## **UNITED STATES**

## **SECURITIES AND EXCHANGE COMMISSION**

## **Washington, D.C. 20549**

## ** **

# **Form 10-K**

 
| **(Mark One)** |                                                                                             |
|----------------|--------------------------------------------------------------------------------------------------|
| **ý**     | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**       |
|           |                                                                                             |
|           | **For the fiscal year ended  December 31, 2004**                                                 |
|           | ** **                                                                                       |
|           | **or**                                                                                           |
|           | ** **                                                                                       |
| **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**

 

**South Hertfordshire UnitedKingdom Fund, Ltd.**

(Exact name of registrantas specified in its charter)

 
| **Colorado**                                                     | ** ** | **#84-1145140**                       |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |

 

**ntl House, Bartley Wood BusinessPark, Hook,Hampshire, RG27 9UP, England+44 1256 752000**

(Address and TelephoneNumber of PrincipalExecutive Offices)

 

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Securities registeredpursuant to Section 12(b) of the Act:

**None**

** **

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Securities RegisteredPursuant to Section 12(g) of the Act:

**Limited Partnership Interests**

 

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

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of the Form 10-K or any amendment to thisForm 10-K. **ý**

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2) Yes **o** No **ý**

 

The aggregate marketvalue of the registrant’s limited partnership interests held by non-affiliatesas of June 30, 2004, based on a price per limited partnership interest of$77.89, which was the median price at which limited partnership interests weretransferred during the second fiscal quarter, was $4,434,667.

 

As of March 25,2005, there were 56,935 limited partnership interests of the Registrantoutstanding. There is no established public market for the Registrant’s limitedpartnership interests.

 

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** **

**DOCUMENTS INCORPORATED BYREFERENCE**

 

**None**

 

 

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SOUTH HERTFORDSHIRE UKFUND, LIMITED

FORM 10-K

YEAR ENDED DECEMBER 31,2004

 

**TABLE OF CONTENTS**

 
| ** **                                                                    | ** **                                                                                       | **Page** |
|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|----------|
| **PART I**                                                                    |                                                                                             | 4        |
| ** **                                                                    |                                                                                             |     |
| Item 1.                                                                       | Business                                                                                         | 7        |
| Item 2.                                                                       | Properties                                                                                       | 22       |
| Item 3.                                                                       | Legal Proceedings                                                                                | 22       |
| Item 4.                                                                       | Submission of Matters to a Vote of Security  Holders                                             | 22       |
| **PART II**                                                                   |                                                                                             | 23       |
| Item 5.                                                                       | Market for Registrant’s Common Equity and  Related Stockholder Matters                      | 23       |
| Item 6.                                                                       | Selected Financial Data                                                                          | 23       |
| Item 7.                                                                       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations      | 24       |
| Item  7A.                                                                     | Quantitative  and Qualitative Disclosures about Market Risk                                      | 32       |
| Item  8.                                                                      | Financial  Statements and Supplementary Data                                                     | 33       |
| Item  9.                                                                      | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure            | 34       |
| Item 9A.                                                                      | Controls and  Procedures                                                                         | 34       |
| Item 9B.                                                                      | Other Information                                                                                | 34       |
| **PART  III**                                                                 | ** **                                                                                       | 35       |
| Item  10.                                                                     | Directors  and Executive Officers of the Registrant                                              | 35       |
| Item 11.                                                                      | Executive Compensation                                                                           | 35       |
| Item  12.                                                                     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters | 36       |
| Item  13.                                                                     | Certain  Relationships and Related Transactions                                                  | 36       |
| Item 14.                                                                      | Principal  Accountant Fees and Services                                                          | 37       |
| **PART IV**                                                                   |                                                                                             | 38       |
| Item  15.                                                                     | Exhibits  and Financial Statement Schedules                                                      | 38       |
|                                                                          |                                                                                             |     |
| SIGNATURES                                                                    |                                                                                             | 39       |
|                                                                          |                                                                                             |     |
| Index to Consolidated  Financial Statements and Financial Statement Schedules | F-1                                                                                              |

 

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**Safe Harbor Statement under thePrivate Securities Litigation Reform Act of****1995:**

 

Various statements contained in this documentconstitute “forward-looking statements” as that term is defined under thePrivate 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 maycause our actual results, performance or achievements or industry results to bematerially different from those contemplated, projected, forecasted, estimatedor budgeted whether expressed or implied, by these forward-looking statements.These factors include those set forth under the caption “Risk Factors” in theForm 10-K filed on March 16, 2005 by the ultimate parent company of our GeneralPartner, NTL Incorporated, or NTL, such as:

 

•                  potential adverse developments withrespect to our liquidity or results of operations;

 

•                  NTL’s significant debt payments andother contractual commitments;

 

•                  NTL’s ability to fund and execute itsbusiness plan;

 

•                  NTL’s ability to generate cashsufficient to service its debt;

 

•                  interest rate and currency exchangerate fluctuations.

 

•                  NTL’s ability to complete theintegration of its billing systems;

 

•                  the impact of new businessopportunities requiring significant up-front investments;

 

•                  NTL’s ability to attract and retaincustomers and increase its overall market penetration;

 

•                  NTL’s ability to compete againstother communications and content distribution businesses;

 

•                  NTL’s ability to maintain contractsthat are critical to its operations;

 

•                  NTL’s ability to respond adequatelyto technological developments;

 

•                  NTL’s ability to develop and maintainback-up for its critical systems;

 

•                  NTL’s ability to continue to designnetworks, install facilities, obtain and maintain any required governmentallicenses or approvals and finance construction and development, in a timelymanner at reasonable costs and on satisfactory terms and conditions; and

 

•                  NTL’s ability to have an impact upon,or to respond effectively to, new or modified laws or regulations.

 

We assume no obligation to update the forward-lookingstatements contained herein to reflect actual results, changes in assumptionsor changes in factors affecting these statements.

 

3

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**PART I**

 

**NTL CORPORATE STRUCTURE**

 

**Historical Structure**

 

We are a Coloradolimited partnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the U.K. Upon acquisition of oursystem, our primary investment objective was to obtain capital appreciation inthe value of our investment in the system over the term such investment is heldby us.

 

We hold 66.7% ofthe shares of NTL (South Hertfordshire) Limited, or NTL South Herts, which isprincipally engaged in the development, construction, management and operationof broadband communications networks for telephone, cable television andinternet services in the U.K. As a result of our ownership of 66.7% of theshares of NTL South Herts, for accounting purposes we have consolidated theresults of NTL South Herts with our results. NTL indirectly holds the remaining33.3% of the shares of NTL South Herts. We are reliant on the support of NTL,the indirect parent company of NTL Fawnspring Limited, our General Partner, tocontinue our operations as a going concern.

 

The GeneralPartner may, pursuant to our Partnership Agreement, provide consulting servicesto us or designate consulting services to NTL or other affiliates. The GeneralPartner purchased one of our partnership interests by contributing $1,000 toour capital.

 

On January 10, 2003, NTL emerged fromreorganization under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to theplan of reorganization, which we refer to as the Plan, NTL’s former parent, NTLEurope, Inc, or NTL Europe, and its subsidiaries and affiliates, were splitinto two separate groups, with NTL and NTL Europe each emerging as independentpublic companies. NTL was renamed “NTL Incorporated” and became the holdingcompany for the former NTL group’s principal U.K. and Ireland assets and theultimate parent company of our General Partner. NTL Europe became the holdingcompany for the former NTL group’s continental European and various otherassets. All of the outstanding securities of NTL’s former parent and some ofits subsidiaries, including NTL, were cancelled. NTL issued shares of itscommon stock and Series A warrants, and NTL Europe issued shares of itscommon stock and preferred stock, to various former creditors and stockholders.As a result, NTL and we are no longer affiliated with NTL Europe, which hassince changed its name to PTV Inc., or PTV.

 

4

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**Summary Corporate Structure**

 

The followingchart shows on a condensed basis the corporate structure of NTL and itsrelationship to us as of December 31, 2004. The chart does not show NTL’soperating or other intermediate companies.

 

 

 

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*                                         NTLFawnspring Limited, an indirect wholly-owned subsidiary of NTL and our GeneralPartner.

 

**                                  NTL(South Hertfordshire) Limited, or NTL South Herts, our 66.7% subsidiary ofwhich NTL owns 33.3%.

 

5

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**Exchange rates**

 

The following table sets forth, for the periodsindicated, the high, low, period average and period end noon buying rate in theCity of New York for cable transfers as certified for customs purposes by theFederal Reserve Bank of New York expressed as U.S. dollars per £1.00. The noonbuying rate of the pound sterling on March 25, 2005 was $1.87 per £1.00.

 
| **Year  Ended December 31,**  | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------|------------|----------------|------------|----------------|------------|----------|------------|---------|------------|
|                          |       |           |       |           |       |     |       |    |       |
| 2000                          |       | 1.49           |       | 1.51           |       | 1.65     |       | 1.40    |       |
| 2001                          |       | 1.45           |       | 1.44           |       | 1.50     |       | 1.37    |       |
| 2002                          |       | 1.61           |       | 1.51           |       | 1.61     |       | 1.41    |       |
| 2003                          |       | 1.78           |       | 1.64           |       | 1.78     |       | 1.55    |       |
| 2004                          |       | 1.92           |       | 1.84           |       | 1.95     |       | 1.75    |       |
| 2005 (through March 25, 2005) |       | 1.87           |       | 1.89           |       | 1.93     |       | 1.86    |       |

 

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

 

The above rates may differ from the actual rates usedin the preparation of the consolidated financial statements and other financialinformation appearing in this annual report on Form 10-K. Our inclusion ofthese exchange rates is not meant to suggest that the pound sterling amountsactually represent these U.S. dollar amounts or that these amounts could havebeen converted into U.S. dollars at any particular rate, if at all.

 

Unless we otherwise indicate, all U.S. dollar amountsas of December 31, 2004 are translated to U.S. dollars at an exchange rateof $1.9160 to £1.00, and all amounts disclosed for the year endedDecember 31, 2004 are based on an average exchange rate of $1.8326 to£1.00. All amounts disclosed as of December 31, 2003 are based on anexchange rate of $1.7842 to £1.00, and all amounts disclosed for the year endedDecember 31, 2003 are based on an average exchange rate of $1.6348 to £1.00.All amounts disclosed as of December 31, 2002 are based on an exchangerate of $1.6095 to £1.00, and all amounts disclosed for the year endedDecember 31, 2002 are based on an average exchange rate of $1.5025 to£1.00. U.S. dollar amounts for any individual quarter are determined bymultiplying the pound sterling financial result for the period fromJanuary 1 to the end of the current quarter by the average exchange ratefor the same period and subtracting from this total the U.S. dollar convertedfinancial result for the period from January 1 to the end of the previousquarter of that fiscal year as computed above. The variation among the exchangerates for 2004, 2003 and 2002 has impacted the dollar comparisonssignificantly.

 

6

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**Item 1****.  Business**

 

**AboutSouth Hertfordshire U.K. Fund, Ltd**

** **

We are a Coloradolimited partnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the United Kingdom, or U.K. Uponacquisition of our system, our primary investment objective was to obtaincapital appreciation in the value of our investment in the system over the termsuch investment is held by us.

 

We hold 66.7% ofthe shares of NTL (South Hertfordshire) Limited, or NTL South Herts, which isprincipally engaged in the development, construction, management and operationof broadband communications networks for telephone, cable television andinternet services in the U.K. As a result of our ownership of 66.7% of theshares of NTL South Herts, for accounting purposes we have consolidated theresults of NTL South Herts with our results. NTL indirectly holds the remaining33.3% of the shares of NTL South Herts. We are reliant on the support of NTL,the ultimate parent company of the General Partner, to continue our operationsas a going concern.

 

We, as well asNTL, file annual, quarterly, and current reports with the SEC. You may read andcopy any materials we or NTL files with the SEC at the SEC’s Public ReferenceRoom at 450 Fifth Street, N.W., Washington D.C. 20549. You may obtaininformation on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330.  You may also accesselectronically the information we file with the SEC via its website, located athttp://www.sec.gov.

 

**About NTL South Herts**

 

***FranchiseArea***

 

The SouthHertfordshire franchise area comprises the three administrative areas of ThreeRivers, Watford and Hertsmere, with a population of approximately 240,000. Thefranchise area covers commuter suburbs of London, and many people who reside inthe franchise area use the available fast rail and motorway services to travelto work in central London. South Hertfordshire has benefited from thecompletion in 1986 of the M25 London Motorway, which makes commuting from thefranchise area to other areas in or near London more convenient. An M1 motorwaylink exists to give London-bound commuters direct access from Watford to the Londonhighway system. The M1 link is half a mile from our headend. There areapproximately 94,000 homes in the franchise area, of which approximately 93,000are passed by our cable television/telephone network. Construction in thefranchise area is substantially complete. The average housing density in theSouth Herts franchise area is approximately 1,150 homes per square mile.

 

The SouthHertfordshire franchise area contains approximately 7,000 businesses, 80% ofwhich are small or medium-sized. In addition, there are several business parkscontaining predominantly industrial and manufacturing concerns.

 

***Operations***

 

Construction of acable television-only network in the South Hertfordshire franchise areacommenced in early 1991 and, integrated cable television/telephone networkarchitecture was developed for this franchise in late 1991. As of December 31,2004, approximately 93,000 of the total homes in this area had been passed.Cable television services commenced in April 1992 and telephone servicescommenced in February 1993, following completion of the installation of atelephone switch. In January 2000, NTL commenced the rollout of digital cabletelevision services within the South Herts franchise and in 2001 commencedbroadband internet access services. As of December 31, 2004, NTL South Hertsserviced 22,000 digital cable customers, 31,296 residential telephone customersand 15,275 broadband customers, representing a total of 35,643 customers with apenetration level of 38.0%.

 

Management controlis exercised by NTL Fawnspring Limited, a U.K. corporation, which is a whollyowned indirect subsidiary of NTL and is our General Partner, althoughmanagement control is delegated to other affiliated companies of NTL. Ourbusiness is managed by NTL Group Limited, or NTLG, a subsidiary of NTL, from itsheadquarters in Hook, Hampshire. NTL and we believe that management of ourbusiness as an integral part of the larger NTL group reaps the benefits ofsynergy and maximizes returns. NTLG performs a variety of management functionsand procures services on our behalf. Pursuant to an agreement with NTLG, wehave the legal right to offset amounts receivable from NTLG against amountspayable to NTLG. Consequently, the net balance payable to NTL is disclosedunder accounts payable to affiliates and related parties in the accompanyingfinancial statements.

 

7

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Our operations arefully integrated into the operations of NTL. Accordingly, the followingbusiness description describes the portion of NTL’s U.K. operations of which wecomprise a part.

 

**NTL’s business**

 

NTL is one of the leading communications and contentdistribution companies in the U.K., providing internet access, telephone andtelevision services to over 3 million residential customers as ofDecember 31, 2004, including more than 1.3 million broadbandcustomers. NTL also provides internet and telephone services to its residentialcustomers who are not connected to its cable network via access to othercompanies’ telecommunications networks and via an internet service provideroperated by its subsidiary, Virgin Net Limited. NTL offers what it refers to asa “triple play” bundle of internet, telephone and television services throughcompetitively-priced bundled packages. NTL also provides a range of voiceservices to businesses and public sector organizations, as well as a variety ofdata communications solutions from high speed internet access to fully managedbusiness communications networks and communication transport services.

 

NTL’s services are delivered through its wholly-ownedlocal access communications network passing approximately 7.9 millionhomes in the U.K. The design and capability of NTL’s network provides it withthe ability to offer “triple play” bundled services to residential customersand a broad portfolio of reliable, competitive communications solutions tobusiness customers.

 

NTL provides services to the following categories ofcustomers:

 

•                  *Consumer*.  NTL provides broadband and dial-up internet,telephone and cable television services to residential customers in theU.K.;  and

 

•                  *Business.* NTLprovides internet, data and voice services to large businesses, public sectororganizations and small and medium-sized enterprises, or SMEs, communicationstransport services, and wholesale internet access solutions to internet serviceproviders, or ISPs.

 

**Consumer**

 

NTL provides broadband and dial-up internet, telephoneand television services to residential customers in the U.K.

 

NTL’s services to residential customers aredistributed principally via its wholly-owned, local access communicationsnetwork to an addressable market of approximately 7.9 million homes in theU.K. The network covers parts of many major metropolitan areas in the U.K., andincludes England, Wales, Scotland and Northern Ireland. In addition, NTLprovides services to residential customers not connected to its network viaaccess to other telecommunications networks and via an ISP, virgin.net,operated through its subsidiary Virgin Net Limited.

 

NTL’s wholly-owned, local access communicationsnetwork provides it with several competitive advantages in its industry:

 

•                  it provides real two-way interactivity withresidential customers who are connected to the network;

 

•                  it enables NTL to provide true “triple play” bundledservices of internet, telephone and television services to residentialcustomers in its franchise areas without relying on another service provider ornetwork; and

 

•                  the connection of customers to its networks is bymeans of a twin cable, consisting of both coaxial and twisted copper pairelements enabling NTL to deliver broadband and high-speed services over eachtype of cable to customers. NTL’s length of copper pairs is generally muchshorter than our principal telephone competitor, allowing potentially higherspeed services to be utilized in the future.

 

In contrast:

 

•                  direct to home satellite service providers do nothave the capacity to offer two-way interactivity except by adding a phone lineor other cable facility; and

 

8

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•                  telephone service providers today have only alimited capacity to provide video over existing digital subscriber lines, orDSL, technology.

 

NTL’s packaging and pricing are designed to encourageits residential customers to use multiple bundled services like dual telephoneand broadband internet access, dual telephone and dial-up internet access, dualtelephone and television, or triple telephone, television and internet access.For example, NTL’s Family Pack bundle offers over 100 television channels and atelephone line rental. In addition, NTL offers subscribers “two-for-one”incentives, like a free digital television, or DTV, subscription for12 months with the purchase of its 24-hour unlimited U.K. calling package.

 

NTL believes that it is well-positioned in its serviceareas to use bundling to increase its customer base, reduce its customer churnrate and increase its profitability. As of December 31, 2004, over two-thirdsof its residential customers received multiple services from NTL. NTL refers toeach service it provides as a revenue generating unit, or RGU, and, as ofDecember 31, 2004, each of its customers represented on averageapproximately two revenue generating units. For example, if NTL provided onecustomer with broadband internet and telephone services, this customer wouldrepresent two RGUs. NTL’s “triple play” customer base has been increasing as apercentage of its total residential customers. At the end of the fourth quarterof 2003, 19.7% of NTL’s customers were triple play customers, and as ofDecember 31, 2004, 22.7% of NTL’s customers were triple play.

 

In its service areas, NTL is the only service providerthat provides the full range of services that NTL offers, although competitionin each of these services individually is significant and some of the otherservice providers have substantial resources. See “—Competition.”

 

The table below shows other typical service providerswho offer their services in NTL’s areas:

 
| ** **       | ** ** | ** ** | ** ** | ** **  | ** ** | ** **     | ** ** | **Broadband**      | ** ** | **Telephone**      | ** ** | ** **        | ** ** | **Home**        | ** ** | ** **    | ** ** |
|------------------|------------|------------|------------|-------------|------------|----------------|------------|--------------------|------------|--------------------|------------|-------------------|------------|-----------------|------------|---------------|------------|
| ** **       | ** ** | **NTL**    | ** ** | **BT  (1)** | ** ** | **BSkyB  (1)** | ** ** | **Resellers  (2)** | ** ** | **Resellers  (3)** | ** ** | **Freeview  (4)** | ** ** | **Choice  (5)** | ** ** | **TUTV  (6)** | ** ** |
| Telephone        |       | ý     |       | ý      |       | o              |       | o                  |       | ý             |       | o                 |       | ý          |       | o             |       |
| Broadband        |       | ý     |       | ý      |       | o              |       | ý             |       | ý             |       | o                 |       | ý          |       | o             |       |
| Dial Up          |       | ý     |       | ý      |       | o              |       | ý             |       | ý             |       | o                 |       | o               |       | o             |       |
| Television       |       | ý     |       | o           |       | ý         |       | o                  |       | o                  |       | ý            |       | ý          |       | ý        |       |
| Bundled services |       | ý     |       | o           |       | o              |       | o                  |       | o                  |       | o                 |       | ý          |       | o             |       |

 

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ý    =service available

o    =service not available

 

(1)          Although BT Group plc, referred to as BT, and BritishSky Broadcasting Group plc, referred to as BSkyB, co-market each other’stelephone and television services, customer and technical support remainsdistinct and customers are required to retain and pay for the differentservices separately.

 

(2)          For example, Wanadoo and Tiscali.

 

(3)          For example, Alpha Telecom, One.Tel, Tesco andCarphone Warehouse.

 

(4)          Freeview refers to a free-to-air digital televisionservice offered by a consortium. Freeview provides digital television servicesthrough a set-top box, with no subscription fees for basic service. For asubscription fee, some additional channels are available.

 

(5)          Home Choice is the brand name for Video Networks Ltd.,whose services are available only in parts of the London metropolitan area.

 

(6)          TUTV refers to Top Up TV, a company offeringapproximately ten pay TV channels available via a limited number of compatibleFreeview boxes.

 

9

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*Internet Services*

 

NTL offers several different packages of broadband anddial-up internet services with different features, speeds and pricing. NTLprovides broadband and dial-up internet services to customers within reach ofits access network, by direct connection to its network. NTL also providesbroadband and dial-up internet services to customers not within reach of itsaccess network by providing a connection to its network via BT’s local accessnetwork. NTL is the largest direct provider of residential broadband servicesin the U.K. Broadband provides users with a high-speed always-connectedinternet service. Users connect their home computers to NTL’s broadband networkvia high-speed cable modem. NTL offers broadband services at varying speeds:1Mb, 2Mb and 3Mb.

 

*BroadbandPlus*

 

Subscribers to NTL’s broadband internet services cantake advantage of NTL’s Broadband Plus packages for an additional monthly fee.Broadband Plus gives residential customers access to premium subscriptioncontent, such as on-line gaming, educational, music and other entertainmentcontent.

 

*Growth in Broadband*

 

Broadband is a dynamic and growing industry. NTLintends to maintain its market position by increasing access speeds whileholding prices down. Speed increases are being rolled out in the beginning of2005. NTL is also introducing enhanced anti-spam software to maintain acompetitive portfolio.

 

We have experienced substantial growth in ourbroadband customer base since 2002. For example, as of the close of 2002, wehad 5,741 broadband customers. At the end of 2003, we had 10,850 broadbandcustomers and at the end of 2004, we had 15,275 customers. This represents anaverage growth rate over this period of over 65 percent.

 

*Telephone*

 

NTL provides local, national and internationaltelephone services to its residential customers. NTL tiers its product offeringwith attractive pricing that includes *“Talk Plans”*that enable customers to make unlimited local and national calls for a fixedmonthly fee in addition to the standard line rental. NTL provides telephoneservices to its residential customers who are within reach of NTL’s accessnetwork by direct connection to the network and also via BT’s local accessnetwork to customers off NTL’s network, a process known as indirect access. NTLalso provides national and international directory inquiry services. As ofDecember 31, 2004, NTL provided telephone services to approximately 2.6 millionresidential customers.

 

*CableTelevision*

 

NTL offers a wide range of digital televisionservices, including access to over 150 channels, advanced interactive featuresand a range of pay-per-view services. NTL also offers a number of analogtelevision services packages, which can be supplemented with premium channelsand/or pay-per-view services. In addition to offering all of the popularchannels available on BSkyB’s satellite platform, NTL also offers to itsdigital customers, through NTL’s joint venture with a subsidiary of TelewestGlobal, Inc., or Telewest, a cable-only movie, sport and special eventspay-per-view television service called *“Front Row.”*Front Row provides customers with an alternative to BSkyB in the provision offilms and sports events through pay television.

 

NTL’s network technology enables a significant rangeof digital interactive services to be delivered by making use of thealways-connected broadband connection from a customer’s home to the network,known as the always-on return path. Examples of interactive services includegames, television email and access to news, entertainment and informationservices from an on-screen menu. Interactive services also include enhancedtelevision functionality utilizing the *“red button”*for BBC and Channel 4 broadcasts. *“Red button”*functionality in the U.K. permits television viewers to press a red button ontheir remote control handset to receive additional interactive services. Theseservices can include multiple broadcasts. For example, during last year’s liveWimbledon tennis broadcast on BBC, a viewer could press the red button andreceive a choice of multiple live tennis matches to watch, with the ability toswitch back and forth between one match and several others.

 

10

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As of December 31, 2004, NTL provided cabletelevision services to approximately 2.0 million residential customers, ofwhich approximately 1.4 million received its DTV service and approximately597,100 received its ATV service.

 

*Video on Demand*

 

In January 2005, NTL announced the launch of itsVideo on Demand, or VOD, DTV service. The new service, called ntl On Demand, isbeing rolled out regionally to NTL’s DTV customers throughout the U.K.,starting with its digital customers in Glasgow.

 

ntl On Demand is a significant enhancement to theexisting ntl DTV service, offering viewers choice over and above scheduledprogramming. The VOD movie service, provided by FilmFlex, a joint venturecompany between Sony, Disney and the On Demand Group, will offer hundreds offilms, including many of the latest blockbusters and classics. The VOD servicewill provide access to hundreds of hours of additional programming, includingadvertising-free children’s programs, a “Pick of the Week” option showing aselection of top shows from the previous seven days, and a music video jukeboxservice.

 

As soon as this service goes live in each of NTL’sregions, it will be available to all of NTL’s DTV customers. No new equipment,installation or additional subscription will be required. ntl On Demand willappear within the existing Electronic Programming Guide and customers will thenbe able to purchase films and television programs whenever they choose to viathe remote control.

 

Companies who have already agreed to provide contentinclude the BBC, Nickelodeon, Jetix, Warner Music, Entertainment Rights, VPL,The Walt Disney Company, Hollywood Pictures, Touchstone Pictures, Miramax FilmCorporation, Buena Vista International, Inc., Sony Pictures Entertainment,Sony Pictures Classics, Columbia Pictures, TriStar, Pathé, Icon Films andPlayboy TV. Additional partners are expected join the service as it develops.

 

ntl On Demand will offer DVD-style features includingfreeze frame, fast-forward and rewind, and programs will be available for24 hours after purchase. These features provide a customer with fullcontrol over the content and timing of their television viewing. There willalso be an increasing amount of free content available to view at any time.Current films will appear on television first through VOD, up to nine monthsbefore scheduled TV movie channels. To help customers choose which film towatch, full-length film trailers can be viewed before purchasing.

 

*Sales and Marketing*

 

NTL uses a variety of advertising and marketingchannels to sell its services to residential customers, including its dedicateddoor-to-door sales force and its telephone sales team. These channels aresupported by direct marketing initiatives and national and regional pressadvertising.

 

NTL uses its residential customer database to identifythe profiles of its customers so that it can design offers of its services tomatch the needs of its customers. NTL’s offers encourage customers to purchasenew services and upgrades to existing services.

 

*Customer Service*

 

Enhancing its customer service has been a centralfocus for NTL during 2004. NTL now operates its customer service operationsfrom three main custom-built centers based in the U.K. at Glasgow, Swansea andManchester. These sites are virtualized, which means that calls come in to oneaccess point and are distributed automatically to the first available agent inGlasgow, Swansea or Manchester. This allows real-time call routing between eachcenter, depending on call volumes. A separate service performance team ensurespeak call times are resourced properly. NTL uses various tools and processes toensure that it matches its customers’ calls to the right service center staffand to meet peak demand. NTL’s employees are graded in terms of their expertisein specific call types, which allows the call routing to be linked to skilltypes of employees, ensuring customers are serviced by experts within theirfield of enquiry.

 

In addition, NTL has two specialist teams based inManchester and Swansea, which deal in high-level fault diagnostics. These teamsare staffed by employees trained in on-line diagnosis of faults for NTL’sproducts. NTL also employs approximately 580 service technicians whose roleinvolves visiting customers who have registered a fault which cannot berectified remotely. This team is tasked to restore service within10 hours. During 2004, over 78% of faults were restored within the10 hour window and a further 16% within 

 

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24 hours. NTLconstantly monitors its network to ensure that it detects and repairs networkoutages promptly, and to enable early communication with its customers.

 

NTL’s customer service operation has over 1,980 staffhandling over 20 million calls per year. The average call is answeredwithin 132 seconds, with 44% of calls answered within 20 seconds. However,disruptions in service or other special situations can result in increases incall volumes and waiting times.

 

**Business**

 

NTL provides voice, data and internet retail andwholesale services to a broad range of commercial and public sectororganizations.

 

NTL believes that it benefits from both cost andperformance competitive advantages from its network, in terms of its reach,bandwidth and performance, over that of its competitors, who largely depend onthe BT local access network for the end connection to customers.  NTL’s network infrastructure passes within200 meters of more than 570,000 business premises in the U.K.

 

NTL derives approximately 50 percent of itsbusiness revenue from the public sector, particularly local government and thehealth and education markets. Where NTL’s network overlaps with the communitiesserved by these organizations, NTL leverages its competitive advantage through costof delivery or network performance. NTL also leverages its competitiveadvantage in the commercial markets around regional businesses.

 

NTL generally divides its business retail customersinto three categories based on revenue generated or expected from thatcustomer:

 

•                  *Tier 1* —customer generating revenue of more than £100,000 per year;

 

•                  *Tier 2* —  customer generating revenue of between£25,000 and £100,000 per year; and

 

•                  *Tier 3* —customer generating revenue of less than £25,000 per year.

 

This tiering of existing retail customers has enabledNTL to develop cost-effective account management, business development andcustomer service processes appropriate to levels of customer revenue.

 

***Services***

 

***VoiceServices***

 

*BusinessExchange Lines*

 

NTL’s business exchange lines provide its businesscustomers with analog telephone services that connect to customer telephonehandsets or private automatic branch exchanges, or PABXs. Revenue for thisservice is derived from service installation, line rental and usage charges.

 

*BusinessLine ISDN 30*

 

NTL’s Business Line ISDN 30 service delivers 30digital exchange lines over a single physical access link. The exchange linesmay be used for voice or data applications or a mix of both. The number ofdigital exchange lines is sized to a customer’s needs. Revenue for this serviceis derived from service installation, line rental and usage charges.

 

*Centrex*

 

NTL’s single and multi-site Centrex solutions providecustomers with the facilities of a PABX without the need to invest in theprovision and maintenance of a local PABX. Telephone calls between users withina building or in different buildings are handled 

 

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through NTL’s network butappear to the user to be transferred through a local PABX. Revenue for thisservice is derived from installation, equipment rental, line rental and callcharges.

 

*Non-GeographicNumbers*

 

NTL provides a range of freecall, non-geographic andpremium rate number services for tele-business, including advice lines, callcenters and telemarketing applications. Revenue for these services is derivedfrom service installation, line rental and revenue share with the tele-businessline operator.

 

***DataServices***

 

*LeasedLines*

 

NTL’s leased line services provide high qualitydedicated connections between two customer locations. Customers use leasedlines for voice, data and video applications, and for forming the basis ofprivate networks. Service speeds are available at 2Mb/s, 10Mb/s, 34Mb/s,45Mb/s, 100Mb/s and 155Mb/s. Revenue for this service is derived from serviceinstallation and recurring rental charges based on distance.

 

*EthernetServices*

 

NTL provides point-to-point, point to multi-point andvirtual private network capability, at 10 Mb/s, 100 Mb/s and 1 Gb/s bandwidth.Increasingly, customers use Ethernet as a means of achieving local areanetwork, or LAN, performance over their Wide Area Networks; NTL provides userswith the benefit of a dedicated private network at a lower cost. Revenue forthis service is derived from installation, access circuit rental and virtualconnection rental charges.

 

*StructuredCabling/LAN Solutions*

 

NTL provides in-building structured cabling serviceswhich include design, installation and project management of cable installationsand upgrades. Revenue for this service is determined on a project by projectbasis.

 

***Internet***

 

*InternetAccess—Cable Modem/ADSL*

 

NTL provides internet services across the U.K., withaccess by means of cable modem in areas served by its network or by means ofasymmetric digital subscriber line, or ADSL, elsewhere. This allows NTL toprovide services across the SME market and ubiquitous national access forlarger enterprises.

 

*HighSpeed Dedicated internet Access*

 

NTL provides high speed dedicated internet access from2 Mb/s up to 45 Mb/s to organizations that support web services from their ownlocations as well as organizations that have heavy demands for access to theinternet. Because NTL owns its network, it can provide competitively priced internetaccess at higher speeds. NTL’s pricing is based on installation charges andrecurring rental charges that vary based on the speed of access.

 

**NTL’sNetwork**

 

NTL’s business is underpinned by significantinvestment in its network infrastructure. This consists of a national corebackbone network in the U.K. and a high capacity two-way local broadbandnetwork. The national network was designed for large scale, high-speedtelecommunications traffic from its inception. NTL’s core networkinfrastructure transports its voice, internet, data and digital televisionservices in the U.K.

 

NTL’s broadband communications network in the U.K.currently passes approximately 7.9 million homes in its regional franchiseareas. NTL’s cables also pass a significant number of businesses in theseareas. NTL’s service areas within its franchise 

 

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areas include parts ofmany of the major large metropolitan areas in the U.K., including London,Manchester, Leeds, Southampton, Brighton, Derby, Cambridge, Oxford, Reading,Nottingham, Leicester, Coventry, Glasgow, Belfast, Cardiff and Swansea. NTL hasthe largest service area of any cable operator in the U.K. in terms of homespassed.

 

The core network has a fiber backbone that is approximately10,800 kilometers long. This includes 8,200 kilometers which are owned andoperated by NTL and approximately 2,600 kilometers which are leased fiber fromother network owners. A total of 99 switches direct telephone traffic aroundthe core and local networks. In addition, NTL has more than 500 hub sites,points of presence, repeater nodes or other types of network site, andfacilities at over 150 radio sites.

 

NTL’s local access networks deliver internet,telephone and digital and analog television services to its customers’ homesand businesses. NTL’s access network is comprised of two networks together.First, to provide television services and high-speed broadband internet access,its local fiber network is connected to a customer’s premises via highcapacity, two-way, coaxial cables. Second, NTL uses synchronous digitalhierarchy, or SDH, technology over the fiber network to provide telephoneservices. This is then connected to a customer’s premises via a relativelyshort length twisted copper pair. In the future this is capable of hostingdigital subscriber line, or DSL, over relatively short lengths of copper.Shorter lengths of copper provide a structural advantage in delivering veryhigh-speed services over copper.

 

NTL has a variety of alternative methods to connectits national telecommunications network over the *“last mile”*from the communications provider to the premises of those customers which arelocated outside of NTL’s cabled areas. NTL:

 

• obtainspermits to construct telecommunications networks and build out NTL’s network toreach its customers. Although this is often the most costly means of reaching acustomer, the expense can be justified in the case of larger customers or wherea significant level of traffic is obtained from a customer; and

 

• leasescircuits and DSL connections on the local networks of other service providersto connect to the customers’ premises. Although this may reduce the operatingmargin on a particular account, it requires significantly less capital expenditurethan a direct connection and can often be put into place relatively quickly andcan be replaced with a direct connection at a later date if traffic volumesjustify doing so.

 

In 2004, NTL continued a network upgrade programtargeting approximately 500,000 homes in the London area, where there is older,less robust cable networking. NTL cannot currently provide broadband orinteractive telephone services on the older network. This program presently isscheduled to be substantially completed in 2006. Approximately 220,000 homeswill have network improvements by the end of 2005 that will enable NTL toprovide its full range of services. Currently, approximately 87% of the homespassed by NTL’s network can receive all services and after the upgrade programis completed, NTL should have approximately 92% availability for all services.

 

***InformationTechnology***

 

NTL outsources the management of the primary elementsof its information technology systems to various suppliers. These suppliersinclude IBM, pursuant to an agreement which terminates in 2013 or, if NTL paysa termination fee, on May 23, 2006. NTL retains control of its informationtechnology activities that are fundamental to NTL’s competitive advantage andkey to the development of its intellectual property. The services IBM providesinclude:

 

• managementof NTL’s mid-range information technology equipment;

 

• softwareapplication development;

 

• softwareapplication maintenance and support;

 

• end-userhelp desk services; and

 

• end-userdesk top and laptop computing support.

 

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** **

**Competition**

 

***Consumer***

*** ***

NTL believes that it has a competitive advantage inthe U.K. residential market because NTL offers integrated communicationsservices including high-speed broadband internet, telephone and televisionservices. NTL offers its products on a stand-alone basis or as part of bundledpackages designed to encourage customers to subscribe to multiple services.There is only one other significant cable service provider in the U.K.,Telewest, which has different service areas than NTL. NTL offers internet andtelephone services nationally. Television services are offered on NTL’s networkin its service areas only.

 

*Internet*

 

NTL provides broadband and dial-up internet servicesto customers within reach of NTL’s access network, by direct connection to itsnetwork. NTL also provides broadband and dial-up internet services to customersnot within reach of NTL’s access network by providing a connection to NTL’snetwork via BT’s local access network. NTL’s internet services compete with BT,which provides broadband and dial-up internet access services over its ownnetwork. NTL also competes with ISPs, including Wanadoo, AOL and Tiscali whichdo not own an access network infrastructure but offer internet access servicesby providing access to BT’s network. This is a highly competitive market,reflected in increasing downward price pressure. BT uses, and offers tothird-party providers, DSL technology which, like NTL’s network, permitsinternet access to be provided over telephone lines at substantially greaterspeeds than conventional dial-up access. Increased deployment of DSL maysubject NTL to increased competition over time. In addition, third generation,or 3G, mobile technology may subject NTL to increased competition over time inbroadband services.

 

*Telephone*

 

NTL provides telephone services to customers who arewithin reach of NTL’s network by direct connection to its network and, like NTL’sinternet services, to customers off NTL’s network via BT’s local accessnetwork. This process is known as indirect access. NTL competes primarily withBT in providing telephone services to residential customers in the U.K. BToccupies an established market position and has substantial resources. NTL alsocompetes with other telecommunications companies that provide indirect accesstelephone services, including One.Tel, Carphone Warehouse under the brand nameTalk Talk, Caudwell Group under the brand name Homecall, and Tesco.

 

Previously, when providing indirect access services,calls were routed onto another operator’s network by customers dialingadditional digits before entering the primary telephone number or via a dialerbox that had to be provided to each customer. Calls can now be routed directlywithin a BT switch, through a method known as carrier pre-selection. Carrierpre-selection dispenses with the need to dial additional digits or use a dialerbox, creating a simpler connection process for the customer. Carrier pre-selectionis encouraging new companies to provide indirect access telephone services,increasing the pressure on NTL’s telephone services.

 

NTL also competes with mobile telephone networks thatmay threaten the competitive position of its networks by providing a substituteto fixed line telephone services. Mobile telephone services also contribute tothe downward price pressure in fixed line telephone services. However, NTLexpects that any decrease in demand for fixed line telephone services as aresult of competition from mobile telephone networks may be at least partiallyoffset by increased demand for its wholesale services to mobiletelecommunications operators.

 

*Television*

 

NTL competes primarily with BSkyB in providing DTV toresidential customers in the U.K. BSkyB is the sole distributor ofpay-satellite television services and has comparatively high market penetrationwhen compared with the penetration of similar satellite providers in othercountries. BSkyB has access to various sports and movie programming contentthat is used to create some of the most popular pay TV channels in the U.K.While NTL carries several of those channels on its network, NTL is dependentupon BSkyB to provide it with this content. While BSkyB is NTL’s principalcompetitor in the pay-television market, it is also a critical supplier ofcontent to NTL. The Office of Fair Trading, a U.K. regulatory agency which werefer to as the OFT, has determined that BSkyB is dominant in some wholesalepremium pay television markets in the U.K., including some channels carryingsports content and premium pay TV film channels. See *“—GovernmentRegulation.”* In principle this should constrain BSkyB in its pricingof these channels, although NTL believes that the current pricing for thiscontent is not favorable to NTL and should be improved.

 

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NTL has an agreement in principle with BSkyB forpricing arrangements with them, subject to agreeing to a formal contract.However, no assurances can be made that the contract will be finalized orfinalized in a timely manner and changes to these pricing arrangements may notbe made. BSkyB also provides various products and services over itsdirect-to-home satellite services that currently are not provided by NTL,including personal video recorders, commonly known as PVRs or DVRs.

 

Residential customers may also receive digitalterrestrial television, or DTT. Digital signals are delivered to customers'homes through a conventional television aerial and a separately purchased settop box or an integrated digital television set.

 

The free-to-air DTT service in the U.K. is brandedFreeview. This service is provided by a consortium of BSkyB, Crown CastleInternational Corp. and the BBC and offers customers a limited range oftelevision channels, including the traditional analog channels. Customers donot pay a monthly subscription fee for basic Freeview service but must acquirea set top box. For a subscription fee, a limited number of additional channelsare available. Presently the channels offered on Freeview do not includeseveral popular channels, such as Sky Sports, Sky Movies and MTV.

 

Top Up TV offers a pay service over DTT. Top Up TVcontrols five channels but offers at staggered times approximately ten pay DTVchannels. To receive Top Up TV, the customer requires a set top box orintegrated television with conditional access technology. Previously, set topboxes and integrated televisions did not include this technology.

 

Currently a limited number of residential customerscan receive DTV over BT’s ADSL lines. Video Networks Limited, under the brandname Homechoice, supplies this service, including video on demand, to customersin parts of the London metropolitan area, and Kingston Interactive Televisionsupplies to customers in one region in England.

 

Of NTL’s peers in the U.K., only Telewest is currentlyable to offer the full range of services NTL provides. Telewest is the onlyother cable company in the U.K. and does not offer services in the areas thatNTL covers. Some new competitors are using DSL technology to offer a comparable*“triple play.”* For example, Homechoice,provides bundled services to approximately 1 million homes, according toHomechoice. Easynet also has announced recently that it is proposing to offertriple play services during 2005. However, the offerings of both of thesecompanies are on a significantly smaller scale than NTL’s.

 

Pay television and pay-per-view services offered byNTL compete to varying degrees with other communications and entertainmentmedia, including home video, video games and DVDs. NTL is introducing video ondemand services which may compete in the future with programming provided byvideo on demand services offered by other parties and may compete against othervideo formats.

 

Telecommunications is a constantly evolving industryand NTL expects that there will continue to be many advances in communicationstechnology and in content. These advances, together with changes in consumerbehavior, and in the regulatory and competitive environments, mean that it willbe difficult to predict how NTL’s operations and businesses will be affected inthe future.

 

The U.K. government has stated that it will terminateATV transmission within the next decade. Consumers wishing to receivetelevision services will have to convert to DTV, currently available viadigital satellite, DTT, or cable. However, when ATV transmission is terminatedthe terrestrial DTV signal and network may be increased. This will enableterrestrial DTV to be made available to customers’ homes that cannot currentlyreceive it. Some customers may wish to subscribe for free DTT, via Freeview,rather than pay for DTV.

 

**Business**

 

NTL faces a wide range of competitors in the U.K.market. The nature of this competition varies depending on geography, serviceofferings and size of the marketable area. Only BT and Telewest have bothextensive local access networks and a national backbone network. However, asTelewest’s local networks do not overlap with NTL’s networks, NTL does notcompete with Telewest to any material extent. BT is a major competitor inalmost all of NTL’s market opportunities. Cable and Wireless plc, or C&W,and Energis own national backbone networks and they tend to focus on the largeenterprise/corporate markets. However, these companies do not own extensivelocal access networks and generally rely on wholesale arrangements to supplytheir customers.

 

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COLT Telecom Group plc has an extensive network particularlyin London and also focuses on large enterprise and corporate accounts. ThusGroup plc has its network in Scotland, principally in Edinburgh and Glasgow,and United Utilities plc has its network in Manchester. NTL faces thesecompetitors on a local basis mainly in the medium to large end of the SMEmarket and in the market for larger corporate accounts and public sectororganizations.  In addition, for voiceservices NTL competes with a number of resellers who purchase wholesale minutesfrom BT and others and compete aggressively in the retail market.

 

Although many customers have a dual supplier sourcingpolicy, competition remains based on price and quality of service. NTL expectsprice competition to intensify as existing and other new entrants competeaggressively. Most of these competitors have substantial resources and NTLcannot assure you that these or other competitors will not expand theirbusinesses in its existing markets or that NTL will be able to continue tocompete successfully with these competitors in the business telecommunicationsmarket.

 

**GovernmentRegulation**

 

***Regulationin the European Union***

 

The European Parliament and Commission regulate ourbusiness through various legislative means.

 

In February 2002, the European Commission, or EC,adopted a package of new legislative measures which set out a new framework forthe regulation of electronic communications, the intention being to ensure thatregulation of electronic communications networks and services was moretechnology-neutral in the future than it had been previously. The newregulatory framework, or NRF, consists of four Directives, including aFramework Directive and specific Directives on Authorization, Access andInterconnection and Universal Service and Users Rights. The NRF wassupplemented by a Communications and Privacy Directive.

 

The U.K. Government incorporated the NRF into itsdomestic laws by the enactment of the Communications Act 2003, which came intoeffect on July 25, 2003, and the Communications Privacy Regulations, which cameinto effect on December 11, 2003.

 

***Regulation in the U.K.***

*** ***

We are subject to regulation under the CommunicationsAct 2003, the Broadcasting Acts 1990 and 1996 and other U.K. statutes andsubordinate legislation.

 

The Communications Act 2003 established a newregulatory authority called the Office of Communications, or Ofcom, as thesingle regulatory authority for the communications sector. Ofcom replaced anumber of sectoral regulatory authorities such as the Office ofTelecommunications, or Oftel, and the Independent Television Commission, orITC.

 

*TheGeneral Conditions of Entitlement*

 

Under the Communications Act 2003, communicationsproviders such as us are no longer required to hold an individual license inorder to provide electronic communications networks and services. Even so, allproviders are subject to some basic conditions imposed by Ofcom, which areknown as the General Conditions of Entitlement. A breach of any of theseconditions by us could lead to the imposition of fines and, ultimately, to thesuspension or revocation of our right to provide electronic communicationsnetworks and services.

 

Some of the requirements of the General Conditions ofEntitlement with which we must comply include:

 

•     arequirement to negotiate interconnection arrangements with other networkproviders

 

•     arequirement to ensure that any end-user can access the emergency services

 

•     arequirement to offer outbound number portability to customers wishing to switchto another network, and to support inbound number portability where we acquirea customer from another network, on reasonable terms, including charges

 

•     arequirement to provide directory enquiry services

 

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•     arequirement to publish up-to-date price and tariff information

 

•     arequirement to provide itemized billing on request from each customer at noadditional charge

 

•     requirementsto provide special services for end-users with disabilities.

 

Our entitlement to provide electronic communicationsnetworks and services extends throughout the U.K. and is not constrained intime.

 

Under current proposals, any operator providing anelectronic communications network or service under the General Conditions ofEntitlement will be liable to pay annual administrative fees to Ofcom if itsturnover in the second calendar year before the charging year in question was£5 million or more. These fees are calculated at a rate set by Ofcom each yearand are applied to relevant turnover bands.

 

In addition to the General Conditions of Entitlement,Ofcom may impose further conditions on providers with significant market power,or SMP, in a market. SMP equates to the competition law concept of dominance.The NRF obliged Ofcom to carry out a number of initial market reviews todetermine which providers held SMP and therefore should be subject toadditional conditions and, thereafter, to keep these markets and any othermarkets identified by Ofcom in which SMP exists under further periodic review.Ofcom has now completed almost all of the initial market reviews and this hasled to BT being found to have SMP in a substantial number of markets. As aresult, BT has been made subject to a large number of additional regulatoryrequirements in both wholesale and retail markets.

 

All fixed operators, including us, have been found topossess SMP in relation to the termination of voice calls on their own networksbut we have not been found to possess SMP in any of the other voice, data andinternet markets in which we operate.

 

*TheStrategic Review of Telecommunications*

 

Following the passing of the Communications Act 2003,Ofcom announced that one of its early tasks would be to carry out a strategicreview of telecommunications in the U.K. The purpose of the review would be toassess whether the telecommunications sector is delivering benefits toconsumers, the future prospects for the sector and the potential impact ofdifferent regulatory approaches. Phase 1 of the strategic review was publishedon April 28, 2004 and Phase 2 was published on November 18, 2004. We have beenand continue to be actively involved in this process and in seeking to ensurethat the outcomes are supportive of our business and do not have any negativeimpact.

 

During Phase 2, Ofcom reaffirmed its commitment toinfrastructure competition and to providing an environment which promotesinvestment in infrastructure. However, in addition, it has stated that itbelieves a new approach to regulation is required in the U.K. to address anumber of economic bottlenecks, which persist in the provision oftelecommunications networks. According to Ofcom, these bottlenecks are areaswhere effective infrastructure-based competition is unlikely to emerge in themedium term, which may not necessarily coincide exactly with the parts of thenetwork where BT has SMP. Ofcom has therefore proposed a strategy aimed atpromoting competition at the deepest levels of infrastructure where it will beeffective and sustainable and at focusing regulation to deliver equality ofaccess to BT’s network beyond those levels.

 

According to Ofcom, the provision of equality ofaccess will require significant behavioral change by BT and will carry with itthe requirement that BT’s wholesale customers should have access to:

 

• the same ora similar set of regulated wholesale products as BT’s own retail activities;

 

• at the sameprices as BT’s own retail activities; and

 

• using thesame or similar transactional processes as BT’s own retail activities.

 

Ofcom currently envisages that it will be able topublish the final conclusions of its review in the second quarter of 2005.Ofcom has stated publicly that if BT resists the concept of providingequivalent access to its network for other operators or fails to comply 

 

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with any final settlementannounced by Ofcom at the conclusion of the review, Ofcom will considerrequesting the Competition Commission to carry out an investigation of thetelecommunications market under the Enterprise Act 2002 (see *“—Enterprise Act 2002”*), one possible outcome of which couldbe a requirement for BT to separate its wholesale and retail businesses.

 

Another area addressed by the review concernslonger-term arrangements for the provision of universal service in the U.K. Thereview seeks comments on the future funding arrangements for the provision ofuniversal service and the scope of universal service. In particular, the reviewconsiders whether there will be scope in the future for making use of mobiletechnologies in the provision of some aspects of universal service and whetheruniversal service should extend to the provision of broadband internetconnectivity. Ofcom states that in its own view, the case for extending thescope of universal service to include broadband is not strong. We will beimpacted by any future decision to require us to provide or to contribute tothe funding of universal service in the U.K. See *“—UniversalService Obligations.”*

 

*Regulationof BT*

 

The regulation of BT is important to our business in anumber of ways. Because, under current regulation, BT has been found to possessSMP in a significant number of markets, it is subject to a large number ofadditional regulatory requirements which govern its behavior, particularly atthe wholesale level. These include, in identified markets, a requirement topublish a reference offer for interconnection to BT’s network together with theability for Ofcom to impose wholesale price controls.

 

*UniversalService Obligations*

 

The concept of universal service, or USO, is designedto ensure that basic fixed line services are available at an affordable priceto all citizen-consumers across the U.K. The scope of USO obligations isdefined by the EC Directive on Universal Service and Users Rights (see *“—Regulation in the European Union”*) and the Secretary ofState for Trade and Industry in the U.K. specifies which services must beprovided throughout the U.K. in the Universal Service Order. This Order hasbeen implemented by Ofcom through the imposition of specific conditions on BTand Kingston Communications (both of which have been designated by Ofcom as USOproviders) and by the imposition of certain conditions on all providers underthe General Conditions of Entitlement.

 

The conditions imposed on BT and KingstonCommunications require them to offer the following services at uniform pricesacross the U.K.:

 

• a connectionto the public telephone network at a fixed location, following a reasonablerequest, which includes functional internet access;

 

• at least onescheme for consumers with special social needs who have difficulty affordingtelephone services;

 

• public callbox services; and

 

• a range ofservices for customers with disabilities.

 

In addition, BT and Kingston Communications areobliged to make sure that charges for USO services do not entail payment forunnecessary additional services, to provide free itemized billing and to ensurethat USO services meet defined quality thresholds. Furthermore, BT has toprovide a relay service for textphone users.

 

On January 10, 2005, Ofcom published a Review of theUniversal Service Obligation. This review focuses on the current scope of theUSO and seeks comments on what more can and should be done in the short term.Longer term policy issues concerning the USO are addressed in the broaderstrategic review of telecommunications. See *“—The Strategic Review ofTelecommunications.”*

 

*ElectronicCommunications Code*

 

Under the Telecommunications Act 1984, which waslargely replaced by the Communications Act 2003, licensed publictelecommunications operators were eligible for enhanced legal powers under theelectronic communications code annexed to the Telecommunications Act 1984, orCode Powers. Code Powers are of particular benefit to those who construct andmaintain networks 

 

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because they giveenhanced legal rights of access to private land, exemption from somerequirements of general planning law and the right to install equipment in thepublic highway.

 

The Communications Act 2003 retained the broadstructure of Code Powers. Any operator which possessed Code Powers under theprevious licensing regime automatically retained those powers under theCommunications Act regime. Any operator wishing to obtain new Code Powers mustnow apply to Ofcom. NTL’s subsidiaries that provide electronic communicationsnetworks and services, ntl Group Limited and ntl National Networks Limited,both have Code Powers.

 

Although Code Powers give operators the right toinstall equipment in public highways, each operator is required to certify toOfcom each year that it has sufficient and acceptable financial security inplace to cover the costs which could be incurred by local councils or roadauthorities if they were required to remove equipment or restore the publicroads following the insolvency of that operator. This security is commonlydescribed as *“funds for liabilities.”* Ofcomhas indicated that it will generally require an operator to provide board-levelcertification of third party security for this purpose.

 

*CompetitionAct 1998*

 

The Competition Act 1998, which came into force inMarch 2000, introduced a prohibition on the abuse of a dominant market positionand a prohibition on anti-competitive agreements modeled on Articles 81 and 82of the Treaty of Rome. The Act also introduced third party rights, strongerinvestigative powers, interim measures and enforcement powers. Theseenforcement powers include fines of up to 10% of worldwide turnover. TheCompetition Act is enforced by the Office of Fair Trading, or OFT, and givesconcurrent investigative and enforcement powers to Ofcom. Ofcom will take thelead on most competition issues in the communications sector, although it willconsult with the OFT where necessary.

 

The Competition Act also enables third parties tobring enforcement actions directly against persons, includingtelecommunications providers, who are in breach of the prohibitions and to seekdamages, rather than waiting for Ofcom to undertake enforcement action.

 

The Competition Act limits the types of agreements andarrangements we can enter into. For example, we may be prohibited under the Actfrom establishing some pricing and purchasing arrangements which would have theeffect of reducing competition in the market or from forcing companies tobehave in ways dictated by us.

 

*EnterpriseAct 2002*

 

The U.K.’s competition law framework was furtherstrengthened by the competition provisions of the Enterprise Act 2002, whichcame into force in June 2003. Under these provisions, among other things,decisions on mergers and market investigations are now made by independentcompetition bodies using competition-based tests, rather than by the U.K.Government. The implementation of European Union, or EU, modernization ofcompetition law in May 2004 further widened the powers of the U.K. competitionbodies.

 

In the case of merger control, a competition-basedtest has replaced the previous public interest test for assessing the impact ofmerger situations so that the U.K. competition bodies must now decide whetherany merger will lead to a *“substantial lessening ofcompetition”* in a relevant market. In addition, new jurisdictionalthresholds have been imposed, which govern whether a merger is subject toinvestigation and approval.

 

Under other provisions of the Enterprise Act,individuals who cause, encourage, participate in or, in some cases, even thosewho have knowledge of, the making of agreements between competitors which aredesigned to fix prices, share markets, limit supply or production or rig bidswithin the U.K., can be prosecuted and punished with unlimited fines andimprisonment for up to five years. The courts may also order thedisqualification for up to fifteen years of directors whose companies havecommitted a breach of U.K. or EU competition law.

 

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*ConsumerProtection*

 

The Enterprise Act 2002 also empowers some consumerbodies to make *“super complaints”* to the OFTabout features of a market that are harming consumers. The aim is to addresssituations where markets have failed to work for consumers, rather than toaddress the behavior of particular companies.

 

*Licenses*

 

Although we are no longer required to hold anindividual license to operate electronic communications networks and to provideelectronic communications services in the U.K., we are still required to hold alicense under the Broadcasting Acts 1990 and 1996 for any cable televisionchannels which we own and for the provision of certain other services on NTL’s cabletelevision platform. We therefore hold a number of licenses for the provisionof some promotional channels and for the provision of NTL’s electronic programguide. A breach of any of these licenses by us ultimately could cause us toincur a financial penalty and to lose the relevant license.

 

**Seasonality**

 

Some revenue streams are subject to seasonal factors.For example, telephone usage revenue by customers and businesses tends to beslightly lower during summer holiday months. NTL’s customer churn rates includepersons who disconnect service because of moves, resulting in a seasonalincrease in its churn rates during the summer months when higher levels of U.K.house moves occur and students leave their accommodations between school years.

 

**Researchand Development**

 

NTL’s research and development activities involve theanalysis of technological developments affecting its cable television,telephone and telecommunications business, the evaluation of existing servicesand sales and marketing techniques and the development of new services andtechniques.

 

**Patents,Trademarks, Copyrights and Licenses**

 

NTL does not have any material patents or copyrightsnor does it believe that patents play a material role in its business. NTL ownsand has the right to use registered trademarks, which in some cases are, and inothers may be, of material importance to its business, including the “ntl:”logo. In addition, NTL is substantially dependent on the authorizations grantedby the legislative agencies which regulate its various businesses. The loss ofany one or more of those authorizations could have a material adverse effect onNTL’s business and financial condition.

 

**Customers**

 

No material part of our business is dependent upon asingle customer or a few customers. We do not believe that the loss of any onecustomer would have a materially adverse effect on our results of operations.

 

**Employees**

 

As the management of our business is performed by NTL,we do not have any employees on our payroll. At December 31, 2004, NTL hadapproximately 12,480 employees, approximately 11,285 of whom were permanent andapproximately 1,195 of whom were temporary or contract employees.

 

NTL believes that its relationship with its employeesis generally good.

 

21

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**Item 2****. Properties**

 

We do not own orlease any properties. NTL South Herts owns a freehold property at 9 GreycaineRoad, Watford for use as offices and to house network equipment.

 

**Item 3****. LegalProceedings**

 

We are from timeto time subject to legal proceedings and claims that arise in the ordinarycourse of our business. In the opinion of the management, the amount ofultimate liability with respect to these actions will not materially affect ourfinancial position, results of operations or liquidity.

 

**Item 4****. Submissionof Matters to a Vote of Security Holders**

 

There were nomatters that were submitted to a vote of the holders of our limited partnershipinterests during the quarter ended December 31, 2004.

 

22

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**PART II**

 

**Item 5****. Market forRegistrant’s Common Equity and Related Stockholder****Matters**

 

While ourinterests are publicly held, there is no established public trading market forthe limited partnership interests, and it is not expected that such a marketwill develop in the future. As of March 25, 2005, the approximate number ofholders of our limited partnership interests was 5,400.

 

**Item 6****. SelectedFinancial Data**

 

The followingtable sets forth certain financial data for the years ended December 31, 2004,2003, 2002, 2001 and 2000. This information should be read in conjunction withthe consolidated financial statements and notes and the information containedin our Management Discussion and Analysis appearing elsewhere in this AnnualReport. Historical results are not necessarily indicative of future results.

 
| ** **                                                   | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                   | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                   | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income Statement Data:**                                   |       |                        |       |   |   |   |   |   |   |   |   |
| Revenue                                                      |       | $                           | 38,042,360 |   | $ | 32,772,962 |   | $ | 29,552,065 |   | $ | 28,354,653 |   | $ | 26,310,898 |   |
| Cost of goods sold                                           |       | (11,550,360                 | )          | (10,662,169 | ) | (10,772,887 | ) | (12,277,725 | ) | (10,366,295 | ) |
| Selling, general and administrative expenses                 |       | (103,018                    | )          | (130,840 | ) | (167,225 | ) | (277,224 | ) | (277,225 | ) |
| Management fees and allocated overhead from General  Partner |       | (14,321,728                 | )          | (13,544,514 | ) | (12,035,660 | ) | (11,901,237 | ) | (13,128,873 | ) |
| Other charges                                                |       | (602,691                    | )          | (220,329 | ) | (1,488,502 | ) | (2,307,942 | ) | — |   |
| Depreciation                                                 |       | (6,621,976                  | )          | (7,460,577 | ) | (7,595,523 | ) | (14,629,055 | ) | (4,759,437 | ) |
| Operating income (loss)                                      |       | 4,842,587                   |       | 754,533 |   | (2,507,732 | ) | (13,038,530 | ) | (2,220,932 | ) |
| Interest expense                                             |       | (2,203,792                  | )          | (1,922,710 | ) | (1,587,925 | ) | (1,577,428 | ) | (3,217,052 | ) |
| Exchange (losses) gains                                      |       | (143,217                    | )          | (179,033 | ) | (162,100 | ) | 23,590 |   | 177,333 |   |
| Income (loss) before minority interest                       |       | 2,495,578                   |       | (1,347,210 | ) | (4,257,757 | ) | (14,592,368 | ) | (5,260,651 | ) |
| Minority interest                                            |       | (94,898                     | )          | — |   | 768,837 |   | 4,723,504 |   | 1,665,805 |   |
| Net income (loss)                                            |       | $                           | 2,400,680  |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) | $ | (9,868,864 | ) | $ | (3,594,846 | ) |
|                                                         |       |                        |       |   |   |   |   |   |   |   |   |
| Net income (loss) per Limited Partnership Unit               |       | $                           | 41.74      |   | $ | (23.43 | ) | $ | (60.67 | ) | $ | (171.60 | ) | $ | (62.51 | ) |
| Average number of Limited Partnership Units  outstanding     |       | 56,935                      |       | 56,935 |   | 56,935 |   | 56,935 |   | 56,935 |   |

 
| ** **                                 | ** ** | **As of  December 31,** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **2004**                | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** |   |
| **Balance Sheet Data:**                    |       |                    |       |   |   |   |   |   |   |   |   |
| Total assets                               |       | $                       | 62,528,387 |   | $ | 61,450,329 |   | $ | 58,973,664 |   | $ | 59,167,848 |   | $ | 70,366,262 |   |
| Accounts payable to affiliates and related |       |                    |       |   |   |   |   |   |   |   |   |
| parties                                    |       | 65,398,192              |       | 66,757,685 |   | 62,691,338 |   | 58,599,365 |   | 32,690,227 |   |
| Long-term debt                             |       | —                  |       | — |   | — |   | — |   | 21,618,413 |   |
| General Partner’s (deficit)           |       | (513,842                | )          | (537,849 | ) | (524,377 | ) | (489,488 | ) | (390,799 | ) |
| Limited Partners’ capital (deficit)   |       | (1,870,222              | )          | (4,246,895 | ) | (2,913,157 | ) | 540,874 |   | 10,311,049 |   |
| Minority interest                          |       | 99,216                  |       | — |   | — |   | 739,160 |   | 5,645,599 |   |
|                                            |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 7****. Management’sDiscussion and Analysis of Financial Condition and Results****of Operations**

 

###### **Overview**

###### ** **

We are a Coloradolimited partnership that was formed in December 1991 pursuant to the publicoffering of our limited partnership interests for the purpose of acquiring oneor more cable television/telephone systems in the U.K.. Upon acquisition of oursystem, our primary investment objective was to obtain capital appreciation inthe value of our investment in the system over the term such investment is heldby us.

 

We hold 66.7% ofthe shares of NTL South Herts, which is principally engaged in the development,construction, management and operation of broadband communications networks fortelephone, cable television and internet services in the U.K.. As a result ofour ownership of 66.7% of the shares of NTL South Herts, for accountingpurposes we have consolidated the results of NTL South Herts with our results.NTL indirectly holds the remaining 33.3% of the shares of NTL South Herts. Weare reliant on the support of NTL, the ultimate parent company of the GeneralPartner, to continue our operations as a going concern.

 

We derive our revenueprincipally from monthly fees and usage charges.  Our packaging of services and pricing aredesigned to encourage our customers to use multiple services like dualtelephone and broadband, dual telephone and television or triple telephone,television and internet access.

 

The principalcomponents of our expenses include payroll and other employee related costs;interconnection costs paid to other carriers related to telephone services;television programming costs; marketing and selling costs; repairs andmaintenance; facility related costs, like rent, utilities and rates; andallowances for doubtful accounts.  Ourexpenses include certain costs that are charged by a subsidiary of NTL for theprovision of network services and support, the use of NTL’s national backbonetelephone network for carriage of our telephone traffic, as well as theprovision of technical infrastructure and network capacity by NTL for oursubscription internet access service and digital television services, theprovision of corporate services, including finance, legal, human resources andfacility services, and for the provision of IT services, including our use ofthe related IT equipment.

 

***Factors affecting our business***

 

Our residential customers account for the majority ofour total revenue. The number of customers, the number and types of servicesthat each customer uses and the prices we charge for these services drive ourrevenue. Our profit is driven by the relative margins on the types of serviceswe provide to customers. For example, broadband internet is more profitablethan ATV. Our packaging of services and our pricing are designed to encourageour customers to use multiple services like dual telephone and broadband.Factors affecting our profitability include customer churn, average revenue peruser, or ARPU, and competition.

 

*SelectedOperating Data*

 

We set forth in the following table certain dataconcerning our franchise at December 31, 2004 and 2003:

 

| ** **                       | ** ** | **December 31** | ** ** | **December 31** | ** ** |
|----------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                       | ** ** | **2004**        | ** ** | **2003**        | ** ** |
|                             |       |            |       |            |       |
| Homes passed (1)                 |       | 93,063          |       | 92,081          |       |
| Homes marketable (2)             |       | 93,063          |       | 92,081          |       |
| Total customers                  |       | 35,643          |       | 33,121          |       |
| Digital cable subscribers        |       | 22,000          |       | 20,780          |       |
| Analog cable subscribers         |       | 3,137           |       | 3,996           |       |
| Broadband Internet subscribers   |       | 15,275          |       | 10,850          |       |
| Telephony subscribers            |       | 31,296          |       | 29,674          |       |
| Penetration (homes marketed) (3) |       | 38.0            | %          | 36.0            | %          |
| Churn (4)                        |       | 1.3             | %          | 1.1             | %          |

 

24

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

 

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

 

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

 

(4)          Customerchurn is calculated by taking the total disconnects during the month anddividing them by the average number of customers during the month.  Average monthly churn during the quarter isthe average of the three monthly churn calculations within the quarter.

 

*Customer Churn.*  Customer churn is a measure of the number ofcustomers who stop using our services. An increase in our customer churn canlead to increased costs and reduced revenue. We continue to focus on improvingour customer service and enhancing and expanding our service offerings toexisting customers in an effort to manage our customer churn rate. Although ourability to reduce our customer churn rate beyond a base level is limited byfactors like customers moving outside our network service area, in particularduring the summer season, managing our customer churn rate is a significantcomponent of our business plan. To help meet these objectives, NTL is in theprocess of integrating various billing systems and customer databases. Noassurances can be made as to the timing of further integration efforts or thedegree of integration ultimately accomplished. In addition, our customer churn rate may also increase if we are unableto deliver our services over our network without interruption or if we fail tomatch offerings by our competitors.

 

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

 

***Capital Expenditures.***  Our business requires substantial capitalexpenditures on a continuing basis for various purposes, including expandingand upgrading our network, investing in new customer acquisitions, and offeringnew services. If we do not continue to invest in our network, our ability toretain and acquire customers may be hindered. Therefore, our liquidity and theavailability of cash to fund capital projects are important drivers of ourrevenues. When our liquidity is restricted, so is our ability to meet ourcapital expenditure requirements. We believe that our cash from operations andcash from NTL, will be sufficient for our cash requirements in 2005.

 

***Currency Movements.***  Because revenue and expenses from ourprincipal operations are denominated primarily in pounds sterling but we reportour financial results in U.S. dollars, our financial results are impacted bycurrency fluctuations, which are unrelated to our underlying results ofoperations.

 

***Seasonality.***  Some revenue streams are subject to seasonalfactors. For example, telephone usage revenue by residential customers and businessestends to be slightly lower during summer holiday months. Our residential customerchurn rates include persons who disconnect service because of moves, resultingin a seasonal increase in our churn rates during the summer months when higherlevels of U.K. house moves occur and students leave their accommodationsbetween school years.

 

***Integrationof Billing Systems.*** NTL’s historical growth throughacquisitions resulted in it inheriting numerous billing systems, which had manydifferences in functionality, resulting in inefficiencies in its customerservice processes. NTL has consolidated the number of billing systems for itsresidential customers from eleven at the beginning of 2003 to three at the endof 2004. NTL has also migrated approximately 3.6 million accounts to a newbilling platform.

 

NTL continues to evaluate how many billing systems itwill utilize for residential and business customers, taking into account theprospects for improved efficiencies and better customer service as well as the potentialfor disruption in the business from additional migration of data. During 2004,NTL re-phased the program schedule so that it would be substantially completedin the second quarter of 2005. NTL is currently reevaluating the timing of theprogram’s completion, and accordingly no assurance can be made as to the timingof further integration efforts. The total cost of the integration program isestimated to be approximately £103.0 million, or $197.3 million, of which NTLhas incurred approximately £88.5 million, or $169.6 million, through December31, 2004.

 

25

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***Call Center Consolidation.***On April 7, 2004, NTL announced the consolidation over the next 18 months ofits 13 U.K. customer service call centers into three equipped to handleanticipated expansion of its customer base. Following an internal review, threespecialist call centers will be retained and developed and will be supported byfour sales and customer support sites, located throughout the U.K. As part ofthe consolidation, NTL intends to make additional investments in technology andtraining in order to streamline processes and generate efficiencies. As ofDecember 31, 2004, NTL has incurred £23.8 million, or $43.7 million of costs,and expects to incur a total cost of approximately £29.0 million, or $55.6million, to execute this program including property costs that will be expensedas the properties are vacated.

 

If the integration of NTL’s billing systems or theconsolidation of its call centers are not successful, NTL could experience anadverse effect on our customer service, customer churn rate and costs ofmaintaining these systems going forward. NTL could also experience operationalfailures related to billing and collecting revenue from our customers which,depending on the severity of the failure, could have a material adverse effecton our business.

 

###### **Critical Accounting Policies**

###### ** **

Our consolidated financial statements and relatedfinancial information are based on the application of accounting principlesgenerally accepted in the United States, or GAAP. GAAP requires the use ofestimates, assumptions, judgments and subjective interpretations of accountingprinciples that have an impact on the assets, liabilities, revenue and expenseamounts reported, as well as disclosures about contingencies, risks andfinancial condition. The following critical accounting policies have thepotential to have a more significant impact on our financial statements. Animpact could occur because of the significance of the financial statement itemto which these policies relate, or because these policies require more judgmentand estimation than other matters owing to the uncertainty related tomeasuring, at a specific point in time, transactions that are continuous innature.

 

***ForeignCurrency Translation:***

 

Our principal operating functional currency is thepound sterling, while our reporting currency is the U.S. dollar. The assets andliabilities of our U.K. subsidiary have been translated using the exchangerates in effect at the balance sheet dates and revenue and expenses have beentranslated at the weighted average rates for the respective years. Exchangegains and losses on translation of our net equity investments in oursubsidiaries are reported as a separate component of accumulated othercomprehensive income (loss) in partners’ capital (deficit). Foreign currencytransaction gains and losses are recorded in the statements of operations.

 

***FixedAssets:***

 

•             Fixedassets, net, totaled $62.5 million and $61.5 million, representing total assetsat December 31, 2004 and 2003, respectively. Fixed assets, net are statedat cost less accumulated depreciation.

 

•             The costof fixed assets includes amounts capitalized for labor and overhead expended inconnection with the design and installation of our operating network equipmentand facilities. Costs associated with initial customer installations, additionsof network equipment necessary to enable advanced services, acquisition ofadditional fixed assets and replacement of existing fixed assets arecapitalized. The costs of reconnecting the same service to a previouslyinstalled premise are charged to expense in the period incurred. Costs forrepairs and maintenance are charged to expense as incurred.

 

•             Weassign fixed assets useful lives that impact the annual depreciation expense.The assignment of useful lives involves significant judgments and the use ofestimates. Our managers use their experience and expertise in applyingjudgments about appropriate estimates. Changes in technology or changes inintended use of these assets may cause the estimated useful life to change,resulting in higher or lower depreciation charges or asset impairment charges.

 

26

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***Revenue:***

 

We recognize revenue only when it is realized orrealizable and earned. We recognize revenue when all of the following arepresent:

 

•     persuasive evidence of anarrangement exists between us and our customers;

•     delivery has occurred or theservices have been rendered;

•     the price for the service isfixed or determinable; and

•     collectibility is reasonablyassured.

 

Revenues are invoiced and recorded as part of aperiodic billing cycle, and are recognized as the services are provided. At theend of each period, adjustments are recorded to defer revenue relating toservices billed in advance and to accrue for earned but unbilled services.

 

•             *Telephone, cable television and internet revenues* arerecognized as the services are provided to customers.

 

•             *Bundled services revenue* is recognized at the time theservices are provided to the customer or the performance of all of the serviceshave been completed. We apply the provisions of EITF No. 00-21 *Accounting for Revenue Arrangements with Multiple Deliverables*to assess whether the components of the bundled services should be recognizedseparately.

 

•             *Installation revenue* is recognized by applying theprovisions of FASB Statement No. 51 *Financial Reporting byCable Television Companies* in relation to connection and activationfees for cable television, as well as telephone and internet services, on thebasis that we market and maintain a unified fiber network through which weprovide all of these services. Installation revenue is recognized at the time the installation has beencompleted to the extent that those fees are less than direct selling costs.Installation fees in excess of direct selling costs are deferred and amortizedover the expected life of the customer’s connection.

 

•             *Rental revenue* in respect of line rentals and rental ofequipment provided to customers is recognized on a straight-line basis over theterm of the rental agreement.

 

***OtherPolicies:***

 

•             Asubsidiary of NTL provides infrastructure and management support services tous. The related charges represent our portion of costs incurred by thesubsidiary of NTL for the benefit of all U.K. operations within NTL. Thecharges are made on the basis of an allocation formula appropriate to eachcategory of charge.

 

•             Wemaintain allowances for doubtful accounts and other receivables to reflectestimated losses resulting from the potential inability of our customers tomake payments. These allowances are estimated based on the current aging ofreceivables, prior collection experience and future expectations of conditionsthat might impact the collectibility. If the financial condition of ourcustomers were to deteriorate resulting in impairment in their ability to makepayments, additions to the allowances may be required.

 

•             Ourdetermination of the treatment of contingent liabilities in the financialstatements is based on a view of the expected outcome of the applicablecontingency. We consult legal counsel on matters related to litigation. Weconsult both internal and external experts with respect to other matters thatarise in the ordinary course of business. Examples of these matters that arebased on assumptions, judgments and estimates include amounts to be paid toterminate some agreements included in restructuring charges and the amounts tobe paid to settle some other liabilities. A liability is accrued if thelikelihood of occurrence of an adverse outcome is probable and the amount iscapable of estimation.

 

•             We incurinterconnection and related costs from other carriers relating to the provisionof telephone services. These carriers can make retrospective adjustments tocharges for these services, which requires us to estimate certain charges for aparticular period. Actual charges may differ from those estimated.

 

27

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These policies may need to be revised in the future inthe event that changes to our business occur.

 

###### **Results of Operations**

###### ** **

***Yearsended December 31, 2004 and 2003***

 

We present belowsummarized consolidated financial information for the years ended December 31,2004 and 2003:

 
| ** **                                  | ** ** | **Year ended December 31,** | ** ** | **Increase (decrease)** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **2004**                    | ** ** | **2003**                | ** ** | **$** | ** ** | **%** | ** ** |
|                                        |       |                        |       |                    |       |   |   |   |   |
| Revenue                                     |       | $                           | 38,042,360 |                    | $          | 32,772,962 |   | $ | 5,269,398 |   | 16.1 | % |
| Cost of goods sold                          |       | (11,550,360                 | )          | (10,662,169             | )          | 888,191 |   | 8.3 | %  |
| Selling, general and adminstrative expenses |       | (103,018                    | )          | (130,840                | )          | (27,822 | ) | (21.3 | )% |
| Management fees and allocated overhead      |       | (14,321,728                 | )          | (13,544,514             | )          | 777,214 |   | 5.7 | %  |
| Other charges                               |       | (602,691                    | )          | (220,329                | )          | 382,362 |   | 173.5 | %  |
| Depreciation                                |       | (6,621,976                  | )          | (7,460,577              | )          | (838,601 | ) | (11.2 | )% |
| Operating income                            |       | 4,842,587                   |       | 754,533                 |       | 4,088,054 |   | 541.8 | %  |
| Interest expense                            |       | (2,203,792                  | )          | (1,824,622              | )          | 379,170 |   | 20.8 | %  |
| Other interest                              |       | —                      |       | (98,088                 | )          | (98,088 | ) | (100.0 | )% |
| Exchange losses                             |       | (143,217                    | )          | (179,033                | )          | (35,816 | ) | (20.0 | )% |
| Net income (loss) before minority interests |       | 2,495,578                   |       | (1,347,210              | )          | 3,842,788 |   | 285.2 | %  |
| Minority interests                          |       | (94,898                     | )          | —                  |       | (94,898 | ) | — | %  |
| Net income (loss)                           |       | $                           | 2,400,680  |                    | $          | (1,347,210 | ) | $ | 3,747,890 |   | 278.2 | %  |

 

*Revenue*

 

For the year ended December 31, 2004, revenueincreased by 16.1% to $38.0 million from $32.8 million in 2003 and revenueexpressed in pounds sterling increased by 3.5% to £20.8 million in 2004 from£20.0 million in 2003. We have increased our revenue through price rises and morebroadband customers served by the South Herts System. At December 31, 2004, weserved 15,275 broadband customers compared with 10,850 at December 31, 2003.

 

*Expenses*

 

*Costs of goods sold. *For the year ended December31, 2004, costs of goods sold increased by 8.3% to $11.6 million from $10.7million in 2003 but cost of goods sold expressed in pounds sterling decreasedby 3.4% to £6.3 million in 2004 from £6.5 million in 2003. Costs of goods soldas a percentage of revenue declined to 30.4% for the year ended December 31,2004, from 32.5% for 2003 primarily because revenue growth was focused onhigher-margin products and customers, particularly broadband internet services.

 

*Selling, general and administrative expenses. *For the year ended December31, 2004, selling, general and administrative expenses decreased by 21.3% to$103,018 from $130,840 in 2003. We have made savings in selling, general andadministrative costs through negotiated reductions in investor relations’costs.

 

*Management fees and allocated overhead. *For the year ended December31, 2004, management fees and allocated overhead increased by 5.7% to $14.3million from $13.5 million in 2003 but management fees and allocated overheadexpressed in pounds sterling decreased by 5.7% to £7.8 million in 2004 from£8.3 million in 2003. The business of NTL South Herts is managed as an integralpart of NTL. The combined costs of managing the larger group are allocated toeach entity with the NTL group, including NTL South Herts, on a consistent andproportional basis according to the level of trading in that entity. TheGeneral Partner considers this to be a fair and reasonable method as managementas an integral part of a larger group to reap benefits of synergy maximizesreturns.  The decrease in the amountscharged to us resulted from decreases in the cost of NTL’s outsourcedinformation technology services, savings in property and related facilitycosts, and reductions in employee costs and other cost efficiencies that havebeen largely offset by higher sales and marketing costs and involuntaryemployee termination costs following further business rationalizations by NTLin the fourth quarter of 2004.

 

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*Other charges. *For the year ended December 31, 2004, other chargesincreased to $602,691 from $220,329 in 2003. Other charges includerestructuring costs allocated to us by a subsidiary of NTL. These costs are foremployee severance and related costs. Charges allocated to us by a subsidiaryof NTL are made on the basis of an allocation formula appropriate to eachcategory of charge that is based on management’s judgment of a reasonablemethodology given the facts and circumstances. Other charges in 2004 relate to NTL’s call center consolidation program.

 

*Depreciation expense*

 

For the year ended December 31, 2004, depreciationexpense decreased to $6.6 million from $7.5 million in 2003. During 2004, weevaluated the remaining useful economic lives of our fixed assets.  As of January 1, 2004, we adopted new usefuleconomic lives.  The change in livesreduced the depreciation charge by $0.7 million for the year ended December 31,2004.

 

*Interest expense*

 

For the year ended December 31, 2004, interest expenseincreased to $2.2 million from $1.8 million in 2003. We incur interest onmanagement fees paid on our behalf by the General Partner. The increase ininterest expense is owing to the higher level of these unpaid fees as well asforeign exchange movements.

 

We paid no cash interest for the years ended December31, 2004 and 2003.

 

*Exchange (losses)*

 

For the year ended December 31, 2004, foreign currencyexchange losses were $143,217 as compared with $179,033 for 2003.  The change in exchange losses is primarilyattributable to fluctuations in the valuation of the U.S. dollar on certain ofour assets and transactions, which are denominated in pounds sterling.  Our results of operations will continue to beaffected by foreign exchange rate fluctuations.

 

*MinorityInterest*

 

In 2004, we recorded a minority interest of $94,898. Werecord a charge for the minority interest in NTL South Herts when the assets ofNTL South Herts exceed its liabilities. Until the quarter ended December 31,2004, NTL South Herts’ liabilities exceeded its assets and consequently, we hadnot recognized the resulting minority interest asset since such an asset wouldnot be recoverable. Under U.K. law, the shareholders of a U.K. limited companyare protected from the company’s liabilities. The minority interest charge for the year ended December 31, 2004represented 33.33% of the net assets as at that date.

 

*Net income (loss)*

 

For the year ended December 31, 2004, net income was$2.4 million as compared with a net (loss) of $1.3 million in 2003. This changewas primarily a result of the improvement in our operating performance.

 

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***YearsEnded December 31, 2003 and 2002***

 

We present belowsummarized consolidated financial information for the years ended December 31,2003 and 2002:

 
| ** **                                  | ** ** | **Year ended December 31,** | ** **       | **Increase (decrease)** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------------|-------------------------|------------|
| ** **                                  | ** ** | **2003**                    | ** **       | **2002**                | ** ** | **$** | ** ** | **%** | ** ** |
|                                        |       |                        |             |                    |       |   |   |   |   |
| Revenues                                    |       | $                           | 32,772,962       |                    | $          | 29,552,065 |   | 3,220,897 |   | 10.9 | % |
| Cost of goods sold                          |       | (10,662,169                 | )                | (10,772,887             | )          | (110,718 | ) | (1.0 | )% |
| Selling, general and adminstrative expenses |       | (130,840                    | )                | (167,225                | )          | (36,385 | ) | (21.8 | )% |
| Management fees and allocated overhead      |       | (13,544,514                 | )                | (12,035,660             | )          | 1,508,854 |   | 12.5 | % |
| Other charges                               |       | (220,329                    | )                | (1,488,502              | )          | (1,268,173 | ) | (85.2 | )% |
| Depreciation                                |       | (7,460,577                  | )                | (7,595,523              | )          | (134,946 | ) | (1.8 | )% |
| Operating income (loss)                     |       | 754,533                     |             | (2,507,732              | )          | 3,262,265 |   | 86.3 | % |
| Interest expense                            |       | (1,824,622                  | )                | (1,497,775              | )          | 326,847 |   | 21.8 | % |
| Other interest                              |       | (98,088                     | )                | (90,150                 | )          | 7,938 |   | 8.8 | % |
| Exchange (losses) gains                     |       | (179,033                    | )                | (162,100                | )          | 16,933 |   | 10.4 | % |
| Net loss before minority interests          |       | (1,347,210                  | )                | (4,257,757              | )          | (2,910,547 | ) | (127.4 | )% |
| Minority interests                          |       | —                      |             | 768,837                 |       | (768,837 | ) | (100.0 | )% |
| Net loss                                    |       | $                           |  (1,347,210 | )                       | $          |  (3,488,920 | ) | (2,141,710 | ) | (227.4 | )% |
|                                             |            |                             |                  |                         |            |  |  |  |  |  |  |  |  |

 

*Revenue*

 

For the year endedDecember 31, 2003, revenue increased by 10.9% to $32.8 million from $29.6million for 2002 primarily owing to foreign exchange movements. Revenueexpressed in pounds sterling increased by 1.9% to £20.0 million in 2003 from£19.7 million in 2002. We have increased our revenue through price rises andmore broadband customers served by the South Herts System. At December 31,2003, we served 10,850 broadband customers compared with 5,741 at December 31,2002.

 

*Expenses*

 

*Costs of goods sold. *For the year ended December31, 2003, costs of goods sold decreased by 1.0% to $10.7 million from $10.8million in 2002.  Cost of goods soldexpressed in pounds sterling decreased by 9.0% to £6.5 million in 2003 from£7.2 million in 2002.  Costs of goodssold as a percentage of revenue declined to 32.5% for the year ended December31, 2003, from 36.5% for 2002.  We havebenefited from the efficiencies that NTL has gained in the negotiatedreductions in the costs of television programming and reductions in the costsof interconnection owing to the more effective routing of outboundtraffic.  In addition, we have alsobenefited from a release of certain accruals in respect of favorableresolutions by NTL of billing matters with certain providers of interconnectrelated services.

 

*Selling, general and administrative expenses. *For the year ended December31, 2003, selling, general and administrative expenses decreased by 21.8% to$130,840 from $167,225 in 2002.  We havemade savings in selling, general and administrative costs through negotiatedreductions in investor relations’ costs and insurance.

 

*Management fees and allocated overhead. *For the year ended December31, 2003, management fees and allocated overhead increased by 12.5% to $13.5million from $12.0 million in 2002. Management fees and allocated overheadexpressed in pounds sterling increased by 2.0% to £8.3 million in 2003 from£8.1 million in 2002.  The increase inthe amounts charged to us resulted from more marketing and selling activitiesin 2003, together with higher employee related costs associated with incentivecompensation plans.  These increases havebeen partly offset by further operational savings.

 

*Othercharges. *For the yearended December 31, 2003, other charges decreased by 85.2% to $220,329 from $1.5million in 2002.  Other charges includerestructuring costs allocated to us by a subsidiary of NTL.  These costs are for employee severance andrelated costs.  Charges allocated to usby a subsidiary of NTL are made on the basis of an allocation formulaappropriate to each category of charge that is based on management’s judgmentof a reasonable methodology given the facts and circumstances.

 

30

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*Depreciationexpense*

 

For the year endedDecember 31, 2003, depreciation expense decreased to $7.5 million from $7.6million in 2002. During 2003, we evaluated the remaining useful economic livesof our fixed assets.  As of January 1,2004, we adopted new useful economic lives.

 

*Interest expense*

 

For the year ended December 31, 2003, interest expenseincreased to $1.8 million from $1.5 million in 2002. We incur interest ondeferred charges paid on our behalf by the General Partner. The increase ininterest expense is owing to the increase in the level of unpaid management feeas well as foreign exchange movements.

 

We paid no cash interest for the years ended December31, 2003 and 2002.

 

*Exchange(losses)*

 

For the year ended December 31, 2003, foreign currencyexchange losses were $179,033 compared with losses of $162,100 in for2002.  The change in exchange losses isprimarily attributable to fluctuations in the valuation of the US dollar oncertain of our assets and transactions, which are denominated in poundssterling. Our results of operations will continue to be affected by foreignexchange rate fluctuations.

 

*MinorityInterest*

 

In 2003, we recorded no minority interests. AtDecember 31, 2003, NTL South Herts’ liabilities exceeded its assets. We havenot recognized the resulting minority interest asset since such an asset is notrecoverable. Under U.K. law, the shareholders of a U.K. limited company areprotected from the company’s liabilities.

 

*Net(loss)*

 

For the year ended December 31, 2003, net loss was$1.3 million as compared with a net loss of $3.5 million in the year endedDecember 31, 2002. This change was primarily aresult of improvement inoperating performance.

 

**Statement of Cash Flows**

 

***Year Ended December 31, 2004 and 2003***

 

For the year ended December 31, 2004, cash provided byoperating activities increased to $3.3 million from $1.5 million in 2003, owingto the improvement in our operating performance.

 

For the year ended December 31, 2004, purchase offixed assets increased to $3.3 million from $1.5 million in 2003.  Expressed in pounds sterling, the purchase offixed assets increased to £1.8 million from £0.9 million in 2003. Purchase offixed assets relate primarily to customer installations, particularlybroadband.

 

***Year Ended December 31, 2003 and 2002***

 

For the year ended December 31, 2003, cash provided byoperating activities decreased to $1.5 million from $1.9 million in 2002, owingto the higher repayment of accounts payable to affiliates and related partiesoffsetting the increase from the improvement in our operating performance.

 

For the year ended December 31, 2003, purchase offixed assets decreased to $1.5 million from $1.9 million in 2002.  Purchase of fixed assets relate primarily tocustomer installations. During 2003, we continued to restrict purchase of fixedassets in an effort to conserve cash.

 

31

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**Liquidityand Capital Resources**

 

##### ***Outstandingindebtedness***

##### *** ***

We have nofinancing independent of NTL.  We arereliant upon the support of NTL to continue our operations. As of December 31, 2004we had consolidated current liabilities of $65.4 million due to NTL Groupcompanies compared with $66.8 million as of December 31, 2003.

 

Historically, oursource of cash had been the net proceeds of our offerings of limitedpartnership interests and our principal uses of cash have been capitalcontributions to NTL South Herts in order to fund our proportionate share ofthe construction costs of the South Herts System.

 

Accordingly, untilsuch time as NTL South Herts begins to pay dividends on its ordinary shares(which is not expected in the foreseeable future) we will be required to fundour administrative expenses by additional issuances of limited partnershipinterests or from borrowings. It is unlikely that we will be able to sell debtor equity securities in the public markets at least in the short term or toobtain financing from commercial banks. Accordingly, we are dependent on NTLfor funds to cover operating expenses, and will continue to be dependent uponNTL to meet our liquidity requirements for the foreseeable future.  We expect that cash from our operations in2005 will be utilized fully for the purchase of fixed assets includingconnecting new customers to our networks.

 

***NTL’sCompleted Restructuring***

 

On May 8, 2002,NTL (then known as NTL Communications Corp.), the ultimate parent company ofour General Partner, NTL Europe (then known as NTL Incorporated and the formerparent company of NTL Communications Corp.) and certain of their subsidiariesfiled a pre-arranged joint reorganization plan under Chapter 11 of the U.S.Bankruptcy Code. We were not included in the Chapter 11 filing. The Plan becameeffective on January 10, 2003, at which time NTL emerged from Chapter 11reorganization.

 

Pursuant to thePlan, NTL Europe and its subsidiaries and affiliates were split into twoseparate groups, and NTL and NTL Europe each emerged as independent publiccompanies. NTL became the holding company for NTL Europe’s principal U.K. andIreland assets and the ultimate parent company of our General Partner, and NTLEurope became the holding company for its continental European and certainother assets.  We are no longeraffiliated to NTL Europe.

 

###### **Contractual Obligations and Commercial Commitments**

###### ** **

We have nosignificant contractual obligations and commercial commitments as of December31, 2004.

 

**Item 7A.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

The functionalcurrency of NTL South Herts is pounds sterling and all revenue andsubstantially all costs are incurred in pounds sterling. We report in U.S.dollars. Therefore, we are exposed to fluctuations in the pound sterling toU.S. dollar exchange rate.

 

The aggregatepotential loss from a hypothetical one-percent fall in the pound sterling /U.S. dollar exchange rate is $29,725 for the year ended December 31, 2004.

 

We have no debtother than amounts due to affiliates. As of December 31, 2004, we hadapproximately $65.4 million in amounts due to NTL. Consequently, we have littleinterest rate risk.

 

32

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**Item 8. Financial Statements andSupplementary Data**

 

Our consolidatedfinancial statements, the notes thereto and the report of the independentauditors are on pages F-1 to F-14 of this annual report and are incorporated byreference. The following is a summary of the quarterly results of operationsfor the years ended December 31, 2004 and 2003.

 
| ** **                              | ** ** | **2004**               | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Three Months Ended** | ** ** |
| ** **                              | ** ** | **March 31**           | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                                    |       |                   |       |   |   |   |   |   |   |
| Revenues                                |       | $                      | 9,358,412  |   | $ | 9,206,782 |   | $ | 9,539,081 |   | $ | 9,938,085 |   |
| Operating income                        |       | 1,191,736              |       | 1,001,281 |   | 1,377,008 |   | 1,272,562 |   |
| Income before minority interest         |       | 593,267                |       | 491,858 |   | 828,265 |   | 582,188 |   |
| Minority interest                       |       | —                 |       | — |   | — |   | (94,898 | ) |
| Net income                              |       | 593,267                |       | 491,858 |   | 828,265 |   | 487,290 |   |
| Net income per limited partnership unit |       | 10.32                  |       | 8.55 |   | 14.40 |   | 8.47 |   |
|                                         |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **2003**               | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Three Months Ended** | ** ** |
| ** **                              | ** ** | **March 31**           | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                                    |       |                   |       |   |   |   |   |   |   |
| Revenues                                |       | $                      | 7,842,694  |   | $ | 8,087,525 |   | $ | 8,205,910 |   | $ | 8,636,833 |   |
| Operating (loss) income                 |       | (156,702               | )          | 13,176 |   | 375,834 |   | 522,225 |   |
| Net (loss)                              |       | (583,914               | )          | (533,509 | ) | (111,285 | ) | (118,502 | ) |
| Net (loss) per limited partnership unit |       | (10.15                 | )          | (9.28 | ) | (1.94 | ) | (2.06 | ) |
|                                         |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

33

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**Item 9. Changes in andDisagreements with Accountants on Accounting and****Financial Disclosure**

 

Not applicable.

 

**Item 9A. Controls and Procedures**

 

(a) *Disclosure Controls and Procedures*. Our management, with theparticipation of the Chief Executive Officer and Chief Financial Officer of NTL*, 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 SecuritiesExchange Act of 1934, as amended, or the Exchange Act) as of the end of theperiod covered by this report. Based on such evaluation, NTL’s Chief ExecutiveOfficer and Chief Financial Officer have concluded that, as of the end of suchperiod, these controls and procedures are effective to ensure that informationrequired to be disclosed by the registrant in the reports the registrant filesor submits under the Exchange Act is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms. Thesedisclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by theregistrant in the reports that it files or submits is accumulated andcommunicated to the registrant’s management, including NTL’s chief executiveofficer and chief financial officer, as appropriate to allow timely decisionsregarding required disclosure.

 

We are not anaccelerated filer, as defined in Rule 12b-2 of the Exchange Act.  As a result, we are required to comply withthe requirements of Section 404 of the Sarbanes-Oxley Act, as adopted by theSEC, for fiscal years ending on or after July 15, 2006.  We therefore expect to file our firstinternal control report certification and related attestation report whenfiling an Annual Report on Form 10-K for the year ending December 31, 2006.

 

(b)  *Changes in InternalControls*. There have been no changes in our internal controls overfinancial reporting during the quarter ended December 31, 2004 that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting covered by this Report.

 

----

*                 ThePartnership has no Chief Executive Officer or Chief Financial Officer. RobertMackenzie and Robert Gale are Directors of ntl Directors Limited, which is acorporate director of NTL Fawnspring Limited, the general partner of thePartnership.

 

**Item 9B. Other Information**

 

**None.**

 

34

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**PART III**

** **

**Item 10. Directors and ExecutiveOfficers of the Registrant**

 

We have noofficers or directors. Certain information concerning directors and executiveofficers of our General Partner is set forth below.

 
| **Name**         | ** ** | **Age** | ** ** | **Title**              |
|------------------|------------|---------|------------|------------------------|
| Robert Mackenzie |       | 42      |       | Director and Secretary |
| Robert Gale      |       | 44      |       | Director               |

 

*RobertMackenzie*

 

Mr. Mackenzie, age 42, has been the Secretary andDirector of our General Partner since May 30, 2000 and is NTL’s Group LegalDirector. He joined International CableTel Incorporated in 1993, to establishthe legal department in the U.K. and act as Company Secretary for the newlyformed CableTel, subsequently renamed NTL. From 1988 to 1993, Mr. Mackenzieworked for Theodore Goddard as a Solicitor in the Corporate Finance departmentadvising public and private companies on corporate finance, takeovers, domesticand international mergers and acquisitions. He was additionally seconded tocorporate brokers Phoenix Securities Ltd. as Mergers & Acquisition Manager.Previously he worked for Mischon de Reya, handling High Court commerciallitigation. He was admitted as a Solicitor in 1987, and graduated in law fromKing’s College, University of London. His Law Society Finals were taken atCollege of Law, London.

 

*RobertGale*

 

Mr. Gale, age44, is the vice president—controller of NTL. He has held this position sinceJune 17, 2003. Mr. Gale joined NTL in May 2000 fromCable & Wireless Communications plc, where he was head of finance forthe ConsumerCo business acquired by NTL. In October 2000, he was appointedas group director of financial control for NTL’s UK operations. He had joinedCable & Wireless in January 1998. From 1995 to 1997,Mr. Gale was chief financial officer of ComTel, a cable operatorsubsequently acquired by NTL. Between 1989 and 1995, Mr. Gale was groupfinancial controller at TVS Entertainment PLC, a UK television broadcaster andprogram producer. Mr. Gale is a chartered accountant and worked for KPMGat its London office between 1981 and 1989.

 

We have no Audit Committee. The Audit Committee of theboard of directors of NTL reviews, acts on and reports to the board ofdirectors of NTL with respect to various auditing and accounting matters. Inthis capacity, the audit committee acts on our behalf as necessary.  The current members of the Audit Committeeare Charles K. Gallagher, who is its chairman and who the board of directorshas determined to be an audit committee financial expert, David Elstein andGeorge R. Zoffinger.  The members of theAudit Committee are independent within the meaning of the Nasdaq NationalMarkets listing standards currently applicable to NTL.

 

As we have no officers, directors, or employees, wehave not adopted a code of ethics. However, NTL hasadopted a code of ethics for its senior executive and financial officers, whichNTL filed as exhibit 14.1 to its 2003 Form 10-K. NTL’s code of ethicsestablishes policies to promote honest and ethical conduct and to deterwrongdoing, including policies governing actual or apparent conflicts ofinterest, compliance with laws and prompt internal reporting for violations.

 

**Item 11. Executive Compensation**

 

We have no employees;however, various personnel are required to operate our network. Personnel areemployed by NTL and its affiliates and, pursuant to the terms of ourPartnership Agreement; NTL and its affiliates charge the cost of suchemployment to us as a direct reimbursement item. See Item 13, “CertainRelationships and Related Transactions” for a description of the relationshipbetween us and NTL.

 

35

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**Item 12. Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

 

Our GeneralPartner purchased one of our partnership interests by contributing $1,000 toour capital.

 

No person orentity known to us owns more than 5% of our limited partnership interests. Nodirectors or executive officers of our General Partner beneficially own any ofour limited partnership interests.

 

**Item 13. Certain Relationshipsand Related Transactions**

 

Our GeneralPartner and its affiliates engage in certain transactions with us ascontemplated by our Partnership Agreement and as disclosed in the prospectusesfor our public offerings. Our General Partner believes that the terms of suchtransactions, which are subject to our Partnership Agreement, are generally asfavorable as those that we could have obtained from unaffiliated parties. Thisdetermination has been made by our General Partner in good faith, but none ofthe terms were or will be negotiated at arm’s-length and there can be noassurance that the terms of such transactions have been or will be as favorableas those that we could have obtained from unaffiliated parties.

 

An affiliate ofour General Partner is entitled to be paid a consulting fee by NTL South Herts.During the construction phases of the cable television/telephone system, thisconsulting fee was 2% of construction costs. After completion of constructionof each portion of the system, the consulting fee for the completed portion is5% of gross revenue, excluding revenue from the sale of cabletelevision/telephone systems. Consulting fees paid or payable by us for theyear ended December 31, 2004 totaled $1,902,118.

 

Our GeneralPartner and its affiliates are entitled to reimbursement from NTL South Hertsfor direct and indirect expenses allocable to the operation of its network andfrom us for direct and indirect expenses allocable to our operation, whichinclude but are not limited to rent, supplies, telephone, travel and salariesof any full or part time employees.

 

Our GeneralPartner and its affiliates may make advances to, and defer collection of feesand allocated expenses owed by, us, although they are not required to do so. Wewill be charged interest on such advances and deferred amounts. Interestcharges incurred by us for the year ended December 31, 2004 amounted to$164,515.

 

36

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**14.          Principal Accountant Fees and Services**

 

Ernst & Young LLP are our principal accountants.We are not billed directly by Ernst & Young for services, but are allocateda proportion of the fees charged to NTL by Ernst & Young. We provide in thetable below an analysis of the fees charged to NTL by Ernst & Young andallocated to us in the each of the two years ended December 31, 2004 and 2003.

 
| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|-----------------------------|------------|
| ** **         | ** ** | **2004**                    | ** ** | **2003** | ** ** |
|               |       |                        |       |   |   |
| Audit fees         |       | $                           | 82,360     |   | $ | 32,739 |   |
| Audit-Related fees |       | 6,160                       |       | 1,545 |   |
| Tax fees           |       | 69,510                      |       | 41,964 |   |
| All other fees     |       | —                      |       | — |   |
|               |       | $                           | 158,030    |   | $ | 76,248 |   |

 

*Audit fees*. Audit fees representthe aggregate services provided to us by Ernst & Young for professionalservices rendered for the audit of our annual financial statements and reviewof financial statements included in our Form 10-K, including accountingconsultations on matters addressed during the audit and interim reviews. Thesefees also include services that are provided in connection with our statutoryand regulatory filings.

 

*Audit-Related fees*. Audit-Relatedfees represent the aggregate fees charged for assurance and related services byErnst & Young that are related to the audit or review of our financialstatements, including other accounting consultations. Audit-Related servicesinclude advice relating to the Sarbanes-Oxley Act of 2002 including advice onreporting on internal controls under Section 404.

 

*Tax fees*. Tax fees represent theaggregate fees charged for professional services rendered by Ernst &Young for tax compliance, tax advice and tax planning. Tax services includedcompliance work regarding the preparation and filing of our U.S. and U.K. taxreturns.

 

*All other fees*.  All other fees represent the aggregate feescharged for products and services provided by Ernst & Young.

 

**Audit Committee’s pre-approval policies andprocedures**

 

We have no Audit Committee. The Audit Committee of theboard of directors of NTL reviews, acts on and reports to the board of directorsof NTL with respect to various auditing and accounting matters. In thiscapacity, the audit committee acts on our behalf as necessary.  The current members of the Audit Committeeare Charles K. Gallagher, who is its chairman and who the board of directorshas determined to be an audit committee financial expert, David Elstein andGeorge R. Zoffinger.  The members of theAudit Committee are independent within the meaning of the Nasdaq NationalMarkets listing standards currently applicable to NTL.

 

NTL’s Audit Committee’s policy on pre-approvalrequirements for audit and other services provided to NTL and us by Ernst &Young is as follows:

 

•                  Annually, NTL’s Audit Committeeagrees the terms, including fees, of the engagement for the services to be providedby Ernst & Young as part of the recurring annual audit.

 

•                  Quarterly, NTL’s Audit Committeepre-approves the Audit-Related fees, Tax fees and Other fees for services to beprovided by Ernst & Young to us in respect of services that are either acontinuation of services already pre-approved, or services which are expectedto commence during the following three months. These limits represent amounts that may not be exceeded without approvalby the Audit Committee.

 

•                  Between meetings, the Chairman of theAudit Committee has delegated authority to approve services on an ad-hoc basisto meet specific needs up to £100,000 per engagement.

 

37

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**PART IV**

 

**Item 15. Exhibits and FinancialStatement Schedules**

 

(a)                                   (1)*Financial Statements—*See list ofFinancial Statements on page F-1.

 

(2)*FinancialStatement Schedules—*See list of Financial Statement Schedules onpage F-1.

 

(3)*Exhibits—*SeeExhibit Index below.

 

**EXHIBIT INDEX**

 
| **Exhibit  No.** | ** ** | ** **                                                                                                                                                                                                                                  |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 on  March 31, 1995, File No. 0-19889)                 |
|             |       |                                                                                                                                                                                                                                        |
| 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 on March 31, 1995, File No. 0-19889) |
|             |       |                                                                                                                                                                                                                                        |
| 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 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 on March 31, 1995, File No. 0-19889)    |
|             |       |                                                                                                                                                                                                                                        |
| 21.1*            |       | List of Subsidiaries of  South Hertfordshire United Kingdom Fund, Ltd.                                                                                                                                                                      |
|             |       |                                                                                                                                                                                                                                        |
| 31.1*            |       | Certification of Chief  Executive Officer, pursuant to Rule 13(a)—14(a) and Rule 15d-14(a)  of the Securities Exchange Act of 1934, as amended, or Exchange Act                                                              |
|             |       |                                                                                                                                                                                                                                        |
| 31.2*            |       | Certification of Chief  Financial Officer, pursuant to Rule 13(a)—14(a) and Rule 15d-14(a)  of the Exchange Act                                                                                                              |
|             |       |                                                                                                                                                                                                                                        |
| 32.1*            |       | Certification of Chief  Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                            |

 

----

*                                         Filedherewith.

 

38

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned 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  Directors Limited |
|                  |                        | Corporate Director of NTL  Fawnspring Limited, |
|                  |                        | the General Partner of  South Hertfordshire |
|                  |                        | United Kingdom Fund,  Ltd. |
|                  |                        |   |
| Dated: March 31, 2005 |                        |   |

 

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

 

 
| **Name**              | ** ** | **Title**                                                                                                                                                 | ** ** | **Date**       |
|-----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|
| /s/ ROBERT MACKENZIE  |       | Director of ntl  Directors Limited  Corporate Director of NTL Fawnspring Limited, the  General Partner of South Hertfordshire United  Kingdom Fund, Ltd.* |       | March 31, 2005 |
| Robert Mackenzie      |
|                  |       |                                                                                                                                                      |       |           |
|  /s/ ROBERT GALE |       | Director of ntl  Directors Limited  Corporate Director of NTL Fawnspring Limited, the  General Partner of South Hertfordshire United  Kingdom Fund, Ltd.* |       | March 31, 2005 |
| Robert Gale           |

 

----

*            The Partnership has noChief Executive Officer or Chief Financial Officer.  Robert Mackenzie and Robert Gale aredirectors of ntl Directors Limited, which is a corporate director of NTL FawnspringLimited, the general partner of the Partnership.

 

39

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**FORM 10K - ITEM 15(a) (1)**

 

**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

**As of December 31, 2004, and 2003**

**and for the Years Ended December31, 2004, 2003, and 2002**

 

The followingconsolidated financial statements of South Hertfordshire United Kingdom Fund,Ltd. are included in Item 8:

 

**INDEX**

 

| ** **                                                    | **Page** |
|---------------------------------------------------------------|----------|
| Report  of Independent Registered Public Accounting Firm      | F-2      |
| Consolidated Balance Sheets                                   | F-3      |
| Consolidated  Statements of Operations                        | F-4      |
| Consolidated  Statements of Comprehensive Loss                | F-5      |
| Consolidated  Statements of Partners’ Capital /(Deficit) | F-6      |
| Consolidated  Statements of Cash Flows                        | F-7      |
| Notes to  Consolidated Financial Statements                   | F-8      |

 

F-1

----

 

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

ThePartners

SouthHertfordshire United Kingdom Fund, Ltd.

 

We have audited theaccompanying consolidated balance sheets of South Hertfordshire United KingdomFund, Ltd. (a Colorado limited partnership) and its subsidiary as ofDecember 31, 2004 and 2003, and the related consolidated statements ofoperations, comprehensive loss, partners’ capital (deficit) and cash flows foreach of the three years in the period ended December 31, 2004. Thesefinancial statements are the responsibility of the General Partner’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  We were not engaged to perform an audit ofthe Company’s internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of South Hertfordshire UnitedKingdom Fund, Ltd. and its subsidiary at December 31, 2004 and 2003,and the consolidated results of their operations and their consolidated cashflows for each of the three years in the period ended December 31, 2004 inconformity with accounting principles generally accepted in the United Statesof America.

 

 

Ernst& Young LLP

London,England

March31, 2005

 

F-2

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**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                      | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                      | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Assets**                                                                                      |       |                   |       |                   |       |
| Fixed assets, net                                                                               |       | $                      | 62,528,387 |                   | $          | 61,450,329 |   |
|                                                                                            |       |                   |       |                   |       |
| **Total assets**                                                                                |       | $                      | 62,528,387 |                   | $          | 61,450,329 |   |
|                                                                                            |       |                   |       |                   |       |
| **Liabilities and Partners’ Deficit**                                                      |       |                   |       |                   |       |
| Current liabilities                                                                             |       |                   |       |                   |       |
| Accounts payable to affiliates and related parties                                              |       | $                      | 65,398,192 |                   | $          | 66,757,685 |   |
| Total liabilities                                                                               |       | 65,398,192             |       | 66,757,685             |       |
|                                                                                            |       |                   |       |                   |       |
| **Minority interest**                                                                           |       |                   |       |                   |       |
| Minority interest                                                                               |       | 99,216                 |       | —                 |       |
|                                                                                            |       |                   |       |                   |       |
| **Partners’ Capital (Deficit)**                                                            |       |                   |       |                   |       |
| General Partner                                                                                 |       |                   |       |                   |       |
| Contributed capital                                                                             |       | 1,000                  |       | 1,000                  |       |
| Accumulated deficit                                                                             |       | (514,842               | )          | (538,849               | )          |
|                                                                                            |       | (513,842               | )          | (537,849               | )          |
| Limited Partners                                                                                |       |                   |       |                   |       |
| Contributed capital, net (56,935 units outstanding at  December 31, 2004 and December 31, 2003) |       | 48,817,997             |       | 48,817,997             |       |
| Accumulated deficit                                                                             |       | (50,688,219            | )          | (53,064,892            | )          |
|                                                                                            |       | (1,870,222             | )          | (4,246,895             | )          |
| Accumulated comprehensive loss                                                                  |       | (584,957               | )          | (522,612               | )          |
| Total Partners’ deficit                                                                    |       | (2,969,021             | )          | (5,307,356             | )          |
|                                                                                            |       |                   |       |                   |       |
| **Total liabilities and Partners’ deficit**                                                |       | $                      | 62,528,387 |                   | $          | 61,450,329 |   |

 

The accompanying notes

are an integral part ofthese consolidated financial statements.

 

F-3

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**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OFOPERATIONS**

 
| ** **                                                       | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                             |       |                        |       |   |   |   |   |
| **Revenues**                                                     |       | $                           | 38,042,360 |   | $ | 32,772,962 |   | $ | 29,552,065 |   |
|                                                             |       |                        |       |   |   |   |   |
| **Costs and expenses**                                           |       |                        |       |   |   |   |   |
| Cost of goods sold (exclusive of items shown below)              |       | (11,550,360                 | )          | (10,662,169 | ) | (10,772,887 | ) |
| Selling, general and administrative expenses                     |       | (103,018                    | )          | (130,840 | ) | (167,225 | ) |
| Management fees and allocated overhead from the  General Partner |       | (14,321,728                 | )          | (13,544,514 | ) | (12,035,660 | ) |
| Other Charges                                                    |       | (602,691                    | )          | (220,329 | ) | (1,488,502 | ) |
| Depreciation                                                     |       | (6,621,976                  | )          | (7,460,577 | ) | (7,595,523 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Operating income (loss)**                                      |       | 4,842,587                   |       | 754,533 |   | (2,507,732 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Other expenses**                                               |       |                        |       |   |   |   |   |
| Interest payable to general partner and affiliates               |       | (2,203,792                  | )          | (1,824,622 | ) | (1,497,775 | ) |
| Other interest charges                                           |       | —                      |       | (98,088 | ) | (90,150 | ) |
| Exchange losses                                                  |       | (143,217                    | )          | (179,033 | ) | (162,100 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Income (loss) before minority interest**                       |       | 2,495,578                   |       | (1,347,210 | ) | (4,257,757 | ) |
| Minority interest                                                |       | (94,898                     | )          | — |   | 768,837 |   |
|                                                             |       |                        |       |   |   |   |   |
| **Net income (loss)**                                            |       | $                           | 2,400,680  |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Allocation of net income (loss)**                              |       |                        |       |   |   |   |   |
| General Partner                                                  |       | $                           | 24,007     |   | $ | (13,472 | ) | $ | (34,889 | ) |
| Limited Partners                                                 |       | 2,376,673                   |       | (1,333,738 | ) | (3,454,031 | ) |
| **Net income (loss)**                                            |       | $                           | 2,400,680  |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Net income (loss) per Limited Partnership unit**               |       | $                           | 41.74      |   | $ | (23.43 | ) | $ | (60.67 | ) |
|                                                             |       |                        |       |   |   |   |   |
| **Average number of Limited Partnership units  outstanding**     |       | 56,935                      |       | 56,935 |   | 56,935 |   |

 

The accompanying notes

are an integral part ofthese consolidated financial statements.

 

F-4

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** **

**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OFCOMPREHENSIVE LOSS**

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                     |       |                        |       |   |   |   |   |
| Net income (loss)                        |       | $                           | 2,400,680  |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) |
| Foreign currency translation adjustments |       | (62,345                     | )          | (242,472 | ) | (58,077 | ) |
|                                     |       |                        |       |   |   |   |   |
| Comprehensive income (loss)              |       | $                           | 2,338,335  |   | $ | (1,589,682 | ) | $ | (3,546,997 | ) |

 

The accompanying notes

are an integral part ofthese consolidated financial statements.

 

F-5

----

 

**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OFPARTNERS' CAPITAL (DEFICIT)**

 
| ** **                             | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                   |       |                        |       |   |   |   |   |
| General Partner:                       |       |                        |       |   |   |   |   |
| Balance, beginning of year             |       | $                           | (537,849   | ) | $ | (524,377 | ) | $ | (489,488 | ) |
| Net income (loss) for the year         |       | 24,007                      |       | (13,472 | ) | (34,889 | ) |
| Balance, end of the year               |       | $                           | (513,842   | ) | $ | (537,849 | ) | $ | (524,377 | ) |
|                                   |       |                        |       |   |   |   |   |
| Limited Partners:                      |       |                        |       |   |   |   |   |
| Balance, beginning of year             |       | $                           | (4,246,895 | ) | $ | (2,913,157 | ) | $ | 540,874 |   |
| Net income (loss) for the year         |       | 2,376,673                   |       | (1,333,738 | ) | (3,454,031 | ) |
| Balance, end of the year               |       | $                           | (1,870,222 | ) | $ | (4,246,895 | ) | $ | (2,913,157 | ) |
|                                   |       |                        |       |   |   |   |   |
| Accumulated comprehensive (loss)       |       | (584,957                    | )          | (522,612 | ) | (280,140 | ) |
| Total Partners’ capital (deficit) |       | $                           | (2,969,021 | ) | $ | (5,307,356 | ) | $ | (3,717,674 | ) |

 

The accompanying notes

are an integral part ofthese consolidated financial statements.

 

F-6

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** **

**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

 
| ** **                                                                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                             |       |                        |       |   |   |   |   |
| **Cash flows from operating activities**                                         |       |                        |       |   |   |   |   |
| Net income (loss)                                                                |       | $                           | 2,400,680  |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities: |       |                        |       |   |   |   |   |
| Minority interest                                                                |       | 94,898                      |       | — |   | (768,837 | ) |
| Depreciation                                                                     |       | 6,621,976                   |       | 7,460,577 |   | 7,595,523 |   |
| Change in operating assets and liabilities:                                      |       |                        |       |   |   |   |   |
| Decrease in other assets                                                         |       | —                      |       | 98,088 |   | 121,400 |   |
| (Decrease) in accounts payable to affiliates and  related parties                |       | (5,774,435                  | )          | (4,691,449 | ) | (1,580,721 | ) |
| **Net cash provided by operating activities**                                    |       | 3,343,119                   |       | 1,520,006 |   | 1,878,445 |   |
|                                                                             |       |                        |       |   |   |   |   |
| **Cash flows from investing activities**                                         |       |                        |       |   |   |   |   |
| Purchase of fixed assets                                                         |       | (3,343,119                  | )          | (1,520,006 | ) | (1,878,445 | ) |
| **Net cash used in investing activities**                                        |       | (3,343,119                  | )          | (1,520,006 | ) | (1,878,445 | ) |
|                                                                             |       |                        |       |   |   |   |   |
| **Cash flows from financing activities**                                         |       |                        |       |   |   |   |   |
| **Net cash used in financing activities**                                        |       | —                      |       | — |   | — |   |
|                                                                             |       |                        |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                 |       | —                      |       | — |   | — |   |
| Cash and cash equivalents., beginning of year                                    |       | —                      |       | — |   | — |   |
| Cash and cash equivalents, end of year                                           |       | —                      |       | — |   | — |   |
|                                                                             |       |                        |       |   |   |   |   |
| **Supplemental disclosure of cash flow information**                             |       |                        |       |   |   |   |   |
| Cash paid during the period for interest                                         |       | $                           | —     |   | $ | — |   | $ | — |   |

 

The accompanying notes

are an integral part ofthese consolidated financial statements.

 

F-7

----

 

**SOUTH HERTFORDSHIRE UNITEDKINGDOM FUND, LTD.**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**1.ORGANIZATION AND PARTNERS’ INTERESTS**

 

###### ***Formationand Business***

###### ** **

SouthHertfordshire United Kingdom Fund, Ltd. (the “Partnership”), a Colorado limitedpartnership, was formed on December 23, 1991, in connection with a publicoffering of its limited partnership interests. The Partnership was formed toacquire, construct, develop, own and operate cable television/telephone systemsin the U.K. NTL Fawnspring Limited, a U.K. corporation, a subsidiary of NTLIncorporated, or NTL, is the general partner (the “General Partner”) of thePartnership.

 

The GeneralPartner has the authority to manage the business, properties and activities ofthe Partnership. This includes the ability to operate and maintain cabletelevision and telephone properties, and to purchase or lease property at theexpense of the Partnership, the ability to make on behalf of the Partnershipall payments required of the Partnership for all direct and indirect costsincurred in the conduct of its business, the ability to borrow money in thename of the Partnership, and the obligation to maintain accurate financialrecords and to prepare and file the reports required under applicable regulations.

 

###### ***ContributedCapital***

###### ** **

The capitalizationof the Partnership is set forth in the accompanying Consolidated Statements ofPartners’ Capital (Deficit). No existing partner is obligated to make anyadditional contributions to partnership capital.

 

The GeneralPartner purchased its interest in the Partnership by contributing $1,000 topartnership capital.

 

Profits, lossesand distributions of the Partnership are currently allocated 99% to the limitedpartners and 1% to the General Partner until the limited partners have receiveddistributions equal to 100% of their capital contributions plus an annualreturn thereon of 12%, cumulative and non-compounded. Thereafter, profits anddistributions will generally be allocated 75% to the limited partners and 25%to the General Partner. Interest income earned prior to the formation of thePartnership was allocated 100% to the limited partners.

 

The profitsallocated to the limited partners and General Partner is the net profit or lossrather than the comprehensive income. The net profit or loss does not takeaccount of any foreign currency translation adjustments, as these areunrealized. The net profit or loss per limited partner unit is calculated afterallocating 1% of the net profit or loss to the General Partner. For the yearended December 31, 2004 the income per limited partner unit amounted to $41.74.

 

##### ***NTL (SouthHertfordshire) Limited***

##### *** ***

NTL (SouthHertfordshire) Limited (“NTL South Herts”) is a U.K. corporation originallyowned by Jones Global Funds, Inc. (the previous general partner) and JonesCable Group, Ltd., an affiliate of the previous general partner. NTL SouthHerts is the holder of a franchise to own and operate a cabletelevision/telephone system in the South Hertfordshire franchise area, locatedadjacent to the northwest perimeter of Greater London, England (the “SouthHerts System”).

 

NTL South Herts isowned 66.7% by the Partnership and 33.3% by NTL. NTL also owns the GeneralPartner. The General Partner provides consulting services to the Partnershipand may delegate some or all of the consulting services to NTL or to otheraffiliates.

 

F-8

----

 

**2.****           SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

***Basisof Presentation***

 

The accompanying consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States.

 

***Useof Estimates***

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Such estimates andassumptions impact, among others, the following: the amount charged to NTLSouth Herts by a subsidiary of NTL for infrastructure and management supportservices, the amount to be paid to terminate certain agreements included inrestructuring costs, the amount to be paid for other liabilities, estimatedcosts for interconnection, estimates related to the amount of costs to becapitalized in connection with the construction and installation of NTL SouthHerts’ network. Actual results could differ from those estimates.

 

***Principlesof Consolidation***

 

The consolidated financial statements include the accountsof the Partnership, its subsidiaries and entities where the Partnership’sinterest is greater than 50%. Significant intercompany accounts andtransactions have been eliminated in consolidation.

 

***ForeignCurrency Translation***

 

The functionalcurrency of the Partnership’s principal operating subsidiary is the poundsterling, while the Partnership’s reporting currency is the U.S. dollar. Theassets and liabilities of the Partnership’s U.K. subsidiary have beentranslated using the exchange rates in effect at the balance sheet dates, andrevenue and expenses are translated at the average rates for the respectiveyears. Exchange gains and losses on translation of the Partnership’s net equityinvestment in the subsidiary is reported as a separate component of accumulatedother comprehensive income (loss) in the statement of partners’ capital(deficit). Foreign currency transaction gains and losses are recorded in thestatements of operations.

 

***Current Assets and Liabilities***

*** ***

Since May 2000,the current assets and liabilities of NTL South Herts have been managed by NTL.Books and records related to accounts receivable, accounts payable and deferredrevenue are maintained by NTL. Pursuant to the arrangement between NTL and NTLSouth Herts contained in the letter of appointment and agreement, NTL SouthHerts has the legal right to offset amounts receivable from NTL against amountspayable to NTL. Consequently, the net balance payable by NTL South Herts to NTLis disclosed under accounts payable to affiliates and related parties in theaccompanying financial statements. Effective from June 2000, the bank accountsmaintained by NTL South Herts were closed and a bank account maintained by NTLis used for cash transactions. Accordingly the net result from cash transactionsis also included in accounts payable to affiliates and related parties.

 

F-9

----

 

***Fixed Assets***

*** ***

Fixed assets, net are stated at cost less accumulateddepreciation.

 

The cost of fixed assets includes amounts capitalizedfor labor and overhead expended in connection with the design and installationof the NTL South Herts’ operating network equipment and facilities. Costsassociated with initial customer installations, additions of network equipmentnecessary to enable enhanced services, acquisition of additional fixed assetsand replacement of existing fixed assets are capitalized. The costs ofreconnecting the same service to a previously installed premise are charged toexpense in the period incurred. Costs for repairs and maintenance are chargedto expense as incurred.

 

Depreciation isprovided on fixed assets at rates that are intended to write off the cost ofthe assets over their estimated useful lives. Effect is given to commercial andtechnical obsolescence. Depreciation is provided on a straight-line basis over3-40 years for the cable network and other electronic equipment, 40 years forbuildings and 3-10 years for office and other equipment. Depreciation of thecapitalized construction costs begins from the time of receiving the firstrevenue from subscribers. Repairs and maintenance costs are charged to expensewhen incurred.

 

During 2003, theGeneral Partner evaluated the remaining useful economic lives of NTL SouthHerts’ fixed assets.  As of January 1,2004, the Partnership adopted new useful economic lives as follows: operatingequipment - 5 to 30 years and other equipment - 5 to 30 years.  The impact on the annual depreciation expenseupon the adoption of new lives is a reduction of $0.7 million.

 

The assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. If the sum of the expectedfuture undiscounted cash flows is less than the carrying amount of the asset, aloss is recognized for the difference between the fair value and the carryingamount of the asset. The fair value of the asset is determined by the higher ofthe discounted cash flows and the net realizable value upon sale.

 

## ***Asset Retirement Obligations***

## ** **

As of January 1, 2003, thePartnership adopted FASB Statement No. 143, *Accounting for AssetRetirement Obligations*(FAS 143). FAS 143 addresses financialaccounting and reporting for obligations associated with the retirement oftangible long-lived assets and the related asset retirement costs. The adoptionof FAS 143 did not result in any recognition of liabilities during its fiscalyear ended December 31, 2004.

 

The Partnership accrues for the liability in respectof lease termination costs on its leasehold properties over the term of thelease in accordance with FASB Statement No. 13, *Accountingfor Leases*.

 

***RestructuringCosts***

 

As of January 1, 2003, the Partnership adoptedFASB Statement No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities* (FAS 146) and recognizesa liability for costs associated with restructuring activities when theliability is incurred. The adoption of FAS 146 did not have a significanteffect on the results of operations, financial condition or cash flows of thePartnership.

 

Prior to 2003, the Partnership recognized a liabilityfor costs associated with restructuring activities at the time of a commitmentto restructure was given in accordance with EITF 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a restructuring)*.

 

***Revenue Recognition***

*** ***

The Partnership recognizes revenue only when it isrealized or realizable and earned. The Partnership recognizes revenue when allof the following are present:

 

•     persuasive evidence of an arrangementexists between us and our customers;

 

F-10

----

 

•     delivery has occurred or the services havebeen rendered;

•     the price for the service is fixed ordeterminable; and

•     collectibility is reasonably assured.

 

Revenues are invoiced and recorded as part of aperiodic billing cycle, and are recognized as the services are provided. At theend of each period, adjustments are recorded to defer revenue relating to servicesbilled in advance and to accrue for earned but unbilled services.

 

•             *Telephone,cable television and internet revenues* are recognized as theservices are provided to customers.

 

•             *Bundledservices revenue* is recognized at the time the services are providedto the customer or the performance of all of the services have been completed.The Partnership applies the provisions of EITF No. 00-21, *Accounting for Revenue Arrangements with Multiple Deliverables*to assess whether the components of the bundled services should be recognizedseparately.

 

•             *Installationrevenue* is recognized by applying the provisions of FASB StatementNo. 51, *Financial Reporting by Cable TelevisionCompanies* in relation to connection and activation fees for cabletelevision, as well as telephone and internet services, on the basis that wemarket and maintain a unified fiber network through which we provide all ofthese services.  Installation revenue isrecognized at the time the installation has been completed to the extent that thosefees are less than direct selling costs. Installation fees in excess of directselling costs are deferred and amortized over the expected life of the customer’sconnection.

 

•             *Rentalrevenue* in respect of line rentals and rental of equipment provided tocustomers is recognized on a straight-line basis over the term of the rentalagreement.

 

***Advertising Costs***

*** ***

Advertising costsare expensed as incurred. Advertising costs allocated to NTL South Herts were$807,228, $551,581 and $295,853 in 2004, 2003 and 2002, respectively.

 

**3.****           TRANSACTIONS WITH THEGENERAL PARTNER AND AFFILIATED ENTITIES**

 

##### ***Consulting andManagement Fees***

##### *** ***

An affiliate ofthe 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 feewas 2% of construction costs. Since completion of construction of each portionof the system, the consulting fee for the completed portion has been 5% of thegross revenue, excluding revenue from the sale of cable television/telephonesystems. The consulting fee is calculated and payable monthly. Consulting feespaid or payable by NTL South Herts for the years ended December 31, 2004, 2003and 2002 were $1,902,118, $1,638,649 and $1,477,606, respectively. These amountswere expensed in the Consolidated Statements of Operations each year.

 

***DistributionRatios and Reimbursement***

 

Any Partnershipdistributions made from cash flow (defined as cash receipts derived fromroutine operations, less debt principal and interest payments and cashexpenses) are allocated 99% to the limited partners and 1% to the GeneralPartner. Any distributions other than interest income on limited partnersubscriptions earned prior to the acquisition of the Partnership’s first cabletelevision system or from cash flow, such as from the sale or refinancing of asystem or upon dissolution of the Partnership, will be made as follows: 99% tothe limited partners and 1% to the General Partner until any negative balancesin the limited partners’ capital accounts are reduced to zero; 100% to theGeneral Partner until any negative balance in its capital account is reduced tozero; 99% to the limited partners and 1% to the General Partner until thebalance in the limited partners’ capital accounts is equal to their adjustedcapital contribution plus a 12% return; 100% to the General Partner until thebalance in its capital account is equal to its adjusted 

 

F-11

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capital contribution, andany remaining income or gain shall be allocated 75% to the limited partners and25% to the General Partner.

 

The GeneralPartner and its affiliates are entitled to reimbursement from NTL South Hertsfor direct and indirect expenses allocable to the operation of the South HertsSystem, and from the Partnership for direct and indirect expenses allocable tothe operation of the Partnership which include but are not limited to, rent,supplies, telephone, travel, copying charges and salaries of any full orpart-time employees. The General Partner believes that the methodology used inallocating these expenses is fair and reasonable. During the years endedDecember 31, 2004, 2003 and 2002, reimbursement made by NTL South Herts and thepartnership to the General Partner or its affiliates for any allocable directand indirect expenses totaled $12,419,610, $12,126,194 and $10,558,055,respectively.

 

The GeneralPartner and its affiliates may make advances to, and defer collection of feesand allocated expenses owed by, the Partnership, although they are not requiredto do so. The Partnership is charged interest on such advances and deferredamounts at a rate equal to the General Partner’s or certain affiliates’weighted average cost of all debt financing from unaffiliated entities. For theyears ended December 31, 2004, 2003 and 2002, interest on deferred fees of$2,039,277, $1,686,284 and $1,380,944, respectively, was charged by anaffiliate of the General Partner, and interest on advances of $164,515,$138,338 and $116,831, respectively, was charged by the General Partner.

 

**4.****           OTHER CHARGES**

 

Other charges inthe year ended December 31, 2004 relate to NTL’s announcement to consolidatecall centers.  On April 7, 2004, NTLannounced the consolidation over the next 18 months of its 13 UK customer servicecall centers into three equipped to handle anticipated expansion of itscustomer base.  Following an internalreview, three specialist call centers will be retained and developed and willbe supported by four sales and customer support sites, located throughout theUK. As part of the consolidation, NTL intends to make additional investments intechnology and training in order to streamline processes and generateefficiencies. As of December 31, 2004, NTL has incurred £23.8 million, or $43.7million of costs, and expects to incur a total approximately £29.0 million, or$55.6 million, of costs to execute this program including property costs thatwill be expensed as the properties are vacated. The charge allocated to NTLSouth Herts for the year ended December 31, 2004 was $0.6 million.

 

Other charges ineach of the years ended December 31, 2003 and 2002, relates to the NTL’sannouncements that it was taking additional actions to reorganize, re-size andreduce operating costs and create greater efficiency in various areas. Thecharge allocated to NTL South Herts in 2003 includes employee severance andrelated costs of $0.2 million. The charge allocated to NTL South Herts in 2002includes employee severance and related costs of $0.7 million, professional feesof $0.3 million and $0.5 million of contract termination and exit costs.

 

F-12

----

 

**5.****           FIXED ASSETS**

 

Fixed assetsconsist of:

 
| ** **                                   | ** ** | **Estimated**    | ** ** | **December 31,** | ** **  |
|----------------------------------------------|------------|------------------|------------|------------------|-------------|
| ** **                                   | ** ** | **useful lives** | ** ** | **2004**         | ** **  | **2003** | ** ** |
|                                         |       |             |       |             |        |   |   |
| Cable Network and other electrical equipment |       | 5-30 years       |       | $                | 147,762,516 |   | $ | 134,343,235 |   |
| Building and other equipment                 |       | 5-30 years       |       | 8,152,597        |        | 7,647,713 |   |
| Construction in progress                     |       |             |       | —           |        | — |   |
|                                         |       |             |       | 155,915,113      |        | 141,990,948 |   |
| Accumulated depreciation                     |       |             |       | (93,386,726      | )           | (80,540,619 | ) |
|                                         |       |             |       | $                | 62,528,387  |   | $ | 61,450,329 |   |

 

With effect fromJanuary 1, 2004, the Partnership adopted new remaining useful lives such thatthe previously reported range of 3-40 years became 5-30 years for both classesof fixed assets.  The change in livesreduced the depreciation charge by $0.7 million for the year ended December 31,2004.

 

**6.****           FINANCING**

 

The Partnershipand NTL South Herts have no indebtedness other than with NTL, accordingly thePartnership and NTL South Herts are reliant upon the support of NTL to continuetheir operations as a going concern.

 

**7.****           INCOME TAXES**

 

Income taxes havenot been recorded in the accompanying consolidated financial statements becausenet income and losses of the Partnership accrue directly to the partners, andits U.K. subsidiary, NTL South Herts, has net operating losses which offsettaxable income arising in the year. The Partnership’s tax returns, thequalification of the Partnership as such for tax purposes, and the amount ofdistributable Partnership income or loss are subject to examination by Federaland state taxing authorities. If such examinations result in changes withrespect to the Partnership’s qualification as such, or in changes with respectto the Partnership’s recorded income or loss, the tax liability of the generaland limited partners would likely be changed accordingly.

 

The tax basis inthe Partnership’s assets and liabilities is approximately $8 million higherthan its book basis in its assets and liabilities for financial reporting purposes.

 

U.K. profits(comprising income and gains) of NTL South Herts will be subject to U.K.corporation tax. However, corporations are able to carry forward losses fromoperations to be offset against subsequent profits of the same operations.

 

Deferred incometaxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. Significant components of deferred taxliabilities and assets related to NTL South Herts are as follows:

 

F-13

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| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|------------------|------------|
| ** **                      | ** ** | **2004**         | ** ** | **2003** | ** ** |
| Deferred tax liabilities:       |       |             |       |   |   |
| Depreciation                    |       | $                | —     |   | $ | — |   |
| Total deferred tax liabilities  |       | —           |       | — |   |
| Deferred tax assets:            |       |             |       |   |   |
| Depreciation                    |       | 2,034,210        |       | 22,576 |   |
| Net operating loss carryforward |       | 6,141,321        |       | 9,208,471 |   |
| Total deferred tax assets       |       | 8,175,531        |       | 9,231,047 |   |
| Valuation allowance             |       | (8,175,531       | )     | (9,231,047 | ) |
| Net deferred tax assets         |       | —           |       | — |   |
| Net deferred tax liabilities    |       | $                | —     |   | $ | — |   |

 

At December 31,2004 NTL South Herts has U.K. net operating loss carry forwards ofapproximately $20.5 million. The U.K. net operating loss carry forwards areavailable for utilization in future years and do not expire. Management hasestablished a valuation allowance against the net operating loss carry forwardson the basis that it was not more likely than not that such assets would berealized in the future.

 

F-14

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