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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number: 0-19889
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SOUTH HERTFORDSHIRE
UNITED KINGDOM FUND, LTD.
(Exact name of registrant as specified in charter)
Colorado 84-1145140
(State of organization) (I.R.S. Employer Identification No.)
Bell Cablemedia House
Upton Road, Watford, Hertfordshire
WD1 7EL, England
(Address of principal executive office)
011 44 1923 444000
(Registrant's telephone number)
------------
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 [ ]
=============================================================================
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS:
CASH AND CASH EQUIVALENTS................................................... $3,757,934 $2,200,982
RECEIVABLES
Other receivables net of allowances for doubtful accounts of
$809,140 and $765,634 at March 31, 1997 and December
31, 1996, respectively................................................ 3,074,292 4,935,769
PREPAID EXPENSES........................................................... 498,202 301,868
---------- ----------
CURRENT ASSETS.............................................................. 7,330,428 7,438,619
INVESTMENT IN CABLE TELEVISION AND
TELECOMMUNICATIONS PROPERTIES, net of accumulated
depreciation and amortization of $16,883,197 and $16,061,206 at
March 31, 1997 and December 31, 1996, respectively....................... 81,004,062 82,972,180
OTHER ASSETS................................................................ 655,567 708,545
---------- ----------
Total assets............................................................. $88,990,057 $91,119,344
========== ==========
</TABLE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
LIABILITIES:
Accounts payable to affiliates and related parties........................ $11,788,530 $10,202,585
Trade accounts payable.................................................... 3,263,133 4,770,009
Accrued liabilities....................................................... 3,599,710 3,383,259
Bank overdraft............................................................ -- 719,136
Short term obligations under capital leases............................... 817,521 1,057,014
----------- -----------
Current liabilities..................................................... 19,468,894 20,132,003
Long term debt............................................................ 31,690,600 30,290,010
Long term obligations under capital leases............................... 1,208,037 1,259,022
----------- -----------
Total liabilities....................................................... 52,367,531 51,681,035
----------- -----------
COMMITMENTS AND CONTINGENCIES.............................................. -- --
MINORITY INTERESTS......................................................... 12,176,716 13,079,544
PARTNERS' CAPITAL (DEFICIT):
General Partner
Contributed capital..................................................... 1,000 1,000
Accumulated deficit..................................................... (262,125) (253,612)
----------- -----------
(261,125) (252,612)
----------- -----------
Limited Partners
Net contributed capital (56,935 units outstanding at March 31,
1997 and December 31, 1996, respectively)............................. 48,817,997 48,817,997
Accumulated deficit..................................................... (25,669,095) (24,826,298)
----------- -----------
23,148,902 23,991,699
----------- -----------
Currency translation adjustment.......................................... 1,558,033 2,619,678
----------- -----------
Total partners' capital.................................................. 24,445,810 26,358,765
----------- -----------
Total liabilities and partners' capital.................................. $88,990,057 $91,119,344
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
<TABLE>
For the three months ended
March 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES................................................................... $ 5,540,430 $ 4,952,607
COSTS AND EXPENSES:
Operating................................................................. (2,201,555) (2,365,662)
Selling, general and administrative....................................... (732,578) (1,670,475)
Management fees and allocated overhead from the General Partner........... (1,657,657) (870,593)
Depreciation and amortization............................................. (1,466,158) (1,178,788)
---------- ----------
OPERATING LOSS............................................................. (517,518) (1,132,911)
OTHER INCOME (EXPENSE):
Interest expense.......................................................... (728,971) (661,650)
Interest income........................................................... 23,172 3,439
---------- ----------
LOSS BEFORE MINORITY INTERESTS............................................. (1,223,317) (1,791,122)
Minority interests........................................................ 372,007 571,444
---------- ----------
NET LOSS................................................................... $ (851,310) $(1,219,678)
ALLOCATION OF NET LOSS:
General Partner........................................................... $ (8,513) $(12,197)
Limited Partners.......................................................... $ (842,797) $(1,207,481)
NET LOSS PER LIMITED PARTNERSHIP UNIT...................................... $ (14.80) $ (21.21)
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP
UNITS OUTSTANDING......................................................... 56,935 56,935
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (851,310) $ (1,219,678)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interests.............................................................. (372,007) (805,668)
Depreciation and amortization................................................... 1,466,157 1,178,788
Decrease in other receivables................................................... 1,656,440 306,753
(Increase) decrease in prepaid expenses and other assets........................ (182,837) 179,180
Increase in accounts payable to related parties................................. 1,972,585 486,588
Increase (decrease) in trade accounts payable and accrued liabilities........... 7,593 (208,277)
---------- ---------
Net cash generated by (used in) operating activities........................... 3,696,621 (82,314)
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction payments for cable television/telephony system..................... (3,790,743) (923,973)
---------- ---------
Net cash used in investing activities.......................................... (3,790,743) (923,973)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings.......................................................... 2,619,040 1,424,640
Net decrease in bank overdraft ................................................. (687,871) --
Principal payments under capital leases......................................... (196,078) (241,132)
---------- ---------
Net cash provided by financing activities...................................... 1,735,091 1,183,508
---------- ---------
Effect of currency exchange rate changes......................................... (84,017) (468,447)
Increase (decrease) in cash and cash equivalents................................. 1,556,952 (291,226)
Cash and cash equivalents, beginning of period................................... 2,200,982 676,731
---------- ---------
Cash and cash equivalents, end of period......................................... $ 3,757,934 $385,505
---------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.................................................................... $549,385 $606,833
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
(1) BASIS OF PRESENTATION
The accompanying financial information should be read in
conjunction with the financial statements of the South Hertfordshire United
Kingdom Fund, Ltd. (the "Partnership"), including the notes thereto, for the
year ended December 31, 1996. The financial information included herein is
unaudited. However, in the opinion of management, such information reflects
all adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position of the Partnership at March 31, 1997
and its results of operations and cash flows for the three month periods ended
March 31, 1997 and 1996. Results of operations for these periods are not
necessarily indicative of results to be expected for the full year. As a
result of the Partnership's ownership of 66.7 percent of the shares of Bell
Cablemedia (South Hertfordshire) Limited ("Bell Cablemedia South Herts"), for
accounting purposes it has been consolidated with the Partnership's operations.
(2) INVESTMENT IN SUBSIDIARY
Bell Cablemedia South Herts is a United Kingdom corporation
that owns and operates 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"). At March 31, 1997, the
network consisted of approximately 570 miles of cable plant, which passed
approximately 86,000 homes. At March 31, 1997 the South Herts System's cable
television customers totalled approximately 21,000 and the South Herts
System's residential telephony lines totalled approximately 24,600. In
addition, the South Herts System provided telephony services to approximately
1,050 businesses in its franchise area.
On February 20, 1992, upon receipt of approval from United
Kingdom regulatory authorities, the Partnership acquired the beneficial
ownership of 100 percent of the shares of Bell Cablemedia South Herts
(formerly Jones Cable Group of South Hertfordshire Limited). 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. Through March 31, 1997, the total amount invested by the Partnership
to fund the South Herts System's construction and development was
approximately $48,800,000.
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. ("Global Group"),
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/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") 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 (the
"General Partner"), 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.
On December 17, 1996, BCM acquired control of an additional
55.6% of Videotron Holdings Plc ("Videotron"), increasing its direct and
indirect shareholding in that company to 81.8%. On the same day, a subsidiary
of C&W subscribed for additional shares in BCM, increasing its stake in the
company to 32.5%, with BCI's indirect stake reducing to 32.5%.
On January 8, 1997, BCM made an offer to acquire all the
remaining public and employee shares of Videotron. By April 1, 1997, BCM had
increased its stake in Videotron to 100.0%.
On October 22, 1996, C&W, BCI and NYNEX Corporation ("NYNEX")
announced that they had entered into an agreement, pursuant to which, subject
to the satisfaction of certain conditions precedent, the parties agreed to
combine: (i) Mercury Communications Limited ("Mercury"), (ii) BCM (as enlarged
by the acquisition of Videotron), and (iii) NYNEX CableComms Group PLC and
NYNEX Cablecomms Group Inc. (collectively "NYNEX CableComms") under one
company to be called Cable & Wireless Communications plc ("CWC").
On April 25, 1997, CWC acquired Mercury, and at that date CWC
had received valid acceptances representing approximately 97.9% of the
ordinary share capital of BCM and approximately 92.4% of the ordinary share
capital of NYNEX CableComms. Assuming full acceptance of the offers for
shares, CWC will own 100% of BCM. In turn, C&W will own approximately 52.6%,
NYNEX approximately 18.5% and BCI approximately 14.2% of the fully diluted
share capital of CWC, with the remainder to be held by public shareholders.
CWC, through its subsidiaries and its interest in Bell
Cablemedia South Herts, holds exclusive cable television licenses and
related non-exclusive telecommunications licenses covering more than six
million potential residential customers, representing approximately 25
percent of all homes in the United Kingdom (including 59 percent of all homes
in Greater London), and substantially all small-to-medium sized business
customers within its 45 cable franchise areas.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
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 disposal 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 three months ended March 31, 1997 and 1996 were $297,549 and
$416,176 respectively. All of these amounts were expensed on the Unaudited
Consolidated Statements of Operations for the three months ended March 31,
1997 and 1996 respectively.
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 reasonable. During the three months ended
March 31, 1997 and 1996, reimbursements made by Bell Cablemedia South Herts
and the Partnership to the General Partner or its affiliates for any
allocable direct and indirect expenses totalled $1,360,108 and $454,417
respectively. The increase in reimbursements to the General Partner and
its affiliates has been more than offset by a reduction in selling, general
and administrative expenses, during a period in which revenues increased by
12% compared with the corresponding quarter in the previous year.
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 at a rate equal to the General
Partner's or certain affiliates' weighted average cost of all debt financing
from unaffiliated entities. For the three months ended March 31, 1997, this
interest charge was $66,350; for the three months ended March 31, 1996, no
such interest had been charged to the Partnership by the General Partner or
its affiliates.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 United
States dollars at current exchange rates are charged or credited directly to
cumulative translation adjustment in shareholders' equity. At the discretion
of the General Partner, funds of the Partnership being held in United States
dollars were 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 three
months ended March 31, 1997 was $1.64 per United Kingdom pound sterling and
the closing exchange rate at March 31, 1997 was $1.64 per United Kingdom pound
sterling.
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. The General Partner has estimated a prematurity period of three
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. In addition, costs (including labor, overhead and
other costs of completion) associated with installation in homes not
previously served by cable television/telephony are capitalized and included
as a component of the investment in cable television and telecommunications
properties.
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. Depreciation is provided on a straight line basis over 5-40
years for the cable network and other electronic equipment, 35 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.
(5) FINANCINGS
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"). On October 18, 1996, Pound
Sterling5,000,000 was canceled and the facility reduced to Pound
Sterling20,000,000.
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 Sterling20,000,000. Amounts drawn down under
Facility A bear interest at sterling LIBOR plus a margin of 2.5%. The
availability of Facility B of Pound Sterling20,000,000 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 March 31,
1997 the average interest rate on this loan was 8.5%.
The South Herts Credit Agreement contains various covenants
including financial covenants such as a bank debt ratio, interest cover
ratio, 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 Sterling19.3 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.
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
South Hertfordshire United Kingdom Fund, Ltd. (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 March 31, 1997, the Partnership had received limited partner subscriptions
of $56,935,000, or $48,817,997 net of sales commissions and other
organizational and offering costs. Sales of limited partnership interests
ended in April 1994.
In connection with and subsequent to the Partnership's
acquisition of Bell Cablemedia (South Hertfordshire) Limited ("Bell Cablemedia
South Herts") the Partnership has invested its net offering proceeds in Bell
Cablemedia South Herts for construction and development costs. Through March
31, 1997 the total amount invested by the Partnership was approximately
$48,800,000.
Bell Cablemedia South Herts provides a local telephony service
using telephony switching equipment that it owns, and it has entered into
interconnection agreements with British Telecommunications plc and Mercury
Communications Limited so that it can provide local, long-distance, national
and international telephony services. Testing of the telephony service
started in November 1992, and the service was first offered to the South Herts
System's subscribers in February 1993.
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. ("Global Group"),
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/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") 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 (the
"General Partner"), a wholly owned subsidiary of BCM.
On December 17, 1996, BCM acquired control of an additional
55.6% of Videotron Holdings Plc ("Videotron"), increasing its direct and
indirect shareholding in that company to 81.8%. On the same day, a subsidiary
of C&W subscribed for additional shares in BCM, increasing its stake in the
company to 32.5%, with BCI's indirect stake reducing to 32.5%.
On January 8, 1997, BCM made an offer to acquire all the
remaining public and employee shares of Videotron. By April 1, 1997, BCM had
increased its stake in Videotron to 100.0%.
On October 22, 1996, C&W, BCI and NYNEX Corporation ("NYNEX")
announced that they had entered into an agreement, pursuant to which, subject
to the satisfaction of certain conditions precedent, the parties agreed to
combine: (i) Mercury Communications Limited ("Mercury"), (ii) BCM (as enlarged
by the acquisition of Videotron), and (iii) NYNEX CableComms Group PLC and
NYNEX Cablecomms Group Inc. (collectively "NYNEX CableComms") under one
company to be called Cable & Wireless Communications plc ("CWC").
On April 25, 1997, CWC acquired Mercury, and at that date CWC
had received valid acceptances representing approximately 97.9% of the
ordinary share capital of BCM and approximately 92.4% of the ordinary share
capital of NYNEX CableComms. Assuming full acceptance of the offers for
shares, CWC will own 100% of BCM. In turn, C&W will own approximately 52.6%,
NYNEX approximately 18.5% and BCI approximately 14.2% of the fully diluted
share capital of CWC, with the remainder to be held by public shareholders.
CWC, through its subsidiaries and its interest in Bell
Cablemedia South Herts, holds exclusive cable television licenses and
related non-exclusive telecommunications licenses covering more than six
million potential residential customers representing approximately 25
percent of all homes in the United Kingdom (including 59 percent of all
homes in Greater London) and substantially all small-to-medium sized
business customers within its 45 cable franchise areas.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership. 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 March 31, 1997 the Partnership had current liabilities
of approximately $670,000. 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 meets its obligations as they fall
due.
Bell Cablemedia South Herts. 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"). On October 18,
1996, Pound Sterling5,000,000 was canceled and the facility reduced to Pound
Sterling20,000,000.
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 Sterling20,000,000. Amounts drawn down under
Facility A bear interest at sterling LIBOR plus a margin of 2.5%. The
availability of Facility B of Pound Sterling20,000,000 is subject to certain
conditions which have now been satisfied and amounts drawn down under Facility
B 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 March 31, 1997 the
average interest rate on this loan was 8.5%.
The South Herts Credit Agreement contains various covenants
including financial covenants such as a bank debt ratio, interest cover
ratio, 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 Sterling19.3 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.
RESULTS OF OPERATIONS
Revenues of the Partnership increased $587,823 for the three
months ended March 31, 1997, over the corresponding period in 1996 from
$4,952,607 in 1996 to $5,540,430 in 1997. These increases were the result of
increases in the South Herts System's customer base, offset by the effect of
the implementation of a new residential telephony tariff, comprising lower
line rentals and call charge savings, in July 1996. The South Herts System
served approximately 21,000 basic cable television customers, 24,600
residential telephony lines and over 1,050 business telephony customers at
March 31, 1997 as compared to approximately 19,200 basic cable television
customers, 22,300 residential telephony lines and 850 business telephony
customers at March 31, 1997.
Operating expenses reduced $164,107 for the three months ended
March 31, 1997 over the corresponding period in 1996 from $2,365,662 in 1996
to $2,201,555 in 1997. This reduction primarily came about as the result of
lower interconnection costs for telephony services.
Selling, general and administrative expenses reduced $937,897
for the three months ended March 31, 1997 over the corresponding period in
1996 from $1,670,475 in 1996 to $732,578 in 1997. This reduction was due to
reductions in overhead costs resulting from the provision of additional
services by the General Partner in 1997 as compared to 1997.
Management fees and allocated overhead from the General
Partner increased by $787,064 for the three months ended March 31, 1997
over the corresponding period in 1996 from $870,593 in 1996 to $1,657,657
in 1997. These incremental costs relate to additional services, such as
customer services and the sales force, provided by affiliates of the General
Partner in order to reduce overall costs by taking advantage of economies
of scale within the BCM Group. Overall, the aggregate of selling, general
and administrative expenses and management fees and allocated overhead from
the General Partner has declined for the three month period ended March 31,
1997 compared with the corresponding period in 1996, from $2,541,068 in
1996 to $2,390,235 in 1997.
Depreciation and amortization expense increased $287,370 for
the three months ended March 31, 1997, over the corresponding period in 1996,
from $1,178,788 in 1996 to $1,466,158 in 1997. These increases were due to
increases in the Partnership's depreciable asset base resulting from the
buildout of the South Herts system.
Interest expense increased by $67,321 for the three months
ended March 31, 1997 over the corresponding period in 1996, from $661,650 in
1996 to $728,971 in 1997. This increase was due to interest on deferred fees
charged by an affiliate of the General Partner in the three months ended March
31, 1997.
Interest income increased by $19,733 for the three months ended
March 31, 1997, over the corresponding period in 1996, from $3,439 in 1996 to
$23,172 in 1997. The increase in interest income was due to the investment
of surplus funds in the three months ended March 31, 1997.
Net loss decreased by $368,368 for the three months ended March
31, 1997, over the corresponding period in 1996, from $1,219,678 in 1996 to
$851,310 in 1997. The reduction in net loss was due to the increase in
contribution margin which exceeded the increases in depreciation and
amortization and interest expenses.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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/ Robert Drolet
------------------------------
Robert Drolet
Director
May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $3,757,934
<SECURITIES> $0
<RECEIVABLES> $3,883,432
<ALLOWANCES> $809,140
<INVENTORY> $0
<CURRENT-ASSETS> $7,330,428
<PP&E> $97,887,259
<DEPRECIATION> $16,883,197
<TOTAL-ASSETS> $88,990,057
<CURRENT-LIABILITIES> $19,468,894
<BONDS> $0
<COMMON> $0
$0
$0
<OTHER-SE> $24,445,810<F1>
<TOTAL-LIABILITY-AND-EQUITY> $88,990,057
<SALES> $5,540,430
<TOTAL-REVENUES> $5,540,430
<CGS> $1,466,158
<TOTAL-COSTS> $1,466,158
<OTHER-EXPENSES> $4,437,009
<LOSS-PROVISION> $154,481
<INTEREST-EXPENSE> $705,799
<INCOME-PRETAX> $(851,350)
<INCOME-TAX> $0
<INCOME-CONTINUING> $(851,310)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $(851,310)
<EPS-PRIMARY> $(14.80)
<EPS-DILUTED> $(14.80)
<FN>
- ------------
<F1> Comprised of Partners' contributed capital of $48,818,997 less
accumulated losses of $24,373,187
</TABLE>
