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 March 31, 1999.
[ ] 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.#
Caxton Way, Watford, WD1 8XH, England
- --------------------------------------------------------------------------------
Address of principal executive office
011-44-1923-435000
- --------------------------------------------------------------------------------
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 _____
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1999 1998
---- ----
ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $74,267 $76,337
----------------- -----------------
CURRENT ASSETS 74,267 76,337
INVESTMENT IN CABLE TELEVISION AND
TELECOMMUNICATIONS PROPERTIES, net of accumulated
depreciation and amortization of $32,263,840 and $32,586,193 at 75,083,328 77,249,082
March 31, 1999 and December 31, 1998, respectively
OTHER ASSETS 452,060 489,553
----------------- -----------------
Total assets $75,609,655 $77,814,972
----------------- -----------------
LIABILITIES:
Accounts payable to affiliates and related parties $1,180,680 $1,114,592
Accrued liabilities 146,125 175,779
----------------- -----------------
Current liabilities of the Partnership 1,326,805 1,290,371
Accounts payable to affiliates and related parties 18,182,500 18,037,089
Current instalments due on loan facility 3,038,085 2,241,985
Short term obligations under capital leases 135,618 288,753
----------------- -----------------
Current liabilities of the Partnership and Company 22,683,008 21,858,198
Long term debt 27,576,064 29,786,365
Long term obligations under capital leases - 36,509
----------------- -----------------
Total liabilities 50,259,072 51,681,072
----------------- -----------------
MINORITY INTERESTS 8,667,088 8,912,532
PARTNERS' CAPITAL (DEFICIT):
General Partner
Contributed capital 1,000 1,000
Accumulated deficit (336,704) (336,158)
----------------- -----------------
(335,704) (335,158)
----------------- -----------------
Limited Partners
Net contributed capital (56,935 units outstanding at 48,817,997 48,817,997
March 31, 1999 and December 31, 1998 respectively)
Accumulated deficit (33,052,428) (32,998,411)
----------------- -----------------
15,765,569 15,819,586
----------------- -----------------
Currency translation adjustment 1,253,630 1,736,940
----------------- -----------------
Total partners' capital 16,683,495 17,221,368
----------------- -----------------
Total liabilities and partners' capital $75,609,655 $77,814,972
----------------- -----------------
</TABLE>
The accompanying notes are an
integral part of these unaudited consolidated balance sheets.
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES $7,233,516 $6,791,406
COSTS AND EXPENSES:
Operating (2,663,085) (2,992,962)
Selling, general and administrative (11,480) (59,303)
Management fees and allocated
overhead from the General Partner (2,151,091) (1,890,397)
Depreciation and amortization (1,590,730) (1,390,885)
------------------ -----------------
OPERATING INCOME 817,130 457,859
OTHER INCOME (EXPENSE):
Interest expense (851,066) (835,890)
Interest income - 39,533
Other (24,426) -
------------------ -----------------
LOSS BEFORE MINORITY INTERESTS (58,362) (338,498)
Minority interests 3,799 82,360
------------------ -----------------
NET LOSS ($54,563) ($256,138)
ALLOCATION OF NET LOSS:
General Partner (546) (2,561)
Limited Partners (54,017) (253,577)
NET LOSS PER LIMITED
PARTNERSHIP UNIT ($0.95) ($4.45)
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP 56,935 56,935
UNITS OUTSTANDING
</TABLE>
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
NET LOSS ($54,563) ($256,138)
Foreign cuurency translation adjustments (483,310) 302,105
------------------ -----------------
TOTAL COMPREHENSIVE (LOSS)/INCOME ($537,873) $45,967
------------------ -----------------
</TABLE>
The accompanying notes are an
integral part of these unaudited consolidated financial statements.
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($54,563) ($256,138)
Adjustments to reconcile net profit/(loss) to net cash generated by operating
activities:
Minority interests (3,799) (82,360)
Depreciation and amortization 1,590,730 1,390,885
Change in operating assets and liabilities
Decrease in other receivables -
Decrease in prepaid expenses and other assets 24,426 44,608
Increase/(Decrease) in accounts payable to related parties 812,654 (887,311)
(Decrease)/Increase in trade accounts payable and accrued liabilities (29,654) 4,453
------------------- --------------------
Net cash generated by operating activities 2,339,794 214,137
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction payments for cable television/telephony system (1,612,116) 8,236
------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in borrowings (545,297) -
Principal payments under capital leases (182,381) (222,373)
------------------- --------------------
Net cash used in financing activities (727,678) (222,373)
------------------- --------------------
Effect of currency exchange rate changes (2,070) 7,708
Increase in cash and cash equivalents - -
Cash and cash equivalents, beginning of period 76,337 434,386
------------------- --------------------
Cash and cash equivalents, end of period $74,267 $442,094
------------------- --------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $641,067 $763,189
</TABLE>
The accompanying notes are an
integral part of these unaudited consolidated financial statements.
<PAGE>
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, 1998. 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, 1999 and its results of operations and
cash flows for the three month periods ended March 31, 1999 and 1998. 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 Cable & Wireless Communications (South Hertfordshire)
Limited (formerly Bell Cablemedia (South Hertfordshire) Limited) (the
"Company"), for accounting purposes it has been consolidated with the
Partnership's operations.
(2) INVESTMENT IN SUBSIDIARY
The Company 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, 1999, the network consisted of approximately 570 miles of
cable plant and included approximately 87,300 homes released to operations. At
March 31, 1999 the South Herts System's cable television customers totalled
approximately 23,200 and the South Herts System's residential telephony lines
totalled approximately 30,400.
The Company is now owned 66.7 percent by the Partnership and 33.3 percent
by Cable & Wireless Communications plc, and the general partner of the
Partnership is now Fawnspring Limited (the "General Partner"), a wholly owned
subsidiary of Cable & Wireless Communications plc. The General Partner provides
consulting services to the Partnership. The General Partner may delegate some or
all of the consulting services to Cable & Wireless Communications plc or to
other affiliates.
Cable and Wireless plc and Bell Atlantic presently own, directly or
indirectly, approximately 53% and 19% respectively, of the issued share capital
of Cable & Wireless Communications plc. Public shareholders hold the remaining
28%.
Cable & Wireless Communications plc, through its subsidiaries and its
interest in the Company, 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 47 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 the Company. 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 the
Company for the three months ended March 31, 1999 and 1998 were $353,363 and
$362,555 respectively. All of these amounts were expensed on the Unaudited
Consolidated Statements of Operations for the three months ended March 31, 1999
and 1998 respectively.
The General Partner and its affiliates are entitled to reimbursement from
the Company 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, 1999 and 1998, reimbursements made by the Company and the
Partnership to the General Partner or its affiliates for any allocable direct
and indirect expenses totalled $1,797,728 and $1,527,842 respectively. These
increases were due to an increase in the provision of services by the General
Partner in 1999 as compared to 1998.
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, 1999 and 1998, this
interest charge was $185,638 and $72,701, respectively.
(4) FINANCINGS
On April 18, 1995 the Company 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 was 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 the Company.
The South Herts Credit Agreement contains various covenants including
financial covenants such as a cumulative revenue test, 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 could 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 the Company, certain bankruptcy and insolvency events and certain changes of
ownership.
The obligations of the Company under the South Herts Credit Agreement are
secured by first fixed and floating charges over all of the assets of the
Company. In addition, there is a pledge of all of the share capital of the
Company given by Cable & Wireless Communications plc and the Partnership as
additional security for the facility.
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. The amount outstanding under the facility at March 31, 1999 was
(pound)18,962,250 ($30,614,149) and this amount was all drawn under Facility B.
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 the
Company 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, 1999 the
Partnership had current liabilities of $1,326,805 most of which were payable to
the General Partner.
The Company. On April 18, 1995 the Company 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 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. The amount outstanding under the facility at March 31, 1999 was
(pound)18,962,250 ($30,614,149) and this amount was all drawn under Facility B.
YEAR 2000 ISSUE
The year 2000 problem results from the use of two digits rather than four
to define the year in computer hardware and software and in electronic
equipment. When electronic systems process dates before and after January 1,
2000, they may recognise a date represented by "00" as indicating the year 1900,
instead of 2000. Unless steps are taken to re-programme affected equipment and
re-write software, this may create processing ambiguities that can cause errors
and system failures, the effects of which may be limited or pervasive depending
on the computer chip, system or software, and its location and function. By
definition, the precise effects of the problem can only be estimated in advance
and will not be known with certainty until into and even after the year 2000
itself.
The Company's operations are highly dependent upon equipment with embedded
computer technology (network, switches etc), the widespread failure of which
would have a material adverse impact on its results of operations. The problem
may be exacerbated because of the interdependence of computer and
telecommunications systems throughout the world: the operation of our business
depends not only on our own computer systems and equipment, but also on those of
our customers, suppliers and the other telecommunications operators with whom we
inter-connect to deliver traffic. In particular, we are dependent on the timely
completion by suppliers (particularly providers of IT) of corrective work on IT
hardware, software and systems, and on embedded chip equipment. Furthermore, we
have no direct influence over the actions taken by our customers to address
their own year 2000 problems, with the result that the functionality of fully
compliant customer premises equipment may be compromised by failures in a
customer's own systems.
Given the complexity of the problem, it is not possible for any
organisation to guarantee that no problems will occur as a result of the year
2000 issue. However the Board is aware of the critical issues as they affect
Cable & Wireless Communications, including the Company, and is fully involved in
ensuring that steps are taken to ensure that an acceptable state of readiness is
achieved. To address the year 2000 issue, a Year 2000 Programme has been set up
which includes a comprehensive review to identify systems and equipment (both in
the Company and in third party vendors) that could be affected by the year 2000
issue. The overall objective of the Programme is to ensure that Cable & Wireless
Communications maintains continuity of business and service to its customers,
before, during and after the roll-over into year 2000. The team steering the
Programme is chaired by the Chief Executive Officer, and also contains other
senior management members such as the directors responsible for operations,
finance and risk. The steering team receives a formal report on the Programme
monthly, and the Audit Committee has a standing agenda item on the Programme's
progress.
In addition, the Group is a member of the Telecommunications Operators'
Forum, a group of over 40 of the UK's principal telecommunication providers
which has been working for two years to ensure that adequate processes are in
place to address the year 2000 issue as it affects the industry. The Forum
recently instigated a process of peer audit to review the adequacy of members'
millennium programmes. The Group's Year 2000 Programme has been audited by two
other UK operators under the auspices of OFTEL, and was deemed to be well
managed with a strong control element.
Cable & Wireless Communications also benefits from the Year 2000 Programme
of Cable and Wireless plc which has a strong international element and through
which the Group participates in testing of international interconnect.
The key elements of Cable & Wireless Communications' Year 2000 Programme
are as follows:
o Preparation of a Millennium Inventory Database containing details of all
the hardware, software and equipment potentially affected by the year 2000
issue;
o Assessment of the likely impact of the year 2000 issue on each type of
hardware, software and equipment in the database, and identification of the
knock-on effect on service provision of any resultant loss of
functionality;
o Review of supplier compliance, and formulation of strategies to safeguard
supply, including detailed health checks on our critical suppliers;
o Remediation of the issues identified in the Assessment and Supplier Review
phases by conversion, replacement or isolation of non-compliant elements of
hardware, software and equipment;
o Verification testing to check the effectiveness of remediation measures;
o Contingency planning to ensure that we can meet our primary objective of
maintaining service continuity; and
o Ongoing communication with customers, suppliers and regulatory authorities.
To date, the Programme is making satisfactory progress, with all elements
up to verification testing expected to be completed by June 1999. A detailed
contingency plan is already in place, which will be modified throughout 1999 as
more information becomes available. Cable & Wireless Communications will
continually review its progress against its year 2000 plans and conclude on
appropriate and feasible contingency plans to reduce its exposure to the year
2000 issue. Further details of Cable & Wireless Communications' Year 2000
Programme will be published in Cable & Wireless Communications' Form 20F, which
is scheduled to be published before September 30, 1999.
Accounting rules require that year 2000 compliance costs are expensed as
incurred. The Company's costs of year 2000 compliance are included within those
for Cable & Wireless Communications as a whole. The Company will continue to
contribute its share of such costs, estimated to be approximately $93,000 for
the three months ended March 31, 1999.
RESULTS OF OPERATIONS
Revenues of the Partnership increased by $442,110 for the three months
ended March 31, 1999, over the corresponding period in 1998 from $6,791,406 in
1998 to $7,233,516 in 1999. These increases were the result of increases in the
South Herts System's customer base. The South Herts System served approximately
23,200 basic cable television customers and 30,400 residential telephony lines
at March 31, 1999 as compared to approximately 22,700 basic cable television
customers and 27,900 residential telephony lines at March 31, 1998.
Operating expenses decreased $329,877 for the three months ended March 31,
1999 over the corresponding period in 1998 from $2,992,962 in 1998 to $2,663,085
in 1999. These reductions reflect ongoing efforts by Cable & Wireless
Communications to control costs.
Selling, general and administrative expenses reduced $47,823 for the three
months ended March 31, 1999 over the corresponding period in 1998 from $59,303
in 1998 to $11,480 in 1999. These reductions were due to reductions in overhead
costs, resulting from the provision of additional services by the General
Partner in 1999 as compared to 1998.
Management fees and allocated overhead from the General Partner increased
by $260,694 for the three months ended March 31, 1999 over the corresponding
period in 1998, from $1,890,397 in 1998 to $2,151,091 in 1999. 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 CWC Group.
Depreciation and amortization expense increased $199,845 for the three
months ended March 31, 1999, over the corresponding period in 1998, from
$1,390,885 in 1998 to $1,590,730 in 1999. These increases were due to the
capital spend in the period.
Interest expense increased by $15,176 for the three months ended March 31,
1999 over the corresponding period in 1998, from $835,890 in 1998 to $851,066 in
1999. These increases were generally due to interest on deferred fees charged by
an affiliate of the General Partner.
Interest income decreased by $39,533 for the three months ended March 31,
1999, over the corresponding period in 1998, from $39,533 in 1998 to $nil in
1999. The decrease in interest income in the quarter ended March 31, 1999 was
due to lower surplus funds available for investment in the three month period
ended March 31, 1999 as compared to the corresponding period in 1998.
Net loss reduced by $201,575 for the three months ended March 31, 1999,
over the corresponding period in 1998, from a loss of $256,138 in 1998 to a loss
of $54,563 in 1999. The reductions in net loss were due to the increases in
revenue, combined with reductions in operating expenses. The effect of these
factors was only partly offset by the increases in allocated overheads and
depreciation expense.
<PAGE>
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
April 13, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 74,267
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,267
<PP&E> 107,347,168
<DEPRECIATION> 32,263,840
<TOTAL-ASSETS> 75,609,655
<CURRENT-LIABILITIES> 22,683,008
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,683,495<F1>
<TOTAL-LIABILITY-AND-EQUITY> 75,609,655
<SALES> 7,233,516
<TOTAL-REVENUES> 7,233,516
<CGS> 2,663,085
<TOTAL-COSTS> 2,663,085
<OTHER-EXPENSES> 3,777,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 851,066
<INCOME-PRETAX> (54,563)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,563)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
<FN>
- ----------
<F1> Comprised of Partners' contributed capital of $48,l818,997 less accumulated
losses of $32,135,502.
</FN>
</TABLE>
