-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nhw+DJl/nRnqMBdb6Fx2e/MbaX1SKnaluV2s4K8paNyLRMKJPaZ/Fg9TEps9HY3D +PD5nUVkFAfeYvcKedbqDg== 0000861255-01-500008.txt : 20020410 0000861255-01-500008.hdr.sgml : 20020410 ACCESSION NUMBER: 0000861255-01-500008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPUS CAPITAL CORP CENTRAL INDEX KEY: 0000754019 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 232868925 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-19327-01 FILM NUMBER: 1786092 BUSINESS ADDRESS: STREET 1: MAIN AT WATER STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915-1141 BUSINESS PHONE: 8142749830 MAIL ADDRESS: STREET 1: MAINT AT WATER STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPUS COMMUNICATIONS LP CENTRAL INDEX KEY: 0000861255 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 251622615 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-19327 FILM NUMBER: 1786093 BUSINESS ADDRESS: STREET 1: ONE NORTH MAIN STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915-1141 BUSINESS PHONE: 8142749830 MAIL ADDRESS: STREET 1: ONE NORTH MAIN STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915-1141 10-Q 1 k8body.txt OLYMPUS COMMUNICATIONS L.P. 10Q 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, 2001 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 __ * Olympus Communications, L.P. and Olympus Capital Corporation meet the conditions set forth in General Instruction H (1)(a) and (b) to the Form 10-Q and are therefore filing with the reduced disclosure format.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16
SAFE HARBOR STATEMENT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report on 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, Olympus Communications, L.P. ("Olympus" and, collectively with its subsidiaries, the "Company"). These "forward looking statements" can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "intends" or "anticipates" or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy that involve risks or uncertainties. These risks and uncertainties include, but are not limited to, uncertainties relating to general business and economic conditions, acquisitions and divestitures, risks associated with the Company's growth and financings, the availability and cost of capital, government and regulatory policies, the pricing and availability of equipment, materials, inventories and programming, product acceptance, the Company's ability to execute on its various business plans and to construct, expand and upgrade its networks, risks associated with reliance on the performance and financial condition of vendors and customers, technological developments, 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. For further information regarding those risks and uncertainties and their potential impact on the Company, see the prospectus and latest prospectus supplement filed under Registration Statement No. 333-64224 of Adelphia Communications Corporation, under the heading "Risk Factors." 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. ITEM 1. Financial Statements
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) December 31, September 30, 2000 2001 ---------------- ----------------- ASSETS Property, plant and equipment - net $ 1,279,835 $ 1,768,708 Intangible assets - net 3,618,864 4,395,392 Cash and cash equivalents 35,920 13,443 Subscriber receivables - net 44,782 60,158 Prepaid expenses and other assets - net 52,524 90,357 Due from affiliates - net -- 397,012 ---------------- ----------------- Total $ 5,031,925 $ 6,725,070 ================ ================= LIABILITIES AND PARTNERS' EQUITY Subsidiary debt $ 841,355 $ 1,784,981 Parent debt 203,020 202,631 Other debt 127,664 134,055 Accounts payable 181,550 154,217 Subscriber advance payments and deposits 15,639 21,904 Accrued interest and other liabilities 77,773 112,004 Due to affiliates - net 264,578 -- Deferred income taxes 679,715 674,645 ---------------- ----------------- Total liabilities 2,391,294 3,084,437 ---------------- ----------------- Commitments and Contingencies (Note 8) Partners' equity: Limited partners' interests 407,813 407,813 General partners' equity 2,232,818 3,232,820 ---------------- ----------------- Total partners' equity 2,640,631 3,640,633 ---------------- ----------------- Total $ 5,031,925 $ 6,725,070 ================ ================= See the accompanying notes to condensed consolidated financial statements.
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, ---------------------------------- --------------------------------- 2000 2001 2000 2001 ----------------- ---------------- ----------------- --------------- Revenues $ 175,924 $ 223,266 $ 518,576 $ 659,878 ---------------- ---------------- ---------------- ----------------- Operating expenses: Direct operating and programming 62,191 81,418 185,246 236,971 Selling, general and administrative 23,638 31,527 74,956 97,688 Depreciation and amortization 56,773 82,132 175,016 233,432 Management fees to managing affiliates 11,078 12,456 29,925 33,877 ---------------- ---------------- ---------------- ----------------- Total 153,680 207,533 465,143 601,968 ---------------- ---------------- ---------------- ----------------- Operating income 22,244 15,733 53,433 57,910 ---------------- ---------------- ---------------- ----------------- Other (expense) income: Interest expense (19,766) (29,581) (63,603) (91,993) Interest (expense) income - affiliates (929) 327 (26) (285) Gain on cable systems exchange -- -- 19,258 73,009 Other 406 (4,282) 464 (3,665) ---------------- ---------------- ---------------- ----------------- Total (20,289) (33,536) (43,907) (22,934) ---------------- ---------------- ---------------- ----------------- Income (loss) before income taxes and extraordinary loss 1,955 (17,803) 9,526 34,976 Income tax (expense) benefit (430) 5,005 (2,096) 5,384 ---------------- ---------------- ---------------- ----------------- Income (loss) before extraordinary loss 1,525 (12,798) 7,430 40,360 Extraordinary loss on early retirement of debt (net of tax expense of $280) -- (7,760) -- (7,760) ---------------- ---------------- ---------------- ----------------- Net income (loss) $ 1,525 $ (20,558) $ 7,430 $ 32,600 ================ ================ =============== ================= See the accompanying notes to condensed consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine Months Ended September 30, ---------------------------------- 2000 2001 ---------------------------------- Cash flows from operating activities: Net income $ 7,430 $ 32,600 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 175,016 233,432 Deferred income taxes 2,096 (5,384) Extraordinary loss on early retirement of debt 7,760 Gain on cable systems exchange (19,258) (73,009) Non-cash interest 5,962 7,098 Other -- 3,343 Changes in operating assets and liabilities, net of effects of acquisitions and cable systems exchange: Subscriber receivables (8,865) (14,000) Prepaid expenses and other assets (11,992) (29,085) Accounts payable 16,522 (33,211) Subscriber advance payments and deposits 4,048 6,659 Accrued interest and other liabilities 7,773 15,167 ----------------- ---------------- Net cash provided by operating activities 178,732 151,370 ----------------- ---------------- Cash flows from investing activities: Expenditures for property, plant and equipment (276,142) (408,687) Acquisitions (16,336) (3,988) --------------- ---------------- Cash used for investing activities (292,478) (412,675) --------------- ---------------- Cash flows from financing activities: Proceeds from debt 1,204,374 5,131,673 Repayments of debt (1,214,988) (4,185,567) Cost associated with debt financings -- (42,010) Amounts advanced from (to) affiliates 128,822 (665,268) Capital distributions (25) -- ----------------- ---------------- Net cash provided by financing activities 118,183 238,828 ----------------- ---------------- Increase (decrease) in cash and cash equivalents 4,437 (22,477) Cash and cash equivalents, beginning of period 12,021 35,920 ----------------- ---------------- Cash and cash equivalents, end of period $ 16,458 $ 13,443 ================ ================ See the accompanying notes to condensed consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) 1. The Partnership and Basis of Presentation Olympus Communications, L.P. ("Olympus" or the "Company") is a limited partnership, formed under the laws of Delaware, between ACC Operations, Inc. and ACC Holdings II, LLC, wholly-owned subsidiaries of Adelphia Communications Corporation (together with its subsidiaries "Adelphia"). Olympus' operations consist of providing telecommunications services primarily over its networks, which are commonly referred to as broadband networks because they can transmit large quantities of voice, video and data by way of digital or analog signals. 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. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X. Such principles are applied on a basis consistent with those reflected in the December 31, 2000 Form 10-K Report of the Company filed with the Securities and Exchange Commission. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes contained in the December 31, 2000 Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements contained herein include all adjustments (consisting of only recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. These interim results of operations are not necessarily indicative of results for future periods. 2. Significant Events Subsequent to the Annual Report On January 1, 2001, Adelphia and certain of its subsidiaries, including Olympus, closed the previously announced cable systems exchange with Comcast Corporation. As part of the transaction, Olympus added approximately 44,000 subscribers in Orange County, California. In exchange, Comcast Corporation received approximately 56,000 subscribers in Ft. Myers, Florida from Olympus. The cable systems exchange was recorded at fair value and purchase accounting was applied as of the date of the transaction. This transaction resulted in a gain of $73,009 and an increase to property, plant and equipment and intangibles of $16,778 and $57,063, respectively. The Company has made a preliminary allocation of the purchase accounting which is subject to final allocation and appraisal. On January 1, 2001, Olympus distributed cable systems serving approximately 50,000 subscribers primarily in and around Orange County, Florida to Adelphia (the "January 2001 Distribution"). On September 28, 2001, Olympus and certain subsidiaries of Adelphia closed on a new $2,030,000 senior secured credit facility. The credit facility consists of a $765,000 8 3/4 year reducing revolving credit loan, a $765,000 8 3/4 year term loan and a $500,000 9 year term loan. Concurrent with the closing of the September 28, 2001 senior secured credit facility, Adelphia contributed cable systems serving approximately 1,180,000 basic subscribers to Olympus or to subsidiaries of Olympus (the "September 2001 Contribution"). As the cable systems distributed and contributed constituted businesses contained within separate legal entities under common control, the January 2001 Distribution and the September 2001 Contribution have been reported as a change in reporting entity. As a result, the condensed consolidated financial statements included herein have been recast to reflect the distribution and contribution for periods that the cable systems were under the common control of Adelphia. The following shows the effects on the historical periods of the change in reporting entity:
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2000 2001 2000 2001 ------------- -------------- ------------- -------------- Increase (decrease) in income or reduction of loss before extraordinary items $ 7,277 $ (4,350) $ 32,955 $ (16,626) Increase (decrease) in net income or reduction of net loss $ 7,277 $ (10,738) $ 32,955 $ (23,014)
Certain of the cable systems that were part of the September 2001 Contribution were acquired by Adelphia during 2001. The contributions of systems acquired by Adelphia during 2001 resulted in an increase primarily to property, plant and equipment, intangibles and general partners' equity of approximately $176,000, $806,000 and $967,000, respectively. The following unaudited financial information assumes that these acquisitions had occurred on January 1, 2000.
Three Months Nine Months Nine Months Ended Ended Ended September 30, September 30, September 30, 2000 2000 2001 ------------------ ------------------ ----------------- Revenues $ 201,331 $ 592,261 $ 677,368 Income before Extraordinary Loss 2,749 10,483 41,269 Net Income 2,749 10,483 33,509
3. Debt The Company's debt was comprised of the following:
December 31, September 30, 2000 2001 ---------------- ----------------- Subsidiary Debt: Notes to banks $ 841,355 $ 1,784,981 ================ ================ Parent Debt: 10 5/8% Senior Notes due 2006 $ 203,020 $ 202,631 ================ ================ Other Debt: Capital leases and other $ 127,664 $ 134,055 ================ ================
4. Supplemental Financial Information Cash payments for interest were $64,146 and $92,119 for the nine months ended September 30, 2000 and 2001, respectively. Accumulated depreciation of property, plant and equipment amounted to $543,848 and $652,853 at December 31, 2000 and September 30, 2001, respectively. Accumulated amortization of intangible assets amounted to $416,299 and $505,662 at December 31, 2000 and September 30, 2001, respectively. 5. Income taxes Income tax (expense) benefit for the three and nine months ended September 30, 2000 and 2001 was substantially comprised of deferred taxes. 6. Derivative Financial Instruments The Company is exposed to certain risks arising from transactions that are entered into in the normal course of business. The Company may enter into derivative financial instrument transactions in order to manage or reduce these risks. The Company's policies do not permit active trading of, or speculation in, derivative financial instruments. The Company manages its interest rate risk through the use of interest rate protection instruments such as swaps, caps and collars. The use of such interest rate protection instruments (as required by some of the Company's borrowing agreements) is intended to minimize the volatility of cash flows caused by interest rate fluctuations. These instruments are not designated as hedging instruments under the provisions of SFAS No. 133. Therefore, the change in the fair value of these instruments is recorded in "Other" in the condensed consolidated statement of operations. 7. Recent Accounting Pronouncements In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations with limited exceptions for combinations initiated prior to July 1, 2001. In addition, it further clarifies the criteria for recognition of intangible assets separately from goodwill. This statement is effective for business combinations completed after June 30, 2001. SFAS No. 142 discontinues the practice of amortizing goodwill and indefinite-lived intangible assets and initiates an annual review for impairment. Intangible assets with a determinable useful life will continue to be amortized over their useful lives. SFAS No. 142 applies to goodwill and intangible assets acquired after June 30, 2001. Goodwill and intangible assets existing prior to July 1, 2001 will be affected when the Company adopts the statement. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. At September 30, 2001 the carrying value of goodwill and indefinite-lived intangible assets that will no longer be amortized approximated $4,341,612. Amortization of such assets was approximately $28,474 and $90,690 for the three and nine months ended September 30, 2001, respectively. The Company has not yet completed its impairment assessment of goodwill and indefinite-lived intangible assets which will be required upon implementation of the standard. In August 2001, The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, supercedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. While the Company is currently evaluating the impact the adoption of SFAS No. 144 will have on its financial position and results of operations, it does not expect such impact to be material. 8. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands) See Safe Harbor Statement following the table of contents, which section is incorporated by reference herein. Introduction Olympus Communications, L.P. and subsidiaries ("Olympus" or the "Company") is a limited partnership, formed under the laws of Delaware, between ACC Operations, Inc. and ACC Holdings II, LLC, wholly-owned subsidiaries of Adelphia Communications Corporation ("Adelphia"). 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. On January 1, 2001, Olympus distributed cable systems serving approximately 50,000 subscribers primarily in and around Orange County, Florida to Adelphia (the "January 2001 Distribution"). On September 28, 2001, Olympus and certain subsidiaries of Adelphia closed on a new $2,030,000 senior secured credit facility. The credit facility consists of a $765,000 8 3/4 year reducing revolving credit loan, a $765,000 8 3/4 year term loan and a $500,000 9 year term loan. Concurrent with the closing of the September 28, 2001 senior secured credit facility, Adelphia contributed cable systems serving approximately 1,180,000 basic subscribers to Olympus or to subsidiaries of Olympus (the "September 2001 Contribution"). As the cable systems distributed and contributed constituted businesses contained within separate legal entities under common control, the January 2001 Distribution and the September 2001 Contribution have been reported as a change in reporting entity. As a result, the condensed consolidated financial statements included herein have been recast to reflect the distribution and contribution for periods that the cable systems were under the common control of Adelphia. As of September 30, 2001, the Company owned systems with broadband networks that passed in front of approximately 2,865,000 and served 1,787,000 basic subscribers. Results of Operations Three and Nine Months Ended September 30, 2001 Olympus earned substantially all of its revenues in the three and nine months ended September 30, 2000 and 2001 from monthly subscriber fees for basic, satellite, digital, premium and ancillary services (such as installations and equipment rentals), local and national advertising sales, high speed data services and pay per view programming. The changes in Olympus' operating results for the three and nine months ended September 30, 2001, compared to the same period of the prior year, were primarily the result of the continued roll-out of digital cable and high speed data services, vendor price increases for the Company's programming, the impact of subscriber rate increases and expanding existing cable television operations. The high level of depreciation and amortization associated with acquisitions in recent years, the continuing upgrade and expansion of systems, and interest 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 foreseeable future. The following table is derived from Olympus's Condensed Consolidated Statements of Operations that are included in this Form 10-Q and sets forth the historical percentage relationship to revenues of the components of operating income contained in such financial statements for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, 2000 2001 2000 2001 ------------- ------------- ------------- ------------- Revenues 100.0% 100.0% 100.0% 100.0% Operating expenses: Direct operating and programming 35.4% 36.5% 35.7% 35.9% Selling, general and administrative 13.4% 14.1% 14.5% 14.8% Depreciation and amortization 32.3% 36.8% 33.7% 35.4% Management fees to managing affiliate 6.3% 5.6% 5.8% 5.1% ------------- ------------- ------------- ------------- Operating income 12.6% 7.0% 10.3% 8.8% ============= ============= ============= =============
Revenues Revenues increased approximately 26.9% and 27.2% for the three and nine month periods ended September 30, 2001, compared with the same periods of the prior year, primarily due to certain recently acquired cable systems contributed to Olympus by Adelphia, growth in digital cable and high speed data revenue, basic subscriber growth, rate increases and growth in electronic security monitoring and advertising revenues. Direct Operating and Programming Expenses Direct operating and programming expenses increased 30.9% and 27.9% for the three and nine month periods ended September 30, 2001, compared with the same period of the prior year, primarily due to certain recently acquired cable systems contributed to Olympus by Adelphia, increased technical costs associated with providing digital cable services as well as increased basic and premium programming costs. 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 33.4% and 30.3% for the three and nine month periods ended September 30, 2001, compared with the same periods of the prior year. These increases were primarily due to certain recently acquired cable systems contributed to Olympus by Adelphia, incremental costs associated with providing new services, marketing expenses and wages. Depreciation and Amortization Depreciation and amortization was higher for the three and nine month periods ended September 30, 2001 compared with the same periods of the prior year, primarily due to certain recently acquired cable systems contributed to Olympus by Adelphia 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. In addition to the management fees described above, certain systems included in the September 2001 Contribution have agreements with a subsidiary of Adelphia which provides for the payment of management fees of up to 5% of gross revenues. Management fees were substantially unchanged as a percentage of revenues for the three and nine month periods ended September 30, 2001 as compared with the same periods of the prior year. Interest Expense Interest expense increased 41.4% and 45.0% for the three and nine month periods ended September 30, 2001, compared with the same periods of the prior year. These increases were primarily due to increases in the average amount of debt outstanding compared to the prior year, partially offset by decreases in interest rates. Gain on Cable Systems Exchange On May 1, 2000, the Company closed on a cable systems exchange with AT&T Corporation. As a result of this transaction, the Company recorded a gain of approximately $19,300 in the nine months ended September 30, 2000. On January 1, 2001, Adelphia and certain subsidiaries, including the Company, closed on a cable systems exchange with Comcast Corporation. As a result of this transaction, the Company recognized a gain of approximately $73,000 in the nine months ended September 30, 2001. 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, 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, 2000 and 2001 were $276,142 and $408,687, respectively. This increase was primarily due to increased investment related to the rebuilding and upgrading of the Company's broadband network. The Company expects capital expenditures for the remaining three months of the year ending December 31, 2001 to range from approximately $100,000 to $130,000. 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 by refinancing the principal with new loans and by paying the interest out of internally generated funds. At September 30, 2001, the Company's total outstanding debt aggregated approximately $2,121,667, which included approximately $202,631 of parent debt and approximately $1,919,036 of subsidiary and other debt. In addition, the Company had an aggregate of approximately $13,443 in cash and cash equivalents, and as of September 30, 2001, approximately $30,000 in unused credit lines with banks, all of which was also available to affiliates, part of which is subject to achieving certain levels of operating performance. At September 30, 2001, the Company has unused credit lines under reducing revolving credit facilities with revolver periods which expire through 2010. The Company's weighted average interest rate on subsidiary debt was approximately 7.8% and 5.0% at September 30, 2000 and September 30, 2001, respectively. The following table sets forth the scheduled reductions in principal under all agreements for indebtedness at December 31 for each of the next four years and three months, based on amounts outstanding at September 30, 2001: Three months ending December 31, 2001 $ 315 Year ending December 31, 2002 122,688 Year ending December 31, 2003 1,263 Year ending December 31, 2004 23,977 Year ending December 31, 2005 163,295
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 Company believes that cash and cash equivalents, internally generated funds, borrowings under existing credit facilities, advances from Adelphia or other affiliates 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, system swaps, 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. Regulatory and Competitive Matters The operations of the Company are 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. Cable television companies operate under franchises granted by local authorities. Because such franchises are non-exclusive, the Company is subject to competition with other cable operators and, in some cases, systems operated by the municipal franchising authorities themselves. The Company is also subject to competition from DBS and wireless service providers, which are not subject to regulation on the local level, since they do not utilize the public rights of way. These providers are also exempt from many of the federal regulations applicable to the cable industry. This difference in regulatory schemes hinders the Company's ability to compete on a level playing field. The Company is subject to rate regulation by certain franchising authorities that have petitioned the FCC for certification to regulate the Company's rates. Such rate regulation, however, is limited to the basic, or lowest level, service tier. Federal regulations also limit the Company's discretion to select certain programming services, by mandating the carriage of local broadcast television stations, franchise-required public, educational and governmental channels, and unaffiliated commercial leased access programming services. Such mandatory carriage obligations could increase if the FCC decides to extend such mandatory carriage rules to the digital level of service, which issue is currently pending before the FCC. These mandatory carriage requirements limit the capacity available to the Company for revenue-generating programming services. Additionally, the FCC is currently considering a rulemaking to determine the regulatory status of Internet service. Specifically, the FCC is reviewing whether Internet service is a cable service and, therefore, subject to regulation at the local level, or a telecommunications service and, therefore, subject to regulation at the state level. The outcome of the decision could have an impact on such factors as the rates the Company may charge for such service, the extent to which the Company would have to make its Internet facilities available to the franchising authorities and unaffiliated service providers, and the rates the Company must pay utilities for pole attachments. For further information regarding regulatory and competitive matters and their affect on the Company, see the Company's most recent Form 10-K. PART II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No. Description 10.01 Credit Agreement dated as of September 28, 2001 among Olympus Cable Holdings, LLC, Adelphia Company of Western Connecticut, Highland Video Associates, L.P., Coudersport Television Cable Company, Adelphia Holdings 2001, LLC, and Bank of Montreal, as the Administrative Agent, and the other Agents and Lenders party thereto (incorporated herein by reference to Exhibit 10.01 to Form 8-K as filed by Adelphia on October 12, 2001). (b) Reports on Form 8-K: None. ------------------------------------------------- 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: ACC OPERATIONS, INC. Managing General Partner Date: November 14, 2001 By: /s/ Timothy J. Rigas -------------------- Timothy J. Rigas Executive Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of ACC Operations, Inc. Date: November 14, 2001 OLYMPUS CAPITAL CORPORATION By: /s/ Timothy J. Rigas -------------------- Timothy J. Rigas Executive Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----