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, 2000.
[ ] 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>
Unaudited
March 31, December 31,
2000 1999
---- ----
ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $243,582 $304,438
---------------------------------
CURRENT ASSETS 243,582 304,438
INVESTMENT IN CABLE TELEVISION AND
TELECOMMUNICATIONS PROPERTIES, net of accumulated
depreciation and amortization of $36,787,452 and $36,038,632 71,870,039 72,337,664
at March 31, 2000 and December 31, 1999, respectively
OTHER ASSETS - deferred finance costs 351,098 379,878
---------------------------------
$72,464,719 $73,021,980
---------------------------------
LIABILITIES:
Accounts payable to affiliates and related parties $1,517,573 $1,469,517
Accrued liabilities 198,125 185,125
---------------------------------
Current liabilities of the Partnership 1,715,698 1,654,642
Accounts payable to affiliates and related parties 21,601,040 19,645,066
Current installments due on loan facility 6,083,172 5,615,721
Short term obligations under capital leases 19,483 35,563
---------------------------------
Current liabilities of the Partnership and Company 29,419,393 26,950,992
Long term debt 21,175,598 23,398,838
---------------------------------
50,594,991 50,349,830
MINORITY INTERESTS 7,650,203 7,883,670
PARTNERS' CAPITAL (DEFICIT):
General Partner
Contributed capital 1,000 1,000
Accumulated deficit (359,553) (355,851)
---------------------------------
(358,553) (354,851)
Limited Partners
Net contributed capital (56,935 units outstanding at 48,817,997 48,817,997
March 31, 2000 and December 31, 1999 respectively)
Accumulated deficit (35,314,502) (34,948,050)
---------------------------------
13,503,495 13,869,947
Currency translation adjustment 1,074,583 1,273,384
---------------------------------
Total partners' capital 14,219,525 14,788,480
---------------------------------
Total liabilities and partners' capital $72,464,719 $73,021,980
---------------------------------
The accompanying notes are an integral
part of these unaudited consolidated balance sheets.
</TABLE>
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
For the three months ended
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
REVENUES $7,135,542 $7,233,516
COSTS AND EXPENSES:
Operating (2,852,464) (2,663,085)
Selling, general and administrative (61,714) (11,480)
Management fees and allocated
overhead from the General Partner (2,649,062) (2,151,091)
Depreciation and amortization (1,209,139) (1,590,730)
---------------------------------
OPERATING INCOME 363,163 817,130
OTHER INCOME (EXPENSE):
Interest expense (842,920) (851,066)
Interest income - -
Other (24,057) (24,426)
---------------------------------
LOSS BEFORE MINORITY INTERESTS (503,814) (58,362)
Minority interests 133,660 3,799
---------------------------------
NET LOSS ($370,154) ($54,563)
ALLOCATION OF NET LOSS:
General Partner (3,702) (546)
Limited Partners (366,452) (54,017)
NET LOSS PER LIMITED
PARTNERSHIP UNIT ($6.44) ($0.95)
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP 56,935 56,935
UNITS OUTSTANDING
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended
March 31,
2000 1999
---- ----
NET LOSS ($370,154) ($54,563)
Foreign currency translation adjustments (198,801) (483,310)
---------------------------------
TOTAL COMPREHENSIVE LOSS ($568,955) ($537,873)
---------------------------------
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
</TABLE>
<PAGE>
SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the three months ended
March 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($370,154) ($54,563)
Adjustments to reconcile net profit/(loss) to net cash generated by
operating activities:
Minority interests (133,660) (3,799)
Depreciation and amortization 1,209,139 1,590,730
Change in operating assets and liabilities
Decrease in prepaid expenses and other assets 55,307 24,426
Increase in accounts payable to related parties 2,307,194 812,654
Increase/(Decrease) in trade accounts payable and accrued liabilities 13,000 (29,654)
---------------------------------
Net cash generated by operating activities 3,080,826 2,339,794
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction payments for cable television/telephony system (1,698,476) (1,612,116)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in borrowings (1,392,900) (545,297)
Principal payments under capital leases (15,705) (182,381)
---------------------------------
Net cash used in financing activities (1,408,605) (727,678)
---------------------------------
Effect of currency exchange rate changes (3,352) (2,070)
Decrease in cash and cash equivalents (26,255) -
Cash and cash equivalents, beginning of period 273,189 76,337
---------------------------------
Cash and cash equivalents, end of period $243,582 $74,267
---------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $586,816 $641,067
</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, 1999. 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, 2000 and its results of operations and
cash flows for the three month periods ended March 31, 2000 and 1999. 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, 2000, the network included approximately 91,105 homes
released to operations. At March 31, 2000 the South Herts System's cable
television customers totaled approximately 24,547 and the South Herts System's
residential telephony lines totaled approximately 30,773.
The Company is owned 66.7 percent by the Partnership and 33.3 percent by
Cable & Wireless Communications plc ("C&W Comms"), and the general partner of
the Partnership is Fawnspring Limited (the "General Partner"), a wholly owned
subsidiary of C&W Comms. The General Partner provides consulting services to the
Partnership. The General Partner may delegate some or all of the consulting
services to C&W Comms or to other affiliates.
Cable and Wireless plc ("C&W") and Bell Atlantic presently own,
directly or indirectly, approximately 53% and 19% respectively, of the issued
share capital of C&W Comms. Public shareholders hold the remaining 28%.
C&W Comms, 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.
On 26 July 1999, C&W, NTL Incorporated ("NTL") and C&W Comms announced:
(a) the proposed separation of C&W Comms into its corporate, business, Internet
protocol and wholesale operations ("CWC DataCo") and its residential cable,
business cable, indirect residential telephony, residential Internet and
digital television development and services businesses ("CWC ConsumerCo"),
(which includes the Company);
(b) the proposed indirect acquisition by C&W of the 47 per cent interest in CWC
DataCo which is not currently attributable to it (thereby achieving 100 per
cent ownership of CWC DataCo); and
(c) the proposed indirect acquisition by NTL of CWC ConsumerCo (together with
the proposed separation of C&W Comms and the C&W acquisition, the
"Transaction").
Shareholder and other public documentation relevant to the Transaction, in
particular the documents required to solicit various shareholder and bondholder
consents, were posted on February 14, 2000 to holders of relevant securities of
C&W, NTL and C&W Comms. By May 10, 2000, the necessary competition clearances
relating to the NTL acquisition of CWC ConsumerCo and France Telecom's
investment in NTL were obtained from the UK Secretary of State for Trade and
Industry. However, there still remain various events that need to take place
before the Transaction can be completed.
(3) TRANSACTIONS WITH AFFILIATED ENTITIES
The General Partner of the Partnership or its affiliates is 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, 2000 and 1999 were $419,071 and
$353,363 respectively. All of these amounts were expensed on the Unaudited
Consolidated Statements of Operations for the three months ended March 31, 2000
and 1999 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, 2000 and 1999, reimbursements made by the Company and the
Partnership to the General Partner or its affiliates for any allocable direct
and indirect expenses totaled $2,223,991 and $1,797,728 respectively. These
increases were due to an increase in the provision of services by the General
Partner in 2000 as compared to 1999.
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, 2000 and 1999, this
interest charge was $264,069 and $185,638, 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 2000, 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
annualized 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 C&W Comms 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, 2000 was
(pound)17,080,500 ($27,258,770) 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, 2000 the
Partnership had current liabilities of $1,715,698 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, 2000 was
(pound)17,080,500 ($27,258,770) and this amount was all drawn under Facility B.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The functional currency of the Company is UK pounds sterling and all
revenue and significantly all costs are incurred in UK pounds sterling. In order
partially to fund capital expenditure on the South Herts System, the Company
arranged a credit facility denominated in UK pounds sterling. The balance
outstanding on the facility at March 31, 2000 was (pound)17,080,500
($27,258,770) at the closing rate of (pound)1 = $1.60. the loan bears 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 annualized operating cash flow) of the
Company. At March 31, 2000, sterling LIBOR was 6.25%. The average interest rate
borne by the loan during the period was 8.1%.
Repayment of the credit facility falls due as follows:
(pound) $*
March 31, 2001 3,811,750 6,083,172
March 31, 2002 4,825,000 7,700,218
March 31, 2003 4,825,000 7,700,217
March 31, 2004 3,618,750 5,775,163
--------- ---------
17,080,500 27,258,770
--------- ---------
* At closing rate(pound)1 = $1.60
This loan represents the Fund's principal exposure to market risk,
specifically to variations in the sterling LIBOR interest rate and in the UK
pound sterling - US dollar exchange rate. Exposure to foreign exchange risk is,
however, partially mitigated by the fact that the loan is denominated in the
functional currency of the Company.
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 recognize a date represented by "00" as indicating the year 1900,
instead of 2000. Unless steps are taken to re-program 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. C&W Comms
established a year 2000 compliance plan and timetable that included 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 Cable
& Wireless Millennium Program operated policies which conformed to the
requirements as set out in "DISC PD2000-1:1998 - a definition of Year 2000
conformity requirements", issued by the British Standards Institution. These
policies encompassed the verification of our key systems with regard to their
normal operation over key dates such as rollover from 1998 to 1999, September 9,
1999, the millennium transition, the leap year date of February 29, 2000 and the
transition between 2000 and 2001.
The Company can report that over the millennium transition and subsequent
period (including February 29, 2000), all its critical business systems and
processes have continued to operate normally and as such, the program has been
completely successful. Having achieved its primary objective - continuity of
business and service to customers, C&W Comms will continue to monitor their
network, critical business systems and key systems. The success of the program
over the millennium transition has provided added confidence that there will not
be any disruption over any other future dates.
Accounting rules require that year 2000 compliance costs be expensed as
incurred. The Company's costs of year 2000 compliance are included within those
for Cable & Wireless Communications as a whole, and an analysis of these costs
has not been performed.
RESULTS OF OPERATIONS
Revenues of the Partnership fell by $97,974 for the three months ended
March 31, 2000, over the corresponding period in 1999 from $7,233,516 in 1999 to
$7,135,542 in 2000. This slight fall results from the dollar strengthening
against the pound since the prior period. In sterling terms, revenue has
increased as a result of an increase in the South Herts System's customer base.
The South Herts System served approximately 24,547 basic cable television
customers and 30,773 residential telephony lines at March 31, 2000 as compared
to approximately 23,200 basic cable television customers and 30,400 residential
telephony lines at March 31, 1999. In January 2000, C&W Comms began its rollout
of digital services in the South Herts franchise area. At March 31, 2000, the
Company served approximately 4,892 digital customers.
Operating expenses increased $189,379 for the three months ended March 31,
2000 over the corresponding period in 1999 from $2,663,085 in 1999 to $2,852,464
in 2000. This increase resulted from the continuing pressure on costs
experienced by the C&W Comms Group.
Selling, general and administrative expenses increased $50,234 for the
three months ended March 31, 2000 over the corresponding period in 1999 from
$11,480 in 1999 to $61,714 in 2000. This increase was due to higher direct
overhead costs incurred by the Partnership.
Management fees and allocated overhead from the General Partner increased
by $497,971 for the three months ended March 31, 2000 over the corresponding
period in 1999, from $2,151,091 in 1999 to $2,649,062 in 2000. Extra costs have
been incurred due to the rollout of digital services in the South Herts
franchise area.
Depreciation and amortization expense decreased $381,591 for the three
months ended March 31, 2000, over the corresponding period in 1999, from
$1,590,730 in 1999 to $1,209,139 in 2000.
Interest expense reduced by $8,146 for the three months ended March 31,
2000 over the corresponding period in 1999, from $851,066 in 1999 to $842,920 in
2000. This fall results from a reduced loan balance.
Net loss increased by $315,591 for the three months ended March 31, 2000,
over the corresponding period in 1999, from a loss of $54,563 in 1999 to a loss
of $370,154 in 2000. This increase in the loss is due to the additional costs
incurred by the Company following the rollout of digital services in the South
Herts franchise area in January 2000 and the Company reducing its prices to
maintain its position in the competitive environment in which it operates.
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:
--------------------------
Robert Drolet
Director
May 13, 2000.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 243,582
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 243,582
<PP&E> 108,657,491
<DEPRECIATION> 36,787,452
<TOTAL-ASSETS> 72,464,719
<CURRENT-LIABILITIES> 29,419,393
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,219,525
<TOTAL-LIABILITY-AND-EQUITY> 72,464,719
<SALES> 7,135,542
<TOTAL-REVENUES> 7,136,542
<CGS> 2,852,464
<TOTAL-COSTS> 2,852,464
<OTHER-EXPENSES> 3,943,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 842,920
<INCOME-PRETAX> 9370,154
<INCOME-TAX> 0
<INCOME-CONTINUING> (370,154)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (370,154)
<EPS-BASIC> (6.44)
<EPS-DILUTED> (6.44)
</TABLE>
