UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ______________ to _____________
Commission File Number: 333-19327
OLYMPUS COMMUNICATIONS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 25-1622615
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2868925
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------------------------------------------------
One North Main Street
Coudersport, PA 16915-1141
(Address of principal (Zip code)
executive offices)
814-274-9830
(Registrants' telephone number including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days.
Yes X No __
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets - December 31, 1998 and September 30, 1999................3
Condensed Consolidated Statements of Operations - Three and Nine Months Ended
September 30, 1998 and 1999....................................................................4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30,
1998 and 1999..................................................................................5
Notes to Condensed Consolidated Financial Statements............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................................16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................17
Item 2. Changes in Securities...........................................................................17
Item 3. Defaults Upon Senior Securities.................................................................17
Item 4. Submission of Matters to a Vote of Security Holders.............................................17
Item 5. Other Information...............................................................................17
Item 6. Exhibits and Reports on Form 8-K................................................................17
SIGNATURES...............................................................................................18
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, September 30,
----------------------------
1998 1999
----------- -----------
ASSETS:
Cable systems, at cost, net of accumulated depreciation and amortization:
<S> <C> <C>
Property, plant and equipment $ 355,470 $ 396,072
Intangible assets 577,171 563,838
----------- -----------
Total 932,641 959,910
Cash and cash equivalents 44,617 6,488
Subscriber receivables - net 14,407 15,621
Prepaid expenses and other assets - net 20,334 15,941
----------- -----------
Total $ 1,011,999 $ 997,960
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Subsidiary debt $ 519,443 $ 175,000
Parent debt 200,000 200,000
Other debt 7,539 7,204
Accounts payable 23,311 23,572
Subscriber advance payments and deposits 6,965 8,612
Accrued interest and other liabilities 29,904 26,876
Accrued priority return on preferred limited
partner interests 36,397 71,462
Due to affiliates - net 283,436 647,447
Deferred income taxes 40,951 41,225
----------- -----------
Total liabilities 1,147,946 1,201,398
----------- -----------
Commitments and contingencies (Note 5)
Partners' equity (deficiency):
Limited partners' interests 570,298 618,073
General partners' equity (deficiency) (706,245) (821,511)
----------- -----------
Total partners' equity (deficiency) (135,947) (203,438)
----------- -----------
Total $ 1,011,999 $ 997,960
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------
1998 1999 1998 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 54,380 $ 64,640 $ 156,497 $ 192,857
--------- --------- --------- ---------
Operating expenses:
Direct operating and programming 18,376 22,761 53,324 67,625
Selling, general and administrative 9,287 11,412 27,157 34,408
Depreciation and amortization 12,890 17,718 37,139 54,118
Management fees to managing affiliate 3,769 3,868 9,356 13,324
--------- --------- --------- ---------
Total 44,322 55,759 126,976 169,475
--------- --------- --------- ---------
Operating income 10,058 8,881 29,521 23,382
--------- --------- --------- ---------
Other income (expense):
Interest expense (14,886) (5,343) (40,912) (24,939)
Interest expense - affiliates (1,650) (16,566) (4,950) (35,101)
Other 176 (273) 1,160 (393)
--------- --------- --------- ---------
Total (16,360) (22,182) (44,702) (60,433)
--------- --------- --------- ---------
Loss before income taxes (6,302) (13,301) (15,181) (37,051)
Income tax expense (56) (94) (84) (274)
--------- --------- --------- ---------
Net loss (6,358) (13,395) (15,265) (37,325)
Priority return on preferred and senior
limited partner interests (22,876) (27,324) (65,590) (77,890)
--------- --------- --------- ---------
Net loss of general and limited partners
after priority return $ (29,234) $ (40,719) $ (80,855) $(115,215)
========= ========= ========= =========
Basic and diluted net loss per general and limited
partners' unit after priority return $ (2,923) $ (4,072) $ (8,086) $ (11,522)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
-------------------------
1998 1999
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (15,265) $ (37,325)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 20,929 29,467
Amortization 16,210 24,651
Deferred income taxes 84 274
Changes in operating assets and liabilities, net of
effects of acquisitions:
Subscriber receivables 725 (1,215)
Prepaid expenses and other assets (4,971) (2,464)
Accounts payable 3,329 261
Subscriber advance payments and deposits (1,198) 1,647
Accrued interest and other liabilities 4,040 (3,145)
--------- ---------
Net cash provided by operating activities 23,883 12,151
--------- ---------
Cash flows from investing activities:
Business acquisitions (112,778) (2,124)
Proceeds from sale of assets 10,469 --
Capital expenditures (43,705) (70,666)
--------- ---------
Net cash used for investing activities (146,014) (72,790)
--------- ---------
Cash flows from financing activities:
Proceeds from debt 99,500 175,000
Repayments of debt (43,877) (521,401)
Payments of priority returns (56,475) (42,825)
Amounts advanced from affiliates 61,776 364,011
Issuance of preferred limited partner interests 61,425 47,775
Capital distributions (100) (50)
--------- ---------
Net cash provided by financing activities 122,249 22,510
--------- ---------
Increase (decrease) in cash and cash equivalents 118 (38,129)
Cash and cash equivalents, beginning of period 3,554 44,617
--------- ---------
Cash and cash equivalents, end of period $ 3,672 $ 6,488
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
-5-
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
The accompanying unaudited condensed consolidated financial statements
of Olympus Communications, L.P. and its substantially wholly owned subsidiaries
("Olympus" or the "Company") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary for a fair presentation of the financial
position of Olympus at September 30, 1999, and the results of operations for the
three and nine months ended September 30, 1998 and 1999, have been included.
These condensed consolidated financial statements should be read in conjunction
with Olympus' consolidated financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 1998 ("Annual Report"). The results of
operations for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
1. The Registrants:
Olympus Communications, L.P. is a joint venture limited partnership
formed under the laws of Delaware. Prior to the redemption of Olympus'
partnership interests described below, 50% of the outstanding voting interests
were held by ACP Holdings, Inc., a wholly-owned subsidiary of Adelphia
Communications Corporation ("Adelphia") and the managing general partner of
Olympus. The remaining 50% of the voting interest was held by various
wholly-owned subsidiaries of FPL Group, Inc. On January 28, 1999, the partners
entered into an agreement pursuant to which Adelphia would acquire FPL Group's
partnership interests in Olympus. The transaction closed on October 1, 1999.
Olympus' operations consist primarily of selling video programming which is
distributed to subscribers in Florida for a monthly fee through a network of
fiber optic and coaxial cables.
Olympus Capital Corporation, a wholly-owned subsidiary of the Company,
was formed solely for the purpose of serving as a co-issuer with Olympus
Communications, L.P. of the 10 5/8% Senior Notes due 2006 (the "Senior Notes").
Olympus Capital Corporation has no substantial assets or liabilities and no
operations of any kind and the Indenture, pursuant to which such Senior Notes
were issued, limits Olympus Capital Corporation's ability to acquire or hold any
significant assets or other properties or engage in any business activities
other than in connection with the issuance of the Senior Notes.
2. Significant Events Subsequent to the Annual Report:
On May 6, 1999, certain subsidiaries and affiliates of Adelphia and
Olympus closed on an $850,000 credit facility. The credit facility consists of a
$600,000, 8 1/2 year reducing revolving credit loan and a $250,000, 9 year term
loan. Proceeds from initial borrowings were held as cash by certain of Olympus'
affiliates and used to repay existing indebtedness of the co-borrower group.
On October 1, 1999, Olympus completed the previously announced
redemption of its partnership interests held by Telesat Cablevision, Inc., a
subsidiary of FPL Group, Inc. The redemption was made in exchange for non cash
assets of Olympus valued at approximately $108,000 pursuant to the previously
announced redemption agreement between the parties. As a result of the
redemption, Olympus has become a wholly-owned subsidiary partnership of Adelphia
Communications Corporation and the financial results of Olympus will be
consolidated with those of Adelphia and Adelphia's other consolidated
subsidiaries. Prior to the redemption, Olympus was a nonconsolidated joint
venture of Adelphia accounted for on the equity method.
-6-
<PAGE>
3. Supplemental Financial Information:
Cash payments for interest were $39,791 and $60,320 for the nine months
ended September 30, 1998 and 1999, respectively. Accumulated depreciation of
property, plant and equipment amounted to $172,867 and $200,978 at December 31,
1998 and September 30, 1999, respectively. Accumulated amortization of
intangible assets amounted to $144,548 and $167,410 at December 31, 1998 and
September 30, 1999, respectively.
4. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Annual Report for a discussion of
material commitments and contingencies.
5. Recent Accounting Pronouncements:
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Management of the Company has not completed its
evaluation of the impact of SFAS No. 133 on the Company's financial statements.
In July 1999, SFAS No. 137 was issued to delay the effective date of SFAS No.
133 to fiscal quarters of fiscal years beginning after June 15, 2000.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
(Dollars in thousands)
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the effects of future regulation, future capital commitments and the effects of
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, acquisitions and divestitures,
the availability and cost of capital, government and regulatory policies, the
pricing and availability of equipment, materials, inventories and programming,
product acceptance, technological developments, year 2000 issues and changes in
the competitive environment in which the Company operates. Readers are cautioned
that such forward-looking statements are only predictions, that no assurance can
be given that any particular future results will be achieved, and that actual
events or results may differ materially. In evaluating such statements, readers
should specifically consider the various factors which could cause actual events
or results to differ materially from those indicated by such forward-looking
statements. For further information regarding those risks and uncertainties and
their potential impact on the Company, see the Adelphia prospectus and most
recent prospectus supplement filed under Registration Statement No. 333-78027,
under the caption "Risk Factors."
Olympus Communications, L.P. and subsidiaries ("Olympus" or the
"Company") is a joint venture limited partnership formed under the laws of
Delaware. Prior to the redemption of its partnership interests held by
subsidiaries of FPL Group, Inc. on October 1, 1999, 50% of the outstanding
voting interests were held by ACP Holdings, Inc., a wholly-owned subsidiary of
Adelphia Communications Corporation ("Adelphia") and managing general partner of
Olympus. The remaining 50% of the voting interest was held by various wholly
owned subsidiaries of FPL Group, Inc. On January 28, 1999, the partners
announced an agreement pursuant to which Adelphia would acquire FPL Group's
partnership interests in Olympus. The transaction closed on October 1, 1999.
Olympus Capital Corporation, a wholly-owned subsidiary of the Company,
was formed solely for the purpose of serving as a co-issuer with Olympus
Communications, L.P. of the 10 5/8% Senior Notes due 2006 (the "Senior Notes").
Olympus Capital Corporation has no substantial assets or liabilities and no
operations of any kind and the Indenture, pursuant to which such Senior Notes
were issued, limits Olympus Capital Corporation's ability to acquire or hold any
significant assets or other properties or engage in any business activities
other than in connection with the issuance of the Senior Notes.
Olympus earned substantially all of its revenues in the nine months
ended September 30, 1998 and 1999 from monthly subscriber fees for basic,
satellite, premium and ancillary services (such as installations and equipment
rentals), local and national advertising sales, electronic security monitoring
services, digital cable services, high speed data services, pay-per-view
programming, and home shopping networks.
The changes in Olympus' operating results for the quarter ended
September 30, 1999, compared to the same period of the prior year, were
primarily the result of acquisitions, expanding existing cable television
-8-
<PAGE>
operations, the impact of subscriber rate increases which became effective June
1, 1998 and 1999, growth in advertising revenue, and vendor price increases for
the Company's programming.
The high level of depreciation and amortization associated with the
significant number of acquisitions in recent years, the continuing program of
upgrading and expansion of systems and interest costs associated with financing
activities will continue to have a negative impact on the reported results of
operations. Olympus expects to report net losses for the next several years.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
The following table sets forth certain cable television system data at
the dates indicated.
<CAPTION>
September 30,
------------------------------- Percent
1998 1999 Increase
---------- ----------- ---------
<S> <C> <C> <C>
Homes Passed by Cable 828,500 970,630 17.2%
Basic Subscribers 551,588 646,759 17.3%
</TABLE>
The following table is derived from Olympus' condensed consolidated
financial statements that are included in this Form 10-Q and sets forth the
percentage relationship to revenues of the components of operating income
contained in such financial statements for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------
1998 1999 1998 1999
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming 33.8% 35.2% 34.1% 35.1%
Selling, general and administrative 17.1% 17.7% 17.3% 17.8%
Depreciation and amortization 23.7% 27.4% 23.7% 28.1%
Management fees to managing affiliate 6.9% 6.0% 6.0% 6.9%
------------- ------------- ----------- ------------
Operating income 18.5% 13.7% 18.9% 12.1%
============= ============= =========== ============
</TABLE>
-9-
<PAGE>
<TABLE>
Revenues. The primary revenue sources, reflected as a percentage of total revenues, for the periods indicated were as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Regulated service and equipment 75% 74% 73% 75%
Premium programming services 10% 9% 11% 9%
Advertising sales and other services 15% 17% 16% 16%
</TABLE>
Total revenues increased approximately 18.9% and 23.2% for the three
and nine month periods ended September 30, 1999 compared with the same periods
of the prior year, primarily due to acquisitions, basic subscriber growth, the
impact of rate increases and growth in advertising revenues, partially offset by
price reductions on certain services.
The increase in revenues was attributable to the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
---------------------- ---------------------
<S> <C> <C>
Acquisitions 60% 72%
Basic subscriber growth 12% 10%
Rate increases 6% 8%
Advertising sales and other services 22% 10%
</TABLE>
Direct Operating and Programming Expenses. Direct operating and
programming expenses, which are mainly basic and premium programming costs and
technical expenses, increased 23.9% and 26.8% for the three and nine month
periods ended September 30, 1999 compared with the same periods of the prior
year. Such increases were primarily due to increased operating expenses from
acquired systems, increased basic programming costs and increased technical
costs associated with providing cable modem services.
Selling, General and Administrative Expenses. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 22.9% and
26.7% for the three and nine month periods ended September 30, 1999 compared
with the same periods of the prior year. This increase was primarily due to
incremental costs associated with acquisitions and subscriber growth.
Depreciation and Amortization. Depreciation and amortization was higher
for the three and nine month periods ended September 30, 1999 compared with the
same periods of the prior year, primarily due to increased depreciation and
amortization related to acquisitions and increased capital expenditures.
-10-
<PAGE>
Management Fees to Managing Affiliate. Pursuant to the terms of the
Company's Partnership Agreement, the Company pays to Adelphia, on a quarterly
basis, an amount representing an allocation of the corporate overhead of
Adelphia and its subsidiaries (as provided in the management agreement) with
respect to the Company for such period, which allocation is based upon the ratio
of the Company's cable subscribers to the total cable subscribers owned or
managed by Adelphia. Management fees decreased as a percentage of revenues for
the three month period ended September 30, 1999 as compared with the same period
of the prior year, primarily due to revenues increasing proportionately at a
higher rate than allocated corporate costs. Management fees increased as a
percentage of revenues for the nine month period ended September 30, 1999 as
compared with the same period of the prior year, primarily due to increased
corporate expenditures.
Interest Expense. Interest expense decreased 64.1% and 39.0% for the
three and nine month periods ended September 30, 1999, respectively, compared
with the same periods of the prior year. The decrease in interest was primarily
attributable to a decrease in the average amount of debt outstanding during the
periods.
Interest Expense-Affiliates. The Company is charged interest on
advances due to Adelphia and other affiliates. Such advances were used by the
Company for acquisitions, capital expenditures, repayment of debt and working
capital. Interest expense-affiliates increased approximately 904.0% and 609.1%
for the three and nine month periods ended September 30, 1999 compared with the
same periods of the prior year primarily due to increased affiliate payables
related to debt repayments and acquisitions.
Liquidity and Capital Resources
The cable television business is capital intensive and typically
requires continual financing for the construction, modernization, maintenance,
expansion, and acquisition of cable systems. The Company historically has
committed significant capital resources for these purposes. These expenditures
were funded through long-term borrowings and advances from affiliates and
internally generated funds. The Company's ability to generate cash to meet its
future needs will depend generally on its results of operations and the
continued availability of external financing.
Capital expenditures for the nine month periods ended September 30,
1998 and 1999 were $43,705 and $70,666, respectively. The Company expects
capital expenditures for the remaining three months of the year ending December
31, 1999 to range from $25,000 to $30,000.
The Company generally has funded its working capital requirements,
capital expenditures, and acquisitions through long-term borrowings, primarily
from banks, issuance of public debt, advances from affiliates and internally
generated funds. The Company generally has funded the principal and interest
obligations on its long-term borrowings from banks by refinancing the principal
with new loans and by paying the interest out of internally generated funds.
Olympus has funded the interest obligations on its public borrowings from
internally generated funds.
At September 30, 1999, the Company's total outstanding debt aggregated
approximately $380,000 which included approximately $200,000 of parent debt, and
approximately $180,000 of subsidiary debt. In addition, the Company had an
aggregate of approximately $6,500 in cash and cash equivalents, and as of
September 30, 1999, $776,500 in unused credit lines with banks, which includes
$600,000 also available to affiliates, part of which is subject to achieving
certain levels of operating performance. During the current quarter Olympus made
net advances to Adelphia and other affiliates totaling approximately $155,000 in
repayment of amounts previously advanced. At September 30, 1999 net advances due
to affiliates aggregated approximately $647,000. On October 1, 1999 the Company
borrowed an additional $176,500 and repaid a portion of the amount due to
affiliates.
-11-
<PAGE>
At September 30, 1999, the Company's unused credit lines were provided
by reducing revolving credit facilities whose revolver periods expire through
2007. The Company's weighted average interest rate on subsidiary debt was
approximately 6.97% and 6.67% at September 30, 1998 and 1999 respectively.
Mandatory reductions in principal under all agreements for indebtedness
for the four years and three months after September 30, 1999, based on amounts
outstanding at September 30, 1999, are as follows:
<TABLE>
<S> <C>
Three months ending December 31, 1999 $ 1,441
Year ending December 31, 2000 1,441
Year ending December 31, 2001 1,441
Year ending December 31, 2002 81,441
Year ending December 31, 2003 96,441
</TABLE>
The Company plans to continue to explore and consider new commitments,
arrangements or transactions to refinance existing debt, increase the Company's
liquidity or decrease the Company's leverage. These could include, among other
things, the future issuance of debt and the negotiation of new or amended credit
facilities by the Company or its subsidiaries. These could also include entering
into acquisitions, joint ventures or other investment or financing activities,
although no assurance can be given that any such transactions will be
consummated. The Company's ability to borrow under current credit facilities and
to enter into refinancings and new financings is limited by covenants contained
in its subsidiaries' credit agreements, including covenants under which the
ability to incur indebtedness is in part a function of applicable ratios of
total debt to cash flow.
The redemption of the Olympus partnership interests held by FPL Group
constitutes a change of control under the Company's Senior Notes. As a result,
the holders of the Senior Notes have the right to require the Company to
purchase their Senior Notes at 101% of the aggregate principal amount thereof
plus accrued and unpaid interest. The Company's offer to re-purchase the Senior
Notes expired without any holders exercising their option.
The Company believes that cash and cash equivalents, internally
generated funds, borrowings under existing credit facilities, and future
financing sources will be sufficient to meet its short-term and long-term
liquidity and capital requirements. Although in the past the Company has been
able to refinance its indebtedness or obtain new financing, there can be no
assurance that the Company will be able to do so in the future or that the terms
of such financings would be favorable.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be in a period of
consolidation characterized by mergers, joint ventures, acquisitions, sales of
all or part of cable companies or their assets, and other partnering and
investment transactions of various structures and sizes involving cable or other
telecommunications companies. The Company continues to evaluate new
opportunities that allow for the expansion of its business through the
acquisition of additional cable television systems in geographic proximity to
its existing regional markets or in locations that can serve as a basis for new
market areas. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary discussions
with third parties regarding a variety of potential transactions, and the
Company has considered and expects to continue to consider and explore potential
transactions of various types with other cable and telecommunications companies.
However, no assurances can be given as to whether any such transaction may be
consummated or, if so, when, or that additional competition from this industry
consolidation will not have an adverse effect on the Company.
-12-
<PAGE>
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely
affected by changes and developments in governmental regulation, competitive
forces and technology. The cable television industry and the Company are subject
to extensive regulation at the federal, state and local levels. The 1992 Cable
Act significantly expanded the scope of regulation of certain subscriber rates
and a number of other matters in the cable industry, such as mandatory carriage
of local broadcast stations and retransmission consent, and increased the
administrative costs of complying with such regulations. The FCC has adopted
rate regulations that establish, on a system-by-system basis, maximum allowable
rates for (i) basic and cable programming services (other than programming
offered on a per-channel or per-program basis), based upon a benchmark
methodology, and (ii) associated equipment and installation services based upon
cost plus a reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
programming services in response to complaints filed with the agency. The
Telecommunications Act of 1996 (the "1996 Act") ended FCC regulation of cable
programming service tier rates on March 31, 1999.
Rates for basic services are set pursuant to a benchmark formula.
Alternatively, a cable operator may elect to use a cost-of-service methodology
to show that rates for basic services are reasonable. Refunds with interest will
be required to be paid by cable operators who are required to reduce regulated
rates. The FCC has reserved the right to reduce or increase the benchmarks it
has established. The rate regulations also limit increases in regulated rates to
an inflation indexed amount plus increases in certain costs such as taxes,
franchise fees, costs associated with specific franchise requirements and
increased programming costs. Cost-based adjustments to these capped rates can
also be made in the event a cable operator adds or deletes channels or completes
a significant system rebuild or upgrade. Because of the limitation on rate
increases for regulated services, future revenue growth from cable services will
rely to a much greater extent than has been true in the past on increased
revenues from unregulated services and new subscribers than from increases in
previously unregulated rates.
The FCC has adopted regulations implementing all of the requirements of
the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. Olympus cannot predict the effect of the 1996 Act
on future rulemaking proceedings or changes to the rate regulations. No
assurance can be given as to what other future actions Congress, the FCC or
other regulatory authorities may take or the effects thereof on Olympus.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering television
programming to homes. The 1992 Cable Act and the 1996 Act contain provisions
which encourage competition from such other sources. The Company cannot predict
the extent to which competition will materialize from other cable television
operators, local telephone companies, other distribution systems for delivering
television programming to the home, or other potential competitors, or, if such
competition materializes, the extent of its effect on the Company.
-13-
<PAGE>
The 1996 Act repealed the prohibition on local exchange telephone
companies ("LECs") from providing video programming directly to customers within
their local exchange areas other than in rural areas or by specific waiver of
FCC rules. The 1996 Act also authorized LECs to operate "open video systems"
("OVS") without obtaining a local cable franchise, although LECs operating such
a system can be required to make payments to local governmental bodies in lieu
of cable franchise fees. Where demand exceeds capacity, up to two-thirds of the
channels on an OVS must be available to programmers unaffiliated with the LEC.
The statute states that the OVS scheme supplants the FCC's "video dialtone"
rules. The FCC has promulgated rules to implement the OVS concept, and New
Jersey Bell Telephone Company has been granted permission to convert its video
dialtone authorization in Dover Township, New Jersey to an OVS authorization.
The Company believes that the provision of video programming by
telephone companies in competition with the Company's existing operations could
have an adverse effect on the Company's financial condition and results of
operations. At this time, the impact of any such effect is not known or
estimable.
The Company also competes with direct broadcast satellite ("DBS")
service providers. DBS has been available to consumers since 1994. A single DBS
satellite can provide more than 100 channels of programming. DBS service can be
received virtually anywhere in the United States through the installation of a
small outdoor antenna. DBS service is being heavily marketed on a nationwide
basis by several service providers. At this time, any impact of DBS competition
on the Company's future results is not known or estimable.
Year 2000 Issue
The year 2000 issue refers to the inability of computerized systems and
technologies to recognize and process dates beyond December 31, 1999. The
Company has evaluated the impact of the year 2000 issue on its business
applications and its products and services. This could present risks to the
operations of the Company's business in several ways. The evaluation included a
review of the Company's information technology systems, cable network equipment,
telephony equipment, and other embedded technologies. A significant portion of
the Company's computerized systems and technologies have been developed,
installed or upgraded in recent years and are generally more likely to be year
2000 ready. The Company's evaluation also included evaluating the potential
impact as a result of its reliance on third-party systems that may have the year
2000 issue.
Computerized business applications that could be adversely affected by
the year 2000 issue include:
- - information processing and financial reporting systems;
- - customer billing systems;
- - customer service systems;
- - telecommunication transmission and reception systems; and
- - facility systems.
System failure or miscalculation could result in an inability to
process transactions, send invoices, accept customer orders or provide customers
with products and services. Customers could also experience a temporary
inability to receive or use the Company's products and services.
-14-
<PAGE>
The Company has developed a program to assess and address the year 2000
issue. This program consists of the following phases:
- - inventorying and assessing the impact on affected technology and systems;
- - developing solutions for affected technology and systems;
- - modifying or replacing affected technology and systems;
- - testing and verifying solutions;
- - implementing solutions; and
- - developing contingency plans.
The Company has completed its inventory and assessment of affected
computerized systems and technologies. The Company is in the final stages of its
year 2000 compliance program with respect to the remediation of the affected
systems and technologies.
The Company has engaged a consulting firm familiar with its financial
reporting systems. This firm has developed and tested year 2000 solutions that
the Company has implemented. The Company has certified all eight financial
systems as year 2000 compliant.
A third-party billing vendor currently facilitates customer billing.
This third-party vendor has certified that it implemented and successfully
tested its own year 2000 solution in April 1999.
Telecommunication plant rebuilds and upgrades in recent years have
minimized the potential impact of the year 2000 issue on the Company's
facilities, customer service, telecommunication transmission and reception
systems. The Company has substantially completed a comprehensive internal
inventory and assessment of all hardware components and component controlling
software throughout its telecommunication networks and has implemented
substantially all modifications, upgrades or replacements resulting from the
internal review.
Costs incurred to date directly related to addressing the year 2000
issue have been approximately $69. The Company has also redeployed internal
resources to meet the goals of its year 2000 program. The Company currently
estimates the total cost of its year 2000 remediation program to be
approximately $211. Although the Company will continue to incur substantial
capital expenditures in the ordinary course of meeting its telecommunications
system upgrade goals through the year 2000, it will not specifically accelerate
its expenditures to facilitate year 2000 readiness, and accordingly such
expenditures are not included in the above estimate.
The Company is communicating with others with whom it does significant
business to determine their year 2000 readiness and to determine the extent to
which the Company is vulnerable to the year 2000 issue related to those third
parties. The Company purchases much of its technology from third parties. There
can be no assurance that the systems of other companies on which the Company's
systems rely will be year 2000 ready or timely converted into systems compatible
with the Company systems. The Company's failure or a third-party's failure to
become year 2000 ready or the Company's inability to become compatible with
third parties with which the Company has a material relationship, including
companies that the Company acquires, may have a material adverse effect on the
Company, including significant service interruption or outages; however, the
Company cannot currently estimate the extent of any such adverse effects.
-15-
<PAGE>
The Company is in the process of identifying secondary sources to
supply its systems or services in the event it becomes probable that any of its
systems will not be year 2000 ready prior to the end of 1999. The Company is
also in the process of identifying secondary vendors and service providers to
replace those vendors and service providers whose failure to be year 2000 ready
could lead to a significant delay in the Company's ability to provide its
service to its customers.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No material changes have occurred during the nine months ended
September 30, 1999 for interest rate swaps. Principal outstanding on variable
rate debt declined approximately $344.4 million and the fair market value of
fixed rate debt declined approximately $17.0 million during the nine months
ended September 30, 1999 compared to December 31, 1998.
-------------------------------------------------
-16-
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
PART II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.8 Bank Credit Facility dated May 6, 1999 among the
registrant, other borrowers and the lenders named therein
(incorporated herein by reference to Exhibit 10.01 to Current
Report on Form 8-K for the event dated September 16, 1999 filed
by Adelphia Communications Corporation (File No. 0-16014)).
Exhibit 27.01 Financial Data Schedule (supplied for the
information of the Commission).
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
-------------------------------------------------
-17-
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
OLYMPUS COMMUNICATIONS, L.P.
BY: ACP HOLDINGS, INC.
Managing General Partner
Date: November 15, 1999 By: /s/ Timothy J. Rigas
--------------------
Timothy J. Rigas
Executive Vice President, Treasurer
and Principal Financial Officer of
ACP Holdings, Inc.
Date: November 15, 1999 OLYMPUS CAPITAL CORPORATION
By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President, Treasurer
and Principal Financial Officer
-18-
<PAGE>
INDEX TO EXHIBITS
Exhibit List:
Please refer to Part II, Item 6 for an exhibit list.
-19-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR OLYMPUS COMMUNICATIONS, LP FOR THE NINE MONTHS ENDED
SEPT. 30, 1999. INFORMATION IS ONLY INCLUDED FOR OLYMPUS COMMUNICATIONS LP(A
REGISTRANT) AND DOES NOT INCLUDE INFORMATION FOR OLYMPUS CAPITAL CORP., WHICH
HAS NO OPERATIONS.
</LEGEND>
<CIK> 0000861255
<NAME> OLYMPUS COMMUNICATIONS, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,488
<SECURITIES> 0
<RECEIVABLES> 15,621<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 396,072<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 997,960
<CURRENT-LIABILITIES> 0
<BONDS> 382,204
0
0
<COMMON> 0
<OTHER-SE> (203,438)
<TOTAL-LIABILITY-AND-EQUITY> 997,960
<SALES> 0
<TOTAL-REVENUES> 192,857
<CGS> 0
<TOTAL-COSTS> 169,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,939
<INCOME-PRETAX> (37,051)
<INCOME-TAX> 274
<INCOME-CONTINUING> (37,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,325)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>RECEIVABLES NET OF ALLOWANCE
<F2>PP&E NET OF DEPRECIATION
</FN>
</TABLE>
