8,718,000 and £(369,000) foreign exchangecurrency translation adjustments.

 

(c)                                  Uncollectibleaccounts written-off, net of recoveries of £4,956,000 and £92,000 foreignexchange currency translation adjustments.

 

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