**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**Form 10-Q**

 

**(MarkOne)**

 
| **ý** |   | **Quarterly report pursuant to Section 13 or 15 (d) of  the Securities Exchange Act of 1934**               |
|------------|--------|-------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                        |
|       |   | **For the quarterly period ended March 31, 2004.**                                                          |
|       |   |                                                                                                        |   |   |
| **o**      |   | **Transition report pursuant to Section 13 or 15 (d)  of the Securities Exchange Act of 1934**              |
|       |   |                                                                                                        |
|       |   | **For  the transition period from       to        ** |

 

**CommissionFile Number: 0-19889**

 

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**South Hertfordshire United Kingdom Fund, Ltd.**

Exact name of registrant asspecified in charter

 

| **Colorado**                                                                   |   | **84-1145140**        |
|--------------------------------------------------------------------------------|--------|-----------------------|
| State of organization                                                          |   | I.R.S. employer I.D.# |
|                                                                           |
| **ntl  House, Bartley Wood Business Park, Hook, Hampshire, RG27 9UP, England** |
| Address of principal  executive office                                         |
|                                                                           |
| **011  44 1256 752000**                                                        |
| Registrant’s telephone  number                                            |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý  No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct) Yes o  No  ý

 

The number of limitedpartnership units of the registrant outstanding as of April 30, 2004 was56,935.

 

 

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**TABLE OFCONTENTS**

 
| PART I.   | FINANCIAL INFORMATION | 5                                                                                                                     |
|-----------|-----------------------|-----------------------------------------------------------------------------------------------------------------------|
|      | Item 1.               | Financial Statements                                                                                                  | 5 |
|      |                  | Condensed  Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31,  2003                        | 5 |
|      |                  | Condensed  Consolidated Statements of Operations for the  Three Months Ended March 31, 2004 and 2003 (unaudited) | 6 |
|      |                  | Condensed  Consolidated Statements of Cash Flows for the Three Months Ended March 31,  2004 and 2003 (unaudited)      | 7 |
|      |                  | Notes  to Condensed Consolidated Financial   Statements (unaudited)                                              | 8 |
|      | Item 2.               | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                           | 11 |
|      | Item  3.              | Quantitative  and Qualitative Disclosures About Market Risk                                                           | 15 |
|      | Item  4.              | Controls  and Procedures                                                                                              | 15 |
| PART  II. | OTHER  INFORMATION    | 16                                                                                                                    |
|      | Item  5.              | Other  Information                                                                                                    | 16 |
|      | Item  6.              | Exhibits  and Reports on Form 8-K                                                                                     | 16 |
|      |                  |                                                                                                                  |   |
|      | SIGNATURES            | 17                                                                                                                    |

 

2

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SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LIMITED

(A LIMITED PARTNERSHIP)

QUARTER ENDED MARCH 31, 2004

 

 

**“Safe Harbor” Statement under the Private SecuritiesLitigation Reform Act of****1995:**

 

Various statementscontained in this document constitute “forward-looking statements” as that termis defined under the Private Securities Litigation Reform Act of 1995.  Words like “believe,” “anticipate,”“should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,”“positioned,” “strategy,” and similar expressions identify theseforward-looking statements, which involve known and unknown risks,uncertainties and other factors that may cause our actual results, performanceor achievements or industry results to be materially different from those contemplated,whether expressed or implied, by these forward-looking statements.  These factors include those set forth underthe caption “Risk Factors” in the Form 10-K filed on March 11, 2004 by theultimate parent company of our General Partner, NTL Incorporated, or NTL, suchas:

 

•      potential adverse developments with respect toNTL’s and our liquidity or results of operations;

 

•      NTL’s significant debt payments and othercontractual commitments;

 

•      NTL’s ability to fund and execute its businessplan;

 

•      our ability to generate cash sufficient to service ourdebt;

 

•      our ability to attract and retain customers,increase our overall market penetration and react to competition from providersof alternative services;

 

•      NTL’s ability to integrate its billing systems;

 

•      NTL’s significant management changes since ouremergence from Chapter 11 reorganization;

 

•      NTL’s ability to develop and maintain back-up forits critical systems;

 

•      our ability to respond adequately totechnological developments;

 

•      NTL’s and our ability to maintain contracts thatare critical to our operations;

 

•      our ability to continue to design networks,install facilities, obtain and maintain any required governmental licenses orapprovals and finance construction and development, in a timely manner atreasonable costs and on satisfactory terms and conditions;

 

•      interest rate and currency exchange ratefluctuations; and

 

•      the impact of NTL’s recent reorganization andsubsequent organizational restructuring.

 

We assume no obligationto update the forward-looking statements contained herein to reflect actualresults, changes in assumptions or changes in factors affecting thesestatements.

 

3

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**Exchange Rates**

 

The following table sets forth, for the periodsindicated, the period end, period average, high and low noon buying rate in theCity of New York for cable transfers as certified for customs purposes by theFederal Reserve Bank of New York expressed as U.S. dollars per £1.00.  The noon buying rate of the pound sterlingon March 31, 2004 was $1.84 per £1.00.

 
|                             |   | **U.S.  Dollars per £1.00** |   |
|----------------------------------|--------|----------------------------------|--------|
| **Three Months Ended March 31,** |   | **Period End**                   |   | **Average(1)** |   | **High** |   | **Low** |   |
|                             |   |                             |   |   |   |   |   |   |   |
| 2003                             |   | 1.58                             |   | 1.60 |   | 1.65 |   | 1.56 |   |
| 2004                             |   | 1.84                             |   | 1.84 |   | 1.90 |   | 1.79 |   |

 

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(1)           The averagerate is the average of the noon buying rates on the last day of each monthduring the relevant period.

 

The above ratesmay differ from the actual rates used in the preparation of the condensedconsolidated financial statements and other financial information appearing inthis quarterly report.  Our inclusion ofthese exchange rates is not meant to suggest that the pound sterling amountsactually represent these U.S. dollar amounts or that these amounts could havebeen converted into U.S. dollars at any particular rate, if at all.

 

Unless weotherwise indicate, all amounts in U.S. dollars as of March 31, 2004 are basedon an exchange rate of $1.8400 to £1.00, all amounts disclosed for the threemonths ended March 31, 2004 are based on an average exchange rate of $1.8396 to£1.00, and all amounts disclosed for the three months ended March 31, 2003 arebased on an average exchange rate of $1.6027 to £1.00. All amounts in U.S.dollars as of December 31, 2003 are based on an exchange rate of $1.7842 to £1.00.All rates are based on the noon buying rate in the City of New York for cabletransfers as certified for customs purposes by the Federal Reserve Bank of NewYork. The variation between the 2003 and 2004 exchange rates has impacted thedollar comparisons.

 

4

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**PartI.****     Financialinformation**

 

**Item1.****    Financialstatements**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

|                                                                                         |   | **March 31,  2004** |       | **December  31,  2003** |   |
|----------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
|                                                                                         |   | **(unaudited)**     |       | **(see Note)**          |   |
|                                                                                         |   |                |       |                    |   |
| **Assets**                                                                                   |   |                |       |                    |   |
| Fixed assets, net                                                                            |   | $                   | 62,653,832 |                    | $      | 61,450,329 |   |
|                                                                                         |   |                |       |                    |   |
| **Total assets**                                                                             |   | $                   | 62,653,832 |                    | $      | 61,450,329 |   |
|                                                                                         |   |                |       |                    |   |
| **Liabilities and Partners’ Deficit**                                                   |   |                |       |                    |   |
| Current liabilities                                                                          |   |                |       |                    |   |
| Accounts payable to affiliates and related parties                                           |   | $                   | 67,449,617 |                    | $      | 66,757,685 |   |
| Total liabilities                                                                            |   | 67,449,617          |       | 66,757,685              |   |
|                                                                                         |   |                |       |                    |   |
| **Commitments and contingencies**                                                            |   |                |       |                    |   |
|                                                                                         |   |                |       |                    |   |
| **Partners’ capital (deficit)**                                                         |   |                |       |                    |   |
| General Partner                                                                              |   |                |       |                    |   |
| Contributed capital                                                                          |   | 1,000               |       | 1,000                   |   |
| Accumulated deficit                                                                          |   | (532,916            | )          | (538,849                | )      |
|                                                                                         |   | (531,916            | )          | (537,849                | )      |
| Limited Partners                                                                             |   |                |       |                    |   |
| Contributed capital, net (56,935 units outstanding  at March 31, 2004 and December 31, 2003) |   | 48,817,997          |       | 48,817,997              |   |
| Accumulated deficit                                                                          |   | (52,477,559         | )          | (53,064,892             | )      |
|                                                                                         |   | (3,659,562          | )          | (4,246,895              | )      |
| Accumulated comprehensive loss                                                               |   | (604,307            | )          | (522,612                | )      |
| Total Partners’ deficit                                                                 |   | (4,795,785          | )          | (5,307,356              | )      |
|                                                                                         |   |                |       |                    |   |
| **Total liabilities and Partners’  deficit**                                            |   | $                   | 62,653,832 |                    | $      | 61,450,329 |   |

 

Note: The balance sheet at December 31, 2003 has beenderived from audited financial statements at that date.

 

See accompanying notes.

 

5

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**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 

|                                                                  |   | **Three  months ended  March 31,** |      |
|-----------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                  |   | **2004**                           |      | **2003** |   |
|                                                                  |   |                               |      |   |   |
| **Revenues**                                                          |   | $                                  | 9,358,412 |   | $ | 7,842,694 |   |
|                                                                  |   |                               |      |   |   |
| **Costs and expenses**                                                |   |                               |      |   |   |
| Cost of goods sold (exclusive of items shown below)                   |   | (2,869,407                         | )         | (2,710,172 | ) |
| Selling, general and administrative expenses                          |   | (21,689                            | )         | (18,250 | ) |
| Management fees and allocated overhead from the  General Partner      |   | (3,654,413                         | )         | (3,226,844 | ) |
| Other charges                                                         |   | (8,239                             | )         | — |   |
| Depreciation                                                          |   | (1,612,929                         | )         | (2,044,130 | ) |
|                                                                  |   |                               |      |   |   |
| **Operating income (loss)**                                           |   | 1,191,735                          |      | (156,702 | ) |
|                                                                  |   |                               |      |   |   |
| **Other expenses**                                                    |   |                               |      |   |   |
| Interest payable to general partner and affiliates                    |   | (538,986                           | )         | (433,872 | ) |
| Other interest payable                                                |   | —                             |      | (24,041 | ) |
| Exchange (losses) gains                                               |   | (59,483                            | )         | 30,701 |   |
|                                                                  |   |                               |      |   |   |
| **Net income (loss)**                                                 |   | $                                  | 593,266   |   | $ | (583,914 | ) |
|                                                                  |   |                               |      |   |   |
| **Allocation of net income (loss)**                                   |   |                               |      |   |   |
| General Partner                                                       |   | $                                  | 5,933     |   | $ | (5,839 | ) |
| Limited Partners                                                      |   | 587,333                            |      | (578,075 | ) |
|                                                                  |   |                               |      |   |   |
| **Net income (loss)**                                                 |   | $                                  | 593,266   |   | $ | (583,914 | ) |
|                                                                  |   |                               |      |   |   |
| **Net income (loss) per Limited  Partnership unit**                   |   | $                                  | 10.32     |   | $ | (10.15 | ) |
|                                                                  |   |                               |      |   |   |
| **Weighted average number of Limited  Partnership units outstanding** |   | 56,935                             |      | 56,935 |   |

 

Seeaccompanying notes.

 

6

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**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
|                                                                                     |   | **Three  Months Ended  March 31,** |    |
|------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                     |   | **2004**                           |    | **2003** |   |
|                                                                                     |   |                               |    |   |   |
| **Cash flows from operating  activities**                                                |   |                               |    |   |   |
| Net income (loss)                                                                        |   | $                                  | 593,266 |   | $ | (583,914 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities |   |                               |    |   |   |
| Depreciation                                                                             |   | 1,612,929                          |    | 2,044,130 |   |
| Change in operating assets and liabilities                                               |   |                               |    |   |   |
| Decrease in prepaid expenses and other assets                                            |   | —                             |    | 24,041 |   |
| Decrease in accounts payable to affiliates and  related parties                          |   | (1,296,566                         | )       | (1,024,859 | ) |
| Net cash provided by operating activities                                                |   | 909,629                            |    | 459,398 |   |
|                                                                                     |   |                               |    |   |   |
| **Cash flows from investing  activities**                                                |   |                               |    |   |   |
| Purchase of fixed assets                                                                 |   | (909,629                           | )       | (459,398 | ) |
| Net cash used in investing activities                                                    |   | (909,629                           | )       | (459,398 | ) |
|                                                                                     |   |                               |    |   |   |
| Movement in cash                                                                         |   | —                             |    | — |   |
| Cash at beginning of period                                                              |   | —                             |    | — |   |
|                                                                                     |   |                               |    |   |   |
| Cash at end of period                                                                    |   | $                                  | —  |   | $ | — |   |
|                                                                                     |   |                               |    |   |   |
| **Supplemental disclosure of cash  flow information**                                    |   |                               |    |   |   |
| Cash paid during the period for interest                                                 |   | $                                  | —  |   | $ | — |   |

 

See accompanying notes.

 

7

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**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 1.    Basis ofPresentation**

 

**Organization and Business**

 

We are a limitedpartnership that holds 66.7% of the shares of NTL (South Hertfordshire)Limited, or NTL South Herts, principally engaged in the development,construction, management and operation of broadband communications networks fortelephone, cable television and Internet services in the United Kingdom, or UK.As a result of our ownership of 66.7% of the shares of NTL South Herts, foraccounting purposes we have consolidated the results of NTL South Herts withour results. NTL South Herts is a 33.3% indirect investment of NTLIncorporated. NTL South Herts is reliant on the support of NTL Incorporated,the ultimate parent company of the General Partner, to continue its operationsas a going concern. Throughout this report, NTL Incorporated together with itsconsolidated subsidiaries is referred to as “NTL”.

 

**Basis of Presentation**

 

We have prepared theaccompanying unaudited condensed consolidated financial statements inaccordance with accounting principles in the United States, or US GAAP,generally accepted for interim financial information and with the instructionsto Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not includeall of the information and footnotes required by US GAAP for complete financialstatements. In the opinion of our management, all adjustments (consisting onlyof normal recurring adjustments) considered necessary for a fair presentationhave been included. Results of operations for the period ended March 31,2004 are not necessarily indicative of results to be expected for the full yearending December 31, 2004. For further information, refer to theconsolidated financial statements and footnotes thereto included in our AnnualReport on Form 10-K for the year ended December 31, 2003.

 

Certain prior periodamounts have been reclassified to conform to the current presentation.

 

**Note 2.  Comprehensive Income (Loss) (unaudited)**

 

Comprehensive income (loss) includes net income (loss) as well as othercomprehensive income (loss).  Our othercomprehensive income (loss) consists of changes in cumulative translationadjustment. Comprehensive income (loss) comprises (unaudited):

 
|                                     |   | **Three  months ended  March 31,** |    |
|------------------------------------------|--------|-----------------------------------------|---------|
|                                     |   | **2004**                                |    | **2003** |   |
|                                     |   |                                    |    |   |   |
| Net income (loss)                        |   | $                                       | 593,266 |   | $ | (583,914 | ) |
| Foreign currency translation adjustments |   | (81,695                                 | )       | 37,277 |   |
| Comprehensive income (loss)              |   | $                                       | 511,571 |   | $ | (546,637 | ) |

 

**Note 3.  Investment inSubsidiary**

 

We are a limitedpartnership that holds 66.7% of the shares of NTL South Herts, which isprincipally engaged in the development, construction, management and operationof broadband communications networks for telephone, cable television andInternet services in the United Kingdom.

 

NTL South Herts is aUnited Kingdom corporation that owns and operates a cable television/telephonysystem in the South Hertfordshire franchise area, located adjacent to thenorthwest perimeter of Greater London, England, or the South Herts System.

 

8

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NTL South Herts is owned33.3% by NTL (B) Limited, an indirect subsidiary of NTL Incorporated. TheGeneral Partner is an indirect wholly owned subsidiary of NTL Incorporated. TheGeneral Partner provides consulting services to us and may delegate some or allof the consulting services to NTL.

 

NTL, through itssubsidiaries and its interest in NTL South Herts, serves approximately 2.9million residential cable television, Internet and telephony customers as atMarch 31, 2004.

 

**Note 4.   Transactionswith Affiliated Parties**

 

*Consulting and Management Fees*

 

We pay a consulting feeto an affiliate of the General Partner. During the construction phases of theSouth Herts System, this consulting fee was 2 per cent of construction costs.Since completion of construction of each portion of the system, the consultingfee for the completed portion has been 5 per cent of the gross revenues,excluding revenues from the sale of cable television/telephony systems. Theconsulting fee is calculated and payable monthly. We paid consulting fees forthe three months ended March 31, 2004 and 2003 of $467,921 and  $392,134 respectively.

 

*Distribution Ratios and Reimbursement*

 

Any distributions made byus from cash flow (defined as cash receipts derived from routine operations,less debt principal and interest payments and cash expenses) are allocated 99percent to the limited partners and 1 percent to the General Partner. Anydistributions other than interest income on limited partner subscriptionsearned prior to the acquisition of our first cable television system or fromcash flow, such as from the sale or refinancing of a system or upon ourdissolution, will be made as follows: 99 percent to the limited partners and 1percent to the General Partner until any negative balances in the limitedpartners’ capital accounts are reduced to zero; 100 percent to the GeneralPartner until any negative balance in its capital account is reduced to zero;99 percent to the limited partners and 1 percent to the General Partner untilthe balance in the limited partners’ capital accounts is equal to theiradjusted capital contribution plus a 12 percent return; 100 percent to theGeneral Partner until the balance in its capital account is equal to itsadjusted capital contribution, and any remaining income or gain shall beallocated 75 percent to the limited partners and 25 percent to the GeneralPartner.

 

The General Partner andits affiliates are entitled to reimbursement from NTL South Herts for directand indirect expenses allocable to the operation of the South Herts System, andfrom us for direct and indirect expenses allocable to our operations, whichinclude, but are not limited to, rent, supplies, telephone, travel, copyingcharges and salaries of any full or part-time employees. The General Partnerbelieves that the methodology used in allocating these expenses is fair andreasonable. During the three months ended March 31, 2004 and 2003,reimbursements made by NTL South Herts to the General Partner or its affiliatesfor any allocable direct and indirect expenses totaled $3,186,492 and$2,834,710 respectively.

 

The General Partner andits affiliates may make advances to, and defer collection of fees and allocatedexpenses owed by us, although they are not required to do so. We are chargedinterest on such advances and deferred amounts at a rate equal to the GeneralPartner’s or certain affiliates’ weighted average cost of all debt financingfrom unaffiliated entities. For the three months ended March 31, 2004 and2003, interest on deferred fees of $498,243 and $400,689 respectively, wascharged by an affiliate of the General Partner, and the General Partner chargedinterest on advances of $40,743 and $33,183, respectively.

 

9

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**Note 5.   Fixed Assets**

 

Fixed assets consist of:

 

|                      |   | **Estimated  Useful Life** |   | **March 31,  2004** |        | **December 31,  2003** |   |
|---------------------------|--------|----------------------------|--------|--------------------------|-------------|-----------------------------|--------|
|                      |   |                       |   | **(unaudited)**          |        |                        |   |
|                      |   |                       |   |                     |        |                        |   |
| Operating equipment       |   | 5-30 years                 |   | $                        | 139,454,565 |                        | $      | 134,343,235 |   |
| Other equipment           |   | 5-30 years                 |   | 7,861,465                |        | 7,647,713                   |   |
|                      |   |                       |   | 147,316,030              |        | 141,990,948                 |   |
| Accumulated  depreciation |   |                       |   | (84,662,198              | )           | (80,540,619                 | )      |
|                      |   |                       |   | $                        | 62,653,832  |                        | $      | 61,450,329 |   |

 

With effect fromJanuary 1, 2004, we reassessed the remaining useful economic lives of ourfixed assets such that the previously reported range of 3-40 years became 5-30years for both classes of tangible fixed assets.  The change in lives reduced the depreciation charge by $189,964,or £103,264, for the three months ended March 31, 2004.

 

**Note 6.  Commitmentsand Contingent Liabilities**

 

We had no significantcontractual obligations and commercial commitments as of March 31, 2004.

 

We are involved in legalproceedings and claims that arise in the ordinary course of our business. Inthe opinion of the General Partner, the amount of ultimate liability withrespect to these actions will not materially affect the financial position,results of our operations or liquidity.

 

10

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**Item 2****.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Overview**

 

We are a limitedpartnership that holds 66.7% of the shares of ntl (South Hertfordshire) Limited(“NTL South Herts”), which is principally engaged in the development,construction, management and operation of broadband communications networks fortelephone, cable television and Internet services in the United Kingdom. NTLSouth Herts is a 33.3% indirect subsidiary of NTL.

 

**Selected Operating Data**

 

We set forth inthe following table certain data concerning our franchise at March 31,2004 and December 31, 2003:

 
|                             |   | **March 31  2004** |   | **December 31  2003** |   |
|----------------------------------|--------|-------------------------|--------|----------------------------|--------|
|                             |   |                    |   |                       |   |
| Homes passed (1)                 |   | 92,233                  |   | 92,081                     |   |
| Homes marketable (2)             |   | 92,233                  |   | 92,081                     |   |
| Total customers                  |   | 34,038                  |   | 33,121                     |   |
| Digital cable subscribers        |   | 21,530                  |   | 20,780                     |   |
| Analog cable subscribers         |   | 3,771                   |   | 3,996                      |   |
| Broadband subscribers            |   | 11,970                  |   | 10,850                     |   |
| Telephony subscribers            |   | 30,438                  |   | 29,674                     |   |
| Penetration (homes marketed) (3) |   | 36.9                    | %      | 36.0                       | %      |
| Churn (4)                        |   | 1.0                     | %      | 1.1                        | %      |

 

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1.     Homespassed is the number of homes that have had ducting buried outside.

 

2.     Homesmarketable refers to the number of homes within our service area that canpotentially be served by our network with minimal connection costs.

 

3.     Penetrationrate measures the number of subscribers for our services divided by the numberof marketable homes that our services pass.

 

4.     Monthlycustomer churn is calculated by taking the total disconnects during the monthand dividing them by the average number of customers during the month.  Average monthly churn during the quarter isthe average of the three monthly churn calculations within the quarter.

 

 

**Results of Operations**

 

We derive our revenue principally from monthly fees and usagecharges.  Our packaging and pricing aredesigned to encourage our customers to use multiple services such as dualtelephone and broadband, dual telephone and television or triple telephone,television and Internet access.

 

The principal components of our expenses includepayroll and other employee related costs; interconnection costs paid to othercarriers related to telephone services; television programming costs; marketingand selling costs; repairs and maintenance; facility related costs, like rent,utilities and rates; and allowances for doubtful accounts.  Our expenses include certain costs that arecharged by a subsidiary of NTL for the provision of network services andsupport, the use of NTL’s national backbone telephone network for carriage ofour telephone traffic, as well as the provision of technical infrastructure andnetwork capacity by NTL for our subscription Internet access service anddigital television services, the provision of corporate services, includingfinance, legal, human resources and facility services, and for the provision ofIT services, including our use of the related IT equipment.

 

11

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***Factors affecting our business***

 

*CustomerChurn.*  An increase inour customer churn can lead to increased costs and reduced revenues. Wecontinue to focus on improving our customer service and enhancing and expandingour service offerings to existing customers in an effort to manage our customerchurn rate. Customer churn is a measure of the number of customers who stopusing our services. Although our ability to reduce our customer churn ratebeyond a base level is limited by factors like customers moving outside ournetwork service area, in particular during the summer season, managing ourcustomer churn rate is a significant component of our business plan. To helpmeet these objectives, NTL needs to integrate its billing systems and customerdatabases, including ours, across its entire network. Although NTL is in theprocess of integrating its billing systems and customer databases, includingours, there can be no assurance that it will be successful in reaching thisgoal. In addition, our customer churn rate may also increase if we are unableto deliver our services over our network without interruption.

 

*Competition.*  Our ability to acquire and retain customersand increase revenues depends on our competitive strength. There is significantcompetition in our markets through digital satellite offered by BSkyB anddigital terrestrial television offered by Freeview, as well as throughalternative Internet access services, like DSL, which is offered by BT. Ifcompetitive forces prevent us from charging the prices for these services thatwe plan to charge, or if our competition is able to attract our customers orpotential customers we are targeting, our results of operations will beadversely affected.

 

*CapitalExpenditures.*  Ourbusiness requires substantial capital expenditures on a continuing basis forvarious purposes, including expanding and upgrading our network, investing innew customer acquisitions, and offering new services. If we do not continue toinvest in our network, our ability to retain and acquire customers may be hindered.Therefore, our liquidity and the availability of cash to fund capital projectsare important drivers of our revenues. When our liquidity is restricted, so isour ability to meet our capital expenditure requirements. We believe that ourcash from operations and cash from NTL, will be sufficient for our cashrequirements in 2004.

 

*Seasonality.*  Certain revenue streams are subject toseasonal factors. For example, telephone usage revenues tend to be slightlylower during summer holiday months. Our customer churn rates include personswho disconnect service owing to moves, resulting in a seasonal increase in ourchurn rates during the summer months when higher levels of UK house moves occurand students leave their accommodations between school years.

 

*Integration of Billing Systems.*NTL’s historical growth through acquisition has resulted in numerous billingsystems and incompatible technology infrastructure.  NTL is in the process of merging most of these systems onto asingle platform. NTL expects this integration to reduce costs and improvecustomer call center efficiencies. The integration program is substantially onplan. Through March 31, 2004, NTL expended approximately £65 million, or$110 million, of which approximately £9 million, or $17 million, wasincurred in 2004. NTL has increased the scope of its billing system integrationprogram to add additional functionality beyond that originally contemplated. Asa consequence, the program has been extended by three months at an expectedadditional cost of £12 million, or $22 million, in excess of our originalbudget of £75 million, or $128 million. The increased expenditures will beaccommodated within NTL’s existing 2004 operating and capital expenditurebudgets and it still expects to complete the integration in the fourth quarterof this year. If NTL is unable to complete the integration of its billing systems byDecember 31, 2004 it may impact our ability to fully document, evaluate,test and report on the effectiveness of the internal controls relating to thesesystems as required by the Sarbanes-Oxley Act of 2002.

 

*CallCenter Consolidation.* On April 7, 2004, NTL announcedthe consolidation over the next 18 months of its 13 customer service callcenters, which supports the ntl: home division, into three call centers in theUK equipped for growth. Following an internal review, three specialist callcenters will be retained and developed and will be supported by four sales andcustomer support sites, located throughout the UK. As part of the consolidation,NTL intends to make additional investments in technology and training in orderto streamline processes and generate efficiencies. As a result of theseinvestments, NTL expects that in the medium term it will be able to deliver ahigher level of customer service with up to 1,500 fewer employees. NTL expectsto incur approximately £25 million, or $46 million, of costs to execute thisprogram.

 

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If the integration of NTL’s billing systems or the consolidation ofNTL’s call centers is not successful, we could experience an adverse effect onour customer service, customer churn rate and costs of maintaining NTL’sbilling systems going forward. NTL could also experience operational failuresrelated to billing and collecting revenues from our customers which, dependingon the severity of the failure, could have a material adverse effect on ourbusiness.

 

*Three Months Ended March 31, 2004 and 2003*

 

We present belowsummarized consolidated financial information for the three months endedMarch 31, 2004 and 2003:

 
|                                        |   | **Three  months ended  March 31,** |      | **Three  months ended  March 31,** |   |
|---------------------------------------------|--------|-----------------------------------------|-----------|-----------------------------------------|--------|
|                                        |   | **2004**                                |      | **2003**                                |   | **2004** |   | **2003** |   |
|                                        |   |                                    |      |                                    |   |   |   |   |   |
| **Revenues**                                |   | $                                       | 9,358,412 |                                    | $      | 7,842,694 |   | £ | 5,087,199 |   | £ | 4,893,426 |   |
| Cost of goods sold                          |   | (2,869,407                              | )         | (2,710,172                              | )      | (1,559,799 | ) | (1,691,004 | ) |
| Selling, general and adminstrative expenses |   | (21,689                                 | )         | (18,250                                 | )      | (11,790 | ) | (11,387 | ) |
| Management fees and allocated overhead      |   | (3,654,413                              | )         | (3,226,844                              | )      | (1,986,526 | ) | (2,013,380 | ) |
| Other charges                               |   | (8,239                                  | )         | —                                  |   | (4,479 | ) | — |   |
| Depreciation                                |   | (1,612,929                              | )         | (2,044,130                              | )      | (876,782 | ) | (1,275,429 | ) |
| **Operating income (loss)**                 |   | 1,191,735                               |      | (156,702                                | )      | 647,823 |   | (97,774 | ) |
| Interest expense                            |   | (538,986                                | )         | (457,913                                | )      | (292,991 | ) | (285,713 | ) |
| Exchange (losses) gains                     |   | (59,483                                 | )         | 30,701                                  |   | (32,335 | ) | 19,156 |   |
| **Net income (loss)**                       |   | $                                       | 593,266   |                                    | $      | (583,914 | ) | £ | 322,497 |   | £ | (364,331 | ) |

 

*Revenues*

 

For the quarter endedMarch 31, 2004, revenues increased by 19.3% to $9.4 million from $7.8million for the quarter ended March 31, 2003 primarily owing to foreignexchange movements.  Revenue expressedin UK pounds sterling increased by 4.0% to £5.1 million from £4.9 million.  We have increased our revenues through priceincreases and more customers, particularly broadband customers. AtMarch 31, 2004, we served 11,970 broadband customers compared with 7,182at March 31, 2003. We expect revenue increases in the future to beachieved by further growth in services such as digital television and broadbandservices.

 

*Expenses*

 

*Costs of goods sold*

 

For the quarterended March 31, 2004, costs of goods sold have increased by 5.9% to $2.9million from $2.7 million for the quarter ended March 31, 2003 primarilyowing to foreign exchange movements. Respectively expressed in UK pounds sterling, costs of goods solddecreased by 7.8% to £1.6 million from £1.7 million.  Cost of goods sold as a percentage of revenue also declined to30.7% from 34.6%.  We continue tobenefit from efficiencies that NTL has gained in the negotiation of televisionprogramming costs and reductions in interconnection costs.

 

*Selling, general and administrativeexpenses*

 

For the quarterended March 31, 2004 selling, general and administrative costs,incorporating mainly investor relations’ costs, increased by 18.8% to $21,689from $18,250 for the quarter ended March 31, 2003.  Respectively expressed in UK pounds sterlingthe increase was 3.5% to £11,790 from £11,387. Selling, general andadministrative expenses represent investor relations’ and independent accountant’sfees.

 

*Management fees and allocated overhead*

 

For the quarterended March 31, 2004 the management fees and allocated overhead increasedby 13.3% to $3.6 million from $3.2 million for the quarter ended March 31,2003.  Expressed in UK pounds sterling, managementfees and allocated overheads were flat at approximately £2 million. Managementfees and allocated overhead are charged as a percentage of our revenues.  Despite the increase in revenues, the costsincurred by NTL have comparatively reduced and these cost savings have beenpassed onto us.

 

*Other charges*include restructuring costs allocated to us by a subsidiary of NTL. These costswere the initial costs incurred in connection with NTL’s call centerconsolidation program, see Part II Item 5 – Other information – Restructuringof Call Centers.

 

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*Depreciation*

 

Depreciation charge hasdecreased reflecting the lower purchase of fixed assets in prior periods. Forthe quarter ended March 31, 2004 depreciation charges reduced by 21.1% to$1.6 million from $2.0 million for the quarter ended March 31, 2003.  Respectively expressed in UK poundssterling, depreciation charges decreased by 31.3% to £0.9 million from £1.3million.  On January 1, 2004, wereassessed the remaining useful lives of our fixed assets.  The change in lives reduced the depreciationcharge by $189,964, or £103,264, for the three months ended March 31,2004. The remaining reduction in depreciation expense reflects the absence ofdepreciation on assets that became fully depreciated in 2003.

 

*Interest expense*

 

We incur intereston deferred charges paid on our behalf by the General Partner. The increase ininterest expense is owing to the increase in the level of unpaid managementfees as well as foreign exchange movements. For the quarter ended March 31, 2004 the interest charge increasedby 17.7% to $538,986 from $457,913 for the quarter ended March 31,2003.  Respectively expressed in UKpounds sterling, interest charge increased by 2.5% to £292,991 from £285,713.

 

## *Exchange(losses) gains*

## * *

The exchangelosses in 2004 and exchange gains in 2003 are attributable to fluctuations inthe valuation of the US Dollar on certain of our assets and transactions, whichare denominated in UK Pounds Sterling. Our results of operations will continue to be affected by exchange ratefluctuations.

 

## *Minority interests*

## * *

At March 31, 2004NTL South Herts’ liabilities exceeded its assets. We have not recognized theresulting minority interest asset since such an asset is not recoverable. UnderUK law, the shareholders of a UK limited company are protected from thecompany’s liabilities.

 

**Condensed Consolidated Statement of Cash Flows**

 

In the threemonths ended March 31, 2004, we generated $909,629 from our operatingactivities compared with $459,398 in the three months ended March 31, 2003and used it to purchase fixed assets including connecting new customers to ournetwork.  Our cash from operations hasincreased because of improved trading results.

 

**Liquidity and Capital Resources**

 

Our source of cash hasbeen the net proceeds of our offerings of limited partnership interests.Historically, our principal uses of cash have been capital contributions to NTLSouth Herts in order to fund our proportionate share of the construction costsof the South Herts System. As of March 31, 2004, we had currentliabilities of $67,449,617 due to NTL Group companies.

 

Accordingly, until suchtime as NTL South Herts begins to pay dividends on its ordinary shares (whichis not expected in the foreseeable future) we will be required to fund ouradministrative expenses by additional issuances of limited partnershipinterests or from borrowings. It is unlikely that we will be able to sell debtor equity securities in the public markets at least in the short term or toobtain financing from commercial banks. Accordingly, we are dependent on NTLfor funds to cover operating expenses, and will continue to be dependent uponNTL to meet our liquidity requirements for the foreseeable future. We expectthat cash from our operations will be utilized fully for the purchase of fixedassets including connecting new customers to our networks in the twelve monthsfrom April 1, 2004 to March 31, 2005.

 

***Description of Indebtedness***

 

**Financing**

 

We have no financingindependent of NTL.  We are reliant uponthe support of NTL to continue our operations. At March 31, 2004 we had $67,449,617 due to NTL Group companies.

 

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**Item 3****.Quantitative and Qualitative Disclosures About Market Risk**

 

The functional currencyof NTL South Herts is UK pounds sterling and all revenue and significantly allcosts are incurred in UK pounds sterling. We report in US dollars. Therefore,we are exposed to fluctuations in the UK pound sterling US dollar exchangerate. The aggregate potential loss from a hypothetical one percent fall in theUK£/US$ exchange rate is $7,317 for the three months ended March 31, 2004.

 

We have no debt otherthan amounts due to affiliates. Consequently, we have little interest raterisk. As of March 31, 2004, we had approximately $67,449,617 million dueto NTL.

 

**Item 4****. Controlsand Procedures**

 

(a)   *Disclosure Controls and Procedures.*  Our management, with the participation ofthe chief executive officer and chief financial officer of NTL *, has evaluatedthe effectiveness of our disclosure controls and procedures (as such term isdefined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended, or the Exchange Act) as of the end of the period covered bythis report.  Based on such evaluation,NTL’s chief executive officer and chief financial officer have concluded that,as of the end of such period, our disclosure controls and procedures areeffective in recording, processing, summarizing and reporting, on a timely basis,information required to be disclosed by us in the reports that we file underthe Exchange Act.

 

(b)  *Internal Control Over Financial Reporting.*  There have not been any changes in ourinternal control over financial reporting (as such term is defined in Rules13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter towhich this report relates that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

 

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*    We have no Chief ExecutiveOfficer or Chief Financial Officer. Robert Mackenzie and Scott E. Schubert areDirectors of Fawnspring Limited, our General Partner, and the latter is ChiefFinancial Officer of NTL Incorporated, the indirect parent of FawnspringLimited.

 

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**Part II****. OtherInformation**

 

**Item 5****. OtherInformation**

 

***Refinancing Transaction***

 

On April 13, 2004, NTL’s wholly owned, newly formed subsidiary,NTL Cable PLC, issued £375 million aggregate principal amount of 9.75% seniornotes due 2014, $425 million aggregate principal amount of 8.75% seniornotes due 2014, €225 million aggregate principal amount of 8.75% seniornotes due 2014 and $100 million aggregate principal amount of floatingrate senior notes due 2012. The notes were offered and sold under Rule 144A andRegulation S.

 

Also, on April 13, 2004, NTL entered into a new fully underwritten£2,425 million senior secured credit facility, referred to as the newcredit facility, which includes a £250 million revolving tranche.  On April 14, 2004 NTL drew down £2,175million of its new credit facility, which, together with some of the proceedsfrom the issuance of the new notes and cash on hand, it used to repay itssenior credit facility.

 

The remaining proceeds from the notes offering after transaction costs,together with cash on hand, will be used to redeem the 10% Senior SterlingNotes due 2008 and 9 1/8% Senior Notes due 2008 ofDiamond Holdings Limited, a wholly owned subsidiary of Diamond CableCommunications Limited, referred to as the Diamond notes, and to redeem the11.2% Senior Discount Debentures of NTL (Triangle) LLC due 2007, referred to asthe Triangle debentures.  OnApril 13, 2004, NTL issued notices to the trustees of the Diamond notesand Triangle debentures notifying them of its intention to redeem the notes anddebentures on May 13, 2004.

 

***Restructuring of Call Centers***

 

On April 7, 2004, NTL announced the consolidation over the next 18months of its 13 customer service call centers, which support its ntl: homedivision, into three call centers in the UK equipped for growth. Following aninternal review, three specialist call centers will be retained and developedand will be supported by four sales and customer support sites, locatedthroughout the UK. As part of the consolidation, NTL intends to make additionalinvestments in technology and training in order to streamline processes andgenerate efficiencies. As a result of these investments, NTL expects that inthe medium term it will be able to deliver a higher level of customer servicewith up to 1,500 fewer employees. NTL expects to incur approximately £25million, or $46 million, of costs to execute this program.

 

**Item 6****. Exhibitsand Reports on Form 8-K.**

 

a)      Exhibits

 

31            Certification of CEOand CFO* pursuant to Rule 13(a)-14(a) and 15d–14(a) under the SecuritiesExchange Act of 1934, as amended, or the Exchange Act.

 

32            Certification of CEOand CFO* pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

 

b)      Reports on Form 8-K

 

None

 

 

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*      Wehave no Chief Executive Officer or Chief Financial Officer. Robert Mackenzieand Scott E. Schubert are Directors of Fawnspring Limited, our General Partner,and the latter is Chief Financial Officer of NTL Incorporated, the indirectparent of Fawnspring Limited.

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|                      | SOUTH HERTFORDSHIRE  UNITED  KINGDOM FUND, LTD. |
|---------------------------|-------------------------------------------------|
|                      | a Colorado limited partnership                  |
|                      |                                            |   |
|                      | By:                                             | Fawnspring  Limited,  its General Partner |
|                      |                                            |   |
|                      | By:                                             | /s/   ROBERT MACKENZIE |   |
|                      |                                            | Robert Mackenzie |
|                      |                                            | Director of Fawnspring Limited  the General Partner of South Hertfordshire  United Kingdom Fund, Ltd. |
| Dated:  May 13, 2004 |                                            |   |
|                           |                                                 |  |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Name**                                               |                        | **Title**                                       |   | **Date**                                                |
|--------------------------------------------------------|-----------------------------|-------------------------------------------------|--------|---------------------------------------------------------|
|                                                   |                        |                                            |   |                                                    |
|                                                   | /s/  ROBERT MACKENZIE  |                                            |   | Director of Fawnspring  Limited, the General Partner of |   | May 13, 2004 |
|   Robert  Mackenzie                          |                        | South Hertfordshire  United Kingdom Fund, Ltd.* |   |                                                    |
|                                                   |                        |                                            |   |                                                    |
|                                                   |                        |                                            |   |                                                    |
|                                                   | /s/  SCOTT E. SCHUBERT |                                            |   | Director of Fawnspring  Limited, the General Partner of |   | May 13, 2004 |
|       Scott  E. Schubert |                        | South Hertfordshire  United Kingdom Fund, Ltd.* |   |                                                    |
|                                                        |                             |                                                 |        |                                                         |  |  |  |  |

 

 

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*    The Partnership has no ChiefExecutive Officer or Chief Financial Officer. Robert Mackenzie and Scott E. Schubert are Directors of FawnspringLimited, the general partner of the Partnership, and the latter is ChiefFinancial Officer of NTL Incorporated, the indirect parent of FawnspringLimited.

 

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