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 March 31, 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.)
---------------------------------------------------------
Main at Water 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 __
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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 March 31, 1999....................3
Condensed Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1999........................................................................4
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31,
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.....................................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................16
Item 2. Changes in Securities..........................................................................16
Item 3. Defaults Upon Senior Securities................................................................16
Item 4. Submission of Matters to a Vote of Security Holders............................................16
Item 5. Other Information..............................................................................16
Item 6. Exhibits and Reports on Form 8-K...............................................................16
SIGNATURES..............................................................................................17
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, March 31,
1998 1999
------------ -------------
ASSETS:
Cable systems, at cost, net of accumulated
depreciation and amortization:
<S> <C> <C>
Property, plant and equipment $ 355,470 $ 369,050
Intangible assets 577,171 571,335
----------- -----------
Total 932,641 940,385
Cash and cash equivalents 44,617 2,801
Subscriber receivables - net 14,407 16,837
Prepaid expenses and other assets - net 20,334 22,363
=========== ===========
Total $ 1,011,999 $ 982,386
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Subsidiary debt $ 519,443 $ 342,250
Parent debt 200,000 200,000
Other debt 7,539 7,847
Accounts payable 23,311 23,961
Subscriber advance payments and deposits 6,965 8,907
Accrued interest and other liabilities 29,904 33,745
Accrued priority return on preferred limited
partner interests 36,397 42,198
Due to affiliates - net 283,436 431,649
Deferred income taxes 40,951 41,037
----------- -----------
Total liabilities 1,147,946 1,131,594
----------- -----------
Commitments and contingencies (Note 4)
Partners' equity (deficiency):
Limited partners' interests 570,298 590,773
General partners' equity (deficiency) (706,245) (739,981)
----------- -----------
Total partners' equity (deficiency) (135,947) (149,208)
=========== ===========
Total $ 1,011,999 $ 982,386
=========== ===========
See notes to condensed consolidated financial statements.
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OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenues $ 50,918 $ 64,866
----------- -----------
Operating expenses:
Direct operating and programming 17,285 22,952
Selling, general and administrative 9,043 11,742
Depreciation and amortization 12,250 18,259
Management fees to managing affiliate 2,698 3,543
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Total 41,276 56,496
----------- -----------
Operating income 9,642 8,370
----------- -----------
Other income (expense):
Interest expense (12,733) (12,075)
Interest expense - affiliates (1,942) (5,269)
Other 370 --
----------- -----------
Total (14,305) (17,344)
----------- -----------
Loss before income taxes (4,663) (8,974)
Income tax expense -- (86)
----------- -----------
Net loss (4,663) (9,060)
Priority return on preferred and senior
limited partner interests (20,792) (24,626)
----------- -----------
Net loss of general and limited partners
after priority return $ (25,455) $ (33,686)
=========== ===========
Basic and diluted net loss per general and limited
partners' unit after priority return $ (2,546) $ (3,369)
=========== ===========
See notes to condensed consolidated financial statements.
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OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
----------------------------
1998 1999
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (4,663) $ (9,060)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 6,794 9,812
Amortization 5,456 8,447
Deferred income taxes -- 86
Changes in operating assets and liabilities, net of
effects of acquisitions:
Subscriber receivables 642 (2,430)
Prepaid expenses and other assets (46) (4,638)
Accounts payable 1,792 650
Subscriber advance payments and deposits 73 1,942
Accrued interest and other liabilities 4,285 3,807
----------- -----------
Net cash provided by operating activities 14,333 8,616
----------- -----------
Cash flows from investing activities:
Business acquisitions (2,055) --
Expenditures for property, plant and equipment (13,249) (22,860)
----------- -----------
Cash used for investing activities (15,304) (22,860)
----------- -----------
Cash flows from financing activities:
Proceeds from debt 43,000 --
Repayments of debt (43,153) (177,385)
Payments of priority returns (18,825) (18,825)
Amounts advanced (to) from affiliates (475) 148,213
Issuance of preferred limited partner interests 20,475 20,475
Capital distributions (50) (50)
----------- -----------
Net cash provided by (used in) financing activities 972 (27,572)
----------- -----------
Increase (decrease) in cash and cash equivalents 1 (41,816)
Cash and cash equivalents, beginning of period 3,554 44,617
----------- -----------
Cash and cash equivalents, end of period $ 3,555 $ 2,801
=========== ===========
See notes to condensed consolidated financial statements.
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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 March 31, 1999, and the results of operations for the
three months ended March 31, 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 months ended March 31, 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 with 50% of the outstanding voting interests
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 is held by various wholly-owned
subsidiaries of FPL Group, Inc. On January 28, 1999, the partners entered into
an agreement for Adelphia to acquire FPL Group's partnership interests in
Olympus no later than July 11, 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.
3. Supplemental Financial Information:
Cash payments for interest were $9,384 and $14,124 for the three months
ended March 31, 1998 and 1999, respectively. Accumulated depreciation of
property, plant and equipment amounted to $172,867 and $182,660 at December 31,
1998 and March 31, 1999, respectively. Accumulated amortization of intangible
assets amounted to $144,548 and $152,367 at December 31, 1998 and March 31,
1999, respectively.
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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," has been issued
and is effective for fiscal quarters of fiscal years beginning after June 15,
1999. SFAS No. 133 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.
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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,
technological developments, year 2000 issues and changes in the competitive
environment in which the Company operates.
Olympus Communications, L.P. and subsidiaries ("Olympus" or the
"Company") is a joint venture limited partnership formed under the laws of
Delaware with 50% of the outstanding voting interests 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 is held by various wholly-owned subsidiaries of FPL Group, Inc.
On January 28, 1999, the partners announced an agreement pursuant to which
Adelphia will acquire FPL Group's partnership interests in Olympus no later than
July 11, 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 three months
ended March 31, 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,
pay-per-view programming, home shopping networks, high speed data services and
digital cable services.
The changes in Olympus' operating results for the quarter ended March
31, 1999, compared to the same period of the prior year, were primarily the
result of acquisitions, expanding existing cable television operations, the
impact of subscriber rate increases which became effective June 1, 1998, 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.
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The following table sets forth certain cable television system data at the dates
indicated.
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March 31,
------------------------------- Percent
1998 1999 Increase
----------- ----------- ----------
<S> <C> <C> <C>
Homes Passed by Cable 755,185 949,122 25.7%
Basic Subscribers 501,722 650,858 29.7%
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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.
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Three months ended
March 31,
-----------------------------
1998 1999
---------- -----------
<S> <C> <C>
Revenues 100.0% 100.0%
Operating expenses:
Direct operating and programming 33.9% 35.4%
Selling, general and administrative 17.8% 18.1%
Depreciation and amortization 24.1% 28.1%
Management fees to managing affiliate 5.3% 5.5%
---------- ----------
Operating income 18.9% 12.9%
========== ==========
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Revenues. The primary revenue sources, reflected as a percentage of total
revenues, for the periods indicated were as follows:
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Three months ended
March 31,
---------------------------
1998 1999
---------- ------------
<S> <C> <C>
Regulated service and equipment 73% 74%
Premium programming services 11% 10%
Advertising sales and other services 16% 16%
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Total revenues increased approximately 27.4% for the three month period
ended March 31, 1999 compared with the same period of the prior year, primarily
due to acquisitions, basic subscriber growth, growth in advertising revenues and
the impact of rate increases, partially offset by price reductions on certain
services.
The increase in revenues was attributable to the following:
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Three Months
Ended
March 31, 1999
--------------
<S> <C>
Acquisitions 76%
Basic subscriber growth 15%
Rate increases 3%
Advertising sales and other services 6%
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Direct Operating and Programming Expenses. Direct operating and
programming expenses, which are mainly basic and premium programming costs and
technical expenses, increased 32.8% for the three month period ended March 31,
1999 compared with the same period of the prior year. Such increases were
primarily due to increased operating expenses from acquired systems, increased
basic and premium programming costs and increased technical costs associated
with providing cable modem and electronic security monitoring 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 29.8% for the
three month period ended March 31, 1999 compared with the same period 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 month period ended March 31, 1999 compared with the same period of
the prior year, primarily due to increased depreciation and amortization related
to acquisitions and increased capital expenditures.
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 increased as a percentage of revenues for
the three month period ended March 31, 1999 as compared with the same period of
the prior year, primarily due to increased corporate expenditures.
Interest Expense. Interest expense did not change substantially
compared with the same period of the prior year.
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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 171.3% for the
three month period ended March 31, 1999 compared with the same period 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 three months ended March 31, 1998 and 1999
were $13,249 and $22,860, respectively. The Company expects capital expenditures
for the remaining nine months of the year ending December 31, 1999 to range from
$45,000 to $60,000.
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 March 31, 1999, the Company's total outstanding debt aggregated
approximately $550,000 which included approximately $201,000 of parent debt, and
approximately $349,000 of subsidiary debt. In addition, the Company had an
aggregate of approximately $2,800 in cash and cash equivalents, and as of May 6,
1999, $637,750 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.
At May 6, 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 7.02% at March 31, 1998 compared to 6.01% at March 31, 1999. At
March 31, 1999, approximately 4.4% of such debt was subject to fixed interest
rates for at least one year under the terms of such debt or applicable interest
rate swap agreements.
Mandatory reductions in principal under all agreements for indebtedness
for the four years and nine months after March 31, 1999, based on amounts
outstanding at March 31, 1999, are as follows:
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<S> <C>
Nine months ending December 31, 1999 $ 7,038
Year ending December 31, 2000 67,555
Year ending December 31, 2001 81,506
Year ending December 31, 2002 95,798
Year ending December 31, 2003 97,705
</TABLE>
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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 closing of the redemption of the Olympus partnership interests
held by FPL Group pursuant to the agreement announced January 28, 1999 will
constitute a change of control under the Company's 10 5/8% Senior Notes due
2006. As a result, the holders of the Senior Notes will 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. To the extent that
holders require the Company to repurchase their Senior Notes, the Company plans
to use its existing credit facilities and, if necessary, future financing
sources to fund such purchases.
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.
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
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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 and certain cable programming 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 and cable programming
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.
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.
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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 is evaluating the impact of the year 2000 issue on its business
applications and its products and services. The evaluation includes a review of
the Company's information technology systems, cable network 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 is also
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.
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 substantially completed inventorying and assessing the
affected computerized systems and technologies. The Company is in various stages
of its year 2000 compliance program with respect to the remaining phases as it
relates to the affected systems and technologies.
-14-
<PAGE>
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 is in the process of implementing. The Company expects its financial
reporting systems to be year 2000 compliant by July 1999.
A third-party billing vendor currently facilitates customer billing.
The Company is currently in the process of testing an in-house service ordering,
provisioning, maintenance and billing system that would replace the third-party
billing vendor. The Company expects to have this new system implemented by
August 1999. On a contingency basis, the third-party vendor implemented 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 is engaged in a comprehensive internal inventory and
assessment of all hardware components and component controlling software
throughout its telecommunication networks. The Company expects to implement any
hardware and software modifications, upgrades or replacements resulting from the
internal review by August 1999.
Costs incurred through March 31, 1999 directly related to addressing
the year 2000 issue have been approximately $60. 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 $750. 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, 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.
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 quarter ended March 31, 1999
for interest rate swaps or principal outstanding on fixed rate debt.
Principal outstanding on variable rate debt declined approximately $178 million
during the quarter ended March 31, 1999 compared to December 31, 1998.
-------------------------------------------------
-15-
<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 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 March 31, 1999.
-------------------------------------------------
-16-
<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: May 17, 1999 By: /s/ Timothy J. Rigas
--------------------
Timothy J. Rigas
Executive Vice President,
Treasurer, Principal Accounting
Officer and Principal Financial
Officer of ACP Holdings, Inc.
Date: May 17, 1999 OLYMPUS CAPITAL CORPORATION
By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President,
Treasurer, Principal Accounting
Officer and Principal Financial
Officer
-17-
<PAGE>
INDEX TO EXHIBITS
Exhibit List:
Please refer to Part II, Item 6 for an exhibit list.
-18-
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<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR OLYMPUS COOMUNICATIONS, L.P. FOR THE THREE MONTHS
ENDED MARCH 31, 1999. INFORMATION IS ONLY INCLUDED FOR OLYMPUS COMMUNICATIONS,
L.P.(A REGISTRANT) AND DOES NOT INCLUDE INFORMATION FOR OLYMPUS CAPITAL CORP.,
WHICH HAS NO OPERATIONS.
</LEGEND>
<CIK> 0000861255
<NAME> OLYMPUS COMMUNICATIONS, L.P.
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<S> <C>
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