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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to __________________
Commission file number: 0-19889
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(Exact name of registrant as specified in its charter)
South Hertfordshire
United Kingdom Fund, Ltd.
Colorado #84-1145140
(State of Organization) (IRS Employer Identification No.)
Bell Cablemedia House,
Upton Road, Watford,
Hertfordshire WD1 7EL, England 011-44-1923-444-000
(Address of principal executive (Registrant's telephone
office and Zip Code) no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Interests
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes x No
Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229 405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x
DOCUMENTS INCORPORATED BY REFERENCE:
None
TABLE OF CONTENTS
Page
PART I.
ITEM 1. BUSINESS.......................................................... 3
ITEM 2. PROPERTIES........................................................ 22
ITEM 3. LEGAL PROCEEDINGS................................................. 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 22
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS................................ 22
ITEM 6. SELECTED FINANCIAL DATA........................................... 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................... 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 46
ITEM 11. EXECUTIVE COMPENSATION........................................... 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................. 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K............................................ 48
Signatures..................................................................49
Exhibit Index...............................................................50
PART I.
ITEM 1. BUSINESS
South Hertfordshire United Kingdom Fund, Ltd., formerly known as
Jones United Kingdom Fund, Ltd, (the "Partnership"), is a Colorado limited
partnership that was formed in December 1991 pursuant to the public
offering of limited partnership interests (the "Interests") in the
Partnership for the purpose of acquiring one or more cable
television/telephony systems in the United Kingdom of Great Britain and
Northern Ireland (the "United Kingdom" or the "UK"). Upon acquisition of
its system, the Partnership's primary investment objective is to obtain
capital appreciation in the value of its systems over the term they are
held by the Partnership. The capital appreciation in the Partnership's
assets may be converted to cash by the sale of a system, through one or
more refinancings or by the partners' sale of their Interests in the
Partnership.
History
The Partnership was formed upon the receipt of subscriptions for
Interests totaling the minimum offering of $10,000,000. The general
partner of the Partnership was initially Jones Global Funds, Inc., a
Colorado corporation ("Jones Global Funds"). As of August 15, 1992, when
the initial offering by the Partnership terminated, the Partnership had
raised $16,548,000 in gross offering proceeds from the sale of 16,548
Interests, or $14,272,650 net of sales commissions and other organizational
and offering costs. On September 14, 1992, the Partnership commenced a
second offering of Interests. As of April 1994, when the second offering
terminated, the Partnership had raised a total of $56,935,000 in gross
offering proceeds from the sale of 56,935 limited partnership interests, or
$48,817,997 net of sales commissions and other organizational and offering
costs, from both its initial and its second public offerings.
On February 20, 1992, upon receipt of approval from United Kingdom
regulatory authorities, the Partnership acquired, through nominees, the
beneficial ownership of all of the shares of Bell Cablemedia (South
Hertfordshire) Limited (formerly Jones Cable Group of South Hertfordshire
Limited) ("Bell Cablemedia South Herts") from Jones Global Funds, Inc. and
certain of its affiliates (the "Former Owners"). Bell Cablemedia South
Herts is a United Kingdom corporation which holds the cable and
telecommunications licenses necessary to build and operate a cable
television/telephony system in the South Hertfordshire franchise area,
located adjacent to the northwest perimeter of Greater London (the "South
Herts System.") The acquisition by the Partnership of all of the shares of
Bell Cablemedia South Herts resulted in the Partnership acquiring an
indirect beneficial ownership interest in the South Herts System. The
Partnership paid the Former Owners a total of $4,996,700, representing, at
cost, their expenses in connection with obtaining, holding and maintaining
the licenses for the South Herts System and their capital expenditures
during and before the Partnership acquired the beneficial ownership of Bell
Cablemedia South Herts, plus the amount of operating and interest expenses
in excess of operating receipts incurred during such period. Subsequent to
the Partnership investment in Bell Cablemedia South Herts, costs
reimbursements have been and will continue to be made to the general
partner (or its affiliates) for construction costs of the South Herts
System. Partnership funds are used to reimburse the general partner (or
its affiliates) at cost on a monthly basis for expenditures incurred by the
general partner (or its affiliates) for the South Herts System's
construction and operation. Through December 31, 1995, the total amount
reimbursed to fund the South Herts System's construction and development
totaled approximately $48,800,000.
The South Herts System's ownership by Bell Cablemedia South Herts, a
United Kingdom corporation, rather than directly by the Partnership,
results from an intention to insulate the limited partners of the
Partnership (the "Limited Partners") from potential United Kingdom taxation
upon the eventual sale of the South Herts System. Under current United
Kingdom tax laws, the sale of the United Kingdom cable television/telephony
system by a U.S. limited partnership may give rise to limited partner tax
liability in the United Kingdom whereas the sale of shares in a United
Kingdom corporation by a U.S. limited partnership does not give rise to
limited partner tax liability in the United Kingdom on the basis that the
limited partnership is not itself trading in the United Kingdom through a
permanent establishment there. The shares of Bell Cablemedia South Herts
are held indirectly by the Partnership through corporate nominees on the
advice of the Partnership's counsel in the United Kingdom. This indirect
ownership structure is intended to afford the Limited Partners more certain
protection from United Kingdom tax liability.
In order to provide additional funding for the construction of the
South Herts System, two additional participants invested in Bell Cablemedia
South Herts in 1993 and 1994. Jones Intercable of South Hertfordshire,
Inc. invested Pound Sterling3,400,000 in Bell Cablemedia South Herts in
exchange for 34,000 Class A shares in November 1993. Also in November
1993, affiliates of Sandler Capital Management (the "Sandler Group")
committed to invest Pound Sterling6,800,000 in Bell Cablemedia South Herts,
of which Pound Sterling2,266,600 was funded in November 1993 for 22,666
Class B shares. In June 1994, the Sandler Group invested Pound
Sterling3,273,232 for 32,732 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested Pound Sterling503,283 for 5,033 Class A
shares. In July 1994, the Sandler Group invested Pound Sterling1,800,000
for 18,000 Class B shares and Jones Intercable of South Hertfordshire, Inc.
invested Pound Sterling466,800 for 4,668 Class B shares.
On June 10, 1994, Jones Global Group, Inc., Jones Intercable, Inc.
and certain of their subsidiaries (collectively, "Jones") and the Sandler
Group entered into agreements to transfer all of their interests in their
United Kingdom cable television/telephony operations and franchises,
including Jones Intercable of South Hertfordshire, Inc.'s interest in Bell
Cablemedia South Herts, Jones Global Funds, Inc.'s general partner interest
in the Partnership and the Sandler Group's interest in Bell Cablemedia
South Herts, to Bell Cablemedia plc ("BCM") in exchange for ordinary shares
(in the form of American Depositary Shares ("ADSs")) to be issued by BCM in
connection with a planned public equity offering of ADSs by BCM. At that
date, BCM was indirectly owned 80 percent by Bell Canada International Inc.
("BCI") and 20 percent by Cable & Wireless plc ("C&W").
On July 22, 1994, in connection with the closing of the public equity
offering by BCM, Jones and the Sandler Group completed the exchange of
their interests in United Kingdom cable television/telephony operations and
franchises for ordinary shares (in the form of ADSs) issued by BCM. At
closing, BCM acquired Jones Intercable of South Hertfordshire, Inc.'s
interest in Bell Cablemedia South Herts, the Sandler Group's interest in
Bell Cablemedia South Herts and the general partner interest in the
Partnership. These acquisitions are collectively referred to herein as the
"BCM Acquisition." In October 1994, the Partnership invested Pound
Sterling5,108,900 in Bell Cablemedia South Herts for 51,089 Class A shares
and BCM invested Pound Sterling2,554,600 in Bell Cablemedia South Herts for
25,546 Class A shares. In November 1994, the Partnership invested Pound
Sterling1,410,000 in Bell Cablemedia South Herts for 14,100 Class A shares
and BCM invested Pound Sterling705,000 in Bell Cablemedia South Herts for
7,050 Class A shares. As a result of these transactions, Bell Cablemedia
South Herts is now owned 66.7 percent by the Partnership and 33.3 percent
by BCM, and the general partner of the Partnership is now Fawnspring
Limited, a wholly owned subsidiary of BCM (the "General Partner"). The
General Partner provides consulting services to the Partnership. The
General Partner may delegate some or all of the consulting services to BCM
or to other affiliates.
BCM, through its majority-owned subsidiaries and its interests in
Bell Cablemedia South Herts and Videotron Holdings Plc ("Videotron"), in
which BCM owns a 26.2% equity interest, holds exclusive cable television
licenses and related nonexclusive telecommunications licenses covering over
one million equity homes in the Greater London and adjacent areas. In
addition to its London franchises, BCM holds cable television and
telecommunications licenses covering franchise areas in other regions of
the United Kingdom. BCM has over two million equity homes in its franchise
areas and, in terms of equity homes, BCM is one of the largest holders of
cable television and telecommunications licenses in the United Kingdom.
The South Herts System
Franchise Area
The South Hertfordshire franchise area comprises the three
administrative areas of Three Rivers, Watford and Hertsmere, with a
population of approximately 240,000. The franchise area covers commuter
suburbs of London, and many people who reside in the franchise area use the
available fast rail and motorway services to travel to work in central
London. South Hertfordshire has benefitted from the completion in 1986 of
the M25 London Motorway, which makes commuting from the franchise area to
other areas in or near London more convenient. An M1 motorway link exists
to give London-bound commuters direct access from Watford to the London
highway system. The M1 link is half a mile from the South Herts System
headend and administrative offices. There are approximately 94,000 homes
in the franchise area, of which approximately 84,000 have been passed by
the South Herts System cable television/telephony network now that
construction in the franchise area is substantially complete. The average
housing density in the South Herts franchise area is approximately 1,150
homes per square mile.
The South Hertfordshire franchise area contains approximately 7,000
businesses, 80 percent of which are small or medium-sized. In addition,
there are several business parks containing predominantly industrial and
manufacturing concerns.
Operations
Construction of a cable television-only network in the South
Hertfordshire franchise area commenced in early 1991 and, after the
announcement of the results of the Duopoly Review (see "Regulation") and
the resulting potential for cable-based telephony, an integrated cable
television/telephony network architecture was developed for this franchise
in late 1991. As of February 29, 1996, approximately 84,000 homes, or 89
percent of total homes, in this area had been passed. Cable television
services commenced in April 1992 and telephony services commenced in
February 1993, following completion of the installation of a telephony
switch. At February 29, 1996, Bell Cablemedia South Herts serviced
approximately 18,800 basic cable television subscribers, 21,900 residential
telephony lines and 850 business telephony subscribers.
As a consequence of the BCM Acquisition, BCM now controls the
operations of Bell Cablemedia South Herts. Following completion of the BCM
Acquisition, BCM restructured its operations into regional operating groups
which are responsible for construction, local marketing, installation and
customer service in the regions. Each region is headed by a regional
managing director who is assisted by a regional senior management team.
Bell Cablemedia South Herts comprises part of BCM's South Region which is
managed from headquarters in the London Docklands. Peter Lyne, a director
of the General Partner, is the Managing Director of the South Region. See
"Item 10. Directors and Executive Officers of the Registrant" below.
Products and Services
Three types of service are offered by Bell Cablemedia South Herts --
cable television (mainly to the home but also to businesses), residential
telephony services and telephony and other telecommunications services for
business customers.
Cable Television Services. Bell Cablemedia South Herts offers a range
of programming, marketed in a series of packages: basic packages, which
include cable exclusive programming such as Channel One and the Performance
Channel, and premium packages, which are based on sporting events and films.
Residential Telephony Services. Bell Cablemedia South Herts offers
local and long distance telephony services to its customers, including
advanced services such as call monitoring, call barring, three-way calling
and itemized billing.
Business Telecommunications Services. Bell Cablemedia South Herts
offers businesses a range of services alongside telephony, including fax,
private circuits and virtual private networks.
Future Services. Bell Cablemedia South Herts' broadband networks
have been designed to enable it to provide customers with a wide range of
advanced interactive and integrated entertainment, telecommunications and
information services, including pay-per-view programming. Services likely
to be made available to customers during 1996 include voicemail, CLASS
services, flexible viewing (which includes pay-per-view services) and
Internet access.
Bell Cablemedia South Herts intends offering its customers a program of
pay-per-view events, which started with the World Heavyweight Championship
boxing match between Mike Tyson and Frank Bruno in March 1996, the first time
such a pay-per-view event was made available to cable or DTH subscribers in
the UK.
Bell Cablemedia South Herts also has the opportunity to deploy
Videoway services throughout its franchise. Videoway is an interactive
multi-media system, currently offered only by Videotron, which provides
subscribers with a wide variety of entertainment, educational and
informational services and programming that are not offered by terrestrial
broadcast channels or DTH television providers. Videoway's information
services and games have consistently ranked among the most popular cable
television services in customer surveys conducted by Videotron in its
franchise areas.
Other interactive and integrated services which may be offered by
Bell Cablemedia South Herts in the future include the following:
Near video-on-demand ("NVOD"). Individual subscribers would
select from a range of channels sharing film, event and sports
programming available at start times staggered between three and 30
minutes apart. The programming selected would be transmitted over the
network but delivered in viewable form only to the particular subscriber
requesting the program, on a pay-per-view basis. Such a service would
provide the subscriber with a wide choice of programming options and
flexibility in terms of viewing times,
Video-on-demand. This is an improvement of NVOD service which
allows the viewer a much greater choice of programming selected from the
service provider's inventory for viewing at a specific time of the
viewer's choice. As with NVOD, the programming selected would be
transmitted over the network and is likely to be delivered to a
converter box in the subscriber's home in viewable form only to the
particular subscriber requesting the program, on a pay-per-view basis.
Online interactive information services. BCM is currently
investigating a range of services that could be delivered to personal
computers through its broadband network.
Future services may also include video telephony and video conferencing,
interactive home shopping and banking services.
Sales and Marketing
Bell Cablemedia South Herts' sales and marketing strategy is aimed at
both its own potential customers as well as the development of the UK cable
television/telephony industry.
In 1996, Bell Cablemedia South Herts will be contributing to a national
advertising campaign for cable, in which almost all major UK cable operators
are participating, which for the first time will include terrestrial
commercial television advertising to all UK television homes.
The principal elements of Bell Cablemedia South Herts' sales and
marketing strategy are:
Competitive packaging and pricing of cable television services.
Bell Cablemedia South Herts offers a range of basic and enhanced cable
television packages at prices which are competitive with the effective
prices (including equipment costs) offered by its principal multichannel
television competitor, British Sky Broadcasting Group plc ("BSkyB").
For business customers, Bell Cablemedia South Herts has developed and
now markets a selection of cable television packages which includes such
channels as Sky News, NBC Superchannel, EBN and CNN International. Bell
Cablemedia South Herts has also developed other customized entertainment
packages for pubs, clubs, restaurants, business receptions and employee
recreation areas.
Quality and competitive pricing of cable telephony. Bell
Cablemedia South Herts utilizes fibre and digital technologies, enabling
it to provide high quality telephony services. In addition, these
services are offered to both business and residential customers at
prices which are competitive with those of British Telecommunications
plc ("BT") and other operators. Business users may also seek
value-added services to meet specific needs and business requirements.
Bell Cablemedia South Herts currently offers centrex services and local
and regional digital private circuits to meet these requirements. In
the future, Bell Cablemedia South Herts also intends to introduce number
portability which it believes will remove a significant barrier to
increased take-up of its telephony services by both residential and
business customers.
Joint sales and marketing of cable television and telephony
services. Bell Cablemedia South Herts combines the marketing and sales
of its residential cable television and telephony services to maximize
market penetration and customer retention and minimize costs. Bell
Cablemedia South Herts discounts its monthly residential telephone line
rental to encourage subscription to the combined service. Bell
Cablemedia South Herts has an ongoing communications and sales program
to cross-promote the two services and upgrade one-service customers to
the combined cable television and telephony service.
Implementation of a comprehensive marketing communications
program. Bell Cablemedia South Herts has developed a comprehensive,
customer-focused communications program to position itself and its
products in the marketplace and in the perception of its customers.
The marketing program commences before the construction phase in
order to inform the local population about the construction process
and Bell Cablemedia South Herts' services, continues through the
construction period with sales communications to potential
subscribers and is followed up by regular customer communications
thereafter. During 1996, Bell Cablemedia South Herts intends to
further strengthen its position by building its communications around
a strong consumer oriented branding, based on the results of
extensive research carried out during 1995.
Utilization of a broad-based sales approach. Bell Cablemedia
South Herts has developed a broad based sales approach which
maximizes the sales contribution of direct mail, telemarketing and a
customer call center in addition to direct sales. This optimizes
Bell Cablemedia South Herts' sales effectiveness while minimizing
cost-per-sale. During 1996, Bell Cablemedia South Herts intends to
further broaden its sales approach to include high street and local
retail sales outlets.
Targeting high volume customers. Bell Cablemedia South Herts
targets those businesses in its franchise area which, as a
consequence of their size and the type of services they require,
represent potentially significant revenue sources. In particular,
Bell Cablemedia South Herts targets local and regional government
institutions. As many of these high volume customers are well known
in the franchise areas, Bell Cablemedia South Herts believes that
attracting such businesses to a cable-based telephony service assists
its marketing efforts to both the business and residential markets.
Bell Cablemedia South Herts also seeks to target those businesses,
particularly those of small to medium size, which it believes not to
be well served by other operators.
Encouraging direct debit payments. Bell Cablemedia South Herts
encourages the use of direct debit as the preferred method of payment
for its cable television/telephony services by offering direct debit
customers monthly discounts for these services and discounts on
installation rates. This enables Bell Cablemedia South Herts to
improve its cash flow and to minimize bad debt and collection
expenses. Bell Cablemedia South Herts believes that the use of
direct debit systems may also assist in reducing churn.
Developing a strong local identity and presence. Bell
Cablemedia South Herts engages in promotional activities such as
sponsorship of local sports teams, participation in community events,
local advertizing campaigns and the provision of a community
information channel to foster a strong local identity and presence.
Pricing
All prices set out in this section include Value Added Tax.
Cable Television. Bell Cablemedia South Herts currently charges in
the range of Pound Sterling9 to Pound Sterling15 per month for its
residential basic cable television packages depending on the number of
channels selected. Premium channels can be added to the basic packages at
prices which range from Pound Sterling2 to Pound Sterling10 per month per
channel, depending on the channels selected. Customers receive discounts
for subscribing to multiple premium channels. There is an additional
monthly charge of approximately Pound Sterling4 for each extra converter
box. Bell Cablemedia South Herts also charges a one time connection fee,
with discounts for those customers who take telephony services as well.
Cable Telephony. Bell Cablemedia South Herts believes that price
currently remains one of the most important factors influencing the decision
of customers to switch from BT or Mercury Communications Limited ("Mercury")
to its telephony services and to retain its service. Bell Cablemedia South
Herts believes that during 1995 many of its telephony customers enjoyed
average monthly savings of 10 to 15% on the cost of calls compared to BT,
depending on the time, duration and destination of calls. Bell Cablemedia
South Herts seeks to remain competitive with BT and other operators against a
background of frequently changing industry pricing.
For residential telephony customers, Bell Cablemedia South Herts
offers a two tier price structure for line charges (which are in addition
to the call charges discussed above). In order to encourage customers to
subscribe for both television and residential telephony services, the
monthly rental charge for customers subscribing for cable television and
residential telephony services is approximately Pound Sterling7 per line
and the monthly charge for customers subscribing only for residential
telephony service is approximately Pound Sterling8 per line. The monthly
charges for special services, such as call waiting or call diversion, are
Pound Sterling1 per service. Like other telephony operators, Bell
Cablemedia South Herts may require some residential customers to pay a
security deposit before providing its service.
Bell Cablemedia South Herts' line charges for business customers
(which are in addition to the call charges discussed above) are also
competitive with those of BT, Mercury and other operators. Bell Cablemedia
South Herts' monthly line rental charge for a business customer varies
between Pound Sterling10 and Pound Sterling12 and its line installation
charge is approximately Pound Sterling59 per line. Bell Cablemedia South
Herts currently offers business telephony customers various discount plans,
based on usage and other factors. Owning its own switch enables Bell
Cablemedia South Herts to provide more competitive pricing options and
service features to customers.
Customer Service
Bell Cablemedia South Herts believes that customer service is
particularly important to the success of its business and it places
significant emphasis on serving its customers' requirements. Bell
Cablemedia South Herts operates a customer call center which handles
telephone inquiries from customers on a "one-stop shop" basis.
Installations are scheduled to suit customer requirements and appointments
are confirmed prior to the scheduled visit.
The customer call center employs personnel specially trained in
dealing with the differing requirements of business and residential
customers. Customer care staff undertake an extensive initial five week
training program and ongoing job training is provided on a periodic basis.
The Network
Construction of Bell Cablemedia South Herts' cable television/telephony
network is substantially complete with approximately 89% of homes in the South
Hertfordshire franchise area passed at February 29, 1996.
Network Architecture. Bell Cablemedia South Herts' network includes
integrated two-way broadband cable television systems which incorporate a
digital overlay telephony network to service the homes and businesses within
the franchise area. The network utilizes fibre optic cables on major trunk
routes from a central location containing the cable television headend and
telephony switch to nodes which serve approximately 1,500 homes and 600 homes
for cable television and telephony, respectively.
Bell Cablemedia South Herts' network makes extensive use of fibre
optic cable. Fibre optic technology is based on the physical property of
optical fibre which allows rapid transmission of light pulses in a coded
digital format over long distances with little or no distortion. Fibre
optic systems are suitable for transmission of digitized voice, data, video
or a combination of these types of information. The main benefits of
deploying fibre in place of traditional coaxial cable or copper wire result
from its smaller size, greater capacity, increased functionality and
decreased requirements for periodic amplification of the signal. These
factors contribute to lower installation and maintenance costs and increase
the variety and quality of the services provided. The cables are pulled
into underground ducts installed in the residential and business sectors of
the franchise area. Excess duct and fibre capacity for future growth and
services is provided at the time of initial construction.
The cable television system has the capacity to carry over 50
channels of television plus radio, teletext, telecommunications and other
related services. This capacity could be increased four to six times by
the introduction of digital compression techniques. The network is also
capable of conveying video and high speed data transmissions, thus
providing the basis for video conference facilities, television
surveillance services and computer communications. Television and radio
programs for cable television services are sourced from off-air antennas,
by satellite earth stations and on videotape and then distributed from a
single site, the headend, to distribution nodes over networks of fibre
optic cable and from these nodes to subscriber homes over coaxial cables.
Generally, cable television is distributed in a manner whereby all signals
are delivered to all subscribers' homes, with the subscriber selecting
which signal to use rather than "switched" (a signal is sent to a
particular subscriber's home), although evolving technologies such as
video-on-demand are blurring this distinction. Because of the nature of
moving picture video, substantial transmission capacity, known as
bandwidth, is required to provide a cable television program to the
subscriber. A network's transmission capacity requirement increases
proportionally as additional cable television programs are broadcast to
subscribers. The inherent bandwidth limitations of twisted pair copper
wire historically used in telephone networks have to date presented a
substantial obstacle to the use of existing telephone networks for the
provision of cable television services. Coaxial cable provides
substantially greater bandwidth than twisted pair copper wire and fibre
optic cable can provide substantially greater bandwidth than coaxial cable.
Bell Cablemedia South Herts' telephony network is currently capable
of providing a range of analog and digital voice and data services.
Multipair copper cable is used to connect fibre optic nodes serving
approximately 600 homes to distribution points housed in street cabinets
serving 40 homes. From these cabinets, twisted pair copper cable is pulled
to the customer's home.
Bell Cablemedia South Herts' telephony switch has multiple
interconnects to the BT and Mercury networks and has connections with other
BCM switches and the switches of other London-based cable operators.
Network Construction Costs. Construction of integrated cable
television/telephony systems is capital intensive, requiring substantial
investment for "network costs" including construction (trenching and laying
underground ducts), cable television and telephony plant and network
electronics, "subscriber costs" including converters, subscriber
electronics and installation of cable from the network to the subscriber's
home, and "other costs" such as headend equipment, switching offices, land
and buildings, computers, and capitalization of pre-operating costs and
labor. Total capital expenditure by Bell Cablemedia South Herts on its
cable television/telephony systems up to December 31, 1995 was
approximately Pound Sterling53.9 million ($83.7 million based on the year
end exchange rate of Pound Sterling1=$1.55).
Construction costs for the South Herts System vary depending upon
housing density, geographical terrain and the types of underground
conditions encountered. Construction expenses in the UK have been higher
than comparable costs in the United States, primarily because of the
logistics in laying the fibre optic and coaxial cables for the networks
necessitated by a prohibition on aerial construction. The UK does not have
an infrastructure of existing telephone poles, overhead lines or electrical
conduits in which to run new fibre optic and coaxial cable. Therefore,
nearly all cable installation in the UK requires hand or machine
excavation, backfill to specification and permanent reinstatement of
surfaces in compliance with the New Roads and Street Works Act 1991 (the
"Street Works Act"). The Street Works Act has, however, standardized fees
for inspection of construction works by local government authorities and
standardized specifications for reinstatement of property following
excavation. As a result, construction delays previously experienced by
cable operators because of separate and often lengthy negotiations with
local government authorities have been reduced.
Build Milestones. Because Bell Cablemedia South Herts did not meet
the construction timetable set forth in the original telecommunications
license issued for the South Herts franchise area, Bell Cablemedia South
Herts requested an amendment of the construction timetable from the UK
Office of Telecommunications ("OFTEL"), the authority that regulates the
license. On February 28, 1994, OFTEL modified the South Herts System's
telecommunications license. The license, as modified, required the South
Herts System to be completed (by passing 85,000 premises) by December 31,
1995. At December 31, 1995 the South Herts System passed approximately
83,400 homes and over 3,000 businesses, thereby complying with the
construction timetable in its license.
Strategic Alliances
Bell Cablemedia South Herts is currently participating in several
strategic alliances and it believes that through these alliances it is better
able to develop and market its services cost effectively.
London Interconnect. London Interconnect was established in 1992 to
promote the growth of the cable television/telephony industry in Greater
London by developing cable television services that members can deliver to
their customers in this area. Its function was subsequently expanded to
include the establishment of telephony interconnection agreements between
members. Currently, six cable television/telephony operators are members
of London Interconnect, including Bell Cablemedia (South East) Limited, a
subsidiary of BCM, and Videotron, a company in which BCM has a minority
interest. Interconnect agreements between London Interconnect members will
allow telephone calls between customers of London Interconnect members to
be routed through London Interconnect members, in part bypassing the more
expensive networks of BT and Mercury. Pursuant to its association with
Bell Cablemedia (South East) Limited as part of BCM's South Region, Bell
Cablemedia South Herts has interconnected its network with those of London
Interconnect's members.
London Interconnect members distribute three cable television-only
channels: Performance, an arts and entertainment channel launched by three
operators in London in 1992; Identity TV, a local London channel launched by
London Interconnect in July 1993; and Channel One, an independent news,
entertainment and information channel for London launched by London
Interconnect in November 1994.
In addition, London Interconnect has allowed its members to market
London-wide advertising jointly. London Interconnect, in alliance with
Associated Newspapers, has launched a series of promotional campaigns for
the cable operators in Greater London. The first in the series comprised
an eight page leaflet promoting cable television and telephony inserted
into the Evening Standard and door dropped to approximately 1.3 million
homes passed by cable in Greater London in February 1995.
London Interconnect is also developing procedures to facilitate
cooperative marketing of business telecommunications services across the
members' networks. Bell Cablemedia South Herts believes that the provision
of such inter-franchise services represents a significant potential source
of revenue because of the large number of businesses with multiple offices
within the Greater London area that require private networks and similar
services.
Peter Lyne, a Director of the General Partner, is currently the
Chairman of London Interconnect.
Teleglobe. In August 1995, BCM entered into an alliance with
Teleglobe International (UK) Limited ("Teleglobe"), the UK subsidiary of
Canada's largest intercontinental telecommunications carrier, to provide
the first cable international telecommunications gateway. BCM will provide
Teleglobe with interconnection and switching services for overseas traffic
and Teleglobe will provide BCM with international telecommunications
services.
Videotron. BCM and Videotron jointly negotiate programming contracts
and are working together in four areas to develop further Videoway,
educational programming, business cable television services and alternative
sources of programming.
Marketing and Operations Agreements With Mercury. In 1993 Bell
Cablemedia South Herts entered into marketing and operations arrangements
with Mercury. While a formal agreement with Mercury regarding these
arrangements was negotiated (the "M&O Agreement"), the parties are
currently legally bound to apply only those provisions of the M&O Agreement
for which regulatory consent is not considered necessary. The purpose of
the M&O Agreement is: (i) to establish a working relationship between a
cable television/telephony operator, which provides local telephony service
in a franchise area, and Mercury, which, with certain exceptions, provides
long-distance telephony services to customers in the franchise area; (ii)
to specify the terms and conditions for interconnection; (iii) to reduce
duplication of effort, resources and investment in the marketing of
telephony services in the relevant franchise area; and (iv) to develop
joint product initiatives. In addition, the M&O Agreement will provide
that Bell Cablemedia South Herts will, if commercially justifiable, promote
Mercury to its customers as its preferred long distance and international
carrier and that Mercury will, if commercially justifiable, treat Bell
Cablemedia South Herts as its preferred local fixed-link carrier in Bell
Cablemedia South Herts' franchise area. Pending full implementation of the
M&O Agreement, interconnection is already taking place between Mercury and
Bell Cablemedia South Herts. At March 1996, the regulatory review of the
M&O Agreement had not been completed.
Employees
The Partnership has no employees. Bell Cablemedia South Herts is
managed as a part of BCM's South Region, thus benefiting from the economies
of scale of sharing support functions.
Competition
Cable Television
Overview. It is the UK Independent Television Commission's (the
"ITC's") current policy, confirmed in November 1994 by the UK Government,
to grant not more than one cable television license in any franchise area.
Accordingly, Bell Cablemedia South Herts is the exclusive provider of cable
television services in its franchise area. Bell Cablemedia South Herts'
cable television system competes with direct reception of terrestrial
broadcast television signals and with other methods of delivering
television signals to the home for a fee, such as direct-to-home ("DTH")
satellite-delivered television services and satellite master antenna
television ("SMATV") systems. The extent of such competition depends upon,
among other things, the price, variety and quality of the programming
offered and, with respect to terrestrial broadcast television, the quality
of reception. In the future, cable television companies may face
competition from video-on-demand (i.e. transmission of an individual
program to one household in response to a particular request) and
television services offered by national public telephone operators
("PTO's") such as BT and digital terrestrial and satellite television and
possibly additional competition using existing or new delivery systems.
Pay-per-view services and video-on-demand services which may be provided by
Bell Cablemedia South Herts and other operators in the future will compete
to varying degrees with other communications and entertainment media,
including home video, cinema and live theater. In particular, the
availability of recently released movies on videocassettes may affect the
degree to which Bell Cablemedia South Herts is able to sell pay-television
and pay-per-view services to subscribers. The draft Broadcasting Bill,
which as of February 1996 is under consideration by the House of Lords,
contains proposals relating to the licensing and regulation of digital
terrestrial television. The Department of National Heritage is proposing
to make available at least 18 digital terrestrial television channels. The
ITC is to be responsible for licensing and regulating digital terrestrial
television. Existing national public service broadcasters, such as the
BBC, ITV and Channel 5 will be offered a guaranteed place in the
multiplex/distribution infrastructure (there are six multiplexes or
frequency channels each of which is capable of carrying 3 channels). No
one company will be allowed to control more than 25% of the available
digital terrestrial capacity, subject to an overall limit of a 15% share of
the total television audience (analog and digital). No one company will be
allowed to control more than two multiplexes.
The U.K. Government has not indicated any date for the award of
frequencies or the start of broadcasting. As at February 1996, it appears
that the ITC will advertise frequencies for application during the course
of 1996, for services to launch in 1997. The availability of new digital
terrestrial channels will represent a competitive threat to Bell Cablemedia
South Herts, but also a potential source of new programming. No assurance
can be given that digital terrestrial television will not provide
substantial competition to Bell Cablemedia South Herts in the future. No
date has yet been set for the changeover from analog to digital
transmission and Bell Cablemedia South Herts may need to upgrade its
systems and set top boxes when this occurs.
BSkyB. The most significant competitor in the multichannel
television market in the South Herts franchise area is BSkyB. BSkyB offers
DTH television services and currently is the predominant competitor in the
multichannel television market with approximately 3.9 million DTH
subscribers in the UK as compared with an aggregate of approximately 1.3
million broadband cable subscribers nationwide at January 1, 1996. A DTH
subscriber must purchase or rent a satellite receiver and receiving "dish"
and then pay subscriber fees to BSkyB for the use of a decoder, which makes
the satellite signal usable. Although BSkyB's DTH service currently
presents substantial competition to Bell Cablemedia South Herts' cable
television service, the General Partner believes that cable television has
a number of competitive advantages over DTH systems and that cable will
become the preferred medium for multichannel distribution. First,
installation of satellite dishes frequently requires compliance with zoning
ordinances. Second, satellite dishes, which measure 24 inches in diameter,
must be installed with a "line-of-sight" orientation toward the
transmitting satellite which restricts placement options and can result in
aesthetic objections to installation. Third, DTH subscribers who purchase,
as opposed to rent, their satellite system must arrange and pay for any
servicing required for the system. Fourth, without substantial
improvements in existing technology, BSkyB will not be able to offer the
integrated telephone services, locally oriented advertising and programming
or interactive video services that the cable television/telephony operators
now offer or expect to offer in the future.
The General Partner, however, expects BSkyB to provide substantial
competition for the foreseeable future and no assurance can be given that
it will not become an even stronger competitor or that Bell Cablemedia
South Herts will be able to compete successfully with BSkyB. A significant
factor in favor of BSkyB is its role as sole source supplier of many of the
South Herts System's popular cable television programs. If, in the future,
BSkyB chooses to restrict the programming it makes available to Bell
Cablemedia South Herts or offers such programming to Bell Cablemedia South
Herts at prices significantly higher than those it currently charges, then
Bell Cablemedia South Herts' cable television business could be at a
significant competitive disadvantage. In December 1995, the Office of Fair
Trading ("OFT") announced a wide ranging review of BSkyB's position in the
UK pay-TV market and its relationship with cable operators. The review
will include investigation of BSkyB's pricing policy of linking programming
rates to cable operators to a percentage of the DTH price, and its policy
of packing (or bundling) programmes for distribution to cable operators.
In January 1996, BCM contributed to a joint submission to the review by six
cable operators who accounted in total for over 50% of the UK cable
television market. The submission called for a series of remedies to
resolve the situation. These included dropping the DTH pricing linkage and
bundling requirements and the provision by BskyB of its channels on an a la
carte basis with a set price per channel. The OFT is due to report by May
1996 and it would be open to the OFT to decide to refer the matter to the
Monopolies and Mergers Commission ("MMC").
PTOs. The existing licenses held by national PTOs generally do not
permit them to convey television services over their existing telephone
systems. The UK Government's policy, stated in the Duopoly review in 1991
and confirmed in the autumn of 1995, is that the removal of the restriction
will not be reviewed until 1998 at the earliest. In addition, as a result
of the transmission capacity limitations of twisted pair copper wires
historically used in BT's telecommunications network, particularly between
its local distribution points and its customers' homes, and the age and
condition of older portions of BT's network, unless substantial
improvements are made in digital compression or other technologies, BT may
not be able to provide a broadband cable television service comparable to
that offered by Bell Cablemedia South Herts without substantial capital
investment. In October 1995 the opposition Labour Party proposed allowing
BT entry to the entertainment market earlier than previously envisaged in
return for BT providing for free connection to schools, hospitals and
libraries. Although, in later statements both parties have moved away from
this position, there can be no assurance that BT will not be allowed an
accelerated entry to the entertainment market. On September 29, 1993, the
ITC issued a statement in which it took the position shared by OFTEL and
the Department of Trade and Industry (the "DTI") that BT and other national
PTOs may provide video-on-demand services under their existing licenses.
Bell Cablemedia South Herts similarly is not prevented from providing
video-on-demand services. In order to offer video-on-demand services on a
broad scale, the General Partner believes that BT would have to upgrade its
existing telecommunications switches and to install video distribution
facilities and subscriber decoder devices. BT has been running trials of a
video-on-demand system in the towns of Ipswich and Colchester (which are
not within Bell Cablemedia South Herts' franchise area) in collaboration
with BSkyB. The General Partner is unable to assess fully the technical
feasibility or timing of BT or any other provider offering video-on-demand
services. No assurance can be given that video-on-demand will not provide
substantial competition to Bell Cablemedia South Herts in the future.
In addition, there can be no assurance that existing, proposed or as
yet undeveloped technologies will not become dominant in the future and
render cable television systems less profitable or even obsolete. Bell
Cablemedia South Herts intends to monitor closely all relevant
technological developments and, where possible, to position itself to
remain competitive.
Cable Telephony
Overview. Until 1981, the UK Post Office was, with certain minor
exceptions, the monopoly supplier of telecommunications services throughout
the UK. BT was formed in 1981, when it took over the telecommunications
assets of the Post Office and became the monopoly telecommunications
supplier. BT was privatized in three tranches between 1984 and July 1993.
In 1984, Mercury was formally granted a license to compete with BT.
Prior to this, in November 1983, the Government had given a commitment not
to license, for a period of seven years, companies other than BT or Mercury
to carry telecommunications services nationally over fixed links ("the
Duopoly Policy"). In November 1990 the Secretary of State for Trade and
Industry published a consultative document entitled "Competition and
Choice: Telecommunications Policy for the 1990's", which commenced a
review of the Duopoly Policy and the UK telecommunications market generally
(the "Duopoly Review").
The Duopoly Review was completed in March 1991, and represented, with
consequent changes in policy and to the licenses of telecommunications
operators, a fundamental turning point in the telecommunications industry
in the UK. The major policy change was that anyone could come forward and
apply to the UK Government to run new telecommunications networks over
fixed links. The general presumption, subject to financial and technical
competence, would be that such licenses should be granted unless there were
specific reasons to the contrary. Cable television/telephony operators are
now permitted to provide telephony services in their own right, instead of
as agents of BT or Mercury as previously required, and have the right to
switch their telephony customers' calls. These changes have significantly
improved the terms on which cable operators have been able to require BT,
Mercury or another PTO to interconnect with them. As at February 1996,
over 160 companies were licensed by the DTI to compete with BT and Mercury,
operating in various areas and providing a variety of services.
Since the Duopoly Review, BT has remained the dominant provider of
fixed-link telephony services for businesses and residences in the UK.
Mercury has continued to offer long distance and international services.
Residential Telephony Competitors. BT, with over 95 percent of the
residential telephony market in the UK at March 31, 1995, is Bell
Cablemedia South Herts' principal competitor in providing residential
telephony services. Due to its extensive experience in the marketing and
operation of telecommunications services in the UK, BT is a formidable
competitor to Bell Cablemedia South Herts in providing both business and
residential telephony services. BT's annual report for the year ended
March 31, 1995 reported revenues exceeding Pound Sterling13.8 billion. In
addition, Bell Cablemedia South Herts competes in the residential telephony
market with cellular telephone operators such as Vodafone Group PLC and
Telecom Securicor Cellular Radio Limited ("Cellnet"), and with personal
communications network operators, such as Mercury one2one and Microtel
Logic Limited (marketed under the name "Orange"). Bell Cablemedia South
Herts may also compete in the future with additional entrants to the
residential telephony markets, some of which may have substantially larger
resources than the Partnership. Ionica L3 Limited ("Ionica") has announced
its intention to begin the introduction of a radio-wave telephony local
loop on a national basis in March 1996. BT has continued to announce
through 1995 reductions in local and international telephony rates, and has
moved to a per second basis for charging for telephone calls from a per
unit basis. Due to regulatory price controls, BT is expected to continue
to reduce its telephony rates. In particular since February 1996
regulatory control of BT's line rental charges has been abolished and BT is
therefore able for the first time to increase line rental charges and
reduce call charges. BT is expected to announce a series of new packages
to take advantage of this freedom. Accordingly, in the long term, Bell
Cablemedia South Herts may be unable to offer residential telephony
services at rates lower than those offered by BT and may see a decline in
its average per call residential telephony margins. Many of Bell
Cablemedia South Herts' residential telephony competitors have resources
substantially greater than those of the Partnership, and there can be no
assurance that Bell Cablemedia South Herts will be able to compete
successfully with BT or other telephony companies.
One advantage of the provision of telephony services by cable
operators has been their ability to offer direct access to the Mercury
trunk line system, whose long distance call prices have historically been
less than those charged by BT. At present, the only way in which a
residential BT customer can choose to route calls over the Mercury trunk
network is by purchasing a special telephone receiver with which, by
pressing a special button, it is possible to select the Mercury network in
preference to the BT network, or by dialing a special access code. The
Director General of Telecommunications (the "Director General") has
announced an independent cost benefit study of equal access. His stated
policy is to introduce "equal access" whereby all providers of local
telephony systems will eventually have to offer their customers the choice
of access to the trunk systems of BT, Mercury and any other PTO's without
discrimination between those systems. This policy would require cable
operators to provide equal access once they have a 25 percent share of the
local telephony market and are requested to do so. The feasibility of
introducing true equal access to trunk systems, and the time scale within
which it will be introduced, are difficult to estimate. Many cable
operators initially opposed the equal access policy, because placing BT
under an obligation to provide equal access to the Mercury network could
potentially reduce the attraction of systems run by local operators (which
had previously marketed their ability to offer lower cost calls via
Mercury). There can be no assurance that the implementation of true equal
access by the Director General will not adversely affect the ability of
cable television/telephony operators to market their telephony services or
their margins for trunk and international calls. However, at February 1996
the Director General had announced no plans to implement equal access
arrangements.
Business Telephony Competitors. Competition in business telephony
has been more intense than that experienced in residential telephony and,
because of the number of competitors in the business area, is expected to
intensify further. BT is Bell Cablemedia South Herts' principal competitor
in providing business telephony services. In addition to BT, Bell
Cablemedia South Herts competes with Mercury as well as with other
telecommunications companies, such as Energis Communications Limited
("Energis"), City of London Telecommunications Limited ("COLT") and MFS
Communications Limited ("MFS"), and with long distance service resellers,
such as WorldCom International, Inc. ("WorldCom"). Several of these
competitors, including BT and Mercury, have resources substantially greater
than those of Bell Cablemedia South Herts. In addition, due to the non-
exclusive nature of telecommunications licenses in the UK, Bell Cablemedia
South Herts may compete in the future with additional entrants into the
business telephony market, some of which may have substantially larger
resources than those of the Partnership. For example, a subsidiary of
American Telephone & Telegraph Company ("AT&T") has been granted a
telecommunications license which will permit the subsidiary to provide most
telecommunications services in the UK and to convey television signals over
its telecommunications network. In January 1996, AT&T announced plans to
launch a business telephony service in the UK initially, to be followed by
a residential telephony service. However, the license would not permit the
AT&T subsidiary to provide a competing cable television service in Bell
Cablemedia South Herts' franchise area. Ionica has announced its intention
to begin the introduction of a radio-wave telephony local loop on a
national basis in March 1996. The General Partner is unable to assess the
technical feasibility or timing of the introduction of such technology or
the utility of such technology in the business telephony market. There can
be no assurance that Bell Cablemedia South Herts will be able to compete
successfully with BT, Mercury or other telecommunications companies.
Telephone number portability, the means by which customers can keep
their numbers when moving from one telephony operator to another, should
shortly be available from BT following the report of the MMC in December
1995. The MMC recommended a split between BT and other operators in terms
of funding number portability of 70:30. The BT telecommunications license
is in the process of being amended to require BT to provide portability to
any operator who provides reciprocal portability. Cable operators,
including Bell Cablemedia South Herts, are drawing up proposals to offer a
number portability product for new customers. Bell Cablemedia South Herts
intends introducing number portability in the future.
Regulation
The operation of cable television/telephony services in the UK is
regulated under both the Broadcasting Act 1990 (the "Broadcasting Act")
which replaced the Cable and Broadcasting Act 1984 (the "Cable and
Broadcasting Act"), and the Telecommunications Act 1984. The operation of
cable television/telephony services in the UK requires two principal
licenses: (i) a license (a "cable television license") issued either under
the Cable and Broadcasting Act (prior to 1991) or under the Broadcasting
Act (since 1991), which permits the holder to provide cable television
services within a specific franchise area and (ii) a telecommunications
license issued under the Telecommunications Act, which allows the holder to
install and run the physical network necessary to provide cable television
and telecommunications services. The ITC is responsible for granting and
enforcing cable television licenses. The DTI is responsible for granting,
and OFTEL is responsible for enforcing, telecommunications licenses. In
addition, if an operator utilizes microwave distribution systems as part of
its network, such operator is required to hold a license under the Wireless
Telegraphy Acts of 1949-1967. Any SMATV system covering 1,000 homes or
less requires a telecommunications license, but not a cable television
license, and a cable television system that covers only one building or two
adjacent buildings can operate pursuant to an existing telecommunications
services class license.
By virtue of the Telecommunications Code, contained in the
Telecommunications Act and included in a modified form in the
telecommunications licenses of cable operators, cable operators also must
comply with, and are entitled to the benefits of, the Street Works Act, the
principal benefit of which is to allow cable operators the right to
undertake civil construction on public roads. In addition, because the
Street Works Act standardized fees for inspections of construction works by
local government authorities and standardized specifications for
reinstatement of property following excavation, construction delays
previously experienced by cable operators because of separate and often
lengthy negotiations with local government authorities have been reduced.
The rights of cable operators under the Telecommunications Code are
subject to planning legislation. In April 1994, a Planning Order came into
force which requires planning consent for the installation, alteration or
replacement of any telecommunication apparatus on, or within the land
surrounding, a dwelling.
The cable television license held by Bell Cablemedia South Herts was
issued for a 15 year period and is scheduled to expire in 2005. The
telecommunications license held by Bell Cablemedia South Herts was issued
for a 15 year period, which has been extended to a 23 year period, and is
scheduled to expire in 2013.
Cable Television Licenses
General. The stated policy of the ITC is that only one cable
television license will be granted in each franchise area. Each such
license gives the holder the right to provide television services within
the franchise area using cable distribution systems and, in the case of
some cable television licenses issued or renewed for 15 year periods under
the Broadcasting Act, microwave distribution systems.
National PTOs cannot currently compete directly with cable operators
in providing television services because their existing telecommunications
licenses generally do not allow them to convey or provide television
services over their existing national systems. OFTEL and the UK Government
have stated that the restrictions on conveying television signals may be
reviewed as early as 1998 but that the restrictions on the provision by the
national PTOs themselves will not be reviewed until at least 2001. The
ITC, however, has said that in principle BT will not require a cable
television license for "video-on-demand" services although the ITC will
want to review the particular system used. To date BT has been running
trials of video-on-demand services in the towns of Ipswich and Colchester
on a small scale.
Cable operators are, however, subject to competition within their
franchise areas from direct reception terrestrial broadcast television, DTH
satellite-delivered television operators such as BSkyB, and SMATV systems.
With respect to the operation of a SMATV system within a cable operator's
franchise area, the DTI has stated that cable operators will have a right
of first refusal to provide a similar or superior service at a reasonable
price before a new SMATV system will be permitted to begin operations,
subject, among other things, to the cable operator being in compliance with
its telecommunications license.
Restrictions on Ownership. The ITC is under a duty to ensure that
certain entities, including local authorities, political bodies,
advertising agencies and religious bodies do not own, or otherwise
participate in a manner against the public interest in, entities holding
cable television licenses issued under the Cable and Broadcasting Act.
Restrictions may also be imposed on cross ownership of different licensed
services (including local delivery services, independent television
licenses and radio services) and different media (including local and
national newspapers and licensed services, such as local delivery services)
operating in substantially the same franchise area. Cable television
licenses issued under the Cable and Broadcasting Act continue to be
substantially regulated as if the Cable and Broadcasting Act remained in
force. The ownership rules are substantially similar for cable television
licenses issued under the Broadcasting Act. The Secretary of State has
wide discretion to amend the rules relating to cross media ownership and
accumulations of interests in licensed services.
The ITC may revoke any cable television license in order to enforce
the restrictions on ownership contained in the Broadcasting Act. The ITC
may also revoke any cable television license issued under the Cable and
Broadcasting Act if any change in the nature or characteristics of the
licensee, or any change in the persons having control over or interests in
it, are such that, had they occurred before the granting of the license,
such change would have induced the ITC to refrain from granting the
license. For cable television licenses issued under the Broadcasting Act
the test is one of fitness and propriety of the holder of the license. The
ITC also has authority to impose fines, shorten the license period or
revoke cable television licenses if a cable operator fails to comply with
the conditions of its cable television license or with any direction of the
ITC. In December 1995, the UK Government announced proposed changes to the
restrictions on cross-media ownership as part of the draft Broadcasting
Bill.
License Term and Renewals. Cable television licenses extend for a
period of 15 years, and all cable television licenses, including those
issued under the Cable and Broadcasting Act, are renewable under the
Broadcasting Act for additional 15 year periods. An application for
renewal must be made not earlier than five years prior to the expiration of
the cable television license and not later than the date on which the ITC
publishes a notice inviting applications for a replacement license. The
ITC may refuse such application but only on limited grounds, including that
the ITC proposes to grant a license in an area different from that
described under the existing license or that the applicant is not providing
services through the whole of its franchised area. If an operator chooses
to renew for an eight year period, it will not be required to pay the
annual fees referred to below, but at the end of the eight year period the
license cannot be renewed again and will be put out for tender and awarded
to the highest bidder, as described below with respect to the award of a
new license. If an operator chooses to renew its license for a 15 year
period, it will be required to pay annually during the renewal period a
percentage to be fixed by the ITC of the operator's cable television
related revenues, plus an additional amount that the ITC believes a
successful applicant would have bid for the franchise if it were being
offered as a new franchise. At present, cable operators are only required
to pay to the ITC annual fees, which in the aggregate are intended to cover
the ITC's administrative costs. Fees are payable annually and upon the
renewal of a license. Bell Cablemedia South Herts has not yet renewed its
cable television license.
New cable television licenses. To date, the UK Government has
granted cable television licenses for franchise areas covering
approximately 15 million homes out of 22 million total homes nationally,
including all major metropolitan areas. Under the Broadcasting Act, a new
cable television license (called a "local delivery license") will be
granted to the applicant who submits the highest cash bid (i.e., offers to
pay the highest annual cash sum to the ITC during each year of the license)
except where it appears to the ITC that, based on the coverage area
proposed or the source of the applicant's funds, the cable television
license should be awarded to another applicant. Under any new cable
television licenses, operators will be required to pay annually to the ITC
during the term of the license a percentage to be fixed by the ITC of the
operator's cable television related revenues plus an additional amount
equal to the operator's cash bid.
Revocation of Licenses. The ITC can revoke a cable television
license if an operator fails to comply with its conditions or with any
direction of the ITC and the ITC considers revocation to be in the public
interest. If there is any change in either the nature or characteristics
of an operator that is a corporate entity, or any change in the persons
controlling or having an interest in it, the ITC can decide to revoke the
license if due to such changes it would not have awarded the license under
the new circumstances. With respect to licenses issued under the
Broadcasting Act, the ITC can also impose fines and shorten the license
period.
Restrictions on Transfer. The Broadcasting Act permits the transfer
of a license to a third party with the written consent of the ITC. The ITC
has absolute discretion to refuse any proposed transfer of a license.
Obligations of Licensees. Under the Broadcasting Act, cable
television operators may carry any programming licensed under the
Broadcasting Act but are responsible for ensuring that advertising included
by them in their services conforms to the restrictions set forth in the
codes on advertising, sponsorship and programming produced by the ITC.
Both the cable television and telecommunications licenses impose
obligations on the licensees to provide any information which either OFTEL
or the ITC may require for purposes of exercising their statutory
functions.
Telecommunications Licenses
General. The telecommunications license granted to a cable operator
permits the holder to install and operate a telecommunications system over
which television and other telecommunications services are provided. The
telecommunications license also permits the holder to connect its system to
other telecommunications systems which may include systems operated by the
broadcasting authorities, satellite television delivery systems and other
telecommunications systems in the UK. Although a telecommunications
license is granted for a particular area, it is not exclusive and, as a
result, a cable operator may compete in the provision of telephony and
other telecommunications services with national PTOs, such as BT and
Mercury, and other telecommunications companies in its franchise areas.
Pursuant to its telecommunications license, a cable operator is
entitled to the benefits of the Telecommunications Code, which is contained
in the Telecommunications Act. The Telecommunications Code grants rights
and imposes obligations in respect of the installation and maintenance of
apparatus such as ducts, cables and equipment on private or public land and
incorporates procedures to be used for the installation of equipment on
public highways. Cable operators are generally required to enter into
bonding obligations with local government authorities in order to ensure
reinstatement of roads and streets in the event of the telecommunications
license being terminated.
Build Schedules. Each telecommunications license specifies the build
schedule of the system which the cable operator is required to implement
(by reference to the number of premises passed by specified dates) and the
particular technical characteristics to which the system must adhere. It
is OFTEL's responsibility to enforce compliance with the build schedules.
Failure to comply with the build schedules could result in revocation of
the relevant telecommunications license.
License Term; Renewals. Telecommunications licenses that have been
issued to date have been for periods of either 15 or 23 years from the date
of issuance. Prior to 1992, telecommunications licenses with 23 year terms
were granted only to cable operators utilizing systems with a "switched
star" architecture, while all other operators received licenses with 15
year terms. Since 1992, the DTI has amended this policy and upon request
has extended the terms of existing 15 year licenses to 23 years provided
the cable operator's system meets certain technical requirements. It is
expected that renewals of telecommunications licenses will be no less than
the term of the cable television license. The Director General may modify
telecommunications licenses either with the agreement of the licensee
following a statutory period of public consultation or following a report
of the Monopolies and Mergers Commission.
Restrictions on Transfer. Telecommunications licenses may not be
transferred. However, a change of control of an entity holding a license is
allowed subject to compliance with a notification requirement. Licenses may
be revoked if the change in control is deemed to be contrary to the UK's
national security interests or its relations with any other country.
Technical Requirements. The principal technical requirements for the
cable television/telephony systems are contained in the telecommunications
licenses, which address, among other things, technical requirements for
transmissions and performance.
Telephony Operations
Effect of the Duopoly Review. The ability of cable television
operators to provide telephony services is subject to the restrictions
contained in their telecommunications licenses. Following the Duopoly
Review, the restriction on cable operators providing voice telephony
services only as an agent for either BT or Mercury was removed, thereby
enabling the cable operators to seek amendments to their licenses so as to
be able to provide all forms of wired telecommunications services in their
own right, including the ability to switch their own traffic. In addition,
cable operators were granted the right to request that BT and Mercury
provide interconnection.
Price Regulation. Under the terms of the August 1992 Price Cap Review,
BT may not increase its charges for telephony and other telecommunications
services in any year by more than the amount of the increase in the domestic
retail price index ("RPI") minus 7.5 percent through the end of July 1997.
There is, however, a separate price restriction on leased lines. Within this
limitation, BT has discretion to vary charges for separate services at rates
which may exceed the overall price cap, subject to certain secondary price
caps. In December 1995, OFTEL published a consultation paper on the
principles underlying the BT retail price cap to apply from August 1997.
Cable operators have argued for a liberalization of the current price cap
because the cable industry considers that excessive price reductions will
discriminate against new entrants.
In March 1996, OFTEL announced that it is considering a price cap in
the range RPI minus 5% to 9%. Further consultation on this range of values
for BT's price cap will take place in March to May 1996. There can be no
assurance that OFTEL will not tighten the current price cap on BT, which
could have an adverse effect on Bell Cablemedia South Herts.
In February 1996, OFTEL and BT agreed on changes to BT's
telecommunications license which included the removal of the price cap on
BT exchange line rental of RPI minus 2% and the abolition of the "Access
Deficit Contribution" regime. The latter charge had been levied by BT to
operators interconnecting with it, subject to certain thresholds, to
contribute towards unprofitable areas of BT's local loop business.
Although rate changes must be notified to OFTEL, the rates charged by cable
television/telephony operators and other PTOs (other than BT) are not
required to be approved by any UK government entity.
Since the Duopoly Review, BT has been permitted to offer discounts to
high volume users, albeit subject to several conditions. Importantly, BT is
restricted in the manner in which it can offer discounted services by virtue
of the obligation to charge the same prices nationally and the obligation not
to show undue preference and not to exercise undue discrimination by favoring
its own business to the disadvantage of competitors. For so long as this
policy remains in effect, BT's ability to respond to local competition from
cable operators will be restricted.
Interconnection and Accounting Separation. The commercial viability
of telephony and other telecommunications services provided by cable
operators depends on their ability to connect with other telecommunications
systems in a cost effective manner. Cable operators' systems must connect
with systems operated by other PTOs for calls that do not originate and
terminate on their system. Each holder of a public telecommunications
license (including BT and Mercury as well as cable operators) is required
to negotiate an interconnection agreement with any other license holder
that seeks one and either party may request intervention from OFTEL if
there is a failure to agree on terms. OFTEL also has the power to enforce
certain obligations of any party to an interconnection agreement. In
addition, BT is required by its license to publish copies of certain
details of all interconnection agreements entered into by it.
Until the Duopoly Review, cable operators with adjoining franchises
were unable to connect their networks without the involvement of BT or
Mercury unless the combined areas were relatively small and the franchises
were under common control. The Duopoly Review has resulted in this policy
being relaxed, and the operators of adjacent cable franchises are now able
to interconnect their systems irrespective of whether they are under common
ownership. In addition, applications by cable operators to connect more
distant franchises will also be considered by the DTI.
In 1991 the interconnect conditions in BT's license were amended to
require interconnect call charges determined by OFTEL, including those of
cable television/telephony operators to cover fully allocated costs of
conveyance, including a full contribution to relevant overheads, and a return
on capital employed.
On March 8, 1994 the Director General published a new framework for
interconnection charges. His statement, "Interconnection and Accounting
Separation: The Next Steps," sets out the framework for the development of
new interconnection rates and accounting separation for BT and those
operators interconnecting with it. The first step, which is effective
immediately, stabilizes interconnection arrangements with BT based on an
interconnection determination by the Director General between BT and
Mercury dated December 2, 1993 (the "BT/Mercury Determination"). This
stabilization covers connection charges, calculation of conveyance rates
based on component costs and routing factors, access deficit contributions
and waivers of access deficit contributions. A "ready reckoner" attached
to the statement enables other PTOs to calculate their interconnection
charges with BT. Any disputes on conveyance rates and connection charges
can be referred to OFTEL, but will be determined in accordance with the
BT/Mercury Determination. The second step involves amendments to BT's
license (which were agreed to by BT on March 31, 1995) to implement
standard interconnection charges. The third step is more long-term and
involves consideration of alternative cost based interconnection charges.
These include basing charges on forward looking economic costs, a form of
long-run, incremental cost.
In December 1994, the Director General published a consultative
document entitled "A Framework for Effective Competition: A Consultative
Document on the Future of Interconnection and Related Issues" (the
"Interconnection Document"). The Interconnection Document was followed by
formal consultation on a series of possible amendments to BT's
telecommunications license, including establishing standard interconnection
prices and preventing unfair competition arising from changes in BT's
prices. OFTEL's conclusions on the matters set out in the Interconnection
Document were published in July 1995 in the document "Effective
Competition-Framework for Action". OFTEL's proposals were as follows:
(i) a new interconnection charging regime, based on forward
looking long-run incremental costs is to be introduced in 1997:
(ii) the lifting of the BT exchange line rental price cap. This
was implemented in February 1996:
(iii) a new universal service mechanism to be funded by the
industry on a transparent and proportional basis:
(iv) a general condition in BT and other operators'
telecommunications licenses prohibiting anti-competitive practices to
replace the current specific obligations.
In February 1996, OFTEL determined BT's interim interconnection charges
for 1995-6 (final charges are due to be determined in September 1996 after
BT's results for the year ended March 31, 1996 become available). These
interim charges show an average reduction of 30% from charges currently
payable by Bell Cablemedia South Herts to BT in respect of interconnection.
However, because the charges payable by BT to cable operators for traffic
terminating on their systems have not yet been agreed, it is not possible to
say what the net effect on Bell Cablemedia South Herts will be. Mercury has
guaranteed cable operators savings of 20% over the BT interim rates.
Equal Access. One advantage cable operators have had in the
marketplace has been their ability to offer direct access to the Mercury
trunk line system, whose long distance charges have historically been less
than those charged by BT. At present, in most areas, the only way in which
a residential BT customer can choose to route calls over the Mercury trunk
network is by dialing a special access code or by purchasing a special
telephone receiver with which, by pressing a special button, it is possible
to select the Mercury network in preference to the BT network. The
Director General has commissioned a cost benefit study relating to equal
access. His stated policy is to introduce true equal access whereby all
providers of local telephone systems will be required to offer access to
each fixed-line trunk system without discrimination between those systems.
BT's and Mercury's licenses have been amended to enable OFTEL to require
them to make available equal access, either by pre-selection or on a call-
by-call basis, subject to, among other things, the cost-benefit study being
conducted and determining that the gains will outweigh the likely costs.
This will allow residential and business customers to choose between BT,
Mercury and any other provider. The feasibility of introducing true equal
access to trunk systems, and the time scale within which it will be
introduced are difficult to estimate. Many UK cable operators had opposed
the equal access recommendations resulting from the Duopoly Review because
they believed that placing BT under an obligation to provide equal access
to the Mercury network would reduce the attraction of systems run by local
operators (which had previously marketed their ability to offer lower cost
calls via Mercury). There can be no assurance that the implementation of
true equal access by the Director General will not adversely affect the
ability of cable television/telephony operators to market their telephony
services. However, at February 1996, the Director General had announced no
plans to implement equal access arrangements.
Telephone Number Portability. Currently, telephone subscribers
changing their telephone service to a cable television/telephony operator
must change their telephone numbers. Telephone number portability is the
means by which customers can keep their numbers when moving from one
telephony operator to another operator. BT's license obliged it to provide
number portability to other telephony operators but OFTEL was not empowered
to determine charges. A dispute between BT and Videotron regarding
allocation between them of the cost of implementing number portability was
referred to the MMC in April 1995. The MMC reported in December 1995 and
there now exists a basis for allocating the costs of the implementation of
telephone number portability between BT and other operators, including
cable telephony operators. The MMC determined that the allocation of costs
between BT and other operators would be in the ratio 70:30.
The MMC decided that each provider would bear its own system set-up
costs. In addition, BT will be permitted to levy a per line set up charge
and a charge reflecting the additional cost of conveying the ported call.
The latter charge would equal half the difference between the cost of BT's
current inefficient "tromboning" method of implementing number portability
and a planned more efficient "call dropback" method. BT will only be
permitted to charge for additional conveyance based on tromboning until
October 1997, whether or not call dropback is then in place. In addition,
OFTEL has power to disallow costs based on BT's inefficiencies.
In December 1995, OFTEL issued for consultation a BT license
modification implementing the MMC determination. BT is expected shortly to
make a commercial offer to operators for a portability service. It is
expected that the license of Bell Cablemedia South Herts will be amended
before the end of 1996 to oblige it to provide portability following a BT
request, provided BT provides a reciprocal service.
ITEM 2. PROPERTIES
Bell Cablemedia South Herts owns a freehold property at 9 Greycaine
Road, Watford consisting of approximately 18,500 square feet of office space.
See also Item 1.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
While the Partnership's interests are publicly held, there is no
established public market for the limited partnership interests, and it is
not expected that such a market will develop in the future. As of March
28, 1996, the approximate number of investors in the Partnership was 5,200.
ITEM 6. SELECTED FINANCIAL DATA
South Hertfordshire United Kingdom Fund, Ltd.
<TABLE>
<CAPTION>
For the Years Ended
December 31, From Inception
---------------------------------------------------------------------- ---------------------
December 23, 1991
Income Statement Data: 1995 1994 1993 1992 to December 31, 1991
--------------- --------------- -------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenues $16,554,283 $9,088,929 $2,631,555 $ 302,147 $ -
Operating, General and (16,079,815) (13,478,273) (3,679,057) (1,313,296) -
Administrative Expenses
Management Fees and Allo- (2,754,941) (2,004,964) (1,295,522) (658,335) -
cations from General Partner
Depreciation and Amortization (4,214,341) (3,064,313) (1,999,086) (493,766) -
--------------- --------------- -------------- -------------- --------------------
Operating Loss (6,494,814) (9,458,621) (4,342,110) (2,163,250) -
Interest Income 17,251 185,472 48,896 141,382 281,181
Interest Expense (2,442,312) (549,834) (262,276) (70,313) -
Other Expenses (net) - (2,410,724) - - -
--------------- --------------- -------------- -------------- --------------------
(Loss)/Income from continuing
operations before
minority interests (8,919,875) (12,233,707) (4,555,490) (2,092,181) 281,181
Minority Interests 2,767,869 3,991,358 298,036 - -
--------------- --------------- -------------- -------------- --------------------
Net (Loss)/Income (6,152,006) (8,242,349) (4,257,454) (2,092,181) 281,181
--------------- --------------- -------------- -------------- --------------------
Net (Loss)/Income per (106.97) (149.06) (145.81) (137.79) 45.60
Limited Partnership Unit
Weighted Average Number of
Limited Partnership Units
Outstanding 56,935 54,743 28,906 15,032 6,167
Balance Sheet Data:
Total Assets 80,239,942 73,473,610 48,640,459 19,939,456 9,547,506
Note Payable - - 4,055,520 1,208,000 -
Accounts Payable to 2,232,050 6,028,108 2,368,948 2,045,589 667,427
Affiliates/Related Parties
General Partner's Capital (206,441) (144,921) (62,497) (19,922) 1,000
(Deficit)
Limited Partners' Capital 28,562,629 34,653,115 30,078,228 14,312,432 8,879,079
Minority Interests 13,948,743 18,553,653 8,061,163 - -
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1995 Compared to 1994
Revenues of the Partnership increased $7,465,465 for the year ended
December 31, 1995, over the similar period in 1994 from $9,088,929 in 1994
to $16,554,283 in 1995. This increase is primarily the result of an
increase in the South Herts System's customer subscriber base due primarily
to additional activated plant in 1995. The South Herts System served
approximately 13,900 basic cable television subscribers, 14,100 residential
telephony lines and 400 business telephony subscribers at December 31, 1994
as compared to 18,300 basic cable television subscribers, 20,900
residential telephony lines and 800 business telephony subscribers at
December 31, 1995.
Operating, general and administrative expenses increased $2,601,542
for the year ended December 31, 1995 over the similar period in 1994 from
$13,478,273 in 1994 to $16,079,815 in 1995. This increase was primarily
due to increases in personnel costs, system maintenance and repair costs
and marketing costs during 1995 as compared to 1994 which resulted from the
growth in the South Herts System's size and subscriber base.
Management fees and allocated overhead from the General Partner
increased $749,977 for the year ended December 31, 1995 over the similar
period in 1994 from $2,004,964 in 1994 to $2,754,941 in 1995. These
increases were generally due to an increase in allocated overhead due to
the increased number of subscribers and the payment of a $266,267 financing
fee in connection with Bell Cablemedia South Herts' Pound
Sterling25,000,000 revolving and term loan facility entered into in April
1995.
Depreciation and amortization expense increased $1,150,028 for the
year ended December 31, 1995 over the similar period in 1994 from
$3,064,313 in 1994 to $4,214,341 in 1995. This increase was due to an
increase in the Partnership's depreciable asset base resulting from the
continuing buildout of the South Herts System.
Interest income decreased $168,221 for the year ended December 31,
1995 over the similar period in 1994 from $185,472 in 1994 to $17,251 in
1995. This reduction in interest income was the result of lower average
cash balances during 1995 as compared to balances invested during 1994 as
balances from the second offering of limited partnership investments, which
was completed in April 1994, were utilized for construction of the network.
Interest expense increased $1,892,478 for the year ended December 31,
1995 over the similar period in 1994 from $549,834 in 1994 to $2,442,312 in
1995. This increase was generally due to an increase in outstanding
indebtedness during 1995, under a credit facility entered into in April
1995, which was used to repay temporary loans from BCM and fund the
construction of the network.
1994 Compared to 1993
Revenues of the Partnership increased $6,457,374 for the year ended
December 31, 1994, over the similar period in 1993 from $2,631,555 in 1993
to $9,088,929 in 1994. This increase is primarily the result of an
increase in the South Herts System's customer subscriber base due primarily
to additional activated plant in 1994. The South Herts System served
approximately 7,200 basic cable television subscribers, 5,900 residential
telephony lines and 100 business telephony subscribers at December 31,
1993, as compared to approximately 13,900 basic cable television
subscribers, 14,100 residential telephony lines and 400 business telephony
subscribers at December 31, 1994.
Operating, general and administrative expenses increased $9,799,216
for the year ended December 31, 1994 over the similar period in 1993 from
$3,679,057 in 1993 to $13,478,273 in 1994. This increase was primarily due
to increases in personnel costs, system maintenance and repair costs and
marketing costs during 1994 as compared to 1993 which resulted from the
growth in the South Herts System's size and subscriber base.
Management fees and allocated overhead from the General Partner
increased $709,442 for the year ended December 31, 1994, over the similar
period in 1993 from $1,295,522 in 1993 to $2,004,964 in 1994. These
increases were generally due to the increase in revenues, upon which such
fees and allocations were based.
Depreciation and amortization expense increased $1,065,227 for the
year ended December 31, 1994 over the similar period in 1993 from
$1,999,086 in 1993 to $3,064,313 in 1994. This increase was due to an
increase in the Partnership's depreciable asset base resulting from the
continuing buildout of the South Herts System.
Interest income increased $136,576 for the year ended December 31,
1994 over the similar period in 1993 from $48,896 in 1993 to $185,472 in
1994. This increase in interest income was the result of higher average
cash balances invested during 1994 as compared to average balances invested
during 1993. The higher level of cash balances resulted from the second
offering of limited partnership interests, which was completed in April
1994.
Interest expense increased $287,558 for the year ended December 31,
1994 over the similar period in 1993 from $262,276 in 1993 to $549,834 in
1994. This increase was primarily due to the inclusion of a full year of
interest costs relating to equipment leases that the Partnership entered
into in the third quarter of 1993.
Other expenses (net) in 1994 consist primarily of the write off of
deferred development expenditure. The write off resulted from a change in
the Partnership's accounting policy following the BCM Acquisition to be
consistent with BCM's accounting policy.
Financial Condition
The Partnership
The Partnership was formed on December 23, 1991 to acquire, construct,
develop, own and operate cable television/telephony systems in the United
Kingdom. As of December 31, 1995, the Partnership had raised a total of
$56,935,000 in gross offering proceeds from the sale of 56,935 limited
partnership interests, or $48,817,997 net of sales commissions and other
organizational and offering costs, from both its initial and its secondary
public offerings.
In order to provide additional funding for the construction of the
South Herts System, two additional participants invested in Bell Cablemedia
South Herts in 1993 and 1994. Jones Intercable of South Hertfordshire,
Inc. invested Pound Sterling3,400,000 in Bell Cablemedia South Herts in
exchange for 34,000 Class A shares in November 1993. Also in November
1993, affiliates of Sandler Capital Management (the "Sandler Group")
committed to invest Pound Sterling6,800,000 in Bell Cablemedia South Herts,
of which Pound Sterling2,266,600 was funded in November 1993 for 22,666
Class B shares. In June 1994, the Sandler Group invested Pound
Sterling3,273,232 for 32,732 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested Pound Sterling503,283 for 5,033 Class A
shares. In July 1994, the Sandler Group invested Pound Sterling1,800,000
for 18,000 Class B shares and Jones Intercable of South Hertfordshire, Inc.
invested Pound Sterling466,800 for 4,668 Class B shares.
On June 10, 1994, Jones Global Group, Inc., Jones Intercable, Inc.
and certain of their subsidiaries (collectively, "Jones") and the Sandler
Group entered into agreements to transfer all of their interests in their
United Kingdom cable/telephone operations and franchises, including Jones
Intercable of South Hertfordshire, Inc.'s interest in Bell Cablemedia South
Herts, Jones Global Funds, Inc.'s general partner interest in the
Partnership and the Sandler Group's interest in Bell Cablemedia South Herts
to BCM in exchange for ordinary shares (in the form of ADSs) to be issued
by BCM in connection with a planned public offering of ADSs by BCM. At
that date, BCM was indirectly owned 80 percent by Bell Canada International
Inc. ("BCI") and 20 percent by Cable & Wireless plc ("C&W").
On July 22, 1994, in connection with the closing of the public
offering by BCM, Jones and the Sandler Group completed the exchange of
their interests in United Kingdom cable/telephony operations and franchises
for ADSs issued by BCM. At closing, BCM acquired Jones Intercable of South
Hertfordshire, Inc.'s interest in Bell Cablemedia South Herts, the Sandler
Group's interest in Bell Cablemedia South Herts and the general partner
interest in the Partnership. In October 1994, the Partnership invested
Pound Sterling5,108,900 in Bell Cablemedia South Herts for 51,089 Class A
shares and BCM invested Pound Sterling2,554,600 in Bell Cablemedia South
Herts for 25,546 Class A shares. In November 1994, the Partnership
invested Pound Sterling1,410,000 in Bell Cablemedia South Herts for 14,100
Class A shares and BCM invested Pound Sterling705,000 in Bell Cablemedia
South Herts for 7,050 Class A shares. As a result of these transactions,
Bell Cablemedia South Herts is now owned 66.7 percent by the Partnership
and 33.3 percent by BCM, and the general partner of the Partnership is now
Fawnspring Limited, a wholly owned subsidiary of BCM.
As stated above, the Partnership's source of cash has been the net
proceeds of its offerings of limited partnership interests. Historically,
the Partnership's principal uses of cash have been capital contributions to
Bell Cablemedia South Herts in order to fund the Partnership's
proportionate share of the construction costs of the South Herts System.
As discussed below, the General Partner believes that no additional capital
contributions will be required to fund the completion of construction and
operations of the South Herts System. Accordingly, in the future, the
Partnership's uses of cash will be restricted to covering its
administration costs (principally insurance premiums, legal and accounting
costs associated with the Partnership's annual audit and periodic
regulatory filings and general administration). As of December 31, 1995
the Partnership had a receivable from BCM of approximately $16,000 but
current liabilities of approximately $210,000. Accordingly, until such
time as Bell Cablemedia South Herts begins to pay dividends on its ordinary
shares (which is not expected in the foreseeable future) the Partnership
will be required to fund its administrative expenses by additional
issuances of limited partnership interests or from borrowings. The General
Partner will arrange for resources to be made available for the Partnership
to meet its obligations as they fall due.
Bell Cablemedia South Herts
During 1995, Bell Cablemedia South Herts had approximately $8.9
million of capital expenditures. Most of these expenditures were for the
construction of the South Herts System and were principally funded by
borrowings.
In July 1992, Bell Cablemedia South Herts entered into an agreement
with a bank to refinance its primary office/headend building for Pound
Sterling800,000. This loan was to be repaid over 10 years with quarterly
principal and interest payments due July 1993 through July 2002. Interest
was calculated at the London Interbank Offered Rate ("LIBOR") plus 2%. In
March 1995, this loan was repaid.
On April 18, 1995, Bell Cablemedia South Herts entered into an
agreement with two major banks to provide a Pound Sterling25,000,000
revolving and term loan credit facility agreement maturing on December 31,
2003 (the "South Herts Credit Agreement").
The credit facility is structured as a revolving facility through
December 31, 1997, at which time the facility will be converted into a term
loan. The term loan portion will require repayment of outstanding
principal amounts beginning in 1999, with the final 50% of such amounts
being repaid in 2002 and 2003. The facility is divided into two tranches,
denoted Facility A and Facility B, and the aggregate amount drawn down
under both tranches may not exceed Pound Sterling25,000,000. Amounts drawn
down under Facility A bear interest at sterling LIBOR plus a margin of
2.5%. The availability of Facility B of Pound Sterling25,000,000 is
subject to certain conditions which have not currently been satisfied and
amounts drawn down under Facility B will bear interest at sterling LIBOR
plus a margin ranging from 0.75% to 2.0% depending on the bank debt ratio
(the ratio of bank debt to annualised operating cash flow) of Bell
Cablemedia South Herts.
The South Herts Credit Agreement contains various covenants including
financial covenants such as a cumulative revenue test, bank debt ratio,
interest cover ratio, a homes marketed test, a fixed charges ratio and a
pro-forma debt service ratio and other covenants such as restrictions on
disposals and on the creation of indebtedness and encumbrances. The South
Herts Credit Agreement also includes a restriction on the payment of
dividends which provides that dividends or distributions in respect of its
issued share capital and payments in respect of certain intercompany loans
may not be made prior to December 31, 1997. Such payments will be
permitted thereafter only if the bank debt ratio for the previous two
accounting quarters is less than 5.5:1 and no event of default or potential
event of default has occurred and is continuing at such time and the
payment of such dividend or distribution will not give rise to an event of
default or potential default.
The South Herts Credit Agreement contains certain events of default
including non-payment of amounts due under the South Herts Credit
Agreement, breaches of representations and covenants (including financial
ratios) contained in the South Herts Credit Agreement, cross-default to
certain other indebtedness of Bell Cablemedia South Herts, certain
bankruptcy and insolvency events and certain changes of ownership.
The obligations of Bell Cablemedia South Herts under the South Herts
Credit Agreement are secured by first fixed and floating charges over all of
the assets of Bell Cablemedia South Herts. In addition, there is a pledge of
all of the share capital of Bell Cablemedia South Herts given by BCM and the
Partnership as additional security for the facility.
Drawdowns of Pound Sterling15.6 million have occurred under the South
Herts Credit Agreement since April 1995, partly to repay the temporary loans
made to Bell Cablemedia South Herts by BCM since November 1994. The General
Partner believes that the South Herts Credit Agreement will be sufficient to
fund the completion of construction and operation of the South Herts system.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
INDEX
Page
Independent Auditors' Reports...............................................30
Consolidated Balance Sheets.................................................32
Consolidated Statements of Operations.......................................34
Consolidated Statements of Partners' Capital (Deficit)......................35
Consolidated Statements of Cash Flows.......................................36
Notes to Consolidated Financial Statements..................................37
INDEPENDENT AUDITORS' REPORT
To the Directors of:
South Hertfordshire United Kingdom Fund, Ltd.
We have audited the accompanying balance sheets of South Hertfordshire
United Kingdom Fund, Ltd. (a Colorado limited partnership) as of December 31,
1995 and 1994, and the related statements of operations, partners' capital
(deficit) and cash flows for each of the two years in the period ended
December 31, 1995. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of South
Hertfordshire United Kingdom Fund, Ltd. as of December 31, 1995, and 1994,
and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
London, England
March 28, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To South Hertfordshire United Kingdom Fund, Ltd.:
We have audited the accompanying statements of operations, partners'
capital and cash flows of South Hertfordshire United Kingdom Fund, Ltd. (a
Colorado limited partnership) for the year ended December 31, 1993. These
financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
South Hertfordshire United Kingdom Fund, Ltd. for the year ended December 31,
1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 31, 1995
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------------
ASSETS 1995 1994
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 676,731 $ 139,307
RECEIVABLES:
Other receivables net of allowances for doubtful
accounts of $697,594 and $641,694 at December 31,
1995 and 1994, respectively 3,394,542 2,807,303
PREPAID EXPENSES 360,602 301,754
------------- -------------
CURRENT ASSETS 4,431,875 3,248,364
INVESTMENT IN CABLE TELEVISION AND
TELECOMMUNICATIONS PROPERTIES,
net of accumulated depreciation and amortization of
$9,490,853 and $5,394,293 at December 31, 1995
and 1994, respectively 75,073,378 70,225,246
OTHER ASSETS 734,689 -
------------- -------------
Total assets $80,239,942 $73,473,610
============= =============
The accompanying notes to financial statements
are an integral part of these balance sheets.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
LIABILITIES:
Accounts payable to affiliates and related parties $2,232,050 $6,028,108
Trade accounts payable 4,652,911 3,160,657
Accrued liabilities 3,720,929 8,226,047
Short term obligations under capital leases 840,441 714,804
-------------- --------------
Current liabilitites 11,446,331 18,129,616
Long term debt 24,220,560 1,043,000
Long term obligations under capital leases 2,084,780 2,688,464
-------------- --------------
Total liabilities 37,751,671 21,861,080
-------------- --------------
- -
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS 13,948,743 18,553,653
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (207,441) (145,921)
-------------- --------------
(206,441) (144,921)
-------------- --------------
Limited Partners-
Net contributed capital (56,935 units outstanding
at December 31, 1995 and 1994, respectively) 48,817,997 48,817,997
Accumulated deficit (20,255,368) (14,164,882)
-------------- --------------
28,562,629 34,653,115
-------------- --------------
Currency translation adjustment 183,340 (1,449,317)
-------------- --------------
Total partners' capital 28,539,528 33,058,877
-------------- --------------
Total liabilities and partners' capital $80,239,942 $73,473,610
============== ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------
1995 1994 1993
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES $16,554,283 $9,088,929 $2,631,555
COSTS AND EXPENSES:
Operating, general and administrative (16,079,815) (13,478,273) (3,679,057)
Management fees and allocated overhead
from the General Partner (2,754,941) (2,004,964) (1,295,522)
Depreciation and amortization (4,214,341) (3,064,313) (1,999,086)
------------------ ----------------- -----------------
OPERATING LOSS (6,494,814) (9,458,621) (4,342,110)
------------------ ----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 17,251 185,472 48,896
Interest expense (2,442,312) (549,834) (262,276)
Other expenses (net) - (2,410,724) -
------------------ ----------------- -----------------
LOSS FROM CONTINUING OPERATIONS
BEFORE MINORITY INTERESTS (8,919,875) (12,233,707) (4,555,490)
Minority interests 2,767,869 3,991,358 298,036
------------------ ----------------- -----------------
NET LOSS: $(6,152,006) $(8,242,349) $(4,257,454)
================== ================= =================
ALLOCATION OF NET LOSS (Note 1):
General Partner $(61,520) $(82,424) $(42,575)
================== ================= =================
Limited Partners $(6,090,486) $(8,159,925) $(4,214,879)
================== ================= =================
NET LOSS PER LIMITED
PARTNERSHIP UNIT $(106.97) $(149.06) $(145.81)
================== ================= =================
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 56,935 54,743 28,906
================= ================= =================
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
For the Years Ended
December 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of period $(144,921) $(62,497) $(19,922)
Net loss for period (61,520) (82,424) (42,575)
------------ ------------ ------------
Balance, end of period $(206,441) $(144,921) $(62,497)
============ ============ ============
LIMITED PARTNERS:
Balance, beginning of period $34,653,115 $30,078,228 $14,312,432
------------ ------------ ------------
Capital contributed - 14,765,000 23,166,000
Less -
Sales commissions - (1,476,500) (2,316,600)
Syndication costs - (553,688) (868,725)
------------ ------------ ------------
Net contributed capital - 12,734,812 19,980,675
Net loss for period (6,090,486) (8,159,925) (4,214,879)
------------ ------------ ------------
Balance, end of period $28,562,629 $34,653,115 $30,078,228
============ ============ ============
Translation adjustment 183,340 (1,449,317) (3,439,904)
------------ ------------ ------------
Total partners' capital $28,539,528 $33,058,877 $26,575,827
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,152,006) $(8,242,349) $(4,257,454)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interests (4,604,910) (3,991,358) (298,036)
Depreciation and amortization 4,214,341 3,064,313 1,999,086
Write off of deferred development expenditures - 2,487,690 -
Increase in other receivables (942,689) (875,105) (1,406,049)
Decrease in interest receivable - - 664
Increase in prepaid expenses and other assets (644,312) (183,685) (51,406)
Decrease in accounts payable to related parties - (715,592) -
(Decrease)/increase in trade accounts payable
and accrued liabilities (1,925,036) 2,670,952 2,016,788
-------------- -------------- --------------
Net cash used in operating activities (10,054,612) (5,785,134) (1,996,407)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction payments for cable television/telephony
system (10,032,520) (38,484,112) (18,802,052)
Net cash used in investing activities (10,032,520) (38,484,112) (18,802,052)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital, net of syndication costs
and sales commissions - 12,734,812 19,980,675
Proceeds from sale of common stock by subsidiary - 14,533,811 -
Investment by an affiliate of the General Partner - - 5,000,000
Investment by an unaffiliated investor group - - 3,359,199
Proceeds from borrowings 24,220,560 390,748 2,993,024
Decrease (increase) in net subscriptions receivable - 531,300 (434,700)
(Repayments of) proceeds from shareholder loans (4,374,752) 4,374,752 -
Increase in accounts payable to affiliates 784,919 - 323,359
Repayment of property loan (1,043,000) - -
Principal payments under capital leases (478,047) - -
-------------- -------------- --------------
Net cash provided by financing activities 19,109,680 32,565,423 31,221,557
-------------- -------------- --------------
Effect of exchange rate changes on cash 1,514,876 1,902,201 (1,755,550)
Increase (decrease) in cash and cash equivalents 537,424 (9,801,622) 8,667,548
Cash and cash equivalents, beginning of period 139,307 9,940,929 1,273,381
Cash and cash equivalents, end of period $676,731 $139,307 $9,940,929
============== ============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $2,245,782 $549,834 $262,276
============== ============== ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
South Hertfordshire United Kingdom Fund, Ltd., formerly known as
Jones United Kingdom Fund, Ltd. (the "Partnership"), a Colorado limited
partnership, was formed on December 23, 1991, pursuant to a public
offering. The Partnership was formed to acquire, construct, develop, own
and operate cable television/telephony systems in the United Kingdom.
Fawnspring Limited, a UK corporation, is the general partner of the
Partnership (the "General Partner").
The period of the Partnership's first public offering expired on August
15, 1992. Because the Partnership required funds beyond those raised by its
first offering in order to construct and develop a franchise to own and
operate the South Herts System, the General Partner, on behalf of the
Partnership, sold additional interests in the Partnership during an offering
period that commenced in September 1992 and ended in April 1994. As of
December 31, 1995, the Partnership had raised a total of $56,935,000 in gross
offering proceeds from the sale of 56,935 limited partnership interests, or
$48,817,997 net of sales commissions and other organizational and offering
costs, from both its initial and its secondary public offerings.
Contributed Capital
The capitalization of the Partnership is set forth in the accompanying
Consolidated Statements of Partners' Capital (Deficit). No existing limited
partner is obligated to make any additional contributions to partnership
capital.
The General Partner purchased its interest in the Partnership by
contributing $1,000 to partnership capital.
Profits, losses and distributions of the Partnership are allocated 99
percent to the limited partners and 1 percent to the General Partner until
the limited partners have received distributions equal to 100 percent of
their capital contributions plus an annual return thereon of 12 percent,
cumulative and non-compounded. Thereafter, profits and distributions will
generally be allocated 75 percent to the limited partners and 25 percent to
the General Partner. Interest income earned prior to the formation of the
Partnership was allocated 100 percent to the limited partners.
Investment in Subsidiary
Bell Cablemedia (South Hertfordshire) Limited (formerly Jones Cable
Group of South Hertfordshire Limited) ("Bell Cablemedia South Herts") is a
United Kingdom corporation originally owned by Jones Global Funds, Inc.
(the previous general partner) and Jones Cable Group, Ltd., an affiliate of
the previous general partner. Bell Cablemedia South Herts is the holder of
a franchise to own and operate a cable television/telephony system in the
South Hertfordshire franchise area, located adjacent to the northwest
perimeter of Greater London, England (the "South Herts System"). There are
approximately 94,000 homes in the franchise area, of which approximately
84,000 have been passed by the South Herts System's cable
television/telephony network now that construction in the franchise area is
substantially complete.
On February 20, 1992, upon receipt of approval from United Kingdom
regulatory authorities, the Partnership acquired, through nominees, the
beneficial ownership of 100 percent of the shares of Bell Cablemedia South
Herts. The acquisition by the Partnership of all of the shares of Bell
Cablemedia South Herts resulted in the Partnership acquiring beneficial
ownership of the South Herts System. The Partnership reimbursed Jones
Global Funds, Inc. and certain of its affiliates (the "Former Owners"), at
cost, for their expenses in connection with obtaining, holding and
maintaining the franchise rights or licenses for the South Herts System,
for capital expenditures during the period before the Partnership acquired
the beneficial ownership of Bell Cablemedia South Herts, and for the amount
of operating and interest expenses in excess of operating receipts incurred
during such period, which totalled $4,996,700. Subsequent to the
Partnership's acquisition of Bell Cablemedia South Herts, additional cost
reimbursements have been made to the general partner for construction
costs. Partnership funds are maintained in U.S. bank accounts as
protection from foreign passive income tax restrictions and are used to
reimburse the general partner for the South Herts System's construction and
operation. Through December 31, 1995, the total amount reimbursed to fund
the South Herts System's construction and development was approximately
$48,800,000. As a result of the acquisition of the shares of Bell
Cablemedia South Herts in 1992, it has been consolidated with the
Partnership's operations.
In order to provide additional funding for the construction of the
South Herts System, two additional participants invested in Bell Cablemedia
South Herts in 1993 and 1994. Jones Intercable of South Hertfordshire,
Inc. invested Pound Sterling3,400,000 in Bell Cablemedia South Herts in
exchange for 34,000 Class A shares in November 1993. Also in November
1993, affiliates of Sandler Capital Management (the "Sandler Group")
committed to invest Pound Sterling6,800,000 in Bell Cablemedia South Herts,
of which Pound Sterling2,266,600 was funded in November 1993 for 22,666
Class B shares. In June 1994, the Sandler Group invested Pound
Sterling3,273,232 for 32,732 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested Pound Sterling503,283 for 5,033 Class A
shares. In July 1994, the Sandler Group invested Pound Sterling1,800,000
for 18,000 Class B shares and Jones Intercable of South Hertfordshire, Inc.
invested Pound Sterling466,800 for 4,668 Class B shares.
On June 10, 1994, Jones Global Group, Inc., Jones Intercable, Inc. and
certain of their subsidiaries (collectively, "Jones") and the Sandler Group
entered into agreements to transfer all of their interests in their United
Kingdom cable television/telephony operations and franchises, including Jones
Intercable of South Hertfordshire, Inc.'s interest in Bell Cablemedia South
Herts, Jones Global Funds, Inc.'s general partner interest in the Partnership
and the Sandler Group's interest in Bell Cablemedia South Herts to Bell
Cablemedia plc ("BCM") in exchange for American Depositary Shares ("ADSs")
issued by BCM in connection with a planned public offering of ADSs by BCM.
On July 22, 1994, in connection with the closing of the public
offering by BCM, Jones and the Sandler Group completed the exchange of
their interests in United Kingdom cable/telephony operations and franchises
for ADSs issued by BCM. At closing, BCM acquired Jones Intercable of South
Hertfordshire, Inc.'s interest in Bell Cablemedia South Herts, the Sandler
Group's interest in Bell Cablemedia South Herts and the general partner
interest in the Partnership. In October 1994, the Partnership invested
Pound Sterling5,108,900 in Bell Cablemedia South Herts for 51,089 Class A
shares and BCM invested Pound Sterling2,554,600 in Bell Cablemedia South
Herts for 25,546 Class A shares. In November 1994, the Partnership
invested Pound Sterling1,410,000 in Bell Cablemedia South Herts for 14,100
Class A shares and BCM invested Pound Sterling705,000 in Bell Cablemedia
South Herts for 7,050 Class A shares. As a result of these transactions,
Bell Cablemedia South Herts is now owned 66.7 percent by the Partnership
and 33.3 percent by BCM, and the general partner of the Partnership is now
Fawnspring Limited, a wholly owned subsidiary of BCM. The General Partner
provides consulting services to the Partnership. The General Partner may
delegate some or all of the consulting services to BCM or to other
affiliates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Records
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The Partnership tax returns are also prepared on the accrual
basis.
Principles of Consolidation
As a result of the Partnership's majority ownership of Bell
Cablemedia South Herts, it has been consolidated with the Partnership's
operations in the accompanying audited financial statements as of December
31, 1995, 1994 and 1993.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts held in banks
and highly liquid investments purchased with a maturity of three months or
less.
Currency Exchange Rates
The costs incurred by Bell Cablemedia South Herts are converted from
United Kingdom pounds sterling to United States dollars pursuant to
Statement of Financial Accounting Standard No. 52 ("SFAS 52"). Since
pounds sterling represent Bell Cablemedia South Herts' functional currency,
translation adjustments related to recording assets and liabilities in U.S.
dollars at current exchange rates are charged or credited directly to
cumulative translation adjustment in shareholder's equity. In the
discretion of the General Partner, net proceeds received from the sale of
Partnership interests will be converted from United States dollars to
United Kingdom pounds sterling. Likewise, net proceeds from the sale or
refinancing of the Partnership's cable television/telephony properties will
be converted from United Kingdom pounds sterling to United States dollars
in order to make any distributions to the partners.
Limited Partner investments in Bell Cablemedia South Herts were made at
an average exchange rate of $1.62 per United Kingdom pound sterling. The
average exchange rate used in the preparation of this report for the year
ended December 31, 1995 was $1.58 per United Kingdom pound sterling and the
closing exchange rate at December 31, 1995 was $1.55 per United Kingdom pound
sterling.
Because the Partnership maintains its funds in US dollars but is
required to reimburse the General Partner in UK pounds sterling for
expenditures incurred by the General Partner for the construction and
operation of the South Herts System, the Partnership may encounter currency
exchange rate risks. To hedge these risks, the Partnership has entered
into forward foreign exchange contracts from time to time. At December 31,
1995 and 1994 the Partnership had incurred a cumulative loss of $813,014 on
forward foreign exchange contracts, which was capitalized in the investment
in cable television and telecommunications properties. At December 31,
1995 the Partnership did not have any open forward foreign exchange
contracts.
Property, Plant and Equipment
Prior to receiving the first revenues from subscribers of a cable
television/telephony system constructed by the Partnership, all
construction costs, operating expenses and interest related to the system
are capitalized. From the time of such receipt until completion of the
main construction build (defined as the "prematurity period"), which in
most cases is no longer than two years, except in major urban markets, in
which case the prematurity period may be longer than two years, portions of
certain fixed operating expenses and interest are capitalized in addition
to direct construction costs. The General Partner has estimated a
prematurity period of 3 years for the South Herts System based upon its
urban location, housing density and requirement for mostly underground
cable. The portions capitalized are decreased as progress is made toward
obtaining the subscriber level expected at the end of the prematurity
period, after which no further expenses are capitalized. At December 31,
1995 and 1994, the investment in the cable television and
telecommunications network was comprised of $70,267,477 and $66,244,817 of
cable network and other electronic equipment, $2,110,988 and $2,022,595 of
freehold buildings, and $2,694,913 and $1,957,834 of office and other
equipment, respectively. As of December 31, 1995, the South Herts System
had received $28,576,914 of revenue from operations. During 1994 Bell
Cablemedia South Herts wrote off deferred development expenditure of
$2,487,690 to the consolidated statement of operations.
Depreciation is provided on property, plant and equipment at rates
which are intended to write off the cost of the assets over their estimated
useful lives. Effect is given to commercial and technical obsolescence.
For 1994 there was a change in the assets' lives to a consistent basis with
those adopted by the General Partner and its affiliates. The effect of
this change increased the net loss by $358,835 for the year ended December
31, 1994. Depreciation is provided on a straight line basis over 10-40
years for the cable network and other electronic equipment, 50 years for
freehold property and 4-8 years for office and other equipment.
Depreciation of the capitalized construction costs begins from the time of
receiving first revenues from subscribers. During the prematurity period a
portion of the depreciation is recognized, based on the projected
construction costs at the end of the prematurity period. The portions
depreciated are increased as progress is made toward the prematurity
period, after which full depreciation continues.
Revenue Recognition
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Other Receivables
Refunds applied for of value-added taxes paid by the Partnership are
recorded as other receivables on the Consolidated Balance Sheets.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
New Accounting Pronouncements
In May 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of", ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles, to be held and used
by an entity, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Partnership evaluates the recoverability of its property,
plant and equipment and intangible assets using objective methodologies.
Such methodologies include evaluations based on expected cash flows to be
generated by the underlying assets or other determinants of fair value.
The adoption of SFAS 121 has no impact on the financial statements of the
Partnership.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-
Based Compensation", ("SFAS 123") which will be adopted by the Partnership
in Fiscal 1996. The effect of adoption of SFAS 123 is not expected to have
a material impact on the Partnership's financial position or results of
operations.
Presentation of Comparative Information
Certain reclassifications have been made to the prior year's
presentation to conform to that used in the current year.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATED ENTITIES
Consulting and Management Fees
An affiliate of the General Partner is entitled to be paid a
consulting fee by Bell Cablemedia South Herts. During the construction
phases of the South Herts System, this consulting fee was 2 percent of
construction costs. After completion of construction of each portion of
the system, the consulting fee for the completed portion is 5 percent of
the gross revenues, excluding revenues from the sale of cable
television/telephony systems. The consulting fee is calculated and payable
monthly. Consulting fees paid or payable by Bell Cablemedia South Herts
for the years ended December 31, 1995, 1994 and 1993 were $1,068,887,
$1,008,545, and $585,176, respectively. Of these amounts, $0, $0 and
$453,502 were capitalized in the investment in cable television and
telecommunications properties on the Consolidated Balance Sheets and
$1,068,887, $1,008,545 and $131,674 were expensed on the Consolidated
Statements of Operations for the years ended December 31, 1995, 1994 and
1993, respectively.
Distribution Ratios and Reimbursement
Any Partnership distributions made from cash flow (defined as cash
receipts derived from routine operations, less debt principal and interest
payments and cash expenses) are allocated 99 percent to the limited
partners and 1 percent to the General Partner. Any distributions other
than interest income on limited partner subscriptions earned prior to the
acquisition of the Partnership's first cable television system or from cash
flow, such as from the sale or refinancing of a system or upon dissolution
of the Partnership, will be made as follows: 99 percent to the limited
partners and 1 percent to the General Partner until any negative balances
in the limited partners' capital accounts are reduced to zero; 100 percent
to the General Partner until any negative balance in its capital account is
reduced to zero; 99 percent to the limited partners and 1 percent to the
General Partner until the balance in the limited partners' capital accounts
is equal to their adjusted capital contribution plus a 12 percent return;
100 percent to the General Partner until the balance in its capital account
is equal to its adjusted capital contribution, and any remaining income or
gain shall be allocated 75 percent to the limited partners and 25 percent
to the General Partner.
The General Partner and its affiliates are entitled to reimbursement
from Bell Cablemedia South Herts for direct and indirect expenses allocable
to the operation of the South Herts System, and from the Partnership for
direct and indirect expenses allocable to the operation of the Partnership
which include but are not limited to, rent, supplies, telephone, travel,
copying charges and salaries of any full or part-time employees. The
General Partner believes that the methodology used in allocating these
expenses is fair and reasonable. During the years ended December 31, 1995,
1994 and 1993, reimbursement made by Bell Cablemedia South Herts and the
Partnership to the General Partner or its affiliates (or its predecessor)
for any allocable direct and indirect expenses totalled $1,419,554,
$996,419 and $1,163,848 respectively.
In connection with Bell Cablemedia South Herts' Pound
Sterling25,000,000 revolving and term loan credit facility agreement
entered into in April 1995, and described in section (4) below, Bell
Cablemedia Management Limited, an affiliate of the General Partner,
received a 1% financing fee. The fee was allocated between the investors
in Bell Cablemedia South Herts in proportion to their shareholding. The
Partnership's share of this fee amounted to $263,567.
The General Partner and its affiliates may make advances to, and defer
collection of fees and allocated expenses owed by, the Partnership, although
they are not required to do so. The Partnership will be charged interest on
such advances and deferred amounts. For the years ended December 31, 1995,
1994 and 1993 no such interest was charged to the Partnership by the General
Partner or its affiliates.
(4) FINANCING
The Partnership
As stated above, the Partnership's source of cash has been the net
proceeds of its offerings of limited partnership interests. Historically,
the Partnership's principal uses of cash have been capital contributions to
Bell Cablemedia South Herts in order to fund the Partnership's
proportionate share of the construction costs of the South Herts System.
As discussed below, the General Partner believes that no additional capital
contributions will be required to fund the completion of construction and
operations of the South Herts System. Accordingly, in the future, the
Partnership's uses of cash will be restricted to covering its
administration costs (principally insurance premiums, legal and accounting
costs associated with the Partnership's annual audit and periodic
regulatory filings and general administration). As of December 31, 1995
the Partnership had a receivable from BCM of approximately $16,000 but
current liabilities of approximately $210,000. Accordingly, until such
time as Bell Cablemedia South Herts begins to pay dividends on its ordinary
shares (which is not expected in the foreseeable future) the Partnership
will be required to fund its administrative expenses by additional
issuances of limited partnership interests or from borrowings. The General
Partner will arrange for resources to be made available for the Partnership
to meet its obligations as they fall due.
Bell Cablemedia South Herts
In July 1992, Bell Cablemedia South Herts entered into an agreement
with a bank to refinance its primary office/headend building for Pound
Sterling800,000. This loan was to be repaid over 10 years with quarterly
principal and interest payments due July 1993 through July 2002. Interest
on the loan was calculated at the London InterBank Offered Rate ("LIBOR")
plus 2 percent. For the years ended December 31, 1995, 1994 and 1993, the
South Herts System had recorded interest expense of $19,439, $81,050 and
$98,471, respectively, on the loan.
On April 18, 1995, Bell Cablemedia South Herts entered into an
agreement with two major banks to provide a Pound Sterling25,000,000
revolving and term loan credit facility agreement maturing on December 31,
2003 (the "South Herts Credit Agreement").
The credit facility is structured as a revolving facility through
December 31, 1997, at which time the facility will be converted into a term
loan. The term loan portion will require repayment of outstanding
principal amounts beginning in 1999, with the final 50% of such amounts
being repaid in 2002 and 2003. The facility is divided into two tranches,
denoted Facility A and Facility B, and the aggregate amount drawn down
under both tranches may not exceed Pound Sterling25,000,000. Amounts drawn
down under Facility A bear interest at sterling LIBOR plus a margin of
2.5%. The availability of Facility B of Pound Sterling25,000,000 is
subject to certain conditions which have not currently been satisfied and
amounts drawn down under Facility B will bear interest at sterling LIBOR
plus a margin ranging from 0.75% to 2.0% depending on the bank debt ratio
(the ratio of bank debt to annualised operating cash flow) of Bell
Cablemedia South Herts. At December 31, 1995 the interest rate on this
loan was 9.2%.
The South Herts Credit Agreement contains various covenants including
financial covenants such as a cumulative revenue test, bank debt ratio,
interest cover ratio, a homes marketed test, a fixed charges ratio and a
pro-forma debt service ratio and other covenants such as restrictions on
disposals and on the creation of indebtedness and encumbrances. The South
Herts Credit Agreement also includes a restriction on the payment of
dividends which provides that dividends or distributions in respect of its
issued share capital and payments in respect of certain intercompany loans
may not be made prior to December 31, 1997. Such payments will be
permitted thereafter only if the bank debt ratio for the previous two
accounting quarters is less than 5.5:1 and no event of default or potential
event of default has occurred and is continuing at such time and the
payment of such dividend or distribution will not give rise to an event of
default or potential default.
The South Herts Credit Agreement contains certain events of default
including non-payment of amounts due under the South Herts Credit
Agreement, breaches of representations and covenants (including financial
ratios) contained in the South Herts Credit Agreement, cross-default to
certain other indebtedness of Bell Cablemedia South Herts, certain
bankruptcy and insolvency events and certain changes of ownership.
The obligations of Bell Cablemedia South Herts under the South Herts
Credit Agreement are secured by first fixed and floating charges over all
of the assets of Bell Cablemedia South Herts. In addition, there is a
pledge of all of the share capital of Bell Cablemedia South Herts given by
BCM and the Partnership as additional security for the facility.
Drawdowns of Pound Sterling15.6 million have occurred under the South
Herts Credit Agreement since April 1995, partly to repay the temporary loans
made to Bell Cablemedia South Herts by BCM since November 1994. The General
Partner believes that the South Herts Credit Agreement will be sufficient to
fund the completion of construction and operation of the South Herts system.
(5) COMMITMENTS
Because Bell Cablemedia South Herts did not meet the construction
timetable set forth in the original telecommunications license issued by
the South Hertfordshire franchise area, Bell Cablemedia South Herts
requested an amendment of the construction timetable from OFTEL, the United
Kingdom regulatory authority that issued the telecommunications license.
On February 28, 1994, OFTEL modified the South Herts System's license. The
license, as modified, required that the South Herts System pass 60,000
premises with cable by December 31, 1994 and that it be completed (by
passing 85,000 premises) by December 31, 1995. At December 31, 1995 the
South Herts System passed approximately 83,400 homes and over 3,000
businesses, thereby complying with the construction timetable in its
license.
(6) INCOME TAXES
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The Federal and
state income tax returns of the Partnership are prepared and filed by the
General Partner. There are no significant differences between taxable
income and the net income reported in the Consolidated Statements of
Operations.
The Partnership's tax returns, the qualification of the Partnership
as such for tax purposes, and the amount of distributable Partnership
income or loss are subject to examination by Federal and state taxing
authorities. If such examinations result in changes with respect to the
Partnership's qualification as such, or in changes with respect to the
Partnership's recorded income or loss, the tax liability of the general and
limited partners would likely be changed accordingly.
United Kingdom profits (comprising income and gains) of a corporation
owned by the Partnership will be subject to United Kingdom corporation tax.
Corporation tax is currently charged at a rate of 33 percent, with a lower
rate of 25 percent (24% with effect from April 1, 1996 if proposed changes
in the Finance Bill 1996 are enacted) applying to companies with profits of
less than Pound Sterling300,000. Marginal relief applies where the profits
exceed Pound Sterling300,000 but not Pound Sterling1,500,000. These limits
are reduced proportionately where there is more than one associated
company. Such corporation will be able to carry forward losses from
operations to be offset against subsequent profits for the same operations
for an indefinite number of years. No tax benefit has been recognized in
the accompanying financial statements for tax net operating losses
generated by Bell Cablemedia South Herts. Bell Cablemedia South Herts has
approximately Pound Sterling10,600,000 of tax net operating losses carried
forward at December 31, 1995 ( Pound Sterling8 million at December 31,
1994).
(7) OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
1995 1994
$ $
---------- ----------
<S> <C> <C>
Minimum lease payments due:
Less than one year 1,149,160 1,081,573
1-2 years 1,149,160 1,081,570
2-3 years 923,831 1,081,570
3-4 years 297,613 854,514
4-5 years 37,908 223,493
---------- ----------
3,557,672 4,322,720
Less finance charges allocated to future periods (632,451) (919,452)
---------- ----------
2,925,221 3,403,268
========== ==========
Due within one year 840,441 714,804
Due after more than one year 2,084,780 2,688,464
---------- ----------
2,925,221 3,403,268
========== ==========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
- None
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership itself has no officers or directors. Certain
information concerning directors and executive officers of the General Partner
is set forth below.
Name Age Positions with the General Partner
---- --- ----------------------------------
Daniel E Somers 48 Chairman of the Board
William D Anderson 46 Director
John W Sheridan 41 Director
Peter Lyne 42 Director
Mr. Somers has been Chairman of the Board of Directors of the General Partner
since January 1996. Mr. Somers was appointed a Director of BCM in November
1995 and as of January 1996 he became Chairman of the Board and Chief
Executive Officer. Mr. Somers has been an Executive Vice-President of BCI
since March 1995. Previously, Mr. Somers was Senior Vice President and Chief
Financial Officer of BCI from January 1992 to March 1995. He was President
and Chief Executive Officer of Radio Atlantic Holdings from January 1989 to
January 1992. Mr. Somers was Executive Vice-President, Operations of Imasco
Limited from July 1987 to January 1989. Prior to that, Mr. Somers held
various positions at Hardee's and Imasco between 1977 and 1987.
Mr. Anderson has been a Director of the General Partner since July 1994. He
was appointed a Director and Chief Financial Officer of BCM in May 1994.
Prior to this he had been Vice-President, Taxation of BCE since January 1993
and Assistant Vice-President, Taxation of BCE from September 1991. From 1990
to 1991, Mr. Anderson was an independent tax consultant, and from 1972 to
1990, he was with a major Canadian and international accounting firm.
Mr. Sheridan has been a Director of the General Partner since December 1994.
He has been Chief Operating Officer of BCM since January 1, 1995. Prior to
this appointment in January 1995 he was Chief Executive of Bell Cablemedia
(South East) Limited for two and a half years. Previously he was Vice
President of Sales and Service for Bell Canada Inc.
Mr. Lyne has been a Director of the General Partner since February 1995.
He has been Managing Director, South Region of BCM since January 1995. He
joined BCM in July 1994 as Managing Director, East Region. Previously he
was sales director for Northern Telecom Europe and has also worked for STC
Plc and ICL plc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are
required to operate the South Herts System. Personnel are employed by BCM
and its affiliates and, pursuant to the terms of the Partnership's limited
partnership agreement, the cost of such employment is charged by BCM and
its affiliates to the Partnership as a direct reimbursement item. See Item
13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
No person or entity owns more than 5 percent of the limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and its affiliates engage in certain transactions
with the Partnership as contemplated by the limited partnership agreement
of the Partnership and as disclosed in the prospectuses for the
Partnership's public offerings. The General Partner believes that the
terms of such transactions, which are set forth in the Partnership's
limited partnership agreement, are generally as favorable as could be
obtained by the Partnership from unaffiliated parties. This determination
has been made by the General Partner in good faith, but none of the terms
were or will be negotiated at arm's-length and there can be no assurance
that the terms of such transactions have been or will be as favorable as
those that could have been obtained by the Partnership from unaffiliated
parties.
Jones International Securities, Ltd. ("JISL"), an affiliate of the
Jones Global Funds, the former general partner, served as the dealer-
manager of an offering of limited partnership interests in the Partnership
during 1994 and received a fee equal to 10 percent of the gross proceeds
and paid all commissions of broker-dealer firms that sell interests. Up to
9 percent of the gross proceeds paid to Jones International Securities,
Ltd. was permitted to be reallowed to unaffiliated participating broker-
dealer firms. No such fees were incurred by the Partnership for the year
ended December 31, 1995.
An affiliate of the General Partner is entitled to be paid a
consulting fee by Bell Cablemedia South Herts. During the construction
phases of the cable television/telephony system, this consulting fee was 2
percent of construction costs. After completion of construction of each
portion of the system, the consulting fee for the completed portion is 5
percent of gross revenues, excluding revenues from the sale of cable
television/telephony systems. Consulting fees paid or payable by the
Partnership for the year ended December 31, 1995 totalled $1,068,887.
The General Partner and its affiliates are entitled to reimbursement
from Bell Cablemedia South Herts for direct and indirect expenses allocable
to the operation of the South Herts System and from the Partnership for
direct and indirect expenses allocable to the operation of the Partnership,
which include but are not limited to rent, supplies, telephone, travel,
copying charges and salaries of any full or part time employees.
The General Partner and its affiliates may make advances to, and
defer collection of fees and allocated expenses owed by, the Partnership,
although they are not required to do so. The Partnership will be charged
interest on such advances and deferred amounts. No such interest charges
were incurred by the Partnership for the year ended December 31, 1995.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this report:
1. See index to financial statements at page 29 for the list of
financial statements and exhibits thereto filed as part of this
report.
2. The following exhibits are filed herewith:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Partnership has not filed a report on Form 8-K during the last
fiscal quarter of the period for which this Form 10-K is filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTH HERTFORDSHIRE UNITED
KINGDOM FUND, LTD.
a Colorado limited partnership
By: Fawnspring Limited,
its General Partner
By: /s/ Daniel E Somers
--------------------------
Daniel E Somers
Date: March 28, 1996 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 the
registrant and in the capacities and on the dates indicated.
By: /s/ Daniel E Somers
-----------------------------
Daniel E Somers
Director of
Fawnspring Limited
Dated: March 28, 1996 (Principal Executive Officer)
By: /s/ William D. Anderson
-----------------------------
William D. Anderson
Director of
Fawnspring Limited
(Principal Financial and
Dated: March 28, 1996 Accounting Officer)
By: /s/ John W. Sheridan
-----------------------------
John W. Sheridan
Director of
Dated: March 28, 1996 Fawnspring Limited
By: /s/ Peter Lyne
-----------------------------
Peter Lyne
Dated: March 28, 1996 Director of
Fawnspring Limited
EXHIBIT INDEX
Number Description
- ------ -----------
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 676,731
<SECURITIES> 0
<RECEIVABLES> 4,092,136
<ALLOWANCES> 697,594
<INVENTORY> 0
<CURRENT-ASSETS> 4,431,875
<PP&E> 84,564,231
<DEPRECIATION> 9,490,853
<TOTAL-ASSETS> 80,239,942
<CURRENT-LIABILITIES> 11,446,331
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28,539,528<F1>
<TOTAL-LIABILITY-AND-EQUITY> 80,239,942
<SALES> 16,554,283
<TOTAL-REVENUES> 16,554,283
<CGS> 4,214,341
<TOTAL-COSTS> 4,214,341
<OTHER-EXPENSES> 18,834,756
<LOSS-PROVISION> 55,900
<INTEREST-EXPENSE> 2,425,061
<INCOME-PRETAX> (6,152,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,152,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,152,006)
<EPS-PRIMARY> (106.97)
<EPS-DILUTED> (106.97)
<FN>
- -----------------
<F1>
Comprised of Partners' contributed capital of $48,818,997 less
accumulated losses of $20,279,469.
</TABLE>
