FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997.
[ ] 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
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
---------------------------------------------------
Exact name of registrant as specified in charter
Colorado 84-1145140
- -----------------------------------------------------------------
State of organization I.R.S. employer I.D.#
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
----- -----
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SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
------------- ------------
ASSETS:
CASH AND CASH EQUIVALENTS $1,539,496 $2,200,982
RECEIVABLES Trade and other
receivables net of allowances for
doubtful accounts of $920,898 and
$765,634 at September 30, 1997
and December 31, 1996,
respectively 4,231,980 4,935,769
PREPAID EXPENSES 680,164 301,868
----------- -----------
CURRENT ASSETS 6,451,640 7,438,619
INVESTMENT IN CABLE TELEVISION
AND TELECOMMUNICATIONS PROPERTIES,
net of accumulated depreciation
and amortization of $19,634,433
and $16,061,206 at September 30,
1997 and December 31, 1996,
respectively 80,367,714 82,972,180
OTHER ASSETS 611,303 708,545
----------- -----------
Total assets $87,430,657 $91,119,344
----------- -----------
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
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SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
------------- ------------
LIABILITIES:
Accounts payable to affiliates
and related parties $14,624,570 $10,202,585
Trade accounts payable 3,016,866 4,770,009
Accrued liabilities 3,820,636 3,383,259
Bank overdraft - 719,136
Short term obligations under
capital leases 624,814 1,057,014
----------- -----------
Current liabilities 22,086,886 20,132,003
Long term debt 31,177,220 30,290,010
Long term obligations under
capital leases 1,188,468 1,259,022
----------- -----------
Total liabilities 54,452,574 51,681,035
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTERESTS 11,030,638 13,079,544
PARTNERS' CAPITAL (DEFICIT):
General Partner
Contributed capital 1,000 1,000
Accumulated deficit (283,397) (253,612)
----------- -----------
(282,397) (252,612)
----------- -----------
Limited Partners
Net contributed capital
(56,935 units outstanding at
September 30, 1997 and
December 31, 1996
respectively) 48,817,997 48,817,997
Accumulated deficit (27,774,970) (24,826,298)
----------- -----------
21,043,027 23,991,699
----------- -----------
Currency translation adjustment 1,186,815 2,619,678
----------- -----------
Total partners' capital 21,947,445 26,358,765
----------- -----------
Total liabilities and
partners' capital $87,430,657 $91,119,344
----------- -----------
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
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SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three For the nine
months ended months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES $6,176,665 $5,071,969 $17,312,057 $15,043,780
COSTS AND
EXPENSES:
Operating 2,944,990 2,376,575 8,385,023 6,998,312
Selling, general
and administrative 706,538 1,707,795 1,698,774 4,854,915
Management fees
and allocated
overhead from the
General Partner 1,544,831 898,937 4,566,210 2,995,628
Depreciation and
amortization 1,555,052 1,282,233 4,526,713 3,685,461
--------- --------- --------- ---------
OPERATING LOSS (574,746) (1,193,571) (1,864,663) (3,490,536)
OTHER INCOME
(EXPENSE):
Interest expense (972,779) (721,560) (2,498,965) (2,045,681)
Interest income 13,926 9,912 52,696 22,329
--------- --------- --------- ---------
LOSS BEFORE
MINORITY
INTERESTS (1,533,599) (1,905,219) (4,310,932) (5,513,888)
Minority
interests 481,158 607,061 1,332,475 1,752,964
--------- --------- --------- ---------
NET LOSS $(1,052,441) $(1,298,158) $(2,978,457) $(3,760,924)
ALLOCATION OF
NET LOSS:
General Partner $(10,525) $(12,981) $(29,785) $(37,609)
Limited
Partners $(1,041,916) $(1,285,177) $(2,948,672) $(3,723,315)
NET LOSS PER
LIMITED
PARTNERSHIP
UNIT $(18.30) $(22.58) $(51.79) $(65.40)
WEIGHTED AVERAGE
NUMBER OF
LIMITED
PARTNERSHIP
UNITS
OUTSTANDING 56,935 56,935 56,935 56,935
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
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SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
-------------------------
1997 1996
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $(2,978,457) $(3,760,924)
Adjustments to reconcile
net loss to net cash generated
in operating activities:
Minority interests (1,332,475) (1,752,964)
Depreciation and amortization 4,526,713 3,685,461
Decrease (increase) in other
receivables 432,559 (588,364)
(Increase) decrease in prepaid
expenses and other assets (340,443) 402,227
Increase in accounts payable
to related parties 5,024,698 3,679,836
Increase in trade accounts
payable and accrued liabilities 1,354,056 183,101
---------- ----------
Net cash generated in
operating activities 6,686,651 1,848,373
CASH FLOWS FROM
INVESTING ACTIVITIES:
Construction payments for
cable television/telephony
system (8,783,660) (3,411,364)
---------- ----------
Net cash used in
investing activities (8,783,660) (3,411,364)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in borrowings 2,617,120 1,846,680
Net decrease in bank overdraft (687,367) -
Principal payments under
capital leases (377,652) (683,227)
---------- ----------
Net cash provided
by financing activities 1,552,101 1,163,453
---------- ----------
Effect of currency exchange
rate changes (116,578) (1,655)
Decrease in cash and
cash equivalents (661,486) (401,193)
Cash and cash equivalents,
beginning of period 2,200,982 676,731
---------- ----------
Cash and cash equivalents,
end of period $1,539,496 $275,538
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $2,531,143 $1,742,518
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
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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 September 30, 1997 and its results of operations
and cash flows for the nine month periods ended September 30,
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 September 30, 1997, the network consisted of
approximately 570 miles of cable plant, which passed
approximately 87,000 homes. At September 30, 1997 the South Herts
System's cable television customers totalled approximately 21,700
and the South Herts System's residential telephony lines totalled
approximately 26,750. In addition, the South Herts System
provided telephony services to approximately 1,200 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 September 30, 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)3,400,000 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)6,800,000 in Bell Cablemedia South Herts, of which
(pound)2,266,600 was funded in November 1993 for 22,666 Class B
shares. In June 1994, the Sandler Group invested (pound)3,273,232
for 32,732 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested (pound)503,283 for 5,033 Class A
shares. In July 1994, the Sandler Group invested (pound)1,800,000
for 18,000 Class B shares and Jones Intercable of South
Hertfordshire Inc. invested (pound)466,800 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)5,108,900 in Bell Cablemedia South Herts for 51,089 Class
A shares and BCM invested (pound)2,554,600 in Bell Cablemedia
South Herts for 25,546 Class A shares. In November 1994, the
Partnership invested (pound)1,410,000 in Bell Cablemedia South
Herts for 14,100 Class A shares and BCM invested (pound)705,000
in Bell Cablemedia
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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 by the end of
April, 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. On May 6, 1997, CWC issued notices to those BCM
shareholders who had not already accepted CWC's offer for their
shares, and to those NYNEX CableComms shareholders who had not
already accepted CWC's offer for their shares, informing them
that CWC intended to exercise its rights to acquire compulsorily
all outstanding BCM and NYNEX CableComms shares for which valid
acceptances had not yet been received. CWC, having obtained the
requisite levels of acceptance from security holders of BCM and
NYNEX CableComms, acquired 100% of BCM and NYNEX CableComms. C&W,
NYNEX and BCI presently own, directly or indirectly,
approximately 52.6%, 18.5% and 14.2% respectively, of the issued
share capital of CWC. Public shareholders hold the remaining
14.7%.
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% of all homes in the United Kingdom
(including 59% 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
The General Partner of the Partnership or its affiliates are
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 September 30,
1997 and 1996 were $363,655 and $254,429 respectively. All of
these amounts were expensed on the Unaudited Consolidated
Statements of Operations for the three months ended September 30,
1997 and 1996 respectively.
Consulting fees paid or payable by Bell Cablemedia South Herts
for the nine months ended September 30, 1997 and 1996 were
$952,687 and $1,040,855 respectively. All of these amounts were
expensed on the Unaudited Consolidated Statements of Operations
for the nine months ended September 30, 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
September 30, 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 $1,181,176 and $644,508 respectively. During the nine
months ended September 30, 1997 and 1996, reimbursements made by
Bell Cablemedia South Herts and the Partnership to the General
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Partner or its affiliates for any allocable direct and indirect
expenses totalled $3,613,523 and $1,954,773 respectively. These
increases were due to an increase in the provision of services by
the General Partner in 1997 as compared to 1996.
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 September
30, 1997 and 1996, these interest charges were $129,685 and
$61,473 respectively. For the nine months ended September 30,
1997, the interest charges were $346,839 and $61,473
respectively. Up to June 30, 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 nine months ended September 30, 1997 was
$1.64 per United Kingdom pound sterling and the closing exchange
rate at September 30, 1997 was $1.62 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)25,000,000
revolving and term loan credit facility agreement maturing on
December 31, 2003 (the "South Herts Credit Agreement"). On
October 18, 1996, (pound)5,000,000 was canceled and the facility
reduced to (pound)20,000,000.
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
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(pound)20,000,000. Amounts drawn down under Facility A bear
interest at sterling LIBOR plus a margin of 2.5%. The
availability of Facility B of (pound)20,000,000 is subject to
certain conditions which have now 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 September 30, 1997 the
average interest rate on this loan was 9.4%.
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 Bell Cablemedia plc and the
Partnership as additional security for the facility.
Drawdowns of (pound)19.3 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 Bell Cablemedia
South Herts has available sufficient resources to fund the
completion of construction and operation of the South Herts
system.
9
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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 September 30, 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 September 30, 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)3,400,000 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)6,800,000 in Bell Cablemedia South Herts of which
(pound)2,266,600 was funded in November 1993 for 22,666 Class B
shares. In June 1994 the Sandler Group invested (pound)3,273,232
for 32,732 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested (pound)503,283 for 5,033 Class A
shares. In July 1994, the Sandler Group invested (pound)1,800,000
for 18,000 Class B shares and Jones Intercable of South
Hertfordshire, Inc. invested (pound)466,800 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)5,108,900 in Bell Cablemedia South Herts for 51,089 Class
A shares and BCM invested (pound)2,554,600 in Bell Cablemedia
South Herts for 25,546 Class A shares. In November 1994, the
Partnership invested (pound)1,410,000 in Bell Cablemedia South
Herts for 14,100 Class A shares and BCM invested (pound)705,000
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%.
10
<PAGE>
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 by the end of
April, 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. On May 6, 1997, CWC issued notices to those BCM
shareholders who had not already accepted CWC's offer for their
shares, and to those NYNEX CableComms shareholders who had not
already accepted CWC's offer for their shares, informing them
that CWC intended to exercise its rights to acquire compulsorily
all outstanding BCM and NYNEX CableComms shares for which valid
acceptances had not yet been received. CWC, having obtained the
requisite levels of acceptance from security holders of BCM and
NYNEX CableComms, acquired 100% of BCM and NYNEX CableComms. C&W,
NYNEX and BCI presently own, directly or indirectly,
approximately 52.6%, 18.5% and 14.2% respectively, of the issued
share capital of CWC. Public shareholders hold the remaining
14.7%.
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% of all homes in the United Kingdom
(including 59% 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 September 30, 1997 the Partnership had current liabilities of
approximately $900,000, most of which were payable to the General
Partner.
Bell Cablemedia South Herts. On April 18, 1995 Bell Cablemedia
South Herts entered into an agreement with two major banks to
provide a (pound)25,000,000 revolving and term loan credit
facility agreement maturing on December 31, 2003 (the "South
Herts Credit Agreement"). On October 18, 1996, (pound)5,000,000
was canceled and the facility reduced to (pound)20,000,000.
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)20,000,000. Amounts drawn down
under Facility A bear interest at sterling LIBOR plus a margin of
2.5%. The availability of Facility B of (pound)20,000,000 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 September 30, 1997
the average interest rate on this loan was 9.4%.
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.
11
<PAGE>
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)19.3 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 Bell Cablemedia
South Herts has available sufficient resources to fund the
completion of construction and operation of the South Herts
system.
RESULTS OF OPERATIONS
Revenues of the Partnership increased $1,104,696 for the three
months ended September 30, 1997, over the corresponding period in
1996 from $5,071,969 in 1996 to $6,176,665 in 1997. Revenues of
the Partnership increased $2,268,277 for the nine months ended
September 30, 1997, over the corresponding period in 1996 from
$15,043,780 in 1996 to $17,312,057 in 1997. These increases were
the result of increases in the South Herts System's customer
base, and a residential telephony price increase effective July
15, 1997. The South Herts System served approximately 21,700
basic cable television customers, 26,750 residential telephony
lines and 1,200 business telephony customers at September 30,
1997 as compared to approximately 19,850 basic cable television
customers, 23,600 residential telephony lines and 900 business
telephony customers at September 30, 1996.
Operating expenses increased $568,415 for the three months
ended September 30, 1997 over the corresponding period in 1996
from $2,376,575 in 1996 to $2,944,990 in 1997. Operating expenses
increased $1,386,711 for the nine months ended September 30, 1997
over the corresponding period in 1996 from $6,998,312 in 1996 to
$8,385,023 in 1997. These increases relate to telephony and
programming costs arising from the growth in the South Herts'
customer base.
Selling, general and administrative expenses reduced
$1,001,257 for the three months ended September 30, 1997 over the
corresponding period in 1996 from $1,707,795 in 1996 to $706,538
in 1997. Selling, general and administrative expenses reduced
$3,156,141 for the nine months ended September 30, 1997 over the
corresponding period in 1996 from $4,854,915 in 1996 to
$1,698,774 in 1997. These reductions were due to reductions in
overhead costs, resulting from the provision of additional
services by the General Partner in 1997 as compared to 1996.
Management fees and allocated overhead from the General
Partner increased by $645,894 for the three months ended
September 30, 1997 over the corresponding period in 1996, from
$898,937 in 1996 to $1,544,831 in 1997. Management fees and
allocated overhead from the General Partner increased by
$1,570,582 for the nine months ended September 30, 1997 over the
corresponding period in 1996, from $2,995,628 in 1996 to
$4,566,210 in 1997. These costs relate to additional services
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
administative expenses and management fees and allocated overhead
from the General Partner has declined for both the three and nine
month periods ended September 30, 1997 compared with the
corresponding periods in 1996.
Depreciation and amortization expense increased $272,819 for
the three months ended September 30, 1997, over the corresponding
period in 1996, from $1,282,233 in 1996 to $1,555,052 in 1997.
Depreciation and amortization expense increased $841,252 for the
nine months ended September 30, 1997, over the corresponding
period in 1996, from $3,685,461 in 1996 to $4,526,713 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 $251,219 for the three months
ended September 30, 1997 over the corresponding period in 1996,
from $721,560 in 1996 to $972,779 in 1997. Interest expense
increased by $453,284 for the nine months ended September 30,
1997 over the corresponding period in 1996, from $2,045,681 in
1996 to $2,498,965 in 1997. These increases were generally due to
interest on deferred fees charged by an affiliate of the General
Partner in the three and nine
12
<PAGE>
month periods ended September 30, 1997, and higher levels of
average debt in the three and nine month periods ended September
30, 1997 as compared to the corresponding periods in 1996.
Interest income increased by $4,014 for the three months ended
September 30, 1997, over the corresponding period in 1996, from
$9,912 in 1996 to $13,926 in 1997. Interest income increased by
$30,367 for the nine months ended September 30, 1997, over the
corresponding period in 1996, from $22,329 in 1996 to $52,696 in
1997. The increases in interest income were due to higher surplus
funds available for investment in the three and nine month
periods ended September 30, 1997 as compared to the corresponding
periods in 1996.
Net loss decreased by $245,717 for the three months ended
September 30, 1997, over the corresponding period in 1996, from
$1,298,158 in 1996 to $1,052,441 in 1997. Net loss decreased by
$782,467 for the nine months ended September 30, 1997, over the
corresponding period in 1996, from $3,760,924 in 1996 to
$2,978,457 in 1997. The reductions in net loss were due to the
increases in revenue, combined with reductions in overheads. The
effect of these factors was only partly offset by the increases
in depreciation 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
13
<PAGE>
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
November 13, 1997.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> $1,539,496
<SECURITIES> $0
<RECEIVABLES> $5,152,878
<ALLOWANCES> $920,898
<INVENTORY> $0
<CURRENT-ASSETS> $6,451,640
<PP&E> $100,002,147
<DEPRECIATION> $19,634,433
<TOTAL-ASSETS> $87,430,657
<CURRENT-LIABILITIES> $22,086,886
<BONDS> $0
$0
$0
<COMMON> $0
<OTHER-SE> $21,947,445<F1>
<TOTAL-LIABILITY-AND-EQUITY> $87,430,657
<SALES> $6,176,665
<TOTAL-REVENUES> $6,176,665
<CGS> $1,555,052
<TOTAL-COSTS> $1,555,052
<OTHER-EXPENSES> $5,117,970
<LOSS-PROVISION> $78,389
<INTEREST-EXPENSE> $972,779
<INCOME-PRETAX> $(1,052,441)
<INCOME-TAX> $0
<INCOME-CONTINUING> $(1,052,041)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $(1,052,441)
<EPS-PRIMARY> $(18.30)
<EPS-DILUTED> $(18.30)
<FN>
<F1>Comprised of Partners' contributed capital of $48,818,997 less accumulated
losses of $26,871,552
</FN>
</TABLE>
