Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

**(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, 2011**

 

**o****                  ****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: 000-19889**

 

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

(Exact name of registrant as specified in its charter)

 

| **Colorado**   (State or other jurisdiction of incorporation or organization)          | ** ** | **84-1145140**   (I.R.S. employer identification no.)       |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|
|                                                                                   |       |                                                        |
| **Media House, Bartley Wood Business Park, Hook, Hampshire,   RG27 9UP, England** | ** ** | **+ 44 1256 75 2000**                                       |
| (Address   of principal executive offices)                                             |       | (Registrant’s   telephone number, including area code) |

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

| Large   accelerated filer o              |   | Accelerated   filer o         |
|-----------------------------------------------|--------|------------------------------------|
|                                          |   |                               |
| Non-accelerated   filer x                |   | Smaller   reporting company o |
| (Do   not check if smaller reporting company) |   |                               |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

The number of limited partnership units of the registrant outstanding as of May 12, 2011 was 56,935.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **    | ** **                                                                                                  | ** ** | **Page   Number** |
|---------------|-------------------------------------------------------------------------------------------------------------|------------|-------------------|
|          |                                                                                                        |       |              |
| ** **    | **PART I.   FINANCIAL INFORMATION**                                                                    | ** ** | ** **        |
| Item 1.  | Financial   Statements                                                                                      |       |              |
|          | Condensed   Consolidated Balance Sheets as of March 31, 2011 and December 31,   2010              |       |              |
|          | Condensed   Consolidated Statements of Operations for the Three Months Ended   March 31, 2011 and 2010 |       |              |
|          | Condensed   Consolidated Statements of Cash Flows for the Three Months Ended   March 31, 2011 and 2010 |       |              |
|          | Notes to   Condensed Consolidated Financial Statements                                                      |       |              |
| Item 2.  | Management’s   Discussion and Analysis of Financial Condition and Results of Operations                |       |              |
| Item 3.  | Quantitative   and Qualitative Disclosures About Market Risk                                                |       |              |
| Item 4.  | Controls and   Procedures                                                                                   |       |              |
|          |                                                                                                        |       |              |
| ** **    | **PART II.   OTHER INFORMATION**                                                                       | ** ** | ** **        |
| Item 1.  | Legal Proceedings                                                                                           |       |              |
| Item 1A. | Risk Factors                                                                                                |       |              |
| Item 2.  | Unregistered   Sales of Equity Securities and Use of Proceeds                                               |       |              |
| Item 3.  | Defaults   Upon Senior Securities                                                                           |       |              |
| Item 4.  | (Removed and   Reserved)                                                                                    |       |              |
| Item 5.  | Other Information                                                                                           |       |              |
| Item 6.  | Exhibits                                                                                                    |       |              |
| SIGNATURES    |                                                                                                        |       |              |

 

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In this quarterly report, unless the context otherwise requires, the terms “we”, “us”, “our” and similar terms refer to South Hertfordshire United Kingdom Fund, Ltd. and its subsidiaries, and “Virgin Media” refers to the consolidated business of Virgin Media Inc. and its subsidiaries, as further described herein.

 

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

 

Various statements contained in this document constitute “forward-looking statements” as that term is 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 these forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by these forward-looking statements. These factors, among others, include the following:

 

·                  we may have underestimated the cost of settling our obligations and liabilities, including post-closing indemnification obligations, and our ability to make further distributions may be substantially delayed or limited;

 

·                  our creditors could assert claims against unitholders if we have over-distributed;

 

·                  our reliance on the continued support of Virgin Media;

 

·                  the lack of an established trading market for our partnership interests;

 

·                  conflicts of interest between us and Virgin Media and its affiliates; and

 

·                  tax risks

 

These and other factors are discussed in more detail below under “Risk Factors” and elsewhere in our annual report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission, or SEC, on March 31, 2011. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in factors affecting these statements.

 

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**Exchange Rates**

 

The following table sets forth, for the periods indicated, the high, low, period average and period end exchange rate expressed as U.S. dollars per £1.00. The exchange rate of the pound sterling on March 31, 2011 was $1.5996 per £1.00.

 
| **Three months ended March 31,** | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|----------------|------------|----------|------------|---------|------------|
| 2010                                                 |       | $                   | 1.5186     |           | $          | 1.5478   |       | $       | 1.6370     |   | $ | 1.4884 |   |
| 2011                                                 |       | 1.5996              |       | 1.6095         |       | 1.6387   |       | 1.5490  |       |
|                                                      |            |                     |            |                |            |          |            |         |            |  |  |  |  |

 

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(1)                     The average rate is the average of the noon buying rates on the last day of each month during the relevant period.

 

The above rates may differ from the actual rates used in the preparation of the condensed consolidated financial statements and other financial information appearing in this quarterly report. Our inclusion of these exchange rates is not meant to suggest that the pound sterling amounts actually represent these U.S. dollar amounts or that these amounts could have been converted into U.S. dollars at any particular rate, if at all.

 

Unless we otherwise indicate, all U.K. pound sterling amounts as of March 31, 2011 are translated to U.S. dollars at an exchange rate of $1.5996 to £1.00, all amounts disclosed for the three months ended March 31, 2011 are based on an average exchange rate of $1.6030 to £1.00, and all amounts disclosed for the three months ended March 31, 2010 are based on an average exchange rate of $1.5612 to £1.00. All amounts disclosed as of December 31, 2010 are based on an exchange rate of $1.5599 to £1.00. The variation among the exchange rates for 2011 and 2010 has affected the U.S. dollar comparisons significantly.

 

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2011**           | ** ** | **2010**              | ** ** |
| ** **                                                                                              | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                                              |       |               |       |                  |       |
| Deferred tax asset                                                                                      |       | $                  | 9,275,780  |                  | $          | 9,524,977 |   |
| Fixed assets, net                                                                                       |       | 39,013,854         |       | 38,537,937            |       |
| **Total assets**                                                                                        |       | $                  | 48,289,634 |                  | $          | 48,062,914 |   |
|                                                                                                    |       |               |       |                  |       |
| **Liabilities and Partners’   Capital**                                                            |       |               |       |                  |       |
| Current liabilities                                                                                     |       |               |       |                  |       |
| Accounts payable to affiliates and related parties                                                      |       | $                  | 31,697,690 |                  | $          | 33,028,708 |   |
| Total liabilities                                                                                       |       | 31,697,690         |       | 33,028,708            |       |
|                                                                                                    |       |               |       |                  |       |
| **Partners’ Capital**                                                                              |       |               |       |                  |       |
| General Partner                                                                                         |       |               |       |                  |       |
| Contributed capital                                                                                     |       | 1,000              |       | 1,000                 |       |
| Accumulated deficit                                                                                     |       | (394,122           | )          | (400,193              | )          |
|                                                                                                    |       | (393,122           | )          | (399,193              | )          |
| Limited Partners                                                                                        |       |               |       |                  |       |
| Contributed capital, net (56,935 units outstanding at March 31,   2011 and December 31, 2010) |       | 48,817,997         |       | 48,817,997            |       |
| Accumulated deficit                                                                                     |       | (38,737,059        | )          | (39,338,048           | )          |
|                                                                                                    |       | 10,080,938         |       | 9,479,949             |       |
|                                                                                                    |       |               |       |                  |       |
| Partners’ capital                                                                                  |       | 9,687,816          |       | 9,080,756             |       |
|                                                                                                    |       |               |       |                  |       |
| Accumulated other comprehensive loss                                                                    |       | (450,845           | )          | (792,351              | )          |
| Total South Hertfordshire United Kingdom Fund, Ltd. Partners’   capital                       |       | 9,236,971          |       | 8,288,405             |       |
|                                                                                                    |       |               |       |                  |       |
| Noncontrolling interest                                                                                 |       | 7,354,973          |       | 6,745,801             |       |
| Total Partners’ capital                                                                            |       | 16,591,944         |       | 15,034,206            |       |
|                                                                                                    |       |               |       |                  |       |
| **Total Liabilities and Partners’   Capital**                                                      |       | $                  | 48,289,634 |                  | $          | 48,062,914 |   |

 

See accompanying notes.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

 
| ** **                                                                                                                                       | ** ** | **Three months ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **March 31,**               | ** ** |
| ** **                                                                                                                                       | ** ** | **2011**                         | ** ** | **2010** | ** ** |
| ** **                                                                                                                                       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Revenue**                                                                                                                                      |       | $                                | 7,686,568  |   | $ | 6,976,998 |   |
|                                                                                                                                             |       |                             |       |   |   |
| **Costs and expenses**                                                                                                                           |       |                             |       |   |   |
| Operating costs                                                                                                                                  |       | (2,146,456                       | )          | (2,338,100 | ) |
| Allocated overhead                                                                                                                               |       | (2,689,360                       | )          | (2,500,725 | ) |
| Management fees                                                                                                                                  |       | (384,328                         | )          | (348,850 | ) |
| Selling, general and administrative expenses                                                                                                     |       | (48,233                          | )          | (97,036 | ) |
| **Operating income**                                                                                                                             |       | 2,418,191                        |       | 1,692,287 |   |
|                                                                                                                                             |       |                             |       |   |   |
| **Other expenses**                                                                                                                               |       |                             |       |   |   |
| Interest payable to General Partner and affiliates                                                                                               |       | (756,031                         | )          | (747,154 | ) |
| Exchange (losses) gains                                                                                                                          |       | (124,025                         | )          | 275,070 |   |
|                                                                                                                                             |       |                             |       |   |   |
| **Net profit before taxes**                                                                                                                      |       | 1,538,135                        |       | 1,220,203 |   |
| Income tax expense                                                                                                                               |       | (492,656                         | )          | (318,329 | ) |
|                                                                                                                                             |       |                             |       |   |   |
| **Net profit**                                                                                                                                   |       | 1,045,479                        |       | 901,874 |   |
|                                                                                                                                             |       |                             |       |   |   |
| Less: Profit attributable to noncontrolling interest                                                                                             |       | (438,419                         | )          | (272,852 | ) |
| **Net profit attributable to South   Hertfordshire United Kingdom Fund, Ltd.**                                                              |       | $                                | 607,060    |   | $ | 629,022 |   |
|                                                                                                                                             |       |                             |       |   |   |
| **Allocation of net profit   attributable to South Hertfordshire United Kingdom Fund, Ltd.**                                                |       |                             |       |   |   |
| General Partner                                                                                                                                  |       | $                                | 6,071      |   | $ | 6,290 |   |
| Limited Partners                                                                                                                                 |       | 600,989                          |       | 622,732 |   |
| **Net profit attributable to South   Hertfordshire United Kingdom Fund, Ltd.**                                                              |       | $                                | 607,060    |   | $ | 629,022 |   |
|                                                                                                                                             |       |                             |       |   |   |
| **Net profit attributable to South   Hertfordshire United Kingdom Fund, Ltd. allocated to limited partners per   limited partnership unit** |       | $                                | 10.56      |   | $ | 10.94 |   |
| **Average number of limited   partnership units outstanding**                                                                                    |       | 56,935                           |       | 56,935 |   |

 

See accompanying notes.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                          | ** ** | **Three months ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                          | ** ** | **March 31,**               | ** ** |
| ** **                                                                          | ** ** | **2011**                         | ** ** | **2010** | ** ** |
| ** **                                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash flows from operating   activities**                                          |       |                             | ** ** |   | ** ** |
| Net profit                                                                          |       | $                                | 1,045,479  |   | $ | 901,874 |   |
| Adjustments to reconcile net profit to net cash provided by operating   activities: |       |                             |       |   |   |
| Depreciation                                                                        |       | 870,660                          |       | 1,117,774 |   |
| Income taxes                                                                        |       | 492,656                          |       | 318,329 |   |
| Change in operating assets and liabilities:                                         |       |                             |       |   |   |
| Decrease in accounts payable to affiliates and related parties                      |       | (2,044,095                       | )          | (1,811,133 | ) |
| **Net cash provided by operating   activities**                                     |       | 364,700                          |       | 526,844 |   |
|                                                                                |       |                             |       |   |   |
| **Cash flows from investing   activities**                                          |       |                             |       |   |   |
| Purchase of fixed assets                                                            |       | (364,700                         | )          | (526,844 | ) |
| **Net cash used in investing   activities**                                         |       | (364,700                         | )          | (526,844 | ) |
|                                                                                |       |                             |       |   |   |
| Increase (decrease) in cash and cash equivalents                                    |       | —                           |       | — |   |
| Cash and cash equivalents at beginning of period                                    |       | —                           |       | — |   |
| Cash and cash equivalents at end of period                                          |       | $                                | —     |   | $ | — |   |

 

See accompanying notes.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**Note 1 — Basis of Presentation**

 

***Formation and Business***

 

South Hertfordshire United Kingdom Fund, Ltd. (dissolved May 9, 2011), or the Partnership, a Colorado limited partnership, was formed on December 23, 1991, in connection with a public offering of its limited partnership interests. The Partnership was formed to acquire, construct, develop, own and operate cable television/telephone systems in the U.K. ntl Fawnspring Limited, a U.K. corporation and an indirect wholly owned subsidiary of Virgin Media Inc., is the general partner, or the General Partner, of the Partnership. The agreement governing the partnership, or Partnership Agreement, stipulates a 25 year term which is scheduled to expire on December 31, 2016.

 

We hold 66.7% of the shares of ntl (South Hertfordshire) Limited, or NTL South Herts, which is principally engaged in the development, construction, management and operation of broadband communications networks for telephone, cable television and internet services in the U.K. As a result of our ownership of 66.7% of the shares of NTL South Herts, for accounting purposes, we have consolidated the results of NTL South Herts with our results. Virgin Media Inc. indirectly holds the remaining 33.3% of the shares of NTL South Herts. We are reliant on the support of Virgin Media Inc., the ultimate parent company of the General Partner, to continue our operations as a going concern.

 

***Basis of Presentation***

 

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Results of operations for the three months ended March 31, 2011 are not necessarily indicative of results to be expected for the full year ending December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2010, as filed with the SEC, on March 31, 2011.

 

Subsequent to the end of the quarter, on May 5, 2011, the unitholders of the Partnership voted to approve the sale of the Partnership’s sole asset, being its 66.7% ownership interest in NTL South Herts to ntl (B) Limited, and that transaction closed on May 9, 2011. As a result, the Partnership has been dissolved and the General Partner will immediately commence the process of winding up the partnership. Accordingly, we are required to change our basis of accounting from a going concern basis to a liquidation basis as of May 5, 2011. See Note 7 — Subsequent Event.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**

**(unaudited)**

 

**Note 2 — Comprehensive Profit**

 

Comprehensive profit includes net profit as well as other comprehensive profit.  Our other comprehensive profit consists of changes in cumulative foreign currency translation adjustments.  Comprehensive profit comprises:

 
| ** **                               | ** ** | **Three months ended**                                                           | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **March 31, 2011**                                                               | ** ** |
| ** **                               | ** ** | **Partners of South   Hertfordshire United   Kingdom Fund, Ltd.** | ** ** | **Noncontrolling   interests** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | ** **                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net profit                               |       | $                                                                                          | 607,060    |   | $ | 438,419 |   | $ | 1,045,479 |   |
| Foreign currency translation adjustments |       | 341,506                                                                                    |       | 170,753 |   | 512,259 |   |
| Comprehensive profit                     |       | $                                                                                          | 948,566    |   | $ | 609,172 |   | $ | 1,557,738 |   |

 

 
| ** **                               | ** ** | **Three months ended**                                                           | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **March 31, 2010**                                                               | ** ** |
| ** **                               | ** ** | **Partners of South   Hertfordshire United   Kingdom Fund, Ltd.** | ** ** | **Noncontrolling   interests** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | ** **                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net profit                               |       | $                                                                                          | 629,022    |   | $ | 272,852 |   | $ | 901,874 |   |
| Foreign currency translation adjustments |       | (306,697                                                                                   | )          | (153,347 | ) | (460,044 | ) |
| Comprehensive profit                     |       | $                                                                                          | 322,325    |   | $ | 119,505 |   | $ | 441,830 |   |

 

**Note 3 — Transactions with the General Partner and Affiliated Entities**

 

***Consulting and Management Fees***

 

An affiliate of the General Partner is entitled to be paid a consulting fee by NTL South Herts.  During the construction phases of the South Herts System, this consulting fee was 2% of construction costs.  Since completion of construction of each portion of the system, the consulting fee for the completed portion has been 5% of the gross revenue, excluding revenue from the sale of cable television/telephone systems. The consulting fee is calculated and payable monthly. Consulting fees paid or payable by NTL South Herts for the three months ended March 31, 2011 and 2010 were $384,328 and $348,850, respectively. These amounts were expensed in the condensed consolidated statements of operations.

 

***Distribution Ratios and Reimbursement***

 

Any Partnership distributions made from cash flows (defined as cash receipts derived from routine operations, less debt principal and interest payments and cash expenses) are allocated 99% to the limited partners and 1% to the General Partner.  Any distributions other than interest income on limited partner subscriptions earned prior to the acquisition of the Partnership’s first cable television system or from cash flows, such as from the sale or refinancing of a system or upon dissolution of the Partnership, will be made as follows: 99% to the limited partners and 1% to the General Partner until any negative balances in the limited partners’ capital accounts are reduced to zero; 100% to the General Partner until any negative balance in its capital account is reduced to zero; 99% to the limited partners and 1% to the General Partner until the balance in the limited partners’ capital accounts is equal to their adjusted capital contribution plus a 12% return; 100% to the General Partner until the balance in its capital account is equal to its adjusted capital contribution, and any remaining income or gain shall be allocated 75% to the limited partners and 25% to the General Partner.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**

**(unaudited)**

 

**Note 3 — Transactions with the General Partner and Affiliated Entities (continued)**

 

The General Partner and its affiliates are entitled to reimbursement from NTL South Herts for direct and indirect expenses allocable to the operation of the South Herts System, and from the Partnership for direct and indirect expenses allocable to the operation of the Partnership which include, but are not limited to, salaries of any full or part-time employees, rent, supplies, telephone, travel, and restructuring and other charges. The General Partner believes that the methodology used in allocating these expenses is fair and reasonable. During the three months ended March 31, 2011 and 2010, reimbursement made by NTL South Herts and the Partnership to the General Partner or its affiliates for any allocable direct and indirect expenses totaled $2.7 million and $2.5 million respectively.

 

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 is charged interest on such advances and deferred amounts at a rate equal to the General Partner’s or certain affiliates’ effective average cost of debt financing from unaffiliated entities, which does not differ from their weighted average cost of debt financing. For the three months ended March 31, 2011 and 2010, affiliates of the General Partner charged the Partnership aggregated interest, bank fees and finance charges of $664,512 and $668,969, respectively, relating to non-permanent loans, and an affiliate of the General Partner charged the Partnership interest on advances of $91,519 and $78,185, respectively. The General Partner and its affiliates are entitled to recover interest on the full amount of non-permanent loans they provide to the Partnership or NTL South Herts and the portion of bank fees and deferred financing costs relating to Virgin Media’s senior credit facility allocable to the Partnership or NTL South Herts.

 

**Note 4 — Recently Adopted Accounting Pronouncements**

 

On January 1, 2011 we adopted new accounting guidance issued by the FASB for revenue arrangements with multiple-elements. We adopted this guidance on a prospective basis applicable for transactions originating or materially modified after the date of adoption. This guidance changed the criteria for separating units of accounting in multiple-element arrangements and the way in which an entity is required to allocate revenue to these units of accounting.

 

Prior to the adoption of this guidance bundled revenue arrangements generally did not contain separate units of accounting. Subsequent to the adoption of this guidance, these bundled revenue arrangements generally have the following units of accounting: an up-front installation element and an ongoing service provision element.

 

Revenue is allocated to each unit of accounting based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. Currently, we do not sell installation services, ongoing rental or network equipment separately on a regular basis and therefore we do not have the evidence to support VSOE for these deliverables. We use evidence of what third parties charge for these goods or services, when available, to establish selling price. In some cases, when we are unable to establish VSOE or TPE, we use our best estimate of selling price. Our objective in determining the best estimate of selling price is to establish the price at which we would transact a sale if the deliverable were sold regularly on a stand-alone basis. We consider all reasonably available information including both market data and conditions, as well as entity specific factors. In addition we consider all factors contemplated in negotiating the arrangement with the customer and our own normal pricing practices. These considerations include competitor pricing, customization of the product, profit objectives and cost structures.

 

Once we have established the selling price of each deliverable, we allocate total arrangement consideration by applying the relative selling price methodology. Prior to the adoption of this guidance, where the fair value of the delivered element could not be determined reliably but the fair value of the undelivered element could be determined reliably, the fair value of the undelivered element was deducted from total consideration and the net amount was allocated to the delivered component based on the “residual value” method. This methodology is not longer permitted under the new guidance and we now allocate revenue for all multiple-element arrangements based on the relative selling price methodology. We recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition.

 

The adoption of this guidance is not expected to have a material impact on our consolidated financial statements for the year ended December 31, 2011.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**

**(unaudited)**

 

**Note 5 — Income taxes**

 

For the three months ended March 31, 2011 and 2010 income tax expense was $492,656 and $318,329, respectively. The income tax expense relates to the partial utilization of the deferred tax asset in respect of carried forward tax losses and tax depreciation of NTL South Herts recognized as at December 31, 2010 and 2009.

 

**Note 6 — Contingencies**

 

On March 15, 2011, a lawsuit asserting derivative claims on behalf of the Partnership was filed in the Supreme Court of the State of New York, County of New York, against Virgin Media Inc., ntl (B) Limited and the General Partner. The complaint generally asserts that the General Partner, Virgin Media Inc., and ntl (B) Limited have breached their fiduciary duties and/or aided and abetted such breach in pursuing the Asset Sale at a price that allegedly undervalues NTL South Herts. The plaintiff claims that the appraisals which were obtained fail to value NTL South Herts properly and are stale because they are dated as of September 30, 2010 and do not reflect market changes since that date. The complaint further asserts that the transfer by NTL South Herts of premium television services to a Luxembourg affiliate of Virgin Media Inc. in 2009 deprived NTL South Herts of a valuable asset. The complaint asserts breach of fiduciary duties, breach of contract and unjust enrichment, and seeks an accounting in respect of the general allocation of expenses to NTL South Herts. Among other remedies, the plaintiff seeks an order directing the General Partner to exercise its fiduciary duties, the imposition of a constructive trust upon any benefits improperly received, an order of an accounting and an award of costs, including attorney’s fees.

 

The primary exposure to loss for the Partnership in connection with this lawsuit is in respect to its obligation to indemnify, in certain circumstances, the General Partner and certain of its affiliates.  The General Partner believes that this obligation is probable but not presently estimable.  Because this is a derivative claim, any recovery that is not indemnified would not be an expense of the Partnership but rather would be to its benefit.

 

**Note 7  — Subsequent event**

 

On May 5, 2011, the unitholders of the Partnership voted to approve the sale of the Partnership’s sole asset, being its 66.7% ownership interest in NTL South Herts to ntl (B) Limited, and that transaction closed on May 9, 2011.  As a result, the Partnership is in dissolution and the General Partner is winding up the Partnership. Accordingly, we are required to change our basis of accounting from a going concern basis to a liquidation basis as of May 5, 2011. Subsequent to the adoption of the liquidation basis of accounting, we will no longer report a balance sheet but will instead report a consolidated statement of net assets available in liquidation, which will not include a partners’ capital section. In the consolidated statement of net assets available in liquidation, the assets will be valued at their estimated net realizable value and liabilities will include the estimated costs associated with carrying out the plan of liquidation. In addition, we will no longer report a consolidated statement of operations but instead will report a statement of changes in net assets.

 

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**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(dissolved May 9, 2011)**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**

**(unaudited)**

 

**Note 7  — Subsequent event** **(continued)**

 

The following unaudited pro forma statement of net assets as of March 31, 2011 gives effect to a change from the going concern basis of accounting to the liquidation basis of accounting. The unaudited pro forma statement of net assets is presented as if the change had occurred on March 31, 2011. The unaudited pro forma statement of net assets is based on assumptions and includes adjustments as explained in the notes to the unaudited pro forma statement of net assets.

 

Pro Forma Statement of Net Assets

 
| ** **                                                                | ** ** | ** **                   | ** ** | ** **      | ** ** | **Liquidation**    | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------|------------|-----------------|------------|--------------------|------------|
| ** **                                                                | ** ** | **As Reported**         | ** ** | ** **      | ** ** | **Basis**          | ** ** |
| ** **                                                                | ** ** | **March 31, 2011** | ** ** | **Adjustments** | ** ** | **Pro forma** | ** ** |
| ** **                                                                | ** ** | ** **                   | ** ** | **(unaudited)** | ** ** | ** **         | ** ** |
| **Assets**                                                                |       |                         |       |            |       |               |       |
| Due from ntl (B) Limited                                             |       | $                            | —     |            | $          | 23,256,205         | (a)        | $ | 23,256,205 |   |
| Deferred tax asset                                                        |       | 9,275,780                    |       | (9,275,780      | )(b)       | —             |       |
| Fixed assets, net                                                         |       | 39,013,854                   |       | (39,013,854     | )(b)       | —             |       |
| **Total assets**                                                          |       | $                            | 48,289,634 |            | $          | (25,033,429        | )          | $ | 23,256,205 |   |
|                                                                      |       |                         |       |            |       |               |       |
| **Liabilities and Partners’   Capital**                              |       |                         |       |            |       |               |       |
| Current liabilities                                                       |       |                         |       |            |       |               |       |
| Accounts payable to affiliates and related parties                        |       | $                            | 31,697,690 |            | $          | (24,959,715        | )(b)(c)    | $ | 6,737,975 |   |
| Total liabilities                                                         |       | 31,697,690                   |       | (24,959,715     | )          | 6,737,975          |       |
|                                                                      |       |                         |       |            |       |               |       |
| **Partners’ Capital**                                                |       |                         |       |            |       |               |       |
| General Partner                                                           |       | (393,122                     | )          | 393,122         | (a)        | —             |       |
|                                                                      |       |                         |       |            |       |               |       |
| Limited Partners                                                          |       | 10,080,938                   |       | 6,437,292       |       | 16,518,230         |       |
|                                                                      |       |                         |       |            |       |               |       |
| Partners’ capital                                                    |       | 9,687,816                    |       | 6,830,414       | (d)        | 16,518,230         |       |
|                                                                      |       |                         |       |            |       |               |       |
| Accumulated other comprehensive loss                                      |       | (450,845                     | )          | 450,845         | (b)        | —             |       |
| Total South Hertfordshire United Kingdom Fund Ltd. Partners’ capital |       | 9,236,971                    |       | 7,281,259       |       | 16,518,230         |       |
|                                                                      |       |                         |       |            |       |               |       |
| Noncontrolling interest                                                   |       | 7,354,973                    |       | (7,354,973      | )(b)       | —             |       |
| Total Partners’ capital and Net Assets                               |       | 16,591,944                   |       | (73,714         | )          | 16,518,230         |       |
|                                                                      |       |                         |       |            |       |               |       |
| **Total Liabilities and Partners’   Capital**                        |       | $                            | 48,289,634 |            | $          | (25,033,429        | )          | $ | 23,256,205 |   |

 

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(a)          Represents the receipt of proceeds of £14,293,000 converted into U.S. dollars at an exchange rate of 1.5996, and the receipt from the General Partner of the accumulated deficit. On May 9, 2011, the Partnership received proceeds totaling £14,293,000 from the purchaser and, after repaying indebtedness and retaining £200,000 for settling sterling obligations, converted the balance into U.S. dollars for a total of $17,619,350.

(b)         Represents the disposal of the assets and liabilities of NTL South Herts and the related elimination of the non-controlling interest and cumulative translation adjustments from the partners’ capital.

(c)          Includes the accrual of $1,265,000 of in respect to estimated expenses and cash reserves set aside to complete the liquidation and dissolution of the partnership.

(d)         Represents the net effect of the adjustments above on the Limited Partners’ capital account.

 

The actual amounts as at May 9, 2011 will differ from the amounts shown above, which are presented as at March 31, 2011.

 

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

 

**Overview**

 

We are a Colorado limited partnership that was formed in December 1991 pursuant to the public offering of our limited partnership interests for the purpose of acquiring one or more cable television/telephone systems in the U.K. Upon acquisition of our system, our primary investment objective was to obtain capital appreciation in the value of our investment in the system over the term that the investment is held by us.

 

During the period covered by this report, we held 66.7% of the shares of NTL South Herts, which is principally engaged in the development, construction, management and operation of broadband communications networks for telephone, cable television and internet services in the U.K. As a result of our ownership of 66.7% of the shares of NTL South Herts, for accounting purposes we have consolidated the results of NTL South Herts with our results. Virgin Media Inc. indirectly holds the remaining 33.3% of the shares of NTL South Herts. We have been reliant on the support of Virgin Media Inc., the ultimate parent company of the General Partner, to continue our operations as a going concern. The agreement governing the partnership, or Partnership Agreement, stipulates a 25 year term which is scheduled to expire on December 31, 2016.

 

On May 5, 2011, our unitholders approved the sale of our interest in NTL South Herts to an affiliate of Virgin Media Inc. and that transaction closed on May 9, 2011. As a consequence we are in dissolution and the description that follows in this Item 2, except as otherwise disclosed, describes our business during the period covered by this report but is no longer relevant to our present circumstances.

 

We derive our revenue principally from monthly fees and usage charges. Our packaging of services and pricing are designed to encourage our residential customers to use multiple services like “double-play” telephone and broadband, “double-play” telephone and television or “triple-play” telephone, television and broadband.

 

Our expenses include certain costs that are charged to us by a subsidiary of Virgin Media Inc. for the provision of network services and support, the use of Virgin Media’s national backbone telephone network for carriage of our telephone traffic, as well as the provision of technical infrastructure and network capacity by Virgin Media for our subscription internet access service and digital television services, the provision of corporate services, including finance, legal, human resources and facility services, and for the provision of IT services, including our use of the related IT systems and equipment. The principal components of Virgin Media’s expenses include payroll and other employee-related costs; television programming costs; interconnect costs paid to other carriers relating to call termination; facility-related costs, such as rent, utilities and rates; marketing and selling costs; repairs and maintenance costs; and allowances for doubtful accounts.

 

**Factors Affecting Our Business During the Period Covered by this Report**

 

Our residential customers account for the majority of our total revenue. The number of residential customers, the number and types of services that each customer uses and the prices we charge for these services drive our revenue. Our profit is driven by the relative margins on the types of services we provide to these customers and by the number of services that we provide to them. For example, broadband internet is more profitable than our television services and, on average, our “triple-play” customers are more profitable than “double-play” or “single-play” customers. Our packaging of services and our pricing are designed to encourage our customers to use multiple services such as television, telephone and broadband at a lower price than each stand-alone product on a combined basis. Factors particularly affecting our business include general macroeconomic factors, currency movements, integration and restructuring activities, churn, average revenue per user, competition, capital expenditures and seasonality.

 

***General Macroeconomic Factors.*** General macroeconomic factors in the U.K. have an impact on our business. For example, during an economic slowdown, potential and existing customers may be less willing or able to purchase our products or upgrade their services. We may also experience increased churn and higher bad debt expense.

 

***Currency Movements.*** Because substantially all of our revenue and operating costs are earned and paid in U.K. pounds sterling, but we report our financial results in U.S. dollars, our financial results are impacted by currency fluctuations which are unrelated to our underlying results of operations.

 

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***Integration and Restructuring Activities.*** In the fourth quarter of 2008, Virgin Media commenced the implementation of a restructuring plan aimed at driving further improvements in Virgin Media’s and our operational performance and eliminating inefficiencies in order to create a fully-integrated, customer-focused organization. Virgin Media anticipates significant cost savings from the plan and that the annual savings from and after 2010 will exceed the annual costs incurred in connection with the plan. These costs will include purchases of fixed assets, lease and contract exit costs, employee termination costs and other restructuring and restructuring-related expenses, some of which will be classified as restructuring costs. During the second quarter, Virgin Media identified further savings through the expansion of the program and revised the estimated total costs and extended the completion date through the end of 2012. In total, Virgin Media expects to incur operating expenditures of between £150 million to £170 million and capital expenditures of between £50 million to £60 million in connection with this plan over a three-year period. Virgin Media’s and our financial performance may be negatively affected if Virgin Media is unable to implement its restructuring plan successfully and realize the anticipated benefits.

 

***Capital Expenditures.*** Our business requires substantial capital expenditures on a continuing basis for various purposes, including expanding, maintaining and upgrading our cable network, investing in new customer acquisitions, and offering new services. If Virgin Media and we do not continue to invest in our network and in new technologies, our ability to retain and acquire customers may be hindered. Therefore, Virgin Media’s and our liquidity and the availability of cash to fund capital projects are important drivers of our revenue. When Virgin Media’s and our liquidity is restricted, so is our ability to meet our capital expenditure requirements.

 

***Churn.*** Churn is the proportion of customers who stop subscribing to any of our services. An increase in our churn can lead to increased costs and reduced revenue. We continue to focus on improving our customer service and enhancing and expanding our service offerings to existing customers in order to manage our churn rates. Our ability to reduce our churn rates beyond a base level is limited by factors such as competition, the economy and customers moving outside our network service area, in particular during the summer season. Managing our churn rates is a significant component of our business plan. Our churn rates may increase if our customer service is seen as unsatisfactory, if we are unable to deliver a service without interruption, if we fail to match offerings by our competitors, if we increase our prices, if there is an improvement in the U.K. housing market or if there is a prolonged economic downturn.

 

***ARPU.*** Average revenue per user, or ARPU, is a measure Virgin Media uses to evaluate how effectively it is realizing potential revenue from its residential cable customers on its network. Virgin Media believes that its “triple-play” cable offering of television, broadband and fixed line telephone services is attractive to its existing customer base and generally allows Virgin Media to increase its ARPU by facilitating the sale of multiple services to each customer.

 

***Competition.*** Our ability to acquire and retain customers and increase revenue depends on our competitive strength. There is significant and increasing competition in the market for our consumer services, including broadband and telephone services offered by BT Group plc, or BT; resellers or local loop unbundlers, such as British Sky Broadcasting Group plc, or BSkyB, and Talk Talk Telecom Group plc; alternative internet access services like DSL; satellite television services offered by BSkyB and by BBC and ITV through Freesat; free-to-air digital terrestrial television offered through Freeview; and internet protocol television offered by BT. In addition, certain competitors, such as BT and BSkyB, are dominant in markets in which we compete and may use their dominance in those markets to offer bundled services that compete with our product offerings. As a result of increased competition, we have had to, and may be required to continue to, adjust our pricing and offer discounts to new and existing customers in order to attract and retain customers.

 

***Seasonality.*** Some revenue streams are subject to seasonal factors. For example, telephone usage revenue by residential customers tends to be slightly lower during summer holiday months. Our churn rates include persons who disconnect their service because of moves, resulting in a seasonal increase in our churn rate during the summer months when higher levels of U.K. house moves occur and students leave their accommodation between academic years.

 

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**Effect of Sale of our Business and Dissolution of Our Partnership**

 

On May 9, 2011, we received £14,293,000 as consideration in the sale of our interest in NTL South Herts, and we are now in dissolution. We have repaid £3,267,644 in indebtedness that was owed to Virgin Media Limited as of March 31, 2011, leaving a net balance of £11,025,356. We have retained £200,000 in U.K. pound sterling to address anticipated sterling expenses, and have converted the balance into U.S. dollars for a total of $17,619,350.  In addition, we are owed a capital contribution from our General Partner in respect of its capital account deficit that is currently estimated at approximately $394,000. Our outstanding expenses include payments owed to Virgin Media to reimburse it for amounts paid by it on our behalf in connection with the sale transaction and otherwise. Our primary known contingency is our obligation to indemnify our General Partner in respect of its litigation expenses associated with derivative claims in our name that have been brought against it. See Item 1 of Part II of this Form 10-Q. We will be wound up once we have completed our dissolution process by paying our expenses and obligations, including contingencies, and distributing any remaining funds to our unitholders.

 

**Critical Accounting Policies**

 

The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and contingent liabilities. We base our judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

For a discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our consolidated financial statements, please refer to our annual report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 31, 2011.

 

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**Consolidated Results of Operations**

 

***Three Months Ended March 31, 2011 and 2010***

 

We present below summarized consolidated financial information in U.S. dollars and U.K. pounds sterling for the three months ended March 31, 2011 and 2010:

 
| ** **                                   | ** ** | **Three months ended** | ** ** | ** ** | ** ** | **Three months ended** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|------------|------------|----------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **March 31,**               | ** ** | **%**      | ** ** | **March 31,**               | ** ** | **%**      | ** ** |
| ** **                                   | ** ** | **2011**                         | ** ** | **2010**   | ** ** | **Change**                       | ** ** | **2011**   | ** ** | **2010** | ** ** | **Change** | ** ** |
| ** **                                   | ** ** | ** **                       | ** ** | ** ** | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                      |       | $                                | 7,686,568  |       | $          | 6,976,998                        |       | 10.2       |       | £ | 4,795,114 |   | £ | 4,468,997 |   | 7.3 |   |
| Operating costs                              |       | (2,146,456                       | )          | (2,338,100 | )          | (8.2                             | )          | (1,339,024 | )          | (1,497,630 | ) | (10.6 | ) |
| Allocated overhead                           |       | (2,689,360                       | )          | (2,500,725 | )          | 7.5                              |       | (1,677,704 | )          | (1,601,797 | ) | 4.7 |   |
| Management fees                              |       | (384,328                         | )          | (348,850   | )          | 10.2                             |       | (239,755   | )          | (223,450 | ) | 7.3 |   |
| Selling, general and administrative expenses |       | (48,233                          | )          | (97,036    | )          | (50.3                            | )          | (30,089    | )          | (62,155 | ) | (51.6 | ) |
| Operating income                             |       | 2,418,191                        |       | 1,692,287  |       | 42.9                             |       | 1,508,542  |       | 1,083,965 |   | 39.2 |   |
| Interest expense                             |       | (756,031                         | )          | (747,154   | )          | 1.2                              |       | (471,635   | )          | (478,577 | ) | (1.5 | ) |
| Exchange (losses) gains                      |       | (124,025                         | )          | 275,070    |       |                             |       | (77,371    | )          | 176,191 |   |   |   |
| Net profit before taxes                      |       | 1,538,135                        |       | 1,220,203  |       | 26.1                             |       | 959,536    |       | 781,579 |   | 22.8 |   |
| Income tax expense                           |       | (492,656                         | )          | (318,329   | )          |                             |       | (307,334   | )          | (203,900 | ) |   |   |
|                                         |       |                             |       |       |       |                             |       |       |       |   |   |   |   |
| Net profit                                   |       | 1,045,479                        |       | 901,874    |       | 15.9                             |       | 652,202    |       | 577,679 |   | 12.9 |   |
| Noncontrolling interest                      |       | (438,419                         | )          | (272,852   | )          | 60.7                             |       | (273,499   | )          | (174,771 | ) | 56.5 |   |
| Net profit attributable to South Herts       |       | $                                | 607,060    |       | $          | 629,022                          |       |       |       | £ | 378,703 |   | £ | 402,908 |   |   |   |

 

*Revenue*

 

For the three months ended March 31, 2011, revenue increased by 10.2% to $7.7 million from $7.0 million for the three months ended March 31, 2010, and revenue expressed in pounds sterling increased by 7.3% to £4.8 million for the three months ended March 31, 2011, from £4.5 million for the three months ended March 31, 2010. Revenue expressed in pounds sterling increased due to selective price increases as well as additional customers subscribing to our services, partially offset by continued decline in fixed line telephony usage and higher price discounting to stimulate customer activity and retention in light of competitive factors in the marketplace.

 

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*Expenses*

 

*Operating costs*

 

Operating costs include cost of goods sold and depreciation of fixed assets related to the network. For the three months ended March 31, 2011, operating costs decreased by 8.2% to $2.1 million from $2.3 million for the three months ended March 31, 2010, and operating costs expressed in pounds sterling decreased by 10.6% to £1.3 million for the three months ended March 31, 2011 from £1.5 million for the three months ended March 31, 2010. The reduction in operating costs was primarily driven by a reduction in depreciation as a result of fixed assets becoming fully depreciated. For the three months ended March 31, 2011 and 2010, depreciation expense included in operating costs was $870,660, or £543,144, and $1,117,774, or £715,971, respectively.

 

*Allocated overhead*

 

For the three months ended March 31, 2011, allocated overhead increased by 7.5% to $2.7 million from $2.5 million for the three months ended March 31, 2010, and allocated overhead expressed in pounds sterling, increased by 4.7% to £1.7 million for the three months ended March 31, 2011 from £1.6 million for the three months ended March 31, 2010. The business of NTL South Herts is managed as an integral part of Virgin Media. The combined costs of managing the larger group are allocated to each entity within the Virgin Media group, including NTL South Herts, on a consistent and proportional basis according to the level of trading in that entity. Allocated overhead expressed in pounds sterling increased due to higher network and other operating costs, employee and outsource costs and marketing costs incurred by Virgin Media.

 

*Management fees*

 

For the three months ended March 31, 2011, management fees increased by 10.2% to $384,328 from $348,850 for the three months ended March 31, 2010, and management fees expressed in pounds sterling increased by 7.3% to £239,755 for the three months ended March 31, 2011 from £223,450 for the three months ended March 31, 2010. Management fees are charged as a percentage of revenue and changes in management fees are therefore a direct reflection of changes in revenue.

 

*Selling, general and administrative expenses*

 

For the three months ended March 31, 2011, selling, general and administrative expenses decreased to $48,233, or £30,089, from $97,036, or £62,155, for the three months ended March 31, 2010. The decrease was primarily due to lower audit fees.

 

*Interest expense*

 

For the three months ended March 31, 2011, interest expense increased by 1.2% to $756,031, from $747,154 for the three months ended March 31, 2010, and interest expense expressed in pounds sterling decreased by 1.5% to £471,635 for the three months ended March 31, 2011 from £478,577 for the three months ended March 31, 2010. The interest expense expressed in pounds sterling declined as a result of lower balances outstanding on which interest is charged, while the interest expense expressed in U.S. dollars increased as a result of movements in exchange rates.

 

We paid no cash interest for the three months ended March 31, 2011 and 2010.

 

*Exchange gains or losses*

 

For the three months ended March 31, 2011, foreign currency exchange losses were $124,025, or £77,371, as compared with gains of $275,070, or £176,191, for the three months ended March 31, 2010. The change in foreign currency exchange gains was primarily attributable to fluctuations in the value of the U.S. dollar on certain of our liabilities and transactions. The value of the U.S. dollar weakened by approximately 2.5% against the pound sterling from December 31, 2010 to March 31, 2011. The value of the U.S. dollar strengthened by approximately 7% against the pound sterling from December 31, 2009 to March 31, 2010. Our results of operations will continue to be affected by foreign exchange rate fluctuations.

 

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*Income tax expense*

 

For the three months ended March 31, 2011, income tax expense was $492,656 or £307,334 compared with $318,329, or £203,900 for the three months ended March 31, 2010. The income tax expense relates to the partial utilization of the deferred tax asset in respect of carried forward tax losses and tax depreciation of NTL South Herts recognized as at December 31, 2010 and 2009.

 

*Noncontrolling interest*

 

During the three months ended March 31, 2011, the profit attributable to the noncontrolling interest was $438,419, or £273,499, as compared with $272,852, or £174,771, for the three months ended March 31, 2010. This was due to the increased profitability of the operating entity.

 

*Net profit attributable to South Hertfordshire United Kingdom Fund, Ltd.*

 

For the three months ended March 31, 2011, net profit attributable to South Hertfordshire United Kingdom Fund, Ltd. was $607,060, or £378,703, as compared with $629,022, or £402,908, for the three months ended March 31, 2010, primarily due to the reasons described above.

 

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***Selected Operating Data***

 

The following table sets forth certain data concerning our residential cable customers for the last five quarters:

 
| ** **                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
|--------------------------------|------------|--------------------|------------|-----------------------|------------|------------------------|------------|-------------------|------------|--------------------|------------|
| ** **                     | ** ** | **2011**           | ** ** | **2010**              | ** ** | **2010**               | ** ** | **2010**          | ** ** | **2010**           | ** ** |
| ** **                     | ** ** | ** **         | ** ** | ** **            | ** ** | ** **             | ** ** | ** **        | ** ** | ** **         | ** ** |
| Total customers                |       | 35,442             |       | 35,100                |       | 34,829                 |       | 34,530            |       | 34,160             |       |
| Digital television subscribers |       | 28,400             |       | 28,271                |       | 28,103                 |       | 27,088            |       | 27,418             |       |
| Broadband internet subscribers |       | 30,080             |       | 29,572                |       | 29,163                 |       | 28,733            |       | 28,235             |       |
| Telephony subscribers          |       | 30,983             |       | 30,707                |       | 30,539                 |       | 30,319            |       | 30,059             |       |
| Average monthly churn (1)      |       | 1.2                | %          | 1.4                   | %          | 1.5                    | %          | 1.2               | %          | 1.1                | %          |

 

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(1)          Churn is calculated by taking the total number of customers disconnecting from our services during the month and dividing them by the average number of customers during the month. Average monthly churn during the quarter is the average of the three monthly churn calculations within the quarter.

 

**Condensed Consolidated Statement of Cash Flows**

 

In the three months ended March 31, 2011, we generated $0.4 million from our operating activities compared with $0.5 million in the three months ended March 31, 2010, which was used to purchase fixed assets including equipment for customer installations. Our cash provided by operating activities increased primarily due to an improved operating result.

 

**Liquidity and Capital Resources**

 

***Outstanding Indebtedness During the Period Covered by this Report***

 

We have no financing independent of Virgin Media. As of March 31, 2011, we had consolidated current liabilities of $31.7 million due to Virgin Media group companies compared with $33.0 million as of December 31, 2010 and $37.6 million as of March 31, 2010.

 

Historically, our source of cash has been the net proceeds of our offerings of limited partnership interests along with funding from Virgin Media and our principal uses of cash have been capital contributions to NTL South Herts in order to fund our proportionate share of the construction costs of the South Herts System and ongoing operations. Accordingly, we have been dependent on Virgin Media for funds to cover administrative and operating expenses.

 

Virgin Media’s business is capital intensive and it is highly leveraged. Virgin Media has significant cash requirements for operating costs, capital expenditures and interest expense. Virgin Media believes that it will be able to meet its current and medium-term liquidity and capital requirements, including fixed charges, through cash on hand, cash from operations, available borrowing under its revolving credit facility, and its ability to obtain future external financing.

 

Virgin Media had £6,016.9 million of debt outstanding as of March 31, 2011, compared to £6,020.4 million as of December 31, 2010 and £6,146.9 million as of March 31, 2010, and £482.7 million of cash and cash equivalents as of March 31, 2011, compared to £479.5 million as of December 31, 2010 and £420.7 million as of March 31, 2010. The decrease in Virgin Media’s debt since both March 31, 2010 and December 31, 2010 is due to favorable movements in exchange rates, partially offset by an increase in net borrowing.

 

Virgin Media’s long term debt was issued by Virgin Media Inc. and certain of its subsidiaries that have no independent operations or significant assets other than investments in their respective subsidiaries and receivables under intercompany loans. As a result, they depend upon the receipt of sufficient funds from their respective subsidiaries or payments under intercompany loans to meet their obligations. In addition, the terms of Virgin Media’s existing and future indebtedness and the laws of the jurisdictions under which its subsidiaries are organized limit the payment of dividends, loan repayments and other distributions from them under many circumstances.

 

Virgin Media’s debt agreements contain restrictions on its ability to transfer cash between groups of its subsidiaries or to us. As a result of these restrictions, although Virgin Media’s overall liquidity may be sufficient to satisfy its obligations, it may be limited by covenants in some of its debt agreements from transferring cash to othersubsidiaries that might require funds. In addition, cross default provisions in its other indebtedness may be triggered if it defaults on any of these debt agreements.

 

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For further information concerning Virgin Media’s liquidity and capital resources and the terms of its various debt facilities, including the new senior credit facility, see its annual report on Form 10-K for the year ended December 31, 2010 as filed with the SEC on February 22, 2011, and its quarterly report on Form 10-Q for the three months ended March 31, 2011, as filed with the SEC on May 5, 2011.

 

***Outstanding Indebtedness Following Sale of Our Business***

 

Following the sale of our business on May 9, 2011, we repaid £3,267,644 in indebtedness that was owed to Virgin Media Limited as of March 31, 2011, See “Effect of Sale of Our Business and Dissolution of Our Partnership.” We believe that our current cash balances are sufficient to pay our current and anticipated expenses and address our known contingencies but we have had to estimate our expenses and contingent obligations, and there may be other contingencies of which we are not presently aware. We are in dissolution and seek to wind up in 2011, subject to resolution of the derivative litigation that is described in Item 1 of Part II.

 

**Off-Balance Sheet Transactions**

 

As of March 31, 2011 and 2010, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

 

**Contractual Obligations and Commercial Commitments**

 

There have been no material changes in the three months ended March 31, 2011 to the information required under this Item from what was disclosed in our annual report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 31, 2011.

 

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

 

The functional currency of NTL South Herts is pounds sterling and all revenue and substantially all costs are incurred in pounds sterling. We report in U.S. dollars and are therefore exposed to fluctuations in the pound sterling to U.S. dollar exchange rate.

 

The aggregate potential gain from a hypothetical one-percent decrease in the pound sterling/U.S. dollar exchange rate is approximately $39,000 for the three months ended March 31, 2011.

 

We have no debt other than amounts due to affiliates. As of March 31, 2011 and 2010, we had approximately $31.7 million and $33.0 million, respectively, in amounts due to Virgin Media group companies. Interest on amounts due to affiliates is at a variable rate based on the average rate incurred by Virgin Media. Therefore we are exposed to changes in Virgin Media’s borrowing rate. The aggregate potential loss from a hypothetical one-percentage point increase in the interest rate is approximately $69,000 for the three months ended March 31, 2011.

 

**Item 4. Controls and Procedures**

 

*(a) Disclosure Controls and Procedures. *Our management, with the participation of the chief executive officer and chief financial officer of Virgin Media*, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, Virgin Media’s chief executive officer and chief financial officer have concluded that, as of the end of such period, these controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to our management, including Virgin Media’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

*(b)* *Changes in Internal Control Over Financial Reporting.*There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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*                                         The Partnership has no principal executive officer or principal financial officer. Robert Mackenzie and Robert Gale are Directors of ntl Fawnspring Limited, the General Partner of the Partnership.

 

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**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

We are involved in various disputes and litigation arising in the ordinary course of our business. While we do not believe any of these litigation matters alone or in the aggregate will have a material adverse effect on our financial position or results of operation, any adverse outcome in one or more of these matters could be material to our consolidated financial statements for any one period.

 

On March 15, 2011, a lawsuit asserting derivative claims on behalf of the Partnership was filed in the Supreme Court of the State of New York, County of New York, against Virgin Media Inc., ntl (B) Limited and the General Partner. The complaint generally asserts that the General Partner, Virgin Media Inc., and ntl (B) Limited have breached their fiduciary duties and/or aided and abetted such breach in pursuing the Asset Sale at a price that allegedly undervalues NTL South Herts. The plaintiff claims that the appraisals which were obtained fail to value NTL South Herts properly and are stale because they are dated as of September 30, 2010 and do not reflect market changes since that date. The complaint further asserts that the transfer by NTL South Herts of premium television services to a Luxembourg affiliate of Virgin Media Inc. in 2009 deprived NTL South Herts of a valuable asset. The complaint asserts breach of fiduciary duties, breach of contract and unjust enrichment, and seeks an accounting in respect of the general allocation of expenses to NTL South Herts. Among other remedies, the plaintiff seeks an order directing the General Partner to exercise its fiduciary duties, the imposition of a constructive trust upon any benefits improperly received, an order of an accounting and an award of costs, including attorney’s fees.

 

**Item 1A. Risk Factors**

 

The following are new risk factors that relate to the period after the sale of our business, NTL South Herts, on May 9, 2011.

 

**We may have underestimated the cost of settling our obligations and liabilities, including post-closing indemnification obligations, and our ability to make further distributions may be substantially delayed or limited**

 

We have had to estimate the cost of settling our obligations and liabilities, including post-closing indemnification obligations potentially owed to our General Partner, in setting aside funds to meet our existing and anticipated expenses and reserve against contingent obligations. We may have underestimated expenses that have already been incurred on our account, or will be incurred in connection with our winding-up. In particular, the derivative litigation pending against our General Partner may delay our winding up, and result in our incurring ongoing administrative and related expenses that we have not adequately anticipated. In addition, our General Partner and its affiliates are entitled to indemnification under certain circumstances in respect of its expenses in connection with the derivative litigation, and it is very difficult for us to estimate those expenses at the present time. Furthermore, we may become aware of contingent obligations that we have not yet identified, and these could result in expenses that we have not anticipated. Consequently, our ability to make further distributions could be substantially delayed or limited. Any such distributions may be made in more than one installment over an extended period of time.

 

**Our creditors could assert claims against unitholders if we have over-distributed**

 

Our creditors could assert claims against unitholders for amounts received as distributions if we fail to create adequate reserves to pay our expenses and liabilities, including contingent liabilities.  Unitholders could be liable for the amount of any shortfall up to the amounts received by the unitholders as distributions from us.

 

**Item 2.  Unregistered Sales of Equity Securities and use of Proceeds**

 

None.

 

**Item 3.  Defaults Upon Senior Securities**

 

None.

 

**Item 4.  (Removed and Reserved)**

 

**Item 5.  Other Information**

 

None.

 

**Item 6. Exhibits**

 

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s
| 3.1    |   | Certificate of   Limited Partnership dated December 31, 1991 (Incorporated by reference   to Exhibit 3.1 to the Registrant’s Form 10-K for the year ended   December 31, 1994, filed with the Securities and Exchange Commission on   March 31, 1995, File No. 000-19889).                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2    |   | Amendment to the   Certificate of Limited Partnership dated January 31, 1995 (Incorporated   by reference to Exhibit 3.2 to the Registrant’s Form 10-K for the   year ended December 31, 1994, filed with the Securities and Exchange   Commission on March 31, 1995, File No. 000-19889).     |
| 3.3**  |   | Statement of   Dissolution filed in State of Colorado on May 11, 2011.                                                                                                                                                                                                                                                       |
| 4.1    |   | Limited   Partnership Agreement dated December 31, 1991 (Incorporated by reference   to the Registrant’s Post-Effective Amendment No. 2 to Form S-1,   filed with the Securities and Exchange Commission on May 6, 1993, File   No. 33-48400).                                                      |
| 4.2    |   | Amendment   No. 1 to Limited Partnership Agreement dated October 20, 1992   (Incorporated by reference to Exhibit 4.2 to the Registrant’s   Form 10-K for the year ended December 31, 1994, filed with the   Securities and Exchange Commission on March 31, 1995, File   No. 000-19889). |
| 31.1** |   | Certification of   Person Performing Function Similar to the Functions of Principal Executive   Officer,* pursuant to Rule 13a-14(a) under the Securities Exchange   Act of 1934, as amended.                                                                                                                           |
| 31.2** |   | Certification of   Person Performing Function Similar to the Functions of Principal Financial   Officer,* pursuant to Rule 13a-14(a) under the Securities Exchange   Act of 1934, as amended.                                                                                                                           |
| 32.1** |   | Certifications of   Persons Performing Function Similar to the Functions of Principal Executive   Officer and Chief Financial Officer, respectively,* pursuant to 18 U.S.C.   Section 1350, as adopted pursuant to Section 906 of the   Sarbanes-Oxley Act of 2002.                                                     |

 

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*                                         The Partnership has no principal executive officer or principal financial officer. Robert Mackenzie and Robert Gale are Directors of ntl Fawnspring Limited, the General Partner of the Partnership.

 

**                                  Filed herewith.

 

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**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:                                                                                 | ntl FAWNSPRING   LIMITED, its General Partner |
|               |                                                                                |   |
|               | By:                                                                                 | /s/ ROBERT   MACKENZIE |
|               |                                                                                | Robert Mackenzie |
|               |                                                                                | *Director   of ntl Fawnspring Limited, the General Partner of South Hertfordshire United   Kingdom Fund, Ltd.* |
|               |                                                                                | * * |
| Date: May 16, 2011 |                                                                                | * * |

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 
|               | By:    | /s/ ROBERT   MACKENZIE                                                                                                   |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------|
|               |   | Robert Mackenzie                                                                                                         |
|               |   | *Director   of ntl Fawnspring Limited, the General Partner of South Hertfordshire   United Kingdom Fund, Ltd.* |
|               |   | * *                                                                                                                 |
| Date: May 16, 2011 |   |                                                                                                                     |
|               |   |                                                                                                                     |
|               | By:    | /s/ ROBERT GALE                                                                                                          |
|               |   | Robert Gale                                                                                                              |
|               |   | *Director   of ntl Fawnspring Limited, the General Partner of South Hertfordshire   United Kingdom Fund, Ltd.* |
|               |   | * *                                                                                                                 |
| Date: May 16, 2011 |   | * *                                                                                                                 |

 

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