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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003
 OR
 [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the transition period from
______ to _____
  Commission file
number: 333-80523
 SUSQUEHANNA MEDIA CO.
 (Exact name of
registrant as specified in its charter)
 Delaware
    
    23-2722964(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)140 E. Market Street, York, PA
    
    17401(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (717) 848-5500 Securities Registered Pursuant To Section 12(b) of The Act: None Securities Registered Pursuant To Section 12(g) of The Act: None    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and 2) has been subject to such
filing requirements for the past 90 days.

Yes [X]   No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X] 
 As of June 30, 2003, the aggregate market value of the voting and non-voting
common equity held by non-affiliates was $0. As of March 29, 2004, there were 1,100,000 shares of Common Stock
outstanding all of which was held by Susquehanna Pfaltzgraff Co., the
Registrants parent. DOCUMENTS INCORPORATED BY REFERENCE
None




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INDEX CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    2RISK FACTORS
    
    
    4PART I
    
    
    10Item 1.            Business
    
    
    10Item 2.            Properties
    
    
    34Item 3.            Legal Proceedings
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35PART II
    
    
    36Item 5.            Market for Registrants Common Equity and Related Stockholder Matters
    
    
    36Item 6.            Selected Annual and Quarterly Financial Data
    
    
    36Item 7.            Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    38Item 7A.            Quantitative and Qualitative Disclosure About Market Risk.
    
    
    48Item 8.            Consolidated Financial Statements and Supplementary Data
    
    
    49Item 9.            Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
    
    
    76Item 9A.            Controls and Procedures.
    
    
    76PART III
    
    
    77Item 10.            Directors and Executive Officers of the Registrant
    
    
    77Item 11.            Executive Compensation
    
    
    78Item 12.            Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    79Item 13.            Certain Relationships and Related Transactions
    
    
    81Item 14.            Principal Accounting Fees and Services
    
    
    83PART IV
    
    
    84Item 15.            Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    84




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this Form 10-K, as well as statements made by us
in filings with government regulatory bodies, including the Securities and
Exchange Commission, and in periodic press releases and other public comments
and communications, constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology, such as believes, expects, may,
will, should, estimates, intends, plans, approximately, or
anticipates or the negative thereof or other variations thereof or comparable
terminology, or by discussion of strategies, each of which involves risks and
uncertainties. We have based these forward-looking statements on our current
expectations and projections about future events and trends affecting the
financial condition of our business that may prove to be incorrect. These
forward-looking statements relate to future events, our future financial
performance, and involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance, achievements or
industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. You should specifically consider the various factors identified in
this report and in any other documents filed by us with the SEC that could
cause actual results to differ materially from our forward-looking statements. All statements other than of historical facts included herein or therein,
including those regarding market trends, our financial position, business
strategy, projected plans and objectives of management for future operations,
are forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results or performance to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Such factors include, but are not limited to:  
    
    general economic and business conditions, both nationally and in our markets;
    
    interest rate movements;
    
    terrorists acts or adverse reactions to United States anti-terrorism activities;
    
    expectations and estimates concerning future financial performance;
    
    the amount and timing of payments required under
the Radio Employee Stock Plan and the Cable Performance Share
Plan;
    
    acquisition opportunities and our ability to
successfully integrate acquired businesses, properties or
other assets and realize anticipated benefits of such
acquisitions;
    
    our ability to successfully enter new lines of
business, from time to time, such as telephony;
    
    financing plans and access to adequate capital on
favorable terms;
    
    our ability to service our outstanding
indebtedness and the impact such indebtedness may have on the
way we operate our businesses;
    
    the impact of competition from other radio
stations, media forms, communication service providers and
telephony service providers;
    
    changes in accounting principles generally
accepted in the United States and SEC rules and regulations;
    
    the impact of existing and future regulations
affecting our businesses, including radio licensing and
ownership rules and cable television regulations;
    
    the possible non-renewal of cable franchises;
    
    increases in programming costs; 2




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
    
    the accuracy of anticipated trends in our businesses, including those discussed in
Managements Discussion and Analysis of Financial Condition and
Results of Operations herein;
    
    advances in technology and our ability to adapt to and capitalize on such advances;
    
    decreases in our customers advertising and entertainment expenditures; and
    
    other factors over which we may have little or no control. All forward-looking statements attributable to us or to persons acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
Any forward-looking statement speaks only as of the date it was made, and
except for our ongoing obligations to disclose material information as required
by the federal securities laws, we undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
Form 10-K might not transpire. You should also read carefully the factors
described in the Risk Factors section of this report. 3




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RISK FACTORS Before you invest in our securities, you should be aware that there are
various risks involved in your investment. You should read and carefully
consider each of the following material risk factors, as well as other
information in this report before making a decision to invest in our
securities. Our business, financial condition, results of operations and our
ability to make payments could be materially adversely affected by any of the
following risks. This report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including the risks faced by us described below or elsewhere. Risks Related to Us and Our Business Our significant debt service obligations will limit our cash flow and affect
how we operate our company. We have a significant level of debt and debt service obligations. As of
December 31, 2003, we had approximately $515.7 million of indebtedness. On
March 9, 2004, we replaced our $450 million senior credit facilities with new
$600 million senior credit facilities. We had the ability to incur
approximately $294 million of additional debt under our new senior credit
facilities as of that date, after funding the purchase of cable
assets from RCN Telecommunications, Inc.. If we add new debt to our current debt levels, the
related risks that we now face could intensify. Our substantial indebtedness poses important consequences to you, including
the risks that:  
    
    we will use a substantial portion of our cash flow from operations
to pay principal and interest on our debt, thereby reducing the funds
available for working capital, capital expenditures, acquisitions and
other general corporate purposes;
    
    our indebtedness may limit our ability to obtain additional
financing on satisfactory terms;
    
    insufficient cash flow from operations may force us to sell assets,
restructure or refinance our debt, or seek additional equity capital,
which we may be unable to do at all or on satisfactory terms;
    
    our level of indebtedness may make us more vulnerable to economic
downturns and may limit our ability to withstand competitive pressures;
    
    indebtedness under the senior credit facility bears interest at
variable rates which could create higher debt service requirements if
market interest rates increase; and
    
    our failure to comply with the financial and other covenants
applicable to our debt could result in an event of default, which, if
not cured or waived, could have a material adverse effect on us. These risks may directly impact our ability to service our debt
obligations. We depend upon our subsidiaries for the cash flow necessary to service our debt
obligations. Media is a holding company and we conduct our business through our
operating subsidiaries and do not have any operations of our own. As a result,
we are dependent upon the ability of our subsidiaries to provide us with cash,
in the form of dividends, inter-company credits, loans or otherwise, to meet
our debt service obligations. These subsidiaries are separate and distinct
legal entities and have no obligations to pay any amounts due on our
indebtedness or to make any funds available therefore. In addition, dividends,
loans or other distributions to us from our subsidiaries may be subject to
contractual or other restrictions, will depend upon the results of operations
of such subsidiaries and may be subject to other business considerations. Not all of our subsidiaries are wholly-owned. To the extent that
subsidiaries of Susquehanna Media Co. that are not wholly-owned declare
dividends or make other distributions to stockholders, these minority
stockholders will receive their shares of such payments, and such amounts will
not be available to service our indebtedness. The indentures governing both
series of our outstanding senior subordinated notes do, however, limit the
amount of dividends and other distributions that may be paid to these minority
stockholders. 4




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Our indebtedness prohibits us from engaging in activities that may benefit us. Our
new senior credit facilities, the indentures governing our 81⁄2 senior subordinated notes due 2009 and 7.375% senior subordinated notes due
2013 each contain a number of significant covenants. These covenants limit or
restrict our ability to:  
    
    incur additional debt;
    
    pay dividends and make distributions;
    
    repurchase securities;
    
    make certain investments;
    
    incur liens;
    
    transfer or sell assets;
    
    enter into transactions with insiders or related parties;
    
    issue or sell stock of subsidiaries;
    
    change our business;
    
    pay management fees to Susquehanna Pfaltzgraff Co.; or
    
    merge or consolidate. These limitations and restrictions may adversely affect our ability to
finance our future operations or capital needs or engage in other business
activities that may be in our best interests. Our new senior credit facilities contains cross-default provisions that may
enable senior lenders to proceed against collateral in the event of a default
on our senior subordinated notes. The events that qualify as events of default under the indentures
governing our 81⁄2% senior subordinated notes due 2009 and our 7.375% senior
subordinated notes due 2013, including a change of control, may also be events
of default under our senior credit facilities or other indebtedness. An event
of default under the senior credit facilities would permit our lenders to
accelerate payment of our indebtedness. If we cannot repay such borrowings when
due, the lenders could proceed against the collateral securing the debt. If we do not successfully integrate future acquisitions, we may not
successfully increase our cash flow. As part of our business strategy, we intend to acquire suitable radio
stations and cable systems. In the event that we acquire additional radio
stations and cable systems, we may have difficulty integrating the operations,
systems and management of such businesses, and unforeseen integration
difficulties may require a disproportionate amount of managements attention
and our other resources. We may have difficulty in providing new services such
as telephony to our cable subscribers. There can be no assurance that any
future acquisitions will be as successful as recent acquisitions, and future
acquisitions may not increase our cash flow or yield other anticipated
benefits. Events that are beyond our control have increased the level of public and
regulatory scrutiny in general and in the capital markets and have resulted in
increased regulation and new accounting standards. The reaction to these events
may have negative impacts on our business, financial condition and access to
capital. As a result of the bankruptcy filings by the Enron Corporation and
WorldCom, Inc., accounting irregularities of public companies, alleged insider
trading violations and investigations by governmental authorities of companies
in different industries, businesses have been under a generally increased
amount of public and regulatory scrutiny. Recently discovered accounting
irregularities have caused regulators and legislators to review current
accounting practices, financial disclosures and companies relationships with
their independent auditors. The capital markets and rating agencies also have
increased their level of scrutiny. We believe that we are complying with all
applicable laws, and we have taken steps to avoid these events, but it is
difficult or impossible to predict or control what effect these types of
disruptions may have on our business, financial condition or our access to the
capital markets. Additionally, it is unclear what laws or regulations may develop, and we
cannot predict the ultimate impact of any future changes in accounting
regulations or practices in general with respect to public companies or in our
operations specifically. Any such new accounting standards could impact the way
we are required to record 5




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revenues, assets and liabilities. These changes in
accounting standards could lead to negative impacts on reported earnings or
increases in liabilities that could, in turn, affect our reported results of
operations. Risks Relating To The Radio Broadcasting Industry We are dependent upon advertising revenues to generate income and cash flow. A
concentration of stations in any particular market intensifies our exposure to
economic declines. We derive substantially all of our broadcast revenues from the sale of
advertising on our radio stations. For the years ended December 31, 2003, 2002
and 2001, 93%, 93% and 92% of our radio revenues, respectively, were generated
from the sale of broadcast advertising. Because advertisers generally reduce
their spending during economic downturns, we could be adversely affected by a
future national recession. In addition, because a substantial portion of our
broadcast revenues is derived from local advertisers, our ability to generate
advertising revenues in specific markets could be adversely affected by local
or regional economic downturns. A concentration of stations in any particular market intensifies our
exposure to economic declines. We are particularly dependent on advertising
revenue from the San Francisco and Dallas markets, which each generated 26% of
our total radio revenue for the year ended December 31, 2003. Advertising
revenue from the San Francisco and Dallas markets, generated 27% and 25%,
respectively of our total radio revenue for the year ended December 31, 2002.
In 2001, a dramatic decrease in advertising by Internet businesses decreased
our San Francisco stations revenues. The decreased revenues resulted in lower
operating income. The San Francisco economy has experienced a modest recovery,
however its recovery has trailed other markets. The ongoing impact of acts of war and terrorism, which have further depressed
economic activity in the United States and globally, may reduce our advertising
revenues and have other negative effects on our business. The general slowdown in the Unites States economy, as well as the ongoing
impact of acts of war and terrorism against the United States, and the
countrys response thereto, could cause our advertising revenues to decline due
to advertising cancellations, delays or defaults in payment for advertising
time, and other factors. In addition, these ongoing events have further
depressed economic activity in the United States and globally, including the
markets in which we operate, and may have other negative effects on our
business, the nature and duration of which we cannot predict. If these acts of
war or terrorism or weak economic conditions continue or worsen, our financial
condition and results of operations may be materially and adversely affected. Competition from other radio stations and media forms could reduce our
advertising revenues and cash flow. The radio broadcasting industry is very competitive. The success of each
of our stations is dependent upon its audience ratings and share of the overall
advertising revenues within its market. Our stations compete for audiences and
advertising revenues directly with other radio stations, and some of the owners
of those competing stations have much greater financial resources than we do.
Our stations also compete with other media such as cable television,
newspapers, magazines, direct mail, compact discs, music videos, the Internet
and outdoor advertising. We cannot be sure that any of our stations can
maintain or increase its current audience ratings or market share. In addition,
other stations may change their format or programming to compete directly with
our stations for audience and advertisers or engage in aggressive promotional
campaigns. If this happens, the ratings and advertising revenues of our
stations could decrease, the promotion and other expenses of our stations could
increase, and our stations would have lower broadcast cash flow. New media technologies are also being introduced to compete with the radio
broadcasting industry. Some of these new technologies are:  
    
    digital audio broadcasting and satellite digital audio radio
service, which provide for the delivery of multiple new, high quality
audio programming formats to local and national audiences; and
    
    streaming audio delivered through the Internet. We cannot predict at this time the effect, if any, that any of these new
technologies may have on the radio broadcasting industry in general or our
stations in particular. 6




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Licensing and ownership rules may limit the growth of our radio broadcasting
operations. The radio broadcasting industry is subject to extensive regulation by the
Federal Communications Commission under the Communications Act of 1934. FCC
approval is required for the issuance, renewal or transfer of radio broadcast
station operating licenses. We cannot operate our radio stations without FCC
licenses. The failure to renew our licenses on their expiration dates or the
inclusion of conditions or qualifications in our licenses could have a negative
impact on our business. The Communications Act and FCC rules impose specific
limits on the number of stations an entity can own in a single market.
Ownership rules may affect our acquisition strategy because they may prevent us
from acquiring additional stations in a particular market. We may also be
prevented from engaging in a swap transaction if the swap would cause us to
violate these rules. The FCC has indicated that it may examine and may impose limits upon the
advertising revenue share acquired by one entity in a single market. It is not
clear how the FCC will proceed in this area. In addition, the Department of
Justice, either directly through its administration of the Hart-Scott-Rodino
pre-merger notification requirements, or generally, has taken an active role in
reviewing acquisitions of stations in particular markets and, in some
instances, has conditioned its clearance on the parties agreement to limit
market share to a level approved by the Department. In 2001, the FCC began rulemaking proceedings on two of its broadcast
ownership rules  the Broadcast-Newspaper Cross-Ownership Rule and the Local
Radio Ownership Rule. In September of 2002, the FCC issued a Notice of Proposed
Rulemaking, or NPRM, in which it sought comment on its four other broadcast
ownership rules: the Television-Radio Cross-Ownership Rule; the Dual Television
Network Rule; the Local Television Multiple Ownership Rule; and the National
Television Ownership Rule. The September NPRM consolidated the three
proceedings into a single biennial review for all broadcast ownership rules;
such biennial reviews are required in accordance with the 1996 Telecom Act. In
June, 2003, the FCC adopted a set of revised local and national ownership rules
that further relaxed its broadcast ownership restrictions to permit some
additional ownership consolidation. In August 2003, a number of parties
appealed the FCCs revised rules, and the Third Circuit in Philadelphia was
selected to hear all of the appeals. The Third Circuit, in September 2003,
granted a stay of the new rules shortly before they were to go into effect, and
the pre-June ownership rules remain in effect, with the exception of the
National TV Ownership Rule which was modified in January 2004 by Congress,
thereby mooting all reconsideration and appeals of that issue. A decision by
the Third Circuit on the remaining ownership rules is not expected for several
months. Relaxation of the ownership rules may allow us, and competitors, to
increase the number of stations owned in a particular market, and may permit
us, and competitors, to own other media in a particular market. We cannot
predict the impact of the outcome of these proceedings on our business. Risks Relating To The Cable Television Industry Competition from other communication service providers could reduce our
revenues and cash flow. Cable television systems operate in a very competitive business
environment, and we may compete against competitors with fewer regulatory
burdens, greater financial and personnel resources, greater brand name
recognition and long-standing relationships with regulatory authorities.
Moreover, mergers, joint ventures and alliances among franchise, wireless or
private cable television operators, regional bell operating companies and
others may result in providers capable of offering cable television and other
telecommunications services in direct competition with us. Providing telephony
services to our subscribers will put us in competition with established
companies. Our cable television systems face competition from alternative methods of
receiving and distributing television signals, including:  
    
    direct broadcast satellite, which is a satellite service of one or
more program channels that can be received on a subscribers premises
directly using an antenna;
    
    multichannel multipoint distribution systems, which use low power
microwave frequencies with increased channel capacity to transmit video
programming over the air to customers; 7




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
    
    satellite master antenna television systems, which use one central
antenna to receive and deliver programming to a concentrated group of
viewers, such as in apartments, hotels or hospitals; and
    
    broadcast digital television, which can deliver high definition
television pictures, digital-quality programs and CD-quality audio
programming;
    
    data transmission and Internet service providers;
    
    regional bell operating companies, other telephone companies,
public utility companies and other entities that are in the process of
entering the cable television business; and
    
    other sources of news, information and entertainment such as
newspapers, movie theaters, live sporting events and home video
products, including videotape cassette recorders and digital videodisc
players. If our cable franchises are not renewed or if our franchises encounter
competition, we may experience a significant decline in our revenues and cash
flow. Cable television companies operate under non-exclusive franchises granted
by local authorities, which are subject to renewal and renegotiation from time
to time. Our business is dependent upon the retention and renewal of our local
franchises. The non-renewal or termination of franchises relating to a
significant portion of our subscribers could have a material adverse effect on
our revenues and cash flow. A franchise is generally granted for a fixed term
ranging from 5 to 15 years, but in many cases the franchise may be terminated
if the franchisee fails to comply with the material provisions of the franchise
agreement. Franchises typically impose conditions relating to the use and
operation of the cable television system, including requirements relating to
the payment of fees, system bandwidth capacity, customer service requirements,
franchise renewal and termination. The Cable Communications Policy Act of 1984
provides for an orderly franchise renewal process in which franchise renewal
will not be unreasonably withheld. If renewal is denied and the franchising
authority acquires ownership of the system or effects a transfer of the system
to another person, the operator generally is entitled to the fair market
value, but with no value allocated to the franchise itself in a non-renewal
situation, for the system covered by such franchise. No assurances can be given
that we will be able to retain or renew our franchises or that the terms of any
such renewals will be on terms as favorable to us as our existing franchises. Changes in cable television regulation could increase our costs and reduce
our revenues. Federal, state and local regulation can increase the costs of operating
our cable systems and limit the rates we can charge. The Cable Television
Consumer Protection and Competition Act of 1992, the Telecommunications Act of
1996 and the FCCs rules implementing these acts have increased the
administrative and operational expenses of cable television systems. The FCC
and local or state franchise authorities have also gained additional regulatory
oversight powers under these acts. The FCC is currently considering whether
franchise authorities should be allowed to collect a franchise fee on revenues
derived from cable modem service. The FCC and Congress continue to be concerned
that rates for programming services are rising at a rate exceeding inflation.
It is therefore possible that Congress may enact legislation in
the future to reimpose additional rate controls on cable systems. Cable television systems generally operate pursuant to non-exclusive
franchises, permits or licenses granted by a municipality or other state or
local governmental entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. A number of states subject cable
systems to the jurisdiction of centralized state governmental agencies. No
state in which we currently operate has enacted state level regulation. We
cannot predict whether any of the states in which we currently operate will
engage in such regulation in the future. If we become subject to this type of
regulation, the costs of operating our cable systems may increase and the rates
we can charge may be limited. If our programming costs continue to increase and we cannot pass them along to
our customers, our cash flow will decrease. Our cable programming costs are increasing. Programming has been and is
expected to continue to be our largest single expense item and accounted for
approximately 33% of our total cable operating costs for both the years ended
December 31, 2003 and 2002. In recent years, the cable industry has
experienced a rapid escalation in 8




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the cost of programming, particularly sports
programming. Moreover, television stations have become increasingly aggressive
in demanding cash or other consideration in return for granting retransmission
consent for our ability to carry such stations. This escalation may continue,
and we may not be able to pass programming cost increases on to
our subscribers. In addition, as we add programming to our limited and
expanded basic tiers, we may face additional market constraints on our
ability to pass these costs on to our subscribers. Our financial condition,
results of operations and cash flows could be negatively affected by further
increases in programming costs. Providing telephony services makes us subject to new regulation and may reduce
cash flows. Telephony providers are subject to federal and state regulation. We began
providing telephony services to approximately 8,900 subscribers in the Carmel,
New York cable service area on March 9, 2004. Providing telephony services
makes us subject to additional costs and taxes. Our financial condition,
results of operations and cash flow could be negatively affected by providing
telephony services. 9




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PART I 
 Item 1.Business Overview of Susquehanna Media Susquehanna Media was incorporated in 1993 as a cable and radio
broadcasting holding company subsidiary of Susquehanna Pfaltzgraff Co.
Susquehanna Pfaltzgraff Co. was founded in 1941 by Louis J. Appell, Sr. to own
and operate WSBA-AM, our flagship radio station in York, Pennsylvania. In
1954, The Pfaltzgraff Co., a leading manufacturer of ceramic dinnerware, was
merged into Susquehanna Pfaltzgraff. The Pfaltzgraff Co. had been owned by the
family of Mrs. Louis J. Appell, Sr. We entered the cable television business
in 1965 when we were awarded a franchise to operate in York, Pennsylvania. We are a diversified communications company with operations in radio
broadcasting and cable television. We are the largest privately-owned radio
broadcaster and the 11th largest radio broadcaster overall in the United States
based on 2002 revenues. As of December 31, 2003, we owned and operated 19 FM
and 8 AM stations. We also own 6 stations operated by third parties under local
marketing agreements (LMAs). Owned and operated stations serve three of the
nations ten largest radio markets (San Francisco, Dallas and Houston), as well
as five other markets (Atlanta, Cincinnati, Indianapolis, Kansas City, and
York, Pennsylvania). We are also the 18th largest cable multiple system
operator in the United States, based on subscribers, with eight cable systems
serving approximately 205,600 subscribers as of December 31, 2003. As of
December 31, 2003, our cable systems were 89% rebuilt to two-way plant in order
to facilitate digital cable and broadband data services. In 1996, we formed Susquehanna Data Services (SDS) to provide Internet
access and other related services. SDS launched dial-up access in October 1996
and one-way cable modem access in July 1997 under the trade name BlazeNet. The
BlazeNet operation is being merged into our cable operations in 2004 and will
be rebranded SusCom Business Solutions, focused on selling enhanced voice and
data services to commercial establishments within our cable footprint. In 2000, SDS acquired Judds Online, a designer of web sites and online
applications. This company has been renamed Susquehanna Technologies,
(SusQtech). It is focused on providing content management, eCommerce and
eProcurement solutions to clients in the Mid-Atlantic region. On March 9, 2004, we purchased assets serving approximately 29,000 cable,
high-speed data and telephony subscribers in the Carmel, New York area from RCN
Telecommunications Inc. (RCN) for approximately $120 million cash. This
acquisition marks our entry into providing telephony services to cable
subscribers. Concurrent with this purchase, we replaced our senior secured
credit facilities with new senior secured credit facilities Radio Broadcasting Our radio broadcasting business focuses on acquiring, operating and
developing radio stations in the 40 largest markets in the United States. We
have over 60 years of experience operating radio properties and currently own
stations serving four of the nations largest radio markets: San Francisco,
Dallas, Houston and Atlanta; two markets ranked between 25 and 40, Cincinnati
and Kansas City; Indianapolis; and York, Pennsylvania. Our radio stations offer
a broad range of programming formats, such as country, top 40, adult
contemporary, oldies, rock, and sports and talk radio, each targeted to a 10




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specific demographic audience within a market. We believe that our large
market radio presence and variety of programming formats make us attractive to
a diverse base of local and national advertisers and enables us to capitalize
on our ratings to generate higher market revenue share. Our business strategy for radio includes the following key elements
intended to establish leadership positions in the markets we serve and to
enhance our operating and financial performance:  
    
    Focus on large markets. For the year ended December
31, 2003, we generated approximately 72% of our radio revenues
from our four largest markets and more than 87% from Arbitron top
40 markets. We intend to continue focusing on large markets.
    
    Employ targeted programming and market research. We
seek to maximize station operating performance through extensive
market research, innovative programming, and distinctive
marketing campaigns.
    
    Decentralize management. We decentralize much of our
operations to regional and local levels. Each of our regional
and local station groups is managed by a team of experienced
broadcasters who understand the musical tastes, demographics, and
competitive opportunities of their particular market.
    
    Selectively pursue strategic acquisitions. In addition
to seeking continued internal growth, we intend to pursue
acquisition opportunities that allow us to continue to compete
more effectively for advertising revenues and to increase our
growth rate of revenues and cash flow. The Radio Broadcasting Industry The radio broadcasting industry is characterized by the following key factors: Significant growth. The sale of advertising time to local and national
spot advertisers and to national network advertisers is the primary source of
revenues for radio stations. Local and national spot advertising is generally
used to target the market where a station is located or to cover regions larger
than the markets where a station is located. National network advertising is
included in national syndicated programming aired on radio stations. The
growth in total radio advertising revenue tends to be fairly stable, growing
over the last 25 years at an approximately 8.0% compound annual rate, compared
to a gross domestic product growth rate of approximately 6.5%. Broad market coverage. According to the Radio Advertising Bureaus Radio
Marketing Guide and Fact Book for Advertisers 2003-2004, each week radio
reaches approximately 94% of all Americans over 12 years of age. More than
one-half of all radio listening occurs outside the home, and 82% of adults are
reached by car radio each week. The average listener spends approximately
three hours per day listening to radio. The highest portion of radio listening
occurs during the morning, particularly between the time a listener wakes up
and the time he reaches work. This morning drive time period reaches more
than 83% of people over 12 years of age, and as a result, radio advertising
sold during this period commands premium advertising rates. Low-cost advertising. The cost to reach a thousand listeners, or
impressions, is the benchmark for comparing different media with different
reach and frequency aspects. Radio is recognized by the advertising community
for its ability to generate a high frequency of commercial impressions cost
efficiently. This is caused by its low cost per minute, or low cost per rating
point. Stations are generally 11




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##### 



classified by their on-air format, such as
country, adult contemporary, oldies and news/talk. A stations
format and style of presentation enables it to efficiently target certain
demographics. By capturing a specific share of a markets radio listening
audience, with particular concentration in a targeted demographic, a station is
able to market its broadcasting time to enable advertisers to maximize their
reach for each dollar of advertising expenditures. Radio Properties Our radio subsidiary, Susquehanna Radio Corp., operates radio stations in
San Francisco, Dallas and Houston, all of which are top ten markets, as well as
radio stations in Atlanta, Cincinnati, Indianapolis, Kansas City, and York,
Pennsylvania. The following table sets forth certain information regarding our
radio stations and their respective markets as of December 31, 2003. The table
excludes WABZ-FM in Albemarle, North Carolina and KIKT-FM and KGVL-AM in
Greenville, Texas, WAVG-AM in Jeffersonville, Indiana, KQKC-FM and WZZB-AM in
Seymour, Indiana, and KYNG-AM in Dallas/Ft. Worth, Texas, which are owned by
us, but operated by third parties under time brokerage agreements. Market rank
by revenue is based upon market revenue size of the primary radio market served
by the station among all radio markets in the United States, as reported in
2003 BIA Financial Networks Media Access Pro. Station rank and audience share
are based upon a stations share of its primary demographic target for the
period Monday through Sunday, 6 a.m. to 12 midnight by market, as reported by
Arbitron in Fall 2003. Combined market revenue share represents our share of
the total radio advertising revenue from the market, as reported in BIA
Financial Networks Media Access Pro and by Miller, Kaplan, Arase & Co.
Combined market revenue rank represents our rank in the market as measured by
the amount of its radio advertising revenue from the market, as reported in BIA
Financial Networks Media Access Pro and by Miller, Kaplan, Arase & Co. StationStation
    
    AudienceMarket
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rank
    
    Share In
    
    Combined
    
    CombinedRank
    
    Station
    
    
    
    
    
    Primary
    
    In Primary
    
    Primary
    
    Market
    
    MarketBy
    
    Programming
    
    Year
    
    Demographic
    
    Demographic
    
    Demographic
    
    Revenue
    
    RevenueMarket And Stations
    
    Revenue
    
    Format
    
    Acquired
    
    Target
    
    Target
    
    Target
    
    Share
    
    RankSan Francisco, CA
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.6
    %
    
    
    3KFOG/KFFG-FM (1)
    
    
    
    
    
    Adult Album
    
    
    1983/1995
    
    
    
    A 25-54
    
    
    
    2
    
    
    
    4.4
    %AlternativeKNBR /KTCT-AM (1)
    
    
    
    
    
    Sports/Talk
    
    
    1989/1997
    
    
    
    M 25-54
    
    
    
    1
    
    
    
    6.6
    %KSAN-FM
    
    
    
    
    
    Classic Rock
    
    
    1997
    
    
    
    M 25-44
    
    
    
    3
    
    
    
    4.3
    %Dallas/Ft. Worth, TX
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.3
    %
    
    
    3KTCK/KTBK-AM/
KTDK-FM (1)
    
    
    
    
    
    Sports/Talk
    
    
    1996
    
    
    
    M 25-54
    
    
    
    1
    
    
    
    7.4
    %KPLX-FM
    
    
    
    
    
    Country
    
    
    1974
    
    
    
    A 25-54
    
    
    
    2
    
    
    
    6.1
    %KLIF-AM
    
    
    
    
    
    Talk
    
    
    1980/1998
    
    
    
    A 35-64
    
    
    
    11t
    
    
    
    3.2
    %KDBN-FM
    
    
    
    
    
    Classic Rock
    
    
    1996/1998
    
    
    
    M 25-54
    
    
    
    12
    
    
    
    3.0
    %Atlanta, GA
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.5
    %
    
    
    7WNNX-FM
    
    
    
    
    
    New Rock
    
    
    1974
    
    
    
    M 18-34
    
    
    
    2
    
    
    
    7.9
    %WWWQ-FM
    
    
    
    
    
    Contemporary
    
    
    1997
    
    
    
    W 18-34
    
    
    
    3
    
    
    
    7.2
    %Hit RadioHouston, TX
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0
    %
    
    
    6
 12




---



##### 



StationStation
    
    AudienceMarket
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rank
    
    Share In
    
    Combined
    
    CombinedRank
    
    Station
    
    
    
    
    
    Primary
    
    In Primary
    
    Primary
    
    Market
    
    MarketBy
    
    Programming
    
    Year
    
    Demographic
    
    Demographic
    
    Demographic
    
    Revenue
    
    RevenueMarket And Stations
    
    Revenue
    
    Format
    
    Acquired
    
    Target
    
    Target
    
    Target
    
    Share
    
    RankKRBE-FM
    
    
    
    
    
    Contemporary
    
    
    1986
    
    
    
    W 18-34
    
    
    
    1
    
    
    
    10.2
    %Hit RadioCincinnati, OH
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.0
    %
    
    
    3WRRM-FM
    
    
    
    
    
    Adult
    
    
    1972
    
    
    
    W 25-54
    
    
    
    1
    
    
    
    10.0
    %ContemporaryWMOJ-FM
    
    
    
    
    
    Rhythmic
    
    
    1997
    
    
    
    W 25-54
    
    
    
    2
    
    
    
    7.7
    %OldiesWYGY-FM
    
    
    
    
    
    Country
    
    
    2002
    
    
    
    W 35-54
    
    
    
    5
    
    
    
    4.8
    %Indianapolis, IN
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.2
    %
    
    
    2WFMS-FM
    
    
    
    
    
    Country
    
    
    1972
    
    
    
    A 25-54
    
    
    
    2
    
    
    
    11.5
    %WGLD-FM
    
    
    
    
    
    Oldies
    
    
    1993
    
    
    
    A 35-54
    
    
    
    3
    
    
    
    7.8
    %WGRL-FM
    
    
    
    
    
    80's Hits
    
    
    1997
    
    
    
    A 25-54
    
    
    
    15t
    
    
    
    1.8
    %Kansas City, KS
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.7
    %
    
    
    3KCMO-FM
    
    
    
    
    
    Oldies
    
    
    2000
    
    
    
    A 35-54
    
    
    
    4
    
    
    
    5.7
    %KCFX-FM
    
    
    
    
    
    Classic Rock
    
    
    2000
    
    
    
    A 25-54
    
    
    
    1
    
    
    
    8.2
    %KCMO-AM
    
    
    
    
    
    Talk
    
    
    2000
    
    
    
    A 35-64
    
    
    
    12
    
    
    
    3.8
    %KFME-FM (2)
    
    
    
    
    
    80's Hits
    
    
    2001
    
    
    
    A 25-44
    
    
    
    8
    
    
    
    4.6
    %York, PA
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62.0
    %
    
    
    1WARM-FM
    
    
    
    
    
    Adult
    
    
    1962
    
    
    
    W 25-54
    
    
    
    3
    
    
    
    8.9
    %ContemporaryWSBA-AM
    
    
    
    
    
    Talk
    
    
    1942
    
    
    
    A 35-64
    
    
    
    10t
    
    
    
    2.5
    %WSOX-FM
    
    
    
    
    
    Oldies
    
    
    2003
    
    
    
    A 35-64
    
    
    
    2
    
    
    
    8.6
    %
    (1)
    
    These stations are simulcast and have been combined for market rank and
audience share.(2)
    
    KFME-FM signed on June 18, 2001. Our Kansas City sales staff is selling
the stations commercial airtime under a joint sales agreement with
Jesscom, Inc., which is programming and operating the station. The
station is licensed to 105.1 FM LLC, of which the Company owns 40%. In
January, 2004 the Company agreed to purchase the remaining 60% interest in
KFME-FM. Market Overviews We own and operate radio stations in the following markets: San Francisco. We have operated in the San Francisco market since 1983,
and currently own three FM and two AM stations in the area. We own KNBR-AM,
one of the original 50,000 watt, clear channel AM licenses, which provides
clear reception throughout northern California and as far inland as eastern
Nevada. The station is currently programmed with a sports talk format and has
the broadcast rights to the San Francisco Giants and the Golden State Warriors.
Two of our stations, KNBR/KTCT-AM and KFOG/KFFG-FM, are each ranked among the
top 5 stations in their respective target demographics. Dallas/Ft. Worth. We have been operating in the Dallas/Ft. Worth market
since 1974, 13




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##### 



and currently own four FM and five AM stations in the area. Three
of our stations, KTCK-AM, KTBK-AM, and KTDK-FM, which are programmed with a
sports talk format and are simulcast, are each ranked 1st in
the market among males 25 to 54. KPLX, which is programmed with a Texas
country format, is rated 2nd in the market among persons 25 to 54. KIKT-FM and
KGVL-AM in Greenville, Texas, are owned by us, but operated by third parties
under a time brokerage agreement. Houston. We entered the Houston market in 1986 when we acquired KRBE-FM,
which serves the Houston market with a Top 40 radio format. KRBE-FM has been a
dominant radio station in Houston since the 1970s and is ranked 1st among women
18 to 34. This station attracts over 700,000 listeners each week. Atlanta. Atlanta represents one of the most desirable radio broadcast
markets in the country, with only 20 FM and 30 total radio stations serving the
market. We currently own two FM stations in the market. We entered the
Atlanta market in 1974 with the acquisition of WNNX-FM, which is programmed
with new rock and ranked 2nd among men 18 to 34. In November 2000, the FCC
granted our petition to move WHMA-FM, a country station in Anniston, Alabama,
to the Atlanta market. Station call letters were changed to WWWQ-FM when it
debuted in the Atlanta market on January 22, 2001 with a Top 40 format.
WWWQ-FM is currently ranked 3rd among women 18 to 34. Cincinnati. We have operated in Cincinnati since 1972, and currently own
three FM stations in the market. WRRM-FM, which is programmed with adult
contemporary, is the sole adult contemporary station in the market and is
ranked 1st among women 25 to 54. WMOJ-FM, which is programmed as a rhythmic
oldies station, is a strong contender, placing 2nd among women 25 to 54.
WYGY-FM is a country station, which we purchased in the fall of 2002. Indianapolis. We have operated in Indianapolis since 1972, and currently
own three FM stations in the market. WFMS-FM, which is programmed with
contemporary country, is the second ranked station among adults 25 to 54 and
has ranked either 1st or 2nd in the market since 1992. Oldies WGLD, with its
50-kilowatt transmitting power, effectively targets adults 35-54, ranking 3rd
in the market. Since switching its format from Young Country to Eighties Hits
on December 26, 2001, WGRL-FM has seen improvement in audience ratings and
renewed interest from the advertising community. Kansas City.In July 2000, we acquired three radio stations serving the
Kansas City market. Oldies KCMO-FM is ranked 4th in its target adult 35-54
demographic. KCFX-FM ranks 1st among adults 25 to 54 and is the flagship
station for the Kansas City Chiefs. KCMO-AM is one of the oldest continuously
operated radio stations in the United States, on the air since 1936. In 2001,
the Company agreed to sell KFME-FMs commercial airtime under a joint sales
agreement with Jesscom, Inc., who is programming and operating the station.
The Company holds a 40% interest in joint venture with Jesscom, Inc. to operate
KFME-FM. In January 2004, the Company agreed to purchase the remaining 60%
interest in KFME-FM, subject to FCC approval, for $15.0 million cash.
A second quarter 2004 closing is expected. York. We have operated in York since 1942, and currently own three
stations in the market. WARM-FM, which is programmed with an adult
contemporary format, ranking 3rd among listeners 12+. WSBA-AM, which is
programmed talk and news, is the AM ratings leader in York. The Company
purchased Oldies WSOX-FM on August 1, 2003, which is ranked 2nd among adults 35
to 64. Advertising Most of our radio revenues are generated from the sale of local, regional
and national advertising for broadcast on our radio stations. In 2003,
approximately 79% of our radio revenues were generated 14




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##### 



from the sale of local
and regional advertising, compared to 80% in 2002 and 81% in 2001. We generate
additional radio revenues by marketing our proprietary database of listeners,
selling print advertising and
sponsoring local events. These important and growing sources of revenue
supplement our traditional advertising revenues without increasing on-air
commercial time. Each radio stations local sales staff solicits advertising either
directly from local advertisers or indirectly through advertising agencies. We
employ personnel in each of our markets to produce commercials for advertisers.
National advertising sales are made by a firm specializing in such sales in
exchange for a commission from us based on our gross revenue, net of agency
commission from the advertising sold. Regional advertising sales, which we
define as sales in regions surrounding our markets to companies that advertise
in our markets, are generally made by our local sales staff. We estimate the optimum number of advertisements available for sale by a
station for a particular time period. The number of advertisements that can be
broadcast without jeopardizing listening levels (and resulting ratings) is
limited in part by the programming format of a particular station. We seek to
maximize revenue by managing on-air inventory of advertising time and adjusting
prices to local market conditions and to our ability, through our marketing
efforts, to provide advertisers with an effective means of reaching a targeted
demographic group. Each of our stations has a general target level of on-air
inventory that it makes available for advertising. This target level may vary
at different times of the day but tends to remain stable over time. Much of
our selling activity is based on demand for our on-air inventory, and in
general, we respond to this demand by varying prices rather than varying our
target inventory level for a particular station. As a result, most changes in
revenue are explained by demand-driven pricing changes rather than changes in
available inventory. We believe that radio is one of the most efficient and cost-effective
means for advertisers to reach specific demographic groups. Advertising rates
charged by radio stations are based primarily on:  
    
    a stations share of audiences in the demographic groups targeted by advertisers;
    
    the number of stations in the market competing for the same demographic groups;
    
    the supply of and demand for radio advertising time; and
    
    certain qualitative factors. Rates are generally highest during morning and afternoon commuting hours.
A stations listenership is reflected in ratings surveys that estimate the
number of listeners tuned to the station and the time they spend listening.
Each stations ratings are used by its advertisers and advertising
representatives in connection with advertising sales and are used by us to
chart audience growth, set advertising rates and adjust programming. The radio
broadcast industrys and our principal rating agency is Arbitron, which
publishes periodic ratings surveys for significant domestic radio markets. Competition The radio broadcasting industry is very competitive. The success of each
of our stations depends largely upon its audience ratings and its share of the
overall advertising revenues within its market. Our audience ratings and
advertising revenue are subject to change, and any adverse change in a
particular market affecting advertising expenditures or an adverse change in
the relative market positions of the stations located in a particular market
could have a material adverse effect on the revenues of our radio stations
located in that market. There can be no assurance that any one or all of our
radio 15




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##### 



stations will be able to maintain or increase current audience ratings or
advertising revenue market share. Our stations compete directly for listeners and advertising revenues with
other radio stations within their respective markets. Radio stations compete
for listeners primarily on the basis of program content that appeals to a
particular demographic group. By building a strong listener base comprised of
specific demographic groups in each of its markets, we are able to attract
advertisers seeking to reach those listeners. Radio stations periodically
change their formats to compete directly with other stations for listeners and
advertisers. Another stations decision to convert to a format similar to that
of one of our radio stations in the same geographic area or launch an
aggressive promotional campaign may result in lower ratings and advertising
revenue, increased promotion and other expenses and, accordingly, lower our
broadcast cash flow. Factors that are material to a radio stations competitive position
include management experience, the stations local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. We attempt to improve our competitive position in each of our
markets by extensively researching our stations programming, by implementing
advertising campaigns aimed at the demographic groups for which our stations
program and by managing our sales efforts to attract a larger share of
advertising dollars for each individual station. In selling advertising,
however, we compete with many organizations that have substantially greater
financial and other resources. The Communications Act and the FCCs rules and policies permit increased
ownership and operation of multiple local radio stations. As a result,
organizations are acquiring and operating larger blocks of radio stations. We
compete with these organizations, as well as other radio station groups, to
purchase additional stations. Some of these groups are owned or operated by
companies that have substantially greater financial and other resources. Although the radio broadcasting industry is highly competitive, and
competition is enhanced to some extent by changes in existing radio station
formats and upgrades of power, certain regulatory limitations on market entry
continue to exist. The operation of a radio broadcast station requires a
license from the FCC, and the number of radio stations that an entity can
operate in a given market is limited by the availability of FM and AM radio
frequencies allotted or assigned by the FCC to communities in that market, as
well as by the FCCs multiple ownership rules regulating the number of stations
that may be owned and controlled by a single entity. See Federal Regulation
of Radio Broadcasting. In addition to other radio stations, we compete for advertising revenues
with other media, including newspapers, broadcast television, cable television,
magazines, direct mail, coupons and outdoor advertising. The radio
broadcasting industry also competes with new media technologies, such as the
delivery of audio programming by cable television systems, over the Internet,
and by satellite digital audio radio services. Digital audio radio services
may deliver by satellite to nationwide and regional audiences, multi-channel,
multi-format, digital radio services with sound quality equivalent to compact
discs. The delivery of information through the presently unregulated Internet
also could create a new form of competition. Despite the introduction of new
technologies for the delivery of entertainment and information, including
television broadcasting, cable television, audiotapes and compact discs, the
radio broadcasting industry historically has grown. A growing population and
greater availability of radios, particularly car and portable radios, have
contributed to this growth. There can be no assurance, however, that the
introduction of new media technology will not have an adverse effect on the
radio broadcasting industry. 16




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##### 



Cable Television We entered the cable television industry in 1965, when we were awarded the
franchise to operate in York, Pennsylvania. Our cable areas serve
approximately 205,600 video subscribers as of December 31, 2003 through 11
signal receiving and transmitting facilities (headends) in Pennsylvania,
Mississippi, Maine, Illinois and Indiana. On March 9, 2004, we
purchased assets serving approximately 29,000 subscribers in the
Carmel, New York area from RCN Telecommunications Inc. We own, develop and operate
geographically clustered cable television areas in small and medium-sized
communities. We believe that these areas are less susceptible to competition
and subscriber turnover than urban areas and result in more predictable revenue
and cash flow. Our business strategy for cable television includes the following key
elements intended to enhance our operating and financial performance:  
    
    Build strategic clusters. To maximize operating
efficiencies, we have pursued the development and acquisition of
cable television areas in communities that are within close
proximity to our existing areas.
    
    Focus on customer satisfaction. To maximize customer
satisfaction, we strive to provide reliable, high-quality service
offerings, superior customer service and attractive programming
choices at reasonable rates. In 2004, we intend to build a 24/7
consolidated customer service center in York, Pennsylvania to
provide a higher level of customer service.
    
    Continue upgrade of technical facilities. We seek
to provide reliable, high-quality cable television services to
our customers. To achieve this goal, we are continually
expanding and upgrading our cable areas to increase channel
capacity, enhance signal quality, improve technical reliability
and reduce the number of headends in existing areas. The
Companys areas, not including Carmel, New York, are currently
89% rebuilt and management expects to complete the entire
buildout by 2005.
    
    Develop new sources of revenues. The investment we
have made in our cable service areas has enabled us to generate
additional revenue by providing expanded tiers of basic
programming, digital cable services, premium services, and
additional pay-per-view services. In addition, we are expanding
new services, such as Internet access, high-speed data and are
evaluating video-on-demand, telephony, digital video recording
(DVR) technology and other interactive services. The Cable Television Industry Total customers of a cable service area include customers who subscribe to
either the basic video service or Internet Access using a cable modem. A cable
customer generally pays an initial installation charge and fixed monthly fees
for cable television services and for other services (such as the rental of
converters and remote control devices). Such monthly service fees constitute
the primary source of revenue for cable television operators. In addition to
these services, cable television operators generate revenue from additional
fees paid by customers for pay-per-view programming of movies and special
events and from the sale of available advertising spots on advertiser-supported
programming. Additionally, cable television operators frequently offer their
customers home shopping services, from 17




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##### 



which the systems receive a share of
revenue from sales of products in the systems service areas. Cable television
operators are also generating increasing revenues from the sale of enhanced
data services. Cable television revenues tend to be stable, growing over the
last 15 years at a 9.4% compound annual rate, compared to a gross domestic
product growth rate of 5.2%. Cable television did not experience a
single down year in revenue during this period of time. Cable television
operators offer customers various levels (or tiers) of cable television
services consisting of:  
    
    a limited basic service, comprised of off-air broadcast
television signals, local origination programming produced by the
cable system and/or public access groups, and a limited number of
satellite services such as home shopping channels and C-Span; and
    
    an expanded basic service, comprised of satellite
delivered, non-broadcast channels such as: Cable News Network
(CNN), Entertainment and Sports Programming Network (ESPN) and
Lifetime Network (LIFE). For an extra monthly charge, our cable television operation also offers
premium television services. These services (such as Home Box Office, Cinemax
and Showtime) are satellite delivered channels offering feature films, live
sporting events, concerts and other special entertainment features presented
without commercial interruption. Digital cable, offers enhanced television viewing with interactive guides,
compact disc quality music channels, theater sound quality, and multiple
services of premium and pay-per-view channels. These additional product
offerings are made possible by use of bandwidth-saving digital compression. On an a la carte basis or for an additional monthly charge, our basic
subscribers can also get Internet access via a cable modem, which offers
broadband access to the Internet at speeds exceeding standard dial-up access.
Services offered include residential and commercial Internet access, e-mail and
commercial point-to-point circuits. Cable modem revenues from Cable
subscribers are included in the Cable segment. In 2004, telephony subscribers
will also be included in the Cable segment. A cable television service area receives television, radio and data
signals that are transmitted to the areas headend by means of off-air
antennae, microwave relay systems and satellite earth stations. These signals
are then modulated, amplified and distributed, primarily through coaxial cable,
and in some instances fiber optic cable, to customers who pay a fee for this
service. Cable television areas may also originate their own television
programming and other information services for distribution locally. Cable
television operations generally are constructed and operated pursuant to
non-exclusive franchises or similar licenses granted by local governmental
authorities for a specified term of years, generally for extended periods of up
to 20 years. Cable Properties The following table sets forth certain selected technical, operating and
financial data for each of our cable service areas as of and for the year ended
December 31, 2003. Density represents homes passed divided by miles of plant.
Plant bandwidth represents percentage of plant mileage served by the indicated
plant bandwidth. Increased bandwidth offers greater capacity for signals and
resultant additional revenues. Homes passed represents the maximum
number of homes that could become subscribers. Total customers
represents the total of video and cable modem only customers. Total customer penetration represents total
customers as a percentage of homes passed. Basic penetration represents basic
subscribers as a percentage of homes passed. Digital customers represents the
number of active customers which have subscribed to digital services. Digital
penetration represents digital customers as a percentage of basic subscribers.
Premium units represents the aggregate number of 18




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##### 



individual premium services
(e.g., HBO, Cinemax, Showtime) for which customers have subscribed. Premium
penetration represents premium units as a percentage of basic subscribers.
Cable modem penetration represents cable modem subscribers as a percentage of
homes passed. Average monthly revenue per basic subscriber represents revenues
divided by 12 divided by the weighted average number of subscribers for the
year. YORK
    
    WILLIAMSPORT
    
    RANKIN
    
    BRUNSWICK
    
    MIDWEST TOTALTECHNICAL DATA:Miles of Plant
    
    
    1,836
    
    
    
    1,030
    
    
    
    954
    
    
    
    849
    
    
    
    942
    
    
    
    5,611Density
    
    
    70
    
    
    
    53
    
    
    
    49
    
    
    
    36
    
    
    
    55
    
    
    
    55Head-ends
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    11Plant Bandwidth:330-450MHz
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    63.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    11.0
    %550 MHz
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    20.0
    %
    
    
    30.0
    %
    
    
    49.0
    %
    
    
    16.0
    %750 or >MHz
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    17.0
    %
    
    
    70.0
    %
    
    
    51.0
    %
    
    
    73.0
    %OPERATING DATA:Homes passed
    
    
    128,213
    
    
    
    54,092
    
    
    
    46,304
    
    
    
    30,914
    
    
    
    51,573
    
    
    
    311,096Total customers
    
    
    90,553
    
    
    
    40,230
    
    
    
    25,024
    
    
    
    21,230
    
    
    
    30,289
    
    
    
    207,326Total customer penetration
    
    
    70.6
    %
    
    
    74.4
    %
    
    
    54.0
    %
    
    
    68.7
    %
    
    
    58.7
    %
    
    
    66.6
    %Basic Subscribers
    
    
    90,194
    
    
    
    39,717
    
    
    
    25,024
    
    
    
    20,792
    
    
    
    29,875
    
    
    
    205,602Basic penetration
    
    
    70.3
    %
    
    
    73.4
    %
    
    
    54.0
    %
    
    
    67.3
    %
    
    
    57.9
    %
    
    
    66.1
    %Digital customers
    
    
    20,746
    
    
    
    7,229
    
    
    
    6,984
    
    
    
    4,416
    
    
    
    4,644
    
    
    
    44,019Digital
penetration
    
    
    23.0
    %
    
    
    18.2
    %
    
    
    27.9
    %
    
    
    21.2
    %
    
    
    15.5
    %
    
    
    21.4
    %Cable modem customers
    
    
    19,466
    
    
    
    7,184
    
    
    NA
    
    
    8,732
    
    
    
    4,188
    
    
    
    39,570Cable modem penetration
    
    
    15.2
    %
    
    
    13.3
    %
    
    NA
    
    
    28.2
    %
    
    
    8.1
    %
    
    
    14.9
    %FINANCIAL DATA:Revenue (in thousands)
    
    $
    62,399
    
    
    $
    27,124
    
    
    $
    15,125
    
    
    $
    15,431
    
    
    $
    17,149
    
    
    $
    137,228Average monthly revenue per
basic subscriber
    
    $
    57.40
    
    
    $
    56.06
    
    
    $
    51.95
    
    
    $
    62.07
    
    
    $
    47.55
    
    
    $
    55.53
 York.The York, Pennsylvania cable area is Susquehannas largest, serving
subscribers in 51 municipalities and accounting for 44% of total customers and
45% of 2003 Cable revenues. The entire cable plant has a capacity of 750 MHz
and is two-way capable, which allows cable modem service and other interactive
services. Cable modem service has been provided to customers since 1997, with
approximately 15% penetration to homes passed as of December 31, 2003. Digital
services were launched in October 1999, with penetration equaling 23% of basic
customers as of December 31, 2003. A consolidated customer care center is
under development and will be located in York. The center will offer 24/7
customer care and technical support to subscribers in all areas by the end of
2004. Williamsport.The Williamsport area accounts for 19% of total customers and 20% of its 2003 Cable revenues. The service area has been
completely rebuilt to 750 MHz and is two-way capable. Cable modem services are
presently offered to residential and commercial customers with penetration of
13% of homes passed as of December 31, 2003. Digital services were launched in
June 2000 with penetration of 18% of basic customers as of December 31, 2003. Rankin.The Rankin County, Mississippi cable service area encompasses
three small towns, many upscale suburban developments and the southeastern
shore of an attractive reservoir recreation area just east of the state capital
of Jackson. The area continues to experience housing growth. The Rankin area
accounts for 12% of Susquehannas total customers and 11% of its 2003 Cable
revenues. A rebuild of the cable plant to 860 MHz is underway and is expected
to be complete in 2005. Approximately 37% of the Rankin area currently has a
bandwidth of 550 MHz or greater. Rankin launched digital technology 19




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in
February 2000, and digital penetration is approximately 28% of basic customers
as of December 31, 2003. During the first quarter of 2004, Rankin began
testing cable modem services. Brunswick.The Brunswick cable service area serves 11 communities in
Maine, including Brunswick, Freeport, Bath, Harpswell and Woolwich. Brunswick
accounts for 10% of total customers
and 11% of 2003 Cable revenues. This area is entirely two-way capable and
has been providing cable modem service since 1996 to commercial customers and
since 1998 to residential customers. Cable modem penetration is approximately
28% of homes passed as of December 31, 2003. Digital services were launched in
August 2000, and total 21% penetration to basic customers as of December 31,
2003. Midwest.The Midwest cable service area serves Shelbyville and
Lawrenceburg, Indiana and Olney and DuQuoin, Illinois. The area accounts for
15% of total customers and approximately 13% of 2003 Cable revenues. The
area currently has bandwidth ranging from 550 MHz to 750 MHz. Rebuilds have
been completed and all plant is two-way, capable of offering cable modem
services. Cable modem penetration to homes passes is approximately 8% as of
December 31, 2003. Digital services were launched in 2000, with penetration of
nearly 16% of basic customers as of December 31, 2003. Carmel, New York.On March 9, 2004 we purchased assets serving
approximately 29,000 basic cable subscribers in the Carmel, New York area from
RCN for $120.0 million cash. The cable plant was entirely rebuilt or upgraded
to 750 MHz two-way capability before acquisition and offers digital video,
high-speed Internet access and residential telephony. At acquisition, there
were approximately 8,900 telephony subscribers. Programming We have various contracts to obtain basic, satellite and premium
programming for its cable systems from the National Cable Television
Cooperative, Comcast Corporation and in some cases directly from program
suppliers, including, in limited circumstances, some broadcast stations, with
compensation generally based on a fixed fee per customer or a percentage of the
gross receipts for the particular service. Some program suppliers provide
volume discount pricing structures and some offer marketing support. Programming costs are expected to increase in the ordinary course of
business as a result of any increases in the number of basic subscribers, any
increased costs to purchase cable programming, any expansion of the number of
channels provided to customers and contractual rate increases from programming
suppliers. See Part III, Item 13 of this annual report for additional details
regarding our relationship with Comcast. Marketing, Customer Service And Community Relations Our product marketing strategy is designed to grow total revenues and
revenues per customer by:  
    
    Aggressively promoting products and services to current customers and potential customers;
    
    Diligently developing new product lines and enhancing existing products; and
    
    Consistently supporting all of our products with exceptional customer care and convenience. We believe this forward-thinking, customer-centric approach will continue
to drive the growth of our traditional and advanced product lines and to retain
customers business. Cable has established an industry leadership position in
several areas by following this strategy, including digital interactive
television (ITV), HDTV, and premium broadband content tiers over cable modems,
among others. 20




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We understand that our key long-term competitive advantage is not only the
ability to deliver compelling technology products, but also the ability to
deliver exceptional customer care and support of those products. Our
personalized in-home service distinguishes us from our competitors. Cable has
established an innovative performance-based compensation environment for field
and office employees and invests in training and development programs designed
to empower our employees and to maximize their potential. Recently, we have begun building a state-of-the-art
Unified Customer Care Center in York, Pennsylvania, that will utilize the most
advanced customer care provisioning technologies. By combining these
technologies with our dedication to personalized service, we believe we can
strengthen our care relationship with our customers, leading to increased
retention and new revenues. Recognizing that we have an important role in the communities we serve, we
are committed to creating and maintaining positive local relationships with
franchise and community leaders. Local management communicates regularly with
municipal officials to keep them informed of our activities and industry trends
and to gain valuable feedback on the needs of the local market. We also
maintain a high level of visibility locally through active involvement with
various community and non-profit organizations. Technology As part of our commitment to customer service, we seek to provide
reliable, high-quality cable television service. As such, our primary
objective with respect to Susquehanna Cables capital expenditures is to
maintain, expand and upgrade its cable plant to improve and expand its cable
television services. Through a capital investment program, we have expanded
channel capacity, enhancing signal quality, improving technical reliability and
providing a platform to deliver high-speed data services, including Internet
access and telephony. We believe that such technical improvements and upgrades
create additional revenue opportunities, enhance operating efficiencies,
improve franchising relations and increase customer satisfaction. We expect
capital spending in 2004 for rebuild activities to total approximately $12.9
million, which we expect to be funded by operations and existing credit
facilities. The following table summarizes, as of December 31, 2003, our existing
bandwidth profile and our bandwidth profile upon completion of work-in-progress
projects (which are generally expected to be completed by the end of 2005). 330 TO 450 MHz
    
    550 MHz
    
    750 to 860 MHz(Approximately 60
    
    (Approximately 82
    
    (Approximately 82Analog Channels)
    
    Analog Channels)
    
    Analog Channels) (1)EXISTING BANDWIDTH PROFILE
Miles of plant
    
    
    607
    
    
    
    902
    
    
    
    4,102% miles of plant
    
    
    11
    %
    
    
    16
    %
    
    
    73
    %BANDWIDTH PROFILE UPON
COMPLETION OF WORK IN PROGRESS
Miles of plant
    
    
    29
    
    
    
    904
    
    
    
    4,506% miles of plant
    
    
    1
    %
    
    
    17
    %
    
    
    82
    %
  (1)
    
    Plus 200 MHz of additional bandwidth for digital programming and other
enhanced services. Our use of fiber optic technology as an enhancement to coaxial is enabling
us to consolidate headends and reduce amplifier cascades, thereby improving
picture quality and system reliability and reducing headend and maintenance
expenditures. Fiber optic strands are capable of carrying hundreds of video,
data and voice channels over extended distances without the extensive signal
amplification 21




---



##### 



typically required for coaxial cable. In our larger systems,
fiber optic technology is deployed in a ring design providing a redundant
path for video and data signals being delivered to large subscriber groups.
This approach provides an extra degree of reliability in the event that fiber
optic cable is damaged on the primary path. Digital compression is a technology that enables cable operators to
increase channel capacity of cable television systems by permitting a
significantly increased number of digitalized video signals to fit within a
cable television systems existing bandwidth. At December 31, 2003, digitally
compressed services were available to 99% of our customer base. The provision of high-speed cable modems to residential and business
customers has become a significant source of additional revenue to the cable
industry. Cable modem revenues represented approximately 11% and 8% of 2003
and 2002 Cable revenues, respectively. Cable modems provide Internet access at
higher speeds and lower costs than the technologies offered by other
communication providers. For example, a 10 megabit-capable cable modem
provides Internet access at download speeds approximately 10 times faster than
typical 56.0-kilobit dial-up telephone modem connections. Cable modem service
is available in every area except Rankin County, where it is currently being
tested. Our purchase of Cable assets serving Carmel, New York on March 9, 2004
marked Cables entry into providing telephony services. Approximately 8,900 of
the 29,000 subscribers in that area have telephony services. RCN has agreed to
provide transition telephony and other services for up to one year for
approximately $0.5 million per month. We expect to use these transition
services for approximately six months. Internet and Other Services For the years ended December 31, 2003, 2002 and 2001, our Internet and
Other segment accounted for 4% or less of our total revenues. Susquehanna Data Services. Susquehanna Data Services, Inc., a subsidiary,
was formed in 1996 to provide Internet and data networking services to
residential and business customers. Marketing its products and services under
the trade name BlazeNet, Susquehanna Data Services offers Internet access
over both telephone and cable modems, hosting and maintenance, local and wide
area network design, construction and operation, and telecommunications
products from Susquehanna Adelphia Telecommunications and other local telephone
companies. As a website host, we provide a central computer that is connected
to the Internet 24 hours a day. We store all of our customers website files
on our computer so that each website and all of its content are available to
users worldwide at all times. Our local and wide area network services enable
us to provide network services in both a limited area, such as a building or
campus, or a larger area extending beyond a single building or campus. As of
December 31, 2003, BlazeNet provided access service to approximately 8,500
business and consumer accounts. Certain high-speed data customers formerly
served by Blazenet are now served by Cable. Susquehanna Technologies.The web design company that we acquired in
October 2000 has been remarketed as Susquehanna Technologies. Susquehanna
Technologies focus is on custom designed web integration solutions and
services to the media and entertainment, retail and associations and government
sectors. Due to the collapse of the Internet sector in 2001, and continued
softness through 2003, revenues for Susquehanna Technologies have been
depressed. A $5.0 million goodwill impairment loss related to this reporting
unit was recognized for the year ended December 31, 2002. 22




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Adelphia Partnership. In 1997, Susquehanna Media, through its
wholly-owned subsidiary Susquehanna Fiber Systems, Inc., entered into a 50/50
partnership with Hyperion Telecommunications of Pennsylvania, Inc., now
Adelphia Business Solutions, Inc., a subsidiary of Adelphia Communications
Corp., to enter the competitive local exchange carrier business in the York,
Pennsylvania market. The partnership provides long distance access circuits to
businesses bypassing the local telephone company, point-to-point data circuits
and switched business access services. Susquehannas York cable operation
constructed and maintains a 248 mile fiber optic SONET ring network leased by
the partnership under a
long-term contract. As of December 31, 2003, the partnership provided
service to 94 buildings in the York area and had over 11,400 access and long
distance lines installed. During 2002, our partners parent company declared
bankruptcy under Chapter 11. The partnership is not currently included in this
bankruptcy proceeding. In December 2003, we signed an agreement to dissolve
the partnership, wherein we will receive certain assets and the majority of the
partnerships customers. Our partner will receive the remaining assets and
customers. The former partners will separately continue to offer services in
the York, Pennsylvania market. Closing is expected in second quarter 2004. Franchises Cable television systems are constructed and operated under fixed-term
non-exclusive franchises or other types of operating permits that are granted
by local governmental authorities. All franchises that expired in 2003 were
renewed. These franchises contain many conditions, such as:  
    
    time limitations on commencement and completion of
construction;
    
    conditions of service, including mix of programming
required to meet the needs and interests of the community;
    
    the provision of free service to schools and certain other public institutions;
    
    the maintenance of insurance and indemnity bonds; and
    
    the payment of fees to communities. Certain of these franchises may require the imposition of penalties if the
franchise agreements are violated. Certain provisions of these local
franchises are subject to limits imposed by federal law. As of December 31, 2003, we held a total of 151 franchises. Franchise
agreements with many of these franchises require the payment of fees to the
issuing authorities ranging from 1% to 5% of gross revenues (with the majority
in the 3% to 5% range) from the related cable system. The Cable Communications
Policy Act of 1984 (1984 Cable Act) prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross annual revenues and
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances
that render performance commercially impracticable. Our cable franchises expire at various times through 2022. All franchises
that expired in 2003 were renewed. The following table sets forth certain
information relating to our franchises: Year of Franchise
    
    Number of
    
    Percentage of Total
    
    Percentage of TotalExpiration
    
    Franchises
    
    Franchises
    
    Basic Subscribers2004
    
    
    8
    
    
    
    5
    %
    
    
    15
    %
 23




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##### 



Year of Franchise
    
    Number of
    
    Percentage of Total
    
    Percentage of TotalExpiration
    
    Franchises
    
    Franchises
    
    Basic Subscribers2005
    
    
    5
    
    
    
    3
    %
    
    
    2
    %2006
    
    
    19
    
    
    
    13
    %
    
    
    15
    %2007 and after
    
    
    119
    
    
    
    79
    %
    
    
    68
    %Total
    
    
    151
    
    
    
    100
    %
    
    
    100
    %
 The 1984 Cable Act and the Cable Television Consumer Protection and
Competition Act of 1992 (1992 Cable Act) provide, among other things, for an
orderly franchise renewal process, which limits a
franchising authoritys ability to deny a franchise renewal if the
incumbent operator follows prescribed renewal procedures. In addition, the
1984 and 1992 Cable Acts establish comprehensive renewal procedures, which
require, when properly elected by an operator, that an incumbent franchisees
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications. Upon a franchise renewal
request, however, a franchise authority may seek to add new and more onerous
requirements upon the cable operator, such as significant upgrades in
facilities and services or increased franchise fees, as a condition or renewal.
We believe that our relationship with local franchise authorities is good.
Although we cannot provide guarantees, we anticipate our franchises will be
renewed upon expiration. Competition Cable television systems face competition from alternative methods of
distributing video programming, high-speed Internet access and from other
sources of news, information and entertainment. These sources include direct
broadcast satellite, local exchange carriers, off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
online computer services, webcasts and home video products, including DVDs and
videotape cassette tapes. The extent to which a cable television system is
competitive depends, in part, upon that systems ability to provide, at a
reasonable price to customers, a greater variety of programming and other
communications services than those available off-air or through alternative
delivery sources and upon superior technical performance and customer service. Competing Franchises.Cable television systems generally operate pursuant
to franchises granted on a non-exclusive basis. Franchising authorities may
not unreasonably deny requests for competing franchises and may operate cable
television systems themselves. Well-financed businesses from outside the cable
television industry (such as the public utilities that own the poles to which
cable is attached) or neighboring cable operators may become competitors for
franchises or providers of competing services. One service area has a small
overbuild by a neighboring cable operator consisting of approximately 3,000
homes passed (1% of total homes passed). Cable acquired one of the two prior
overbuild operators in 1999. In the last three years, the overbuild area has
not expanded. Competing cable television operators may construct future
overbuilds in other franchise areas. Direct Broadcast Satellites.The fastest growing method of satellite
distribution is by direct broadcast satellites utilizing video compression
technology, which provides more than 200 channels of digital programming over a
single high-powered satellite. Direct broadcast satellite (DBS) service can be
received virtually anywhere in the United States through small rooftop or
side-mounted antennae/dishes and is not subject to certain local restrictions
which were imposed on the largest satellite dishes used by earlier generations
of broadcast satellite. Two service providers are presently heavily marketing
DBS service on a nationwide basis. A recently launched service, VOOM, has
begun offering primarily HDTV services on a national basis. DBS systems offer
all of their programming with digital quality, but may have higher up-front
costs or require long-term agreements and may lack local programming and
service. Both DBS providers offer carriage of local signals in many television
markets across the country. DBS providers are offering some local signals in
all of our cable systems except for the Brunswick, Maine, 24




---



##### 



Olney, Illinois and
part of the DuQuoin, Illinois system. During 2003, DBS providers launched
local signals in the Williamsport, Pennsylvania and Rankin County, Mississippi
markets. In Williamsport, total customer penetration to homes passed declined
from 76.1% as of December 31, 2002 to 74.4% as of December 31, 2003. In Rankin
County, total customer penetration to homes passed declined from 60.5% as of
December 31, 2002 to 55.0% as of December 31, 2003, excluding the Canton,
Mississippi area acquired during 2003. We believe that the loss of penetration
in Rankin County was exacerbated due to the cable plant not being rebuilt or
upgraded not permitting us to provide high-speed Internet access in the market
as a competitive response to DBS service. DBS providers have agreed with
certain telephone
companies to offer bundled services including video, voice and high-speed
Internet access. It is undetermined yet what, if any, impact the recent News
Corp take-over of Direct TV will have on DBS competition. Satellite Master Antenna Television Systems.Cable television operators
also face competition from private satellite master antenna television systems
that serve condominiums, apartment and office complexes, private residential
developments, and other multiple dwelling unit facilities. Like cable
television systems, satellite master antenna television systems offer both
improved reception of local television stations and many of the same
satellite-delivered program services. Satellite master antenna television
operators often enter into exclusive agreements with building owners or
homeowners associations, although some states have enacted laws that authorize
franchised cable television operators access to such private complexes.
Packages of data and video services are also being offered to private
residential and commercial developments. As long as they do not use public
rights-of-way, satellite master antenna television systems can interconnect
non-commonly owned buildings without having to comply with many of the local,
state and federal regulations that are imposed on cable television systems.
The Company aggressively competes for customers in residential and commercial
developments served by satellite master antenna television operators is
uncertain. Local Exchange Carriers.The Telecommunications Act of 1996 (1996 Telecom
Act) allows local exchange carriers and others to compete with cable television
systems and other video services in their telephone service territory, subject
to certain regulatory requirements. Local exchange carriers may use a variety
of distribution methods, including both broadband wire facilities and wireless
transmission facilities within and outside of their telephone service areas.
Local exchange carriers and other telephone companies have an existing
relationship with the households in their service areas, have substantial
financial resources, and may have an existing infrastructure capable of
delivering cable television service. Unlike cable television systems, local
exchange carriers are not required, under certain circumstances, to obtain
local franchises to deliver video services and are not subject to certain
obligations imposed under such franchises. The large incumbent local exchange
carriers have ceased nearly all direct video competition with cable operators
across the nation, more importantly however; local exchange carriers also
compete with cable providers for broadband Internet access customers through
the marketing of digital subscriber lines or DSL. We believe that our relatively rural service areas are unlikely to support
sustainable wireline competition in the provision of video and
telecommunications broadband services given the lower population densities and
higher capital costs per household of installing plant. However, the Rural
Utilities Services (RUS) Rural Broadband Access Loan and Loan Guarantee
Program has about $1.6 billion available in fiscal year 2004 for loans and loan
guarantees to provide broadband access in eligible rural communities. It is
uncertain whether this incentive program will prompt additional competition in
our markets or the impact such potential competition may have on our cable
operations. 25




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##### 



Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environments, are constantly
occurring. We are not, therefore, able to predict the effect that current or
future developments might have on the cable industry or on our operations.
See Cautionary Note Regarding Forward-Looking Statements. Employees We have approximately 1,567 employees as of December 31, 2003. No employees
are covered by collective bargaining agreements, and we consider relations with
our employees to be good. Radio Employee Stock Plan The Radio Employee Stock Plan (Plan), as established in 1987, offers
certain key employees a right to purchase non-voting Susquehanna Radio Corp.
shares at a contractual value. For each share purchased, a participant
receives a vested option to purchase two additional shares at the same price
for a ten year and one month period from the date of grant. On April 10, 2000, the Susquehanna Pfaltzgraff Co. Board of Directors
changed the method of determining the Plans share value effective July 1,
2000. Over a period ending April 1, 2002, Plan share value transitioned from a
formula value to a value based upon Susquehanna Pfaltzgraff Co.s annual
independent ESOP valuation (Appraised Value). On July 1, 2000, share value
was based one-third on Appraised Value and two-thirds on formula value. As of
April 1, 2001, share value was based two-thirds on Appraised Value and
one-third on formula value. As of April 1, 2002 and thereafter, Plan share
value is based on Radios Appraised Value. The July 1, 2000 change in the method for valuing shares was a plan
modification that subjected shares formerly accounted for under Accounting
Principles Board Opinion 25 Accounting for Stock Issued to Employees to
Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation. This change in accounting treatment required the value of
outstanding shares to be classified as liability (Radio Employee Share Plan
Liability). As of April 1, 2002, Plan share value became based solely on
Appraised Value and the Radio Employee Share Plan Liability was recast as
minority interests. Subsequent increases in Plan share value are being
accounted for as an increase in minority interests in the consolidated
statement of operations (See Note 7 to the consolidated financial statements). Cable Performance Share Plan On July 1, 2000, the first of a three-step change in the valuation of
Susquehanna Cables performance share plan occurred. Performance shares were
previously valued using a formula. On July 1, 2000, performance shares were
revalued based 2/3 on the former formula and 1/3 on fair value as determined by
an independent valuation of Susquehanna Pfaltzgraff Co. for ESOP purposes
performed as of December 31, 1999. On April 1, 2001, performance shares were
valued based 1/3 on the former formula and 2/3 on fair value as of December 31,
2000. As of April 1, 2002, performance shares values were wholly based on fair
value as of December 31, 2001. As of April 1, 2003, the Cable and Internet and
Other segments recognized an expense reduction of $0.3 million and $0.1
million, respectively. For 2001, the Cable and Internet and Other segments
recognized charges against operating income of $2.7 million and $1.5 million,
respectively. In 2002, the Cable and Internet and Other segments recognized
charges against operating income of $2.6 million and $1.5 million,
respectively. 26




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##### 



Federal Regulation of Radio Broadcasting Introduction The ownership, operation and sale of broadcast stations, including those
licensed to us, are subject to the jurisdiction of the FCC, which acts under
authority derived from the Communications Act of 1934 (the Communications Act).
The Communications Act was amended in 1996 by the 1996 Telecom Act to make
changes in several broadcast laws. Among other things, the FCC grants permits
and licenses to construct and operate radio stations; assigns frequency bands
for broadcasting; determines whether to approve changes in ownership or control
of station licenses; regulates equipment used by stations and the operating
power and other technical parameters of stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operation and employment practices of stations; regulates some forms of radio
broadcasting programming; and has the power to impose penalties for violations
of its rules under the Communications Act. License Grant and Renewal Radio broadcast licenses are granted and renewed for maximum terms of
eight years. Licenses must be renewed through an application to the FCC. The
Communications Act requires that the FCC grant the renewal of a stations
license if the FCC finds that, during the preceding term of the license, the
station has served the public interest, convenience and necessity, that there
have been no serious violations by the licensee of the Communications Act or
the rules and regulations of the FCC, and that there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC that, when taken together, would constitute a pattern of
abuse. Petitions to deny license renewal applications can be filed by interested
parties, including members of the public. Such petitions may raise various
issues before the FCC. The FCC is required to hold hearings on renewal
applications if it is unable to determine that renewal of a license would serve
the public interest, convenience and necessity, or if a petition to deny raises
a substantial and material question of fact as to whether the grant of the
renewal application would be prima facie inconsistent with the public interest,
convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicants license may be
restricted. Historically, we have not experienced any material problems
renewing our licenses to operate our radio stations and are not currently aware
of any facts that would prevent the timely renewal of our licenses. There can
be no assurance, however, that our licenses will be renewed. The following table sets forth certain regulatory information regarding
each of the stations owned by us. HAAT, which applies to FM stations only,
represents height above average terrain. Height above average terrain means
the actual height of the stations transmitting antenna above the ground level
of the surrounding terrain and is used to measure the coverage of an FM
station. The FCC class determines the maximum power and maximum height above
average terrain for the particular station. Height Above Average Terrain is
not applicable to AM stations. 27




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##### 



FrequencyCity of
    
    (FM-MHZ)
    
    FCC
    
    HAAT
    
    Power in
    
    Expiration Date ofMarket and Stations
    
    License
    
    (AM-KHZ)
    
    Class
    
    (Meters)
    
    Kilowatts (Day)
    
    LicenseSan Francisco, CAKNBR-AM
    
    San Francisco
    
    680 KHz
    
    
    A
    
    
    
    
    
    
    50 KW
    
    December 1, 2005KFOG-FM
    
    San Francisco
    
    104.5 MHz
    
    
    B
    
    
    
    459
    
    
    7.1 KW
    
    December 1, 2005KFFG-FM
    
    Los Altos
    
    97.7 MHz
    
    
    A
    
    
    
    137
    
    
    3.3 KW
    
    December 1, 2005KSAN-FM
    
    San Mateo
    
    107.7 MHz
    
    
    B
    
    
    
    354
    
    
    8.9 KW
    
    December 1, 2005KTCT-AM
    
    San Mateo
    
    1050 KHz
    
    
    B
    
    
    
    
    
    
    50 KW
    
    December 1, 2005Dallas/Ft. Worth, TXKLIF-AM
    
    Dallas
    
    570 KHz
    
    
    B
    
    
    
    
    
    
    5 KW
    
    August 1, 2005KYNG-AM (1)
    
    Dennison/Sherman
    
    950 KHz
    
    
    B
    
    
    
    
    
    
    .5 KW
    
    August 1, 2005KTCK-AM
    
    Dallas
    
    1310 KHz
    
    
    B
    
    
    
    
    
    
    9 KW
    
    August 1, 2005KPLX-FM
    
    Ft. Worth
    
    99.5 MHz
    
    
    C
    
    
    
    511
    
    
    100 KW
    
    August 1, 2005KDBN-FM
    
    Haltom City
    
    93.3 MHz
    
    
    C2
    
    
    
    120
    
    
    50 KW
    
    August 1, 2005KTDK-FM
    
    Sanger
    
    104.1 MHz
    
    
    C3
    
    
    
    150
    
    
    11 KW
    
    August 1, 2005KTBK-AM
    
    Sherman
    
    1700 KHz
    
    
    B
    
    
    
    
    
    
    10 KW
    
    August 1, 2005KGVL-AM (2)
    
    Greenville
    
    1400 KHz
    
    
    C
    
    
    
    
    
    
    1 KW
    
    August 1, 2005KIKT-FM (2)
    
    Greenville
    
    93.5 MHz
    
    
    A
    
    
    
    100
    
    
    1.8 KW
    
    August 1, 2005Houston, TXKRBE-FM
    
    Houston
    
    104.1 MHz
    
    
    C
    
    
    
    585
    
    
    100 KW
    
    August 1, 2005Atlanta, GAWNNX-FM
    
    Atlanta
    
    99.7 MHz
    
    
    C0
    
    
    
    340
    
    
    100 KW
    
    April 1, 2004WWWQ-FM
    
    College Park
    
    100.5 MHz
    
    
    C3
    
    
    
    291
    
    
    3 KW
    
    PendingCincinnati, OHWRRM-FM
    
    Cincinnati
    
    98.5 MHz
    
    
    B
    
    
    
    246
    
    
    17.5 KW
    
    October 1, 2004WMOJ-FM
    
    Fairfield
    
    94.9 MHz
    
    
    B
    
    
    
    322
    
    
    10.5 KW
    
    October 1, 2004WYGY-FM
    
    Lebanon
    
    96.5 MHz
    
    
    B
    
    
    
    245
    
    
    19.5 KW
    
    October 1, 2004Indianapolis, INWFMS-FM
    
    Indianapolis
    
    95.5 MHz
    
    
    B
    
    
    
    
    
    
    13 KW
    
    August 1, 2004WGRL-FM
    
    Fishers
    
    93.9 MHz
    
    
    A
    
    
    
    302
    
    
    3.3 KW
    
    August 1, 2004WGLD-FM
    
    Noblesville
    
    104.5 MHz
    
    
    B
    
    
    
    138
    
    
    50 KW
    
    August 1, 2004WAVG-AM (2)
    
    Jeffersonville
    
    1450 MHz
    
    
    C
    
    
    
    150
    
    
    1 KW
    
    August 1, 2004WZZB-AM (2)
    
    Seymour
    
    1390 MHz
    
    
    D
    
    
    
    
    
    
    1 KW
    
    August 1, 2004WQKC-FM (2)
    
    Seymour
    
    93.7 MHz
    
    
    B
    
    
    
    213
    
    
    25 KW
    
    August 1, 2004Kansas City, MOKCMO-FM
    
    Kansas City
    
    94.9 MHz
    
    
    C0
    
    
    
    341
    
    
    100 KW
    
    February 1, 2005KCMO-AM
    
    Kansas City
    
    710 KHz
    
    
    B
    
    
    
    
    
    
    10 KW
    
    February 1, 2005KCFX-FM
    
    Harrisonville, MO
    
    101.1 MHz
    
    
    C0
    
    
    
    335
    
    
    97 KW
    
    February 1, 2005KFME-FM
    
    Garden City, MO
    
    105.1 MHz
    
    
    C1
    
    
    
    299
    
    
    100 KW
    
    PendingYork/Lancaster, PAWSBA-AM
    
    York
    
    910 KHz
    
    
    B
    
    
    
    
    
    
    5 KW
    
    August 1, 2006WARM-FM
    
    York
    
    103.3 MHz
    
    
    B
    
    
    
    398
    
    
    6.4 KW
    
    August 1, 2006WSOX-FM
    
    Red Lion
    
    96.1 MHz
    
    
    B
    
    
    
    152
    
    
    50 KW
    
    August 1, 2006Albemarle, NCWABZ-FM (2)
    
    Albemarle
    
    100.9 MHz
    
    
    A
    
    
    
    61
    
    
    3 KW
    
    December 1, 2011
  (1)
    
    KKLF-AM changed its call letters to KYNG-AM effective March 19, 2003 and a
third party operates it under a time brokerage agreement.  (2)
    
    Operated by a third party under a time brokerage agreement. Regulatory Approvals Broadcast licenses may not be assigned nor may the control of broadcast
licenses be transferred without the prior approval of the FCC. In determining
whether to assign, transfer, grant or renew a broadcast license, the FCC
considers a number of factors pertaining to the proposed licensee, including
limits on common ownership of media properties, financial qualifications of the
proposed licensee, the character of the proposed licensee (including that no
party to the application (i.e. officer, director, or 10% or greater owner) is
subject to the denial of federal benefits that include FCC benefits pursuant to
Section 5301 of the Anti-Drug Abuse Act of 1988, 21 U.S.C. sec. 862),
limitations on alien ownership, and compliance with programming, public file
and anti-discrimination requirements. Assigning a license or transferring control requires the filing of an
application with the FCC. The FCC staff reviews the application and determines
whether to grant the application. This process generally takes about four
months. During the application process, interested parties and the public may
file petitions, during specific periods of time, to deny or raise objections to
the application. A full FCC review of staff action can be requested, and final
FCC approval or disapproval is subject to judicial review. 28




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##### 



Absent a timely request for reconsideration, administrative review or
judicial review, the FCC staffs grant of an application becomes final by
operation of law and generally is no longer subject to administrative or
judicial review. The pendency of a license renewal application may alter the aforementioned
timetables, because the FCC might not issue an unconditional assignment grant
if the stations license renewal is pending. Ownership Matters The 1996 Telecom Act and the FCCs broadcast multiple ownership rules do
not restrict the number of radio stations one person or entity may own
(including having an attributable interest in), operate or control on a
national level, but do impose restrictions on a local level. These restrictions are: (i) in a market with 45 or more commercial radio signals, an entity
may own up to eight commercial radio stations, not more than five of
which are in the same service (FM or AM); (ii) in a market with between 30 and 44 (inclusive) commercial radio
signals, an entity may own up to seven commercial radio stations, not
more than four of which are in the same service; (iii) in a market with between 15 and 29 (inclusive) commercial
radio signals, an entity may own up to six commercial radio stations, not
more than four of which are in the same service; and (iv) in a market with 14 or fewer commercial radio signals, an
entity may own up to five commercial radio stations, not more than three
of which are in the same service, except that an entity may not own more
than 50% of the stations in such market. The foregoing summarizes the material radio broadcast industry regulations
with which we must comply. However, it does not purport to describe all
present and proposed regulations and legislation relating to the radio
broadcasting industry, some of which may be subject to judicial and legislative
review and change, and their impact on the radio broadcasting industry or us
cannot be predicted at this time Regulation of Cable Television The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
the Congress and various federal agencies have in the past, and may in the
future, materially affect us and the cable television industry. The following
is a summary of federal laws and regulations materially affecting the growth
and operation of the cable television industry and a description of certain
state and local laws. We believe that the regulation of the cable television
industry remains a matter of interest to Congress, the FCC and other regulatory
authorities. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on us. 29




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##### 



Federal Legislation The principal federal statute governing the cable television industry is
the Communications Act of 1934, as amended. As it affects the cable television
industry, the Communications Act has been significantly amended on three
occasions, by the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act.
The 1996 Telecom Act altered the regulatory structure governing the nations
telecommunications providers. It removed barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduced the scope of cable rate regulation. Federal Regulation The FCC is the principal federal regulatory agency with jurisdiction over
cable television. It has adopted regulations covering such areas as
cross-ownership between cable television systems and other communications
businesses, horizontal and vertical ownership, carriage of television broadcast
programming, cable rates, pole attachment rates, consumer protection and
customer service, leased access, obscene and indecent programming, programmer
access to cable television systems, availability of satellite-delivered
programming services to cable system competitors, technical standards, consumer
electronics equipment compatibility, ownership of home wiring, mandatory
deletion of certain imported broadcast programming, equal employment
opportunity, consumer education and lockbox enforcement, origination
cablecasting and sponsorship identification, political programming and
advertising, advertising during childrens programming, closed captioning,
signal leakage and frequency use, maintenance of various records, and antenna
structure notification, marking and lighting. The FCC has the authority to
enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. A brief summary of certain of these federal regulations as adopted
to date follows. Rate Regulation Where a cable television system is not subject to effective competition,
the rates for the basic service tier (the lowest level of cable programming
service which must include local broadcast channels and public access channels)
and related equipment may be regulated by the local franchising authority at
its option. Rates for cable programming service tiers, which generally include
programming other than the channels carried on the basic service tier, and for
programming offered on a per-channel or per-program basis, are not subject to
governmental regulations. If local franchising authorities choose to regulate
basic service rates, they may order reductions and, in certain circumstances,
refunds of existing monthly rates and charges for associated equipment. In
carrying out their rate regulatory authority, however, local officials are
subject to certain FCC standards such as the obligation to evaluate rates in
accordance with FCC approved benchmark formulas or cost-of-service showings.
Future rates of regulated cable systems may not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operators control,
such as taxes, franchise fees and increased programming costs. Cost-based
adjustments to these capped rates also can be made in the event a cable
television operator adds or deletes channels. There is also a streamlined
cost-of-service methodology available to justify a rate increase for
significant system rebuilds or upgrades. We currently have four franchisee
authorities that are certified to regulate for basic services, installation and
equipment rates, three in Maine and one in Mississippi. Existing regulations require cable television systems to permit customers
to purchase video programming on a per channel or a per program basis without
the necessity of subscribing to any tier of service, other than the basic
service tier. 30




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Telephony Regulation With the March 9, 2004 purchase of Cable assets serving subscribers in the
Carmel, New York area, Media became subject to regulation as a telephony
provider. We are working with consultants and legal counsel to assure
compliance with these regulations. Carriage of Broadcast Television Signals The 1992 Cable Act contains signal carriage requirements which allow
commercial television broadcast stations that are local to a cable television
system (i.e., the system is located in the stations designated market area) to
elect every three years whether to require the cable television system to carry
the station, subject to certain exceptions, or whether the cable television
system will have to negotiate for retransmission consent to carry the
station. The next election between must-carry and retransmission consent must
occur by October 1, 2005. A cable television system is generally required to
devote up to one-third of its activated channel capacity for the carriage of
local commercial television stations whether pursuant to the mandatory carriage
requirements or retransmission consent requirements of the 1992 Cable Act.
Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, on cable systems with the principal
headend located within the larger of: (i) a 50-mile radius from the stations
city of license; or (ii) the stations Grade B contour (a measure of signal
strength). Unlike commercial stations, noncommercial stations are not given
the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable television systems have to obtain retransmission
consent for the carriage of all distant commercial broadcast stations, except
for certain superstations (i.e., commercial satellite-delivered independent
stations such as WGN). To date, compliance with the retransmission consent
and must carry provisions of the 1992 Cable Act has not had a material effect
on us, although this result may change in the future depending on such factors
as market conditions, channel capacity and similar matters when such
arrangements are renegotiated, including demands by television stations for
increased compensation in return for retransmission consent. The FCC has recently adopted interim regulations regarding carriage of
digital television signals offered by local television broadcasters. Under
these regulations, local television broadcast stations transmitting solely in a
digital format are entitled to request carriage in their choice of digital or
converted analog format. Stations transmitting in both digital and analog
formats, which is permitted during the current ongoing transition period, have
no carriage rights for the digital format during the transition unless and
until they return in their analog channel. The FCC continues to consider
proposals to require cable operators to carry multiple digital programming
streams offered by local television stations, both during and after the digital
transition period. The final outcome of this proceeding could have a material
effect on the number of services that a cable operator will be required to
carry. Renewal of Franchises and Franchise Fees The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While
these formal procedures are not mandatory unless timely invoked by either the
cable television operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable television operators
remain free to negotiate a renewal outside the formal process. Nevertheless,
renewal is by no means assured, as the franchisee must meet certain statutory
standards. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading cable-related facilities
and equipment and complying with voluntary commitments, although the
municipality must take in to account the cost of meeting such requirements.
The 1984 Cable Act, under certain limited circumstances, permits a cable
operator to obtain modifications 31




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of franchise obligations. Franchises have
generally been renewed for cable television operators that have
provided satisfactory services and have complied with the terms of their
franchises. Historically, we have not experienced any material problems
renewing our franchises for our cable television systems. We are not aware of
any current or past material failure on our part to comply with our franchise
agreements. We believe that we have generally complied with the terms of our
franchises and have provided quality levels of service. The 1992 Cable Act makes several changes to the process under which a
cable television operator seeks to enforce his renewal rights which could make
it easier in some cases for a franchising authority to deny renewal.
Franchising authorities may consider the level of programming service
provided by a cable television operator in deciding whether to renew. For
alleged franchise violations occurring after December 29, 1984, franchising
authorities have the right to deny renewal because of an operators failure to
substantially comply with the material terms of the franchise even if the
franchising authority has effectively acquiesced to such past violations.
The franchising authority is, however, precluded from denying renewal if, after
giving the cable television operator notice and opportunity to cure, it fails
to respond to a written notice from the cable television operator of its
failure or inability to cure. Courts may not reverse a denial of renewal based
on procedural violations found to be harmless error. Franchising authorities may generally impose franchise fees of up to 5% of
a cable television systems annual gross cable service revenues, excluding
revenues derived from services other than cable service. However, they may be
able to exact some compensation for cable systems use of public rights-of-way
to provide telecommunications service. In the past several years, substantial
public controversy has arisen with regard to the ability of local franchise
authorities to regulate high speed Internet access provided by cable television
systems. Among the key issues in dispute are the franchise authoritys ability
to require cable operators to offer multiple unaffiliated Internet service
providers access to their systems (open access), to impose franchise fees on
revenues that cable systems earn from providing cable modem service or to
impose service or other requirements on a cable systems Internet offerings.
These issues currently are pending in several court proceedings and before the
FCC. While the FCC tentatively has concluded that local franchise authorities
lack authority to impose such requirements on cable operators, further agency
proceedings and court appeals are underway that could alter the initial
conclusion. The Ninth Circuit Court of Appeals has issued a decision finding
cable modem service to include both telecommunications service and
information service components. If this decision (which is on appeal)
prevails, it could result in an open access requirement or other common carrier
obligations. Channel Set-Asides The 1984 Cable Act permits local franchising authorities to require cable
television operators to set aside certain television channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with thirty-six or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties to provide programming that may compete with
services offered by the cable television operator. The 1992 Cable Act requires
leased access rates to be set according to a formula determined by the FCC. Horizontal and Vertical Ownership/Cross-Ownership In March of 2001, the U.S. Court of Appeals for the District of Columbia
Circuit reversed and remanded the FCCs cable television horizontal and
vertical ownership limits for further consideration. The horizontal ownership
limit had barred a cable operator from having an attributable interest in more 32




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##### 



than 30 percent of the nationwide multichannel video programming
subscribership. The vertical ownership limit had barred a cable operator from
carrying attributable programming on more than 40
percent of channels, up to 75 channels of capacity. In its March 2001
decision, the D.C. Circuit Court of Appeals also reversed and remanded two
provisions of the FCCs ownership attribution rules (the elimination of the
single majority shareholder exemption and the loss of insulation from
attribution for limited partners that sell programming to the partnership.)
In September of 2001, the FCC issued a Further Notice of Proposed Rulemaking
seeking to develop a complete record that would help the FCC produce and
support changes to the affected cable ownership and attribution rules in
accordance with the March 2001 court decision. Final public comments were due
in February of 2002. The FCC has not yet released its decision, and thus, we
cannot predict the impact of the results of the FCCs pending cable ownership
and attribution rulemaking on our business. However, revised FCC rules could
affect the investment of Susquehanna Cable held by Comcast Corporation, as well
as our ability to enter into other strategic relationships with larger cable
companies in the future. If Comcast divests its ownership interest in
Susquehanna Cable, our programming costs are likely to increase faster than
they would otherwise. In February 2003, the FCC repealed its cable/television station
cross-ownership restriction in response to a D.C. Circuit Court of Appeals
decision that the FCC had failed to demonstrate that the restriction continued
to be necessary in light of increased competition. Thus, the principal
remaining cross-ownership restriction that still applies to cable operators is
the prohibition from owning or operating a satellite master antenna system or
multichannel multipoint distribution system in any area where a cable operator
provides franchised cable service and is not subject to effective competition.
However, a cable operator may acquire and operate a satellite master antenna
system in its existing franchise service area if the programming and other
services provided to the satellite master antenna system subscribers are
offered according to the terms and conditions of the cable operators local
franchise agreement. Privacy The 1984 Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect and disclose data about individual
system customers. The statue also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a
cable television operator is found to have violated the customer privacy
provisions of the 1984 Cable Act, it could be required to pay damages,
attorneys fees and other costs. Under the 1992 Cable Act, the privacy
requirements were strengthened to require that cable television operators take
such actions as are necessary to prevent unauthorized access to personally
identifiable information. Certain of these requirements were modified by the
Electronic Communications Privacy Act of 2001. Copyright Matters Cable systems must obtain copyright licenses for programming and
television signals they carry. Copyright authority for programming on
non-broadcast networks typically is obtained from the networks in question, and
copyright authority for programming originated locally by the cable system must
be obtained directly from copyright holders. The Copyright Act provides a
compulsory license for copyrighted material on television stations whose
signals a cable system retransmits in accordance with FCC rules. Cable
operators can obtain this license by filing semi-annual reports and paying a
percentage of their revenues as a royalty fee to the U.S. Copyright Office,
which then distributes the royalty pool to copyright holders. For larger cable
systems, these payments vary with the numbers and type of distant television
stations the system carries. From time to time, Congress considers proposals
to alter the compulsory copyright license, some of which could make the license
more costly. 33




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##### 



State and Local Regulation Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. Franchises generally contain
provisions governing fees to be paid to the franchising authority, length of
the franchise term, renewal, sale or transfer of the franchise, territory of
the franchise, design and technical performance of the system, use and
occupancy of public streets and number and types of cable television services
provided. The 1992 Cable Act prohibits exclusive franchises and allows
franchising authorities to regulate customer service and basic rates.
Franchising authorities may operate their own multichannel video distribution
system without a franchise. States and local franchising authorities may adopt
certain restrictions on cable television system ownership. The foregoing summarizes the material cable television industry
regulations with which we must comply. However, it does not purport to
describe all present and proposed federal, state and local regulations and
legislation relating to the cable television industry, some of which are
subject to judicial and legislative review and change, and their impact on the
cable television industry or us cannot be predicted at this time. 
 Item 2. Properties The headquarters of our radio and cable television operations are located
in York, Pennsylvania in office space acquired from a related party during
2003. We lease seven studio facilities for our radio operations. We own
broadcast towers for 17 of our radio stations and lease 16 other main broadcast
towers. We own the real property under nine of our main broadcast towers and
lease the land under our other 11 main towers. We own 2 auxiliary towers and
lease 6 others as backup facilities for main broadcast towers. We own the real
property under one of our auxiliary towers and lease the land under two
auxiliary towers. One main tower is under construction and should be placed in
service in early 2004. We will own the newly constructed tower, however the
land under it will be leased. We own nine, and lease two, headend facilities for our cable television
operations. In connection with our cable operations, we own eight tower
locations and lease nine others. In addition, we own the real estate for five
and lease the real estate for two fiber optic hub sites. See also
BusinessRadio Properties in Item 1 of this annual report. Our principal physical assets with respect to our cable operations consist
of cable television operating plant and equipment, including signal receiving,
encoding and decoding devices, headends and distribution systems and customer
house drop equipment for each of our cable television systems. The signal
receiving apparatus typically includes a tower, antenna, ancillary electronic
equipment and earth stations for reception of satellite signals. Headends,
consisting of associated electronic equipment necessary for the reception,
amplification and modulation of signals, are located near the receiving
devices. Our distribution system consists primarily of coaxial and fiber optic
cables and related electronic equipment. See also BusinessCable Properties
and Cable Systems in Item 1 of this annual report. We believe that our properties are in good condition and suitable for our operations. 34




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##### 



Item 3.Legal Proceedings We currently and from time to time are involved in litigation incidental
to the conduct of our business, but we are not currently a party to any lawsuit
or proceeding which, in our opinion, is likely to have a material adverse
effect on us. 
 Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted to security holders for a vote during the fourth
quarter of 2003. 35




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##### 



PART II Item 5.Market for Registrants Common Equity and Related Stockholder Matters There is no market for our common stock. All of our outstanding common
stock is owned by our corporate parent, Susquehanna Pfaltzgraff Co. Our
preferred stock has a 7% annual cumulative dividend that is payable
quarterly. We do not have any equity compensation plans under which
our equity securities are issued. We did not issue any of our equity
securities during 2003 that were not registered under the Securities
Act. Item 6.Selected Annual and Quarterly Financial Data The below selected financial data as of and for the years ended December
31, 2003, 2002, 2001 and 2000 is derived from our audited consolidated
financial statements. Our audited consolidated financial statements and
related notes for the years ended December 31, 2003, 2002 and 2001 are included
elsewhere in this annual report. You should read this information and the
accompanying notes in conjunction with the consolidated financial statements
and related notes and the other financial information included elsewhere in
this annual report. Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(Dollars in Thousands)INCOME STATEMENT DATA:Revenues:Radio
    
    $
    228,966
    
    
    $
    216,222
    
    
    $
    198,039
    
    
    $
    220,886
    
    
    $
    185,193Cable
    
    
    137,228
    
    
    
    122,754
    
    
    
    104,758
    
    
    
    93,113
    
    
    
    82,720Data
    
    
    10,066
    
    
    
    9,670
    
    
    
    10,632
    
    
    
    6,590
    
    
    
    3,353Total revenues
    
    
    376,260
    
    
    
    348,646
    
    
    
    313,429
    
    
    
    320,589
    
    
    
    271,266Total operating expenses
    
    
    283,743
    
    
    
    292,378
    
    
    
    291,274
    
    
    
    263,373
    
    
    
    209,884Operating income
    
    
    92,517
    
    
    
    56,268
    
    
    
    22,155
    
    
    
    57,216
    
    
    
    61,382Interest expense, net
    
    
    30,720
    
    
    
    29,200
    
    
    
    37,887
    
    
    
    37,523
    
    
    
    28,573Interest income from loan to parent company
    
    
    6,909
    
    
    
    7,162
    
    
    
    6,895
    
    
    
    6,696
    
    
    
    4,476Other income (loss)
    
    
    (784
    )
    
    
    (1,406
    )
    
    
    (256
    )
    
    
    (1,474
    )
    
    
    379Income (loss) before income taxes
    
    
    67,922
    
    
    
    32,824
    
    
    
    (9,093
    )
    
    
    24,915
    
    
    
    37,664Provision for income taxes
    
    
    25,370
    
    
    
    17,904
    
    
    
    6,416
    
    
    
    16,762
    
    
    
    15,114Income (loss) before minority interests
    
    
    42,552
    
    
    
    14,920
    
    
    
    (15,509
    )
    
    
    8,153
    
    
    
    22,550Minority interests
    
    
    (6,365
    )
    
    
    (3,758
    )
    
    
    (1,694
    )
    
    
    (3,839
    )
    
    
    (4,140
    )Net income (loss)
    
    $
    36,187
    
    
    $
    11,162
    
    
    $
    (17,203
    )
    
    $
    4,314
    
    
    $
    18,410BALANCE SHEET DATA(at end of period):Total assets
    
    $
    777,150
    
    
    $
    746,527
    
    
    $
    665,725
    
    
    $
    657,342
    
    
    $
    523,242Total debt
    
    
    515,705
    
    
    
    521,137
    
    
    
    495,106
    
    
    
    500,600
    
    
    
    405,621Stockholders equity
    
    
    59,753
    
    
    
    24,059
    
    
    
    13,390
    
    
    
    31,086
    
    
    
    28,767RATIO OF EARNINGS TO FIXED CHARGES (1):
    
    
    3.0
    x
    
    
    2.0
    x
    
    
    0.8
    x
    
    
    1.6
    x
    
    
    2.2
    xSUPPLEMENTARY FINANCIAL DATA:Cash flows provided by (used for):Operating activities
    
    $
    82,915
    
    
    $
    86,035
    
    
    $
    66,954
    
    
    $
    67,105
    
    
    $
    60,211Investing activities
    
    
    (69,249
    )
    
    
    (95,387
    )
    
    
    (60,760
    )
    
    
    (163,478
    )
    
    
    (182,944
    )Financing activities
    
    
    (13,141
    )
    
    
    9,352
    
    
    
    (6,194
    )
    
    
    95,734
    
    
    
    121,430Capital expenditures
    
    $
    33,571
    
    
    $
    28,329
    
    
    $
    31,739
    
    
    $
    36,913
    
    
    $
    33,066
 36




---



##### 



(1)
    
    The ratio of earnings to fixed charges is expressed as the ratio of
income before income taxes and extraordinary items plus fixed charges
(excluding capitalized interest) to fixed charges. Fixed charges consist
of interest expense, capitalized interest and one-third of rental expense
(the portion deemed representative of the interest factor). Unaudited Quarterly Financial Information The following unaudited quarterly financial information for 2003 and 2002
was derived from our unaudited financial statements and as originally filed
included, in the opinion of our management, only those normal and recurring
adjustments that our management considers necessary for a fair presentation of
the results of operations for these periods. These unaudited quarterly
operating results are not necessarily indicative of results that may be
achieved for a full fiscal year or for periods in the future. Amounts shown in
the tables below are in thousands. 2003
    
    1st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th QtrRevenuesRadio
    
    $
    44,917
    
    
    $
    62,567
    
    
    $
    61,743
    
    
    $
    59,739Cable
    
    
    32,990
    
    
    
    34,037
    
    
    
    34,719
    
    
    
    35,482Data and other
    
    
    2,554
    
    
    
    2,513
    
    
    
    2,535
    
    
    
    2,464Total Revenues
    
    
    80,461
    
    
    
    99,117
    
    
    
    98,997
    
    
    
    97,685Operating Expenses
    
    
    65,338
    
    
    
    72,022
    
    
    
    74,523
    
    
    
    71,860Operating Income
    
    
    15,123
    
    
    
    27,095
    
    
    
    24,474
    
    
    
    25,825Interest Expense, net
    
    
    4,821
    
    
    
    6,262
    
    
    
    6,295
    
    
    
    6,433Depreciation and
Amortization
    
    
    7,906
    
    
    
    6,952
    
    
    
    7,715
    
    
    
    8,396Net Income
    
    $
    5,440
    
    
    $
    9,472
    
    
    $
    10,192
    
    
    $
    11,083
 2002
    
    1st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th QtrRevenuesRadio
    
    $
    40,738
    
    
    $
    57,124
    
    
    $
    59,529
    
    
    $
    58,831Cable
    
    
    28,210
    
    
    
    31,260
    
    
    
    31,320
    
    
    
    31,964Data and other
    
    
    2,761
    
    
    
    2,178
    
    
    
    2,281
    
    
    
    2,450Total Revenues
    
    
    71,709
    
    
    
    90,562
    
    
    
    93,130
    
    
    
    93,245Operating Expenses
    
    
    58,856
    
    
    
    88,712
    
    
    
    70,873
    
    
    
    73,937Operating Income
    
    
    12,853
    
    
    
    1,850
    
    
    
    22,257
    
    
    
    19,308Interest Expense, net
    
    
    5,485
    
    
    
    5,824
    
    
    
    5,326
    
    
    
    5,403Depreciation and
Amortization
    
    
    6,294
    
    
    
    6,963
    
    
    
    7,907
    
    
    
    8,306Net Income (Loss)
    
    $
    3,644
    
    
    $
    (9,908
    )
    
    $
    9,416
    
    
    $
    8,010
 37




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion and analysis should be read in conjunction with
Selected Financial Data and our financial statements and the notes thereto
included in Item 8 of this annual report. Much of the discussion in this
section involves forward-looking statements. Our actual results may differ
significantly from the results suggested by these forward-looking statements.
Please review Cautionary Note Regarding Forward-Looking Statements and Risk
Factors for a discussion of factors that may impact our actual future results. Overview We are a diversified communications company with operations in radio
broadcasting and cable television. We are the largest privately owned radio
broadcaster and the 11th largest radio broadcaster overall in the United States
based on revenues. As of December 21, 2003 we owned and operated 7 FM and 5 AM
stations that serve three of the nations ten largest radio markets (San
Francisco, Dallas, and Houston), as well as five other markets (Atlanta,
Cincinnati, Indianapolis, Kansas City and York, Pennsylvania). We were also
the 18th largest cable multiple system operator in the United States with eight
cable systems serving approximately 205,600 subscribers as of December 31,
2003. For the year ended December 31, 2003, we had revenues and operating income
of $376.3 million and $92.5 million, respectively, with approximately 68% of
operating income generated by our radio broadcast operations and 33% by our
cable television operations. Our Internet and Other segment incurred a $0.5
million operating loss. For the year ended December 31, 2003, our net income
was $36.2 million, our cash flows from (used in) operating, investing and
financing activities were $82.9 million, $(69.2) million and $(13.1) million,
respectively, and our ratio of earnings to fixed charges was 3.0x. Income for
both 2002 and 2001 was significantly reduced by the recognition of $17.1
million and $22.3 million charges, respectively for increases in value of the
Radio Employee Stock Plan. The charges are more fully described in Note 7 to
the accompanying consolidated financial statements. These charges did not
reduce operating cash flows in either year. We offer Internet access and enhanced services to residential and business
customers under the trade name BlazeNet. We also provide content management
collaborative intranets, eCommerce and eProcurement solutions to associations,
government and mid-market business clients, primarily in the Mid-Atlantic
region, under the trade name Susquehanna Technologies. Revenues. Our principal source of radio broadcasting revenue is the sale
of broadcasting time on our stations for advertising. Radio revenue is
reported net of agency commissions. Sales of advertising are affected by
changes in demand for advertising time by national and local advertisers and by
advertising rates charged by the stations. Radio station advertising rates are
based on a stations ability to attract audiences that match the demographic
groups that advertisers want to reach, the number of stations competing in a
marketplace, and economic conditions. Radio stations attempt to maximize
revenue by adjusting advertising rates based upon local market conditions, by
controlling inventory, by creating demand, and by increasing audience ratings.
Radio stations sometimes use barter or trade agreements to exchange merchandise
or services for advertising time with advertisers, in lieu of cash. It is our
policy not to pre-empt advertising paid in cash with advertising paid in trade.
For the years ended December 31, 2001 through 2003, cash advertising revenue
was 99% of broadcasting revenue. Seasonal revenue fluctuations are common in
the radio broadcasting industry, due primarily to fluctuations in expenditure
levels by local and national advertisers. Our radio revenues are lowest in the
first quarter and are 38




---



##### 



relatively level in the other quarters. Most of our cable revenues are derived from monthly subscriber fees for
cable television programming services, high-speed Internet access via cable
modems and from fees incident to the provision of such services, such as
installation fees and fees for converter rentals and rentals of remote control
devices. Some revenues are derived from advertising. Since cable is subject
to regulation at the federal, state and local levels, increases in rates
charged for regulated services may be governed by the 1992 Cable Act and the
1996 Telecom Act. Cable revenues are affected by the timing of subscriber rate
increases. In 2004 and thereafter, revenues from telephony services are
included in cable revenues. Operating expenses. Radio operating expenses are comprised of employee
salaries and commissions, depreciation and amortization, programming expenses,
advertising expenses, promotion expenses and selling, general and
administrative expenses. General and administrative expenses include office
administration and other support functions that are handled on a centralized
basis. Radio Employee Stock Plan charges recognize the increase in value of
the plan during the transition to fair value that ended April 1, 2002. The
charges are more fully described in Note 7 to the accompanying consolidated
financial statements. Cable operating expenses include programming expenses, employee salaries
and benefits, electricity, Internet backbone circuits, depreciation,
amortization and selling, general and administrative expenses for accounting
and billing services, franchise fees, office administration expenses and
corporate charges. In 2004 and thereafter, cable operating expenses will
include costs for providing telephony services. Depreciation and amortization expense relates to the depreciation of
tangible assets used in the business and the amortization of intangible assets
not affected by the adoption of Statement of Financial Accounting Standard No.
142, Goodwill and Other Intangible Assets (SFAS 142) which resulted in the
cessation of amortization of FCC licenses, cable franchise values and goodwill
on January 1, 2002. When decisions are made to replace cable distribution
plant or other significant assets, the remaining useful lives of those assets
are adjusted to coincide with the expected replacement period. Critical Accounting Policies and Estimates Our managements discussion and analysis of financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States, as described in Note 1 to the consolidated
financial statements. In order to prepare these financial statements, we must
make certain estimates and judgments that may affect the reported value of
assets, liabilities, revenues and expenses as well as contingencies. These
estimates and judgments are evaluated on an ongoing basis and change based upon
business conditions and circumstances. Critical estimates involve revenue
recognition, the value of intangible assets (primarily FCC broadcast licenses
and cable franchise values), income taxes, fair value of financial instruments,
allowances for doubtful accounts, contingencies and the impact of any
litigation. These estimates are based on the known facts, our measured
judgments of probable outcomes and values, historical experience and other
factors that we believe are applicable and reasonable given the circumstances.
Management has discussed the criteria used in the selection of these estimates
and judgments with the Audit Committee and the Audit Committee has reviewed the
following disclosures. We believe the following accounting policies are critical to preparation
of our financial 39




---



##### 



statements since they affect the more significant estimates
reflected in the financial statements and related disclosures. Revenue Recognition.Revenues are recognized when related services are
provided. Radio revenues are reported when advertising is aired and when
events are held, net of agency commissions. Cable revenues, including
telephony revenues in 2004 and thereafter, are recognized when services are
provided and billed to our subscribers. Cables installation revenues are
recognized to the extent of direct selling costs. Cable franchise fees, which
may be up to 5% of subscriber revenues, must be collected and remitted to
franchising authorities. Franchise fees are passed through to subscribers as
permitted and are included in Cable revenues. Internet and Other revenues are
recognized when services are provided or performed. Revenues are recorded
based on a reasonable expectation of collection. Estimates of uncollectible
accounts are made and revised regularly based on customer history, economic
conditions and other credit information judged relevant given the
circumstances. Valuation of Long-Lived and Indefinite-Lived Intangible Assets.We
evaluate the recoverability of our long-lived assets including property, plant
and equipment and intangible assets subject to amortization whenever events or
changes in circumstances suggest the carrying values may not be recoverable.
Analyses based on undiscounted cash flows generated by the related operations
and appraisals, trends or other indicators of fair value are used in these
evaluations. If the assets carrying value exceeds the indicated fair value, a
loss is recognized for the difference between the fair value and the assets
carrying value. No adjustment to carrying value is made if an assets fair
value exceeds its carrying value. We evaluate the recoverability of our indefinite-lived intangible assets
and goodwill annually or whenever events or changes in circumstances suggest
that the asset may be impaired. We perform annual impairment testing for the
Radio segments Federal Communications Commission broadcast licenses and
goodwill at the market cluster level; for the Cable segments cable franchise
values and goodwill at the segment level and Internet and Other goodwill at the
segment level. Before 2003, cable franchise values were evaluated one level
below the segment level. Cable has strategically made a decision to centralize
the management of its cable operations, which include marketing as one brand,
creating and launching homogeneous product offerings, setting retail price
points, centralizing customer care and the majority of administrative
functions. Based on the preponderance of evidence, we believe we are managing
and operating our cable franchises as a single asset and it is now proper to
evaluate those assets at the segment level in accordance with SFAS 142 and
guidance of EITF 02-7. Indefinite-lived intangible assets, other than
goodwill, are generally valued using discounted cash flow analyses, trends,
appraisals and multiples evidenced in the reporting units businesses.
Comparable current market transactions, estimated future operating results
appraisals, trends and other profitability information may also be used in the
evaluations. If the carrying value of an asset were greater than its indicated
fair value, an impairment charge would be recognized for the difference in
values. Income Taxes.Our deferred income taxes reflect the probable future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial reporting balances at each reported year-end.
Changes in enacted tax rates are reflected as they occur. We routinely
evaluate our effective tax rates and adjust those rates based upon estimates
and available information pertinent to the statutory rates, apportionment and
other factors considered appropriate in the circumstances. We have certain net
operating losses for state tax purposes that we believe will not be utilized.
Accordingly, a full valuation allowance for the tax effects of these losses has
been recorded. Contingencies.We are involved in litigation and administrative
proceedings primarily arising in the normal course of our business. Based on
the outcome of these actions, we may be required to make 40




---



##### 



payments or recognize
a loss. On a regular basis, we evaluate circumstances related to these
actions, which may include consultation with outside counsel. If a liability
is probable and reasonably estimable, a liability is recognized. When a
significant liability is probable but not estimable, appropriate financial
statement disclosures are made. If circumstances surrounding a
significant matter change in the future, our consolidated results of operations
and financial position could be adversely affected. Results of Operations The following tables summarize our consolidated historical results of
operations and consolidated historical results of operations as a percentage of
revenues for the years ended December 31, 2003, 2002 and 2001 (in millions of
dollars): Year ended December 31, 2003Radio
    
    Cable
    
    Internet and Other
    
    TotalRevenues
    
    $
    229.0
    
    
    
    100.0
    %
    
    $
    137.2
    
    
    
    100.0
    %
    
    $
    10.1
    
    
    
    100.0
    %
    
    $
    376.3
    
    
    
    100.0
    %Operating expenses:Operating and programming,
    
    
    74.2
    
    
    
    32.4
    %
    
    
    60.7
    
    
    
    44.2
    %
    
    
    6.2
    
    
    
    61.4
    %
    
    
    141.1
    
    
    
    37.5
    %Selling
    
    
    36.2
    
    
    
    15.8
    %
    
    
    3.4
    
    
    
    2.5
    %
    
    
    1.5
    
    
    
    14.9
    %
    
    
    41.1
    
    
    
    10.9
    %General and administrative
    
    
    49.5
    
    
    
    21.6
    %
    
    
    18.8
    
    
    
    13.7
    %
    
    
    2.3
    
    
    
    22.8
    %
    
    
    70.6
    
    
    
    18.8
    %Depreciation and amortization
    
    
    6.5
    
    
    
    2.9
    %
    
    
    23.9
    
    
    
    17.4
    %
    
    
    0.6
    
    
    
    5.9
    %
    
    
    31.0
    
    
    
    8.2
    %Total operating expenses
    
    
    166.4
    
    
    
    72.7
    %
    
    
    106.8
    
    
    
    77.8
    %
    
    
    10.6
    
    
    
    104.9
    %
    
    
    283.8
    
    
    
    75.4
    %Operating income (loss)
    
    $
    62.6
    
    
    
    27.3
    %
    
    $
    30.4
    
    
    
    22.2
    %
    
    $
    (0.5
    )
    
    
    (5.0
    )%
    
    $
    92.5
    
    
    
    24.6
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30.7
    )
    
    
    (8.2
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.9
    
    
    
    1.8
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.2
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25.4
    )
    
    
    (6.7
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.3
    )
    
    
    (1.7
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36.2
    
    
    
    9.6
    %
 41




---



##### 



Year ended December 31, 2002Radio
    
    Cable
    
    Internet and Other
    
    TotalRevenues
    
    $
    216.2
    
    
    
    100.0
    %
    
    $
    122.7
    
    
    
    100.0
    %
    
    $
    9.7
    
    
    
    100.0
    %
    
    $
    348.6
    
    
    
    100.0
    %Operating expenses:Operating and programming,
    
    
    69.6
    
    
    
    32.2
    %
    
    
    56.0
    
    
    
    45.6
    %
    
    
    6.3
    
    
    
    64.9
    %
    
    
    131.9
    
    
    
    37.8
    %Selling
    
    
    34.9
    
    
    
    16.1
    %
    
    
    3.7
    
    
    
    3.0
    %
    
    
    1.8
    
    
    
    18.6
    %
    
    
    40.4
    
    
    
    11.6
    %General and administrative
    
    
    46.3
    
    
    
    21.4
    %
    
    
    18.7
    
    
    
    15.3
    %
    
    
    3.5
    
    
    
    36.0
    %
    
    
    68.5
    
    
    
    19.7
    %Radio Employee Stock Plan
    
    
    17.1
    
    
    
    7.9
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.1
    
    
    
    4.9
    %Depreciation and amortization
    
    
    5.7
    
    
    
    2.7
    %
    
    
    23.2
    
    
    
    18.9
    %
    
    
    0.6
    
    
    
    6.2
    %
    
    
    29.5
    
    
    
    8.5
    %Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    51.6
    %
    
    
    5.0
    
    
    
    1.4
    %Total operating expenses
    
    
    173.6
    
    
    
    80.3
    %
    
    
    101.6
    
    
    
    82.8
    %
    
    
    17.2
    
    
    
    177.3
    %
    
    
    292.4
    
    
    
    83.9
    %Operating income (loss)
    
    $
    42.6
    
    
    
    19.7
    %
    
    $
    21.1
    
    
    
    17.2
    %
    
    $
    (7.5
    )
    
    
    (77.3
    )%
    
    $
    56.2
    
    
    
    16.1
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29.2
    )
    
    
    (8.4
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.2
    
    
    
    2.1
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (0.4
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.9
    )
    
    
    (5.1
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    (1.1
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11.2
    
    
    
    3.2
    %
 42




---



##### 



Year ended December 31, 2001Radio
    
    Cable
    
    Internet and Other
    
    TotalRevenues
    
    $
    198.0
    
    
    
    100.0
    %
    
    $
    104.8
    
    
    
    100.0
    %
    
    $
    10.6
    
    
    
    100.0
    %
    
    $
    313.4
    
    
    
    100.0
    %Operating expenses:Operating and programming,
    
    
    67.0
    
    
    
    33.8
    %
    
    
    47.9
    
    
    
    45.7
    %
    
    
    7.8
    
    
    
    73.6
    %
    
    
    122.7
    
    
    
    39.2
    %Selling
    
    
    32.4
    
    
    
    16.4
    %
    
    
    4.4
    
    
    
    4.2
    %
    
    
    2.3
    
    
    
    21.7
    %
    
    
    39.1
    
    
    
    12.5
    %General and administrative
    
    
    44.7
    
    
    
    22.6
    %
    
    
    15.9
    
    
    
    15.2
    %
    
    
    4.7
    
    
    
    44.3
    %
    
    
    65.3
    
    
    
    20.9
    %Radio Employee Stock Plan
    
    
    22.3
    
    
    
    11.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.3
    
    
    
    7.1
    %Depreciation and amortization
    
    
    12.0
    
    
    
    6.0
    %
    
    
    28.8
    
    
    
    27.5
    %
    
    
    1.0
    
    
    
    9.4
    %
    
    
    41.8
    
    
    
    13.3
    %Total operating expenses
    
    
    178.4
    
    
    
    90.1
    %
    
    
    97.0
    
    
    
    92.6
    %
    
    
    15.8
    
    
    
    149.0
    %
    
    
    291.2
    
    
    
    93.0
    %Operating income (loss)
    
    $
    19.6
    
    
    
    9.9
    %
    
    $
    7.8
    
    
    
    7.4
    %
    
    $
    (5.2
    )
    
    
    (49.0
    )%
    
    $
    22.2
    
    
    
    7.0
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37.9
    )
    
    
    (12.1
    )%Interest income from loan to
parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.9
    
    
    
    2.2
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.1
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.4
    )
    
    
    (2.0
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    (0.5
    )%Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (17.2
    )
    
    
    (5.5
    )%
 Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Revenues. Revenues increased $27.7 million, or 8%, from 2002 to 2003.
Radio revenues increased $12.8 million, or 6%, from 2002 to 2003. Every Radio
market increased revenues over 2002, except Atlanta, Houston and Kansas City.
Dallas and Indianapolis led the markets that increased revenues over 2002 by
capitalizing on strong listener ratings. Softening of the rock format and
competition were the primary reasons for the decrease in the revenues in
Atlanta and Houston. Radio revenues on a same-station basis (excluding
WYGY-FM, Cincinnati and WSOX-FM, York) increased $9.8 million or 5% from 2002
to 2003. Cable revenues increased $14.5 million, or 12%, from 2002 to 2003.
Rate increases on basic and expanded basic services, increasing penetration of
cable modem services and to a lesser extent a full year of operation of the
Lawrenceburg, Indiana cable system and increased penetration of digital video
services were responsible for the growth in cable revenues. Operating the
Lawrenceburg cable system for a full year contributed $2.3 million or 16% of
the increase in Cable revenues from 2002 to 2003. Operating and programming expenses.Operating and programming expenses
increased $9.2 million or 7% from 2002 to 2003. Operating and programming
expenses declined as a percentage of revenues primarily due to the growth in
cable modem services from 2002. The cost of acquired programming increased
$2.2 million or 7% from 2002 to 2003, resulting from rate increases from
program suppliers, launch of new cable channels and changes in customer volume. General and administrative expenses.General and administrative expenses
increased $2.1 million or 3% from 2002 to 2003. Excluding compensation expense
related to the Cable Performance 43




---



##### 



Share Plan, general and administrative expense increased $6.6 million or
10% from 2002 to 2003. The increase in general and administrative expense was
primarily caused by our Parents change in the 2003 ESOP expense allocation
formula from 85% based on eligible compensation and 15% based on business unit
performance to 50% based on eligible compensation and 50% based on business
unit performance. The change in the allocation formula resulted in
approximately $1.9 million of additional ESOP expense in 2003 or 29% of the
increase in general and administrative expense excluding the 2002 revaluation
of the Cable Performance Share Plan. The remaining general and administrative
expenses increased ratably with revenues. Radio Employee Stock Plan.In 2002, $17.1 million of compensation expense
was recognized in the last year of transition from formula based value to fair
value based on the annual ESOP appraisal. Changes in value in 2003 were
accounted for as minority interest expense. Depreciation and amortization. Depreciation and amortization increased
$1.5 million, or 5%, from 2002 to 2003. A full year of depreciation on the
tangible assets of the Lawrenceburg cable system and depreciation on the
tangible assets related to the 2003 acquisitions of WSOX-FM in York,
Pennsylvania and the Canton, Mississippi cable system resulted in the increase
in depreciation expense. Goodwill impairment loss.The annual assessment of goodwill as required
by SFAS 142 was performed as of December 31, 2003. It was determined that the
carrying values of goodwill and other indefinite-lived intangible assets did
not exceed their fair values. There was no impairment loss recognized in 2003
as contrasted with the $5.0 million impairment loss recognized in 2002. Operating income.Operating income increased $36.3 million or 65% from
2002 to 2003. Radio operating income increased $20.0 million or 47% from 2002
to 2003. The improvement in Radio operating income is primarily the result of
higher revenues and no compensation expense associated with the Radio Employee
Stock Plan ($17.1 million in 2002). Cables operating income increased $9.3
million or 44% from 2002 to 2003. The improvement in Cables operating income
resulted from higher revenues and not having a charge similar to the $2.6
million compensation expense incurred in 2002 related to the change in
valuation basis of the Cable Performance Share Plan. Internet and Other
segments operating loss for 2002 included a $5.0 million goodwill impairment
that did not recur in 2003. Targeted expense reductions also narrowed the
Internet and Other segments 2003 operating loss. Interest expense. Interest expense increased $1.5 million or 5% from 2002
to 2003. Interest expense increased due to an increase in effective interest
rates caused by the issuance of $150.0 million 7.375% of Senior Subordinated
Notes in April 2003. Proceeds from the issuance of the notes were used to pay
down our senior secured credit facility, which somewhat increased interest
costs. Net income.Net income increased $25.0 million from 2002 to 2003. The
increase in net income can be attributed to the increase in Radios and Cables
operating income. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Revenues. Revenues increased $35.2 million, or 11%, from 2001 to 2002.
Radio revenues increased $18.2 million, or 9%, from 2001 to 2002. Every Radio
market increased revenues over 2001, led by Dallas, Atlanta and Kansas City.
The improved revenue performance is attributable to higher listener ratings and
improved general economic conditions compared to 2001. Cable revenues
increased $17.9 million, or 17%, from 2001 to 2002. Rate increases on basic
and expanded basic services and to a lesser extent increased penetration of
digital and cable modem services were responsible for the growth in cable
revenues. The acquisition of the Lawrenceburg, Indiana cable assets April 1,
2002, contributed 44




---



##### 



22% of the total increase in Cable revenues. Operating and programming expenses.Operating and programming expenses
increased $9.2 million or 8% from 2001 to 2002. Operating and programming
expenses did not increase at the same pace as the growth in revenues reflecting
the cost containment initiatives in Radio implemented in 2001 and the growth of
digital and cable modem products in Cable. The majority of the increase in
operating and programming expenses is attributable to the acquisition of the
Lawrenceburg cable assets and to increases in the cost of acquired cable
programming. The Lawrenceburg cable assets increased operating and programming
expenses $2.1 million from 2001 to 2002. The cost of acquired programming,
excluding the Lawrenceburg assets, increased $3.7 million or 13% from 2001 to
2002, resulting from rate increases from program suppliers, launch of new cable
channels and changes in customer volume. Although significant in both years,
the Radio Employee Stock Plan charge decreased $5.2 million or 23% from 2001 to
2002. See Note 7 to the accompanying consolidated financial statements for
further information. Depreciation and amortization. Depreciation and amortization decreased
$12.3 million, or 29%, from 2000 to 2001. The effect of the adoption of SFAS
142 reduced depreciation and amortization $14.1 million from 2001 to 2002.
Cable depreciation and amortization expenses, excluding the effect of SFAS 142,
comprised $1.2 million of the increase, and resulted from the continuation of
our cable television system rebuilds, depreciation on the tangible assets of
the Lawrenceburg cable system and the continued rollout of digital cable and
cable modem services. Goodwill impairment loss.The annual assessment of goodwill as required
by SFAS 142 was performed as of December 31, 2002. It was determined that
goodwill associated with the Internet reporting unit was impaired as its
carrying value exceeded the fair value implicit in the independent appraisal
performed for the parents annual ESOP valuation. Based on a comparison of the
goodwills fair value as of December 31, 2002 and its carrying value, a $5.0
million goodwill impairment loss was recognized. Operating income.Operating income increased $34.0 million or 153% from
2001 to 2002. Excluding the effect of the change to SFAS 142, 2002 operating
income increased $19.9 million or 90% over 2001. Radio operating income
increased $23.0 million or 117% from 2001 to 2002. Excluding the effect of the
change to SFAS 142, Radio operating income increased $16.4 million or 84% from
2001 to 2002. The improvement in Radio operating income is the result of
higher revenues and a reduction in the recognized compensation expense
associated with the change in the valuation basis of the Radio Employee Stock
Plan. Cable operating income increased $13.3 million or 171% from 2001 to
2002. Excluding decreased amortization from the adoption of SFAS 142, Cable
operating income increased $6.5 million or 83% from 2001 to 2002. The
improvement in Cable operating income is the result of higher revenues. Interest expense. Interest expense decreased $8.7 million or 23% from
2001 and 2002. Interest expense from increased borrowings was offset by
reductions in interest rates. Interest income of $7.2 million was recognized
in 2002 from loans to our parent. Net income.Net income increased $28.3 million or 165% from 2001 to 2002.
The increase in net income can be attributed to the increase in Radio and
Cable operating income and a decrease in interest expense. 45




---



##### 



Liquidity and Capital Resources Historically, our primary sources of liquidity have been cash flow from
operations and borrowings under our senior credit facilities. Our future needs
for liquidity arise primarily from capital expenditures, potential acquisitions
of radio stations and cable systems, potential repurchases of our common stock,
and interest payable on our senior subordinated notes and our senior credit
facilities. We may also access the capital markets from time to time as market
conditions permit, with debt or equity financing. Net cash provided by operating activities was $82.9 million and $86.0
million for the years ended December 31, 2003 and 2002, respectively. Our net
cash provided by operating activities was generated primarily by normal
operations. The slight decrease was due largely to a decrease in accrued
income taxes. Net cash used by investing activities was $69.2 million for the year ended
December 31, 2003. Acquisition of a radio station and a cable television
service area, as detailed in Note 2 to the consolidated financial statements,
totaled $28.0 million for 2003. Capital expenditures, excluding acquisitions,
were $33.6 million for the year ended December 31, 2003 compared to $28.3
million in 2002. Capital expenditures were used primarily to upgrade and
maintain our cable plant. A $10 million deposit was made for the RCN
acquisition in 2003. Our Parent repaid $4.4 million on its outstanding loans
in 2003. On March 9, 2004, we acquired approximately 29,000
customers from RCN Telecommunications, Inc. serving the Carmel, New York area for $120.0
million cash. We replaced our senior secured credit facilities with new $600
million senior secured credit facilities (New Facilities) in conjunction with
this acquisition. The New Facilities were used to fund this acquisition. Net cash used by financing activities was $13.1 million for the year ended
December 31, 2003. Net cash used by financing activities was primarily used
for the repayment of term loans ($17.0 million) and for the repurchase of Radio
Employee Stock Plan shares ($6.4 million). Proceeds from the issuance of
$150.0 million of 7.375% Senior Subordinated Notes were used to immediately
reduce revolving credit borrowings. Our acquisitions of radio stations and cable systems and our capital
expenditures have historically been financed with cash flow from operations and
borrowings under our senior credit facilities. In the past, we have also
issued long-term debt securities to reduce our borrowings under our senior
secured credit facilities. Capital expenditures, excluding acquisitions, were
$33.6 million, $28.3 million and $31.7 million for the years ended December 31,
2003, 2002 and 2001, respectively. Capital expenditures over this period were
used primarily to upgrade and maintain our cable system. We expect to make
capital expenditures totaling approximately $41.0 million in 2004 for upgrading
our cable system, for additional capital expenditures in the Carmel, New York
cable area acquired March 9, 2004, for radio-related equipment and for
information technology projects. In
second quarter 2004, we expect to purchase Jesscoms interest in
1051 FM LLC for $15.0 million cash by utilizing our senior secured
credit facilities. As of December 31, 2003, the fair value of the 8.5% Senior Subordinated
Notes due 2009 was $157.5 million. The fair value of the 7.375% Senior
Subordinated Notes due 2013 was $156.4 million as of December 31, 2003.
Changes in interest rates affect the market value of these notes, however cash
outflows for semi-annual interest payments are fixed. At December 31, 2003, our senior secured credit facilities consisted of a
$190 million revolver, a $76 million Term Loan A, and a $98.3 million Term
Loan B, that were collateralized by a pledge of all of our tangible property
(excluding real property and vehicles) and our voting common stock. The credit
agreement governing the senior secured credit facilities in effect at December
31, 2003 contained 46




---



##### 



covenants requiring us to maintain certain financial
leverage and interest coverage ratios. As of December 31, 2003, we had $148.6
million of borrowing availability under our senior secured credit facilities.
As of December 31, 2003, the average interest rate on all outstanding
borrowings was approximately 5.8%. On March 9, 2004, these
facilities were replaced by new senior secured credit facilities,
(New Facilities). The
$600 million New Facilities with a group of banks consist of a $150
million Tranche A term loan, a $250 million Tranche B term loan and a
$200 million Revolving Credit. The Tranche A term loan amortizes
beginning in the third year and matures in March 2011. The Tranche B
term loan amortizes one percent per year beginning in the second year
and matures in March 2012. The Revolving Credit commitment does not
amortize, but matures in March 2011. Interest is based on LIBOR plus
an applicable margin based on certain ratios, or on a base rate plus
a margin dependent on certain ratios. As of March 25, 2004, $250
million was drawn on Tranche B and $54.4 million was borrowed under
the Revolving Credit at an average interest rate of approximately
3.07%. Interest is payable quarterly on or the maturity of a
LIBOR-based tranche. The
New Facilities are collaterized by all assets except real estate and
vehicles, FCC licenses, a pledge or our stock and a pledge of certain
stock of our subsidiaries. We must maintain debt coverage and certain
financial ratios at prescribed levels. We may be prevented from
paying common dividends, making investment transactions with
affiliates, allowing ownership changes, selling assets and issuing
additional debt. We
used these New Facilities to repay $194.8 million borrowed under the
Old Facilities on March 9, 2004. We expect to use these New
Facilities to fund a call of our 8.5% Senior Subordinated Notes in
May 2004, at a cost of approximately $156 million. The Company was in compliance with its debt covenants as of December 31,
2003. The following debt covenants now in effect are considered the most
restrictive: Covenant Test
    
    Covenant
    
    Actual ValueFixed charge coverage ration must be at least:
    
    
    1.10
    
    
    
    1.97Consolidated total leverage ratio may not exceed:
    
    
    6.50
    
    
    
    4.13Interest coverage must exceed:
    
    
    2.00
    
    
    
    6.08
 Our New Facilities include a provision that allows our lender to refuse
additional borrowings if our financial condition suffers a material adverse
change. Violation of covenants under the New Facilities could result in a
default of our 8.5% senior subordinated notes and our 7.375% senior
subordinated notes. A default under either the 8.5% senior subordinated notes
or the 7.375% senior subordinated notes could result in a default under our New
Facilities. A default under the 8.5% senior subordinated notes could result in
a default under the 7.375% senior subordinated notes. Any such cross
defaults would permit our lenders and noteholders to accelerate
approximately $604.2 million of our outstanding debt at March 25,
2004. Future Commitments The following tables reflect our contractual cash obligations in the
respective periods in which they are due (in thousands). Contractual
    
    TotalCash
    
    AmountsObligations
    
    Committed
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterLong-term debt
    
    $
    515,705
    
    
    $
    34
    
    
    $
    37
    
    
    $
    40
    
    
    $
    44
    
    
    $
    215,550
    
    
    $
    300,000Broadcast rights
    
    
    15,150
    
    
    
    8,900
    
    
    
    3,050
    
    
    
    3,200
    
    
    
    
    
    
    
    
    
    
    
    RCN transition
    
    
    3,150
    
    
    
    3,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    32,311
    
    
    
    4,939
    
    
    
    4,804
    
    
    
    4,624
    
    
    
    4,129
    
    
    
    2,954
    
    
    
    10,861Total
    
    $
    566,316
    
    
    $
    13,873
    
    
    $
    7,891
    
    
    $
    7,864
    
    
    $
    4,173
    
    
    $
    218,504
    
    
    $
    310,861
 Information regarding our contractual obligations at December 31, 2003, is
included in the notes to the consolidated financial statements. Future debt
maturities, lease obligations and broadcast rights are 47




---



##### 



included in Notes 3, 10,
and 12, respectively. In connection with the March 9, 2004 purchase of cable
assets (Note 15 to the consolidated financial statements), RCN has agreed to
provide transition services for a period up to one year for approximately $0.5
million per month. Media expects to utilize these
transition services through third quarter 2004. We believe that funds generated from operations and the borrowing
availability under our New Facilities will be sufficient to finance our current
operations, our debt service obligations, including our obligations under the
notes, cash obligations in connection with potential repurchases of our common
stock and planned capital expenditures for the foreseeable future. From time
to time, we evaluate potential acquisitions of radio stations, cable television
systems, and Internet-related businesses. In connection with future
acquisition opportunities, we may incur additional debt or issue additional
equity or debt securities depending on market conditions and other factors. We
have no current commitments or agreements with respect to any material
acquisitions. We have no off-balance sheet arrangements to disclose as required by Item
303 (a) (4) of Regulation S-K as of the date of this report. Recent Accounting Pronouncements Please see Item 8. Consolidated Financial Statements and Supplementary
Data, Note 1 to the consolidated financial statements for a discussion of
recent accounting pronouncements and their applicability to Media. 
 Item 7A. Quantitative and Qualitative Disclosure About Market Risk. As of December 31, 2003, we had $215.6 million in variable rate debt. The
fair value of this debt approximates its carrying value. Variable rate debt
matures as follows (in thousands): 2004
    
    $
    60,7002005
    
    
    71,0002006
    
    
    85,0002007
    
    $
    89,8752008
    
    
    47,375
 The maturities shown above reflect debt in place at December 31, 2003.
The maturities shown in the notes to the consolidated financial statements are
disclosed based on replacement facilities closed on March 9, 2004. Our
interest rate exposure is primarily impacted by changes in LIBOR rates. At
December 31, 2003, the weighted average interest rate for the variable rate
debt was 2.9%. If LIBOR rates increased 1%, and sustained that increased rate
for an entire year, annual interest expense on variable rate debt incurred as
of December 31, 2003 would increase by $2.2 million.
Variable rate debt as of March 25, 2004 was approximately $304.2
million. 48




---



##### 



Item 8. Consolidated Financial Statements and Supplementary Data The
consolidated financial statements and Independent Auditors
Report and Report of Independent Accountants of Susquehanna Media Co.
and Subsidiaries are set forth on the pages listed below: PageIndependent
Auditors Report and Report of Independent Accountants
    
    
    50Financial StatementsConsolidated Balance Sheets
    
    
    52Consolidated Statements of Operations
    
    
    53Consolidated Statements of Cash Flows
    
    
    54Consolidated Statements of Stockholders Equity
    
    
    55Notes to Consolidated Financial Statements
    
    
    56  83
 49




---



##### 



Independent Auditors
Report The Board of Directors and
Subsidiaries of
Susquehanna Media Co.: We
have audited the accompanying consolidated balance sheets of
Susquehanna Media Co. and subsidiaries (the Company) as of December
31, 2003 and 2002, and the related consolidated statements of
operations, stockholders equity, and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audits. We
conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the
consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Susquehanna Media
Co. and subsidiaries as of December 31, 2003 and 2002 and the results
of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. As discussed in Note 1 to the
consolidated financial statements, the Company changed its method of
accounting for goodwill and other intangible assets in 2002. /s/ KPMG LLP Harrisburg, Pennsylvania March 19, 2004 50




---



##### 



Report of Independent
Accountants

To the Board of Directors and
Stockholders of



In our opinion, the
accompanying consolidated statement of income and comprehensive
income, and of cash flows present fairly, in all material respects,
the results of the operations and cash flows of Susquehanna Media Co.
and Subsidiaries (Company) for the year ended December 31, 2001 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management; our responsibility
is to express an opinion on these financial statements based on our
audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

/s/ PricewaterhouseCoopers
LLP
Philadelphia, PA

March 18, 2002
(except as to Note 15 to the financial statements included in the
Companys 2002 Form 10-K, not
presented separately herein, for which the date is March 10, 2003)

51



---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
  December 31,2003
    
    2002ASSETSCurrent AssetsCash and cash equivalents
    
    $
    525
    
    
    $
    Accounts receivable, less allowance for doubtful
accounts of $1,719 in 2003 and $2,111 in 2002 (Note 14)
    
    
    52,192
    
    
    
    49,678Current portion of notes receivable from Parent (Note 11)
    
    
    4,690
    
    
    
    4,422Deferred income taxes (Note 4)
    
    
    6,621
    
    
    
    6,889Other current assets
    
    
    6,818
    
    
    
    5,212Total Current Assets
    
    
    70,846
    
    
    
    66,201Property, Plant and Equipment, at cost (Notes 2 and 3)Land
    
    
    5,948
    
    
    
    5,772Buildings and improvements
    
    
    23,399
    
    
    
    17,205Equipment
    
    
    272,734
    
    
    
    258,034Construction-in-progress
    
    
    12,443
    
    
    
    11,308314,524
    
    
    
    292,319Accumulated depreciation and amortization
    
    
    154,610
    
    
    
    138,675Property, Plant and Equipment, net
    
    
    159,914
    
    
    
    153,644Intangible Assets and Goodwill, net (Notes 2, 3 and 5)
    
    
    402,466
    
    
    
    387,883Notes Receivable from Parent (Note 11)
    
    
    104,951
    
    
    
    109,641Investments and Other Assets (Notes 2, 3, 6, 9 and 12)
    
    
    38,973
    
    
    
    29,158$
    777,150
    
    
    $
    746,527LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesCash overdrafts
    
    $
    
    
    
    $
    849Current portion of long term debt (Note 3)
    
    
    34
    
    
    
    17,032Accounts payable
    
    
    11,225
    
    
    
    13,035Accrued employee-related costs (Notes 7 and 9)
    
    
    14,997
    
    
    
    12,757Accrued income taxes
    
    
    7,144
    
    
    
    9,761Accrued interest
    
    
    4,663
    
    
    
    2,484Accrued franchise and licensing fees
    
    
    2,944
    
    
    
    3,676Deferred income
    
    
    1,542
    
    
    
    1,022Contract fee payable (Note 5)
    
    
    
    
    
    
    10,000Other accrued expenses
    
    
    6,893
    
    
    
    6,536Total Current Liabilities
    
    
    49,442
    
    
    
    77,152Long-term Debt (Note 3)
    
    
    515,671
    
    
    
    504,105Other Liabilities (Note 8)
    
    
    13,845
    
    
    
    17,172Deferred Income Taxes (Note 4)
    
    
    71,216
    
    
    
    57,152Minority Interests (Note 7)
    
    
    67,223
    
    
    
    66,887Stockholders Equity (Notes 3 and 11)
Preferred stock  Voting, 7% cumulative with $100 par value,
authorized 110,000 shares
    
    
    7,050
    
    
    
    7,050Common stock  Voting, $1 par value, 1,100,000 shares
Authorized
    
    
    1,100
    
    
    
    1,100Retained earnings
    
    
    51,603
    
    
    
    15,909Total Stockholders Equity
    
    
    59,753
    
    
    
    24,059$
    777,150
    
    
    $
    746,527
 The accompanying notes are an integral part of the consolidated financial statements. 52




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Years Ended December 31,2003
    
    2002
    
    2001RevenuesRadio
    
    $
    228,966
    
    
    $
    216,222
    
    
    $
    198,039Cable
    
    
    137,228
    
    
    
    122,754
    
    
    
    104,758Internet and Other
    
    
    10,066
    
    
    
    9,670
    
    
    
    10,632Total revenues
    
    
    376,260
    
    
    
    348,646
    
    
    
    313,429Operating ExpensesOperating and programming
    
    
    141,061
    
    
    
    131,869
    
    
    
    122,668Selling
    
    
    41,096
    
    
    
    40,414
    
    
    
    39,134General and administrative
    
    
    70,617
    
    
    
    68,560
    
    
    
    65,328Radio Employee Stock Plan (Note 7)
    
    
    
    
    
    
    17,065
    
    
    
    22,305Depreciation and amortization
    
    
    30,969
    
    
    
    29,470
    
    
    
    41,839Goodwill impairment loss (Note 5)
    
    
    
    
    
    
    5,000
    
    
    
    Total operating expenses
    
    
    283,743
    
    
    
    292,378
    
    
    
    291,274Operating Income
    
    
    92,517
    
    
    
    56,268
    
    
    
    22,155Other Income (Expense)Interest expense
    
    
    (30,720
    )
    
    
    (29,200
    )
    
    
    (37,887
    )Interest income from loan to Parent (Note 11)
    
    
    6,909
    
    
    
    7,162
    
    
    
    6,895Other
    
    
    (784
    )
    
    
    (1,406
    )
    
    
    (256
    )Income (Loss) Before Income Taxes and
and Minority Interests
    
    
    67,922
    
    
    
    32,824
    
    
    
    (9,093
    )Provision for Income Taxes (Note 4)
    
    
    25,370
    
    
    
    17,904
    
    
    
    6,416Income (Loss) Before Minority Interests
    
    
    42,552
    
    
    
    14,920
    
    
    
    (15,509
    )Minority Interests
    
    
    (6,365
    )
    
    
    (3,758
    )
    
    
    (1,694
    )Net Income (Loss) and Comprehensive
Income (Loss)
    
    
    36,187
    
    
    
    11,162
    
    
    
    (17,203
    )Preferred Dividends Declared
    
    
    (493
    )
    
    
    (493
    )
    
    
    (493
    )Net Income (Loss) Available for Common Shares
    
    $
    35,694
    
    
    $
    10,669
    
    
    $
    (17,696
    )
 The accompanying notes are an integral part of the consolidated financial statements. 53




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    36,187
    
    
    $
    11,162
    
    
    $
    (17,203
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    30,969
    
    
    
    29,470
    
    
    
    41,839Deferred income taxes
    
    
    14,332
    
    
    
    8,915
    
    
    
    3,252Radio Employee Stock Plan
    
    
    370
    
    
    
    17,065
    
    
    
    22,305Cable
Performance Share Plan
    
    
    (446
    )
    
    
    3,500
    
    
    
    6,465Goodwill impairment loss
    
    
    
    
    
    
    5,000
    
    
    
    Minority interests
    
    
    6,365
    
    
    
    3,758
    
    
    
    1,694Deferred financing amortization
    
    
    1,386
    
    
    
    1,074
    
    
    
    1,317Investment write-downs
    
    
    
    
    
    
    
    
    
    
    1,500Equity in losses of investees
    
    
    616
    
    
    
    630
    
    
    
    1,135Changes in assets and liabilities:Decrease (increase) in accounts receivable, net
    
    
    (2,514
    )
    
    
    (4,900
    )
    
    
    6,411Decrease (increase) in other current assets
    
    
    (1,606
    )
    
    
    928
    
    
    
    (3,456
    )Increase (decrease) in accounts payable
    
    
    (1,810
    )
    
    
    4,649
    
    
    
    (4,472
    )Increase (decrease) in accrued income taxes
    
    
    (2,617
    )
    
    
    6,606
    
    
    
    4,183Increase (decrease) in accrued interest
    
    
    2,179
    
    
    
    (2,807
    )
    
    
    1,718Increase (decrease) in other current liabilities
    
    
    2,385
    
    
    
    1,859
    
    
    
    (710
    )Increase (decrease) in other liabilities
    
    
    (2,881
    )
    
    
    (874
    )
    
    
    976Net cash provided by operating activities
    
    
    82,915
    
    
    
    86,035
    
    
    
    66,954CASH FLOWS FROM INVESTING ACTIVITIESParents repayment of notes
    
    
    4,422
    
    
    
    4,169
    
    
    
    4,439Purchase of property, plant and equipment, net
    
    
    (33,571
    )
    
    
    (28,329
    )
    
    
    (31,739
    )Acquisitions
    
    
    (28,035
    )
    
    
    (71,539
    )
    
    
    (21,300
    )Downpayment on RCN acquisition
    
    
    (10,000
    )
    
    
    
    
    
    
    Decrease (increase) in investments, other assets and intangible assets
    
    
    (2,065
    )
    
    
    312
    
    
    
    2,462Loan to Parent
    
    
    
    
    
    
    
    
    
    
    (14,622
    )Net cash used by investing activities
    
    
    (69,249
    )
    
    
    (95,387
    )
    
    
    (60,760
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in revolving credit borrowings
    
    
    (138,400
    )
    
    
    34,800
    
    
    
    (5,700
    )Long-term borrowing
    
    
    150,000
    
    
    
    
    
    
    
    Repayment of term loans
    
    
    (17,000
    )
    
    
    (8,750
    )
    
    
    Increase (decrease) in cash overdrafts
    
    
    (849
    )
    
    
    (1,838
    )
    
    
    2,089Radio Employee Stock Plan transactions
    
    
    (6,399
    )
    
    
    (14,367
    )
    
    
    (2,090
    )Payments of preferred dividends
    
    
    (493
    )
    
    
    (493
    )
    
    
    (493
    )Net cash provided (used) by financing activities
    
    
    (13,141
    )
    
    
    9,352
    
    
    
    (6,194
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    525
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, January 1,
    
    
    
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, December 31,
    
    $
    525
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements. 54




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
  Preferred Stock
    
    Common Stock
    
    RetainedShares
    
    Amounts
    
    Shares
    
    Amounts
    
    Earnings
    
    TotalBalance, January 1, 2001
    
    
    70
    
    
    $
    7,050
    
    
    
    1,100
    
    
    $
    1,100
    
    
    $
    22,936
    
    
    $
    31,086Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,203
    )
    
    
    (17,203
    )Preferred dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493
    )
    
    
    (493
    )Balance, December 31, 2001
    
    
    70
    
    
    $
    7,050
    
    
    
    1,100
    
    
    $
    1,100
    
    
    $
    5,240
    
    
    $
    13,390Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,162
    
    
    
    11,162Preferred dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493
    )
    
    
    (493
    )Balance, December 31, 2002
    
    
    70
    
    
    $
    7,050
    
    
    
    1,100
    
    
    $
    1,100
    
    
    $
    15,909
    
    
    $
    24,059Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,187
    
    
    
    36,187Preferred dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493
    )
    
    
    (493
    )Balance, December 31, 2003
    
    
    70
    
    
    $
    7,050
    
    
    
    1,100
    
    
    $
    1,100
    
    
    $
    51,603
    
    
    $
    59,753
 The accompanying notes are an integral part of the consolidated financial statements. 55




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    
    Significant Accounting PoliciesNature of Operations- Susquehanna Media Co. and its subsidiaries,
Susquehanna Radio Corp. (Radio), Susquehanna Cable Co. (Cable or SusCom),
Susquehanna Data Services, Inc. and SMC Interactive, Inc. (Internet),
Susquehanna Fiber Systems, Inc., Susquehanna ET Investment, Inc. and Media
PCS Ventures, Inc. (collectively, the Company or Media), are primarily in the
businesses of radio broadcasting, cable television services, Internet and
other communications-related services. Susquehanna Fiber Systems, Inc. is
a 50% general partner in Susquehanna Adelphia Business Solutions, a
competitive access provider.Through its subsidiaries, the Company operates radio stations in major U.S.
markets and provides cable television services in Pennsylvania, Maine,
Mississippi, Illinois, and Indiana. High speed Internet access is provided
in all Cable service areas except Mississippi. Radio advertising, cable
television subscriptions, and Internet services account for approximately
61%, 36%, and 3% of 2003 consolidated revenues, respectively. Radio, Cable
and Internet services revenues were 62%, 35% and 3% of 2002 consolidated
revenues, respectively. Radio, Cable and Internet services revenues were
63%, 33%, and 4% of 2001 consolidated revenues, respectively.Principles of Consolidation- The consolidated financial statements include
the accounts of Media and its subsidiaries. All significant intercompany
accounts and transactions are eliminated. All Media common stock is owned
by Susquehanna Pfaltzgraff Co. (the Parent).Use of Estimates in the Preparation of Financial Statements- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the years. Actual results could differ from those
estimates.Cash and Cash Equivalents- The Company considers highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.Credit Risk- The Companys accounts receivable are largely from consumers
and consumer businesses whose ability to pay is subject to changes in
general economic conditions. Credit risk is managed through credit and
collection controls in the radio and Internet segments and by disconnecting
delinquent subscribers in the cable segment. The allowance for bad debts is
determined using historical experience, payment trends and credit
information in the context of then current economic conditions.Property, Plant and Equipment- These assets are stated at cost.
Depreciation and amortization are computed on the straight-line method for
financial statement purposes based on the following estimated useful lives: Buildings and improvements
    
    
    
    
    
    
    10 to 40 yearsEquipment
    
    
    
    
    
    
    3 to 20 years
  Depreciation expense was approximately $28.5 million, $27.7 million and
$27.0 million for the years ended December 31, 2003, 2002, and 2001,
respectively. 56




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Significant Accounting Policies, continuedAsset additions and major renovations are capitalized and depreciated over
their estimated useful lives. Periodically, asset lives are reviewed and
adjusted based on facts and circumstances. Costs for constructing or
rebuilding cable transmission and distribution facilities and costs of new
cable service installations are capitalized. Costs of maintenance, repairs
and minor renovations are charged against income. Gains or losses on
dispositions are recognized in the consolidated statement of operations and
the related costs and accumulated depreciation are removed from the
consolidated balance sheet.Valuation of Long-Lived and Indefinite-Lived Assets- The Company evaluates
the recoverability of its long-lived assets including property, plant and
equipment and intangible assets subject to amortization whenever events or
changes in circumstances suggest the carrying values may not be recoverable.
Analyses based on undiscounted cash flows generated by the related
operations, appraisals, trends, or other indicators of fair value are used
in these evaluations. If an asset classs carrying value exceeds its
indicated fair value, a loss is recognized for the difference between fair
value and carrying value.The Company evaluates the recoverability of its indefinite-lived intangible
assets and goodwill annually, as of December 31, or more frequently if
events or changes in circumstances suggest that an asset may be impaired.
The Company performs its annual impairment testing generally one level below
its reporting segments. Goodwill and Federal Communications Commission
(FCC) broadcast licenses, which are indefinite-lived assets, are evaluated
at the radio market cluster level.Cable franchise values and goodwill related to Cable are determined by
independent valuation or by costs incurred related to servicing a new area.
Cables franchises are non-exclusive rights to operate, granted by local
governments, that are subject to periodic renewal. While these renewals are
not guaranteed, management believes that the probability of non-renewal is
remote based on regulations in effect and the Companys history of securing
franchise renewals. Based on these factors, cable franchise values have
been deemed to be intangible assets with indefinite lives. Media adopted
Statement of Financial Accounting Standard No. 142 Goodwill and Other
Intangible Assets (SFAS 142) on January 1, 2002. As of January 1, 2002
and December 31, 2002, the unit of accounting for evaluating impairment of
cable franchise values and goodwill was at a geographic basis one level
below the Cable segment level. Based on an analysis of Emerging Issues Task
Force 02-7 Unit of Accounting for Testing Impairment of Indefinite-lived
Intangible Assets, management has concluded that aggregating cable
franchise values at the segment level is appropriate for impairment testing.
This conclusion is based on centralized management of the SusCom brand,
centralized setting of rates and carriages, master programming contracts,
centralized billing, accounting, customer care and collection functions and
centralized engineering. It is managements intention to service all areas
similarly to maximize quality and minimize operating costs. Accordingly,
Cable impairment testing of indefinite-lived intangible assets as of
December 31, 2003 was performed at the segment level. The results of
impairment testing would not have changed had testing been performed at a
lower level. Internet and Other goodwill is evaluated at the segment level. 57




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Significant Accounting Policies, continuedIndefinite-lived intangible assets other than goodwill are generally
evaluated using discounted cash flow analyses, projections, trends,
appraisals, and multiples evidenced in the reporting units businesses.
Comparable current market transactions, estimated future operating results,
appraisals, trends and other profitability information may also be used in
the evaluations. If the carrying value of an asset is greater than its
indicated fair value, an impairment charge is recognized for the difference
in values.Derivative Financial Instruments- Derivative financial instruments are used
solely to limit interest rate exposure on variable rate debt. No derivative
financial instruments are held for trading purposes. The Company is not a
party to any leveraged instruments. Interest swaps and collars may either
be treated as hedges or marked-to-market as elected on a
contract-by-contract basis. The Company has entered into interest rate
swaps to limit its exposure to interest rate changes on a portion of its
variable rate debt. Hedge accounting has not been elected. Variations in
fair value are marked-to-market on a current basis and are a component of
interest expense in the consolidated statements of operations. Media
manages risk related to the interest rate swap by evaluating and monitoring
the creditworthiness of the counterparties. This risk is not considered
significant.Disclosures about Fair Value of Financial Instruments Financial
instruments include cash and cash equivalents, investments and long-term
debt. The fair value of investments and cash and cash equivalents
approximate their carrying values. Floating rate debt is considered fair
value. The Senior Subordinated Notes fair value is based on market
quotations.Investments and Other Assets An investment of less than 20% in an entity
is reported using the cost method of accounting unless the Company has the
ability to exercise significant influence over the financial and operating
policies of the entity. Where such influence exists,
the investee is accounted for using the equity method. Investments in
entities that are at least 20% and not more than 50% owned, are reported
using the equity method.Revenues Revenues are recognized in the period when services are provided.
Radio revenues are reported when advertising is aired and when events are
held, net of agency commissions. Agency commissions for the years ended
December 31, 2003, 2002, and 2001 were $33.2 million, $31.2 million, and
$27.7 million, respectively. Cable subscriber revenues are recognized when
services are provided and billed. Cable installation revenues are
recognized to the extent of direct selling costs incurred. Cable franchise
fees, which may be up to 5% of subscriber revenues, must be collected and
remitted to franchising authorities. Franchise fees are passed through to
subscribers as permitted and are included in cable revenues. Internet and
Other segment revenues are recognized when services are provided or
performed. Medias revenues were concentrated in the following media
markets: 2003
    
    2002
    
    2001San Francisco
    
    
    16
    %
    
    
    17
    %
    
    
    18
    %York, PA
    
    
    21
    %
    
    
    21
    %
    
    
    21
    %Dallas  Fort Worth
    
    
    16
    %
    
    
    15
    %
    
    
    15
    %
  Advertising Advertising costs are expensed as incurred. 58




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Significant Accounting Policies, continuedInterest- Interest paid was $27.8 million, $31.7 million and $33.9 million
for the years ended December 31, 2003, 2002 and 2001, respectively.
Interest relating to construction of buildings and equipment is capitalized
as part of the related assets cost. Approximately $0.3
million and $0.5 million of interest was capitalized during the years ended
December 31, 2003 and 2001, respectively.Deferred financing costs, included in Investments and Other Assets, are
amortized on a straight-line basis over the repayment period of the related
debt. The method used does not differ materially from the effective
interest method.Income Taxes- Income taxes are based on the asset and liability method of
accounting. Deferred income taxes reflects the future tax consequences of
temporary differences between the tax bases of assets and liabilities and
their financial reporting bases at each year-end. Changes in enacted tax
rates are reflected in the tax provision as they occur.Stock-Based Compensation- Compensation expense is recognized in accordance
with Statement of Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation  Transition and Disclosure. Compensation expense
on stock options granted is recognized using the fair value method. Since
options are granted only for a non-public subsidiary, fair value is measured
using minimum value. As of December 31, 2003 and 2002, both the number and
value of stock options granted and outstanding were immaterial. See Note 7
for accounting treatment of the Radio Employee Stock Plan prior to April 1,
2002.Recent Accounting Pronouncements- Statement of Financial Accounting
Standards No. 143 Accounting for Asset Retirement Obligations (SFAS 143)
specifies financial and reporting obligations pertaining to the retirement
of tangible long-lived assets and associated retirement costs. Media
adopted SFAS 143 as of January 1, 2003. Adoption had no material impact on
Medias financial position or results of operations. Cable could be
required to remove equipment from utility poles if cable franchises and/or
pole rental contracts were not renewed. However, management believes the
likelihood of this occurrence is remote based on its cable franchise renewal
history. If circumstances indicate that a cable franchise would not be
renewed, a liability for asset removal would be recorded at that time.Financial Accounting Standards Board Interpretation No. 45, Guarantors
Accounting and Requirements for Guarantees, Including Guarantees of
Indebtedness of Others (FIN 45), requires a guarantor to disclose its
obligations under certain guarantees that it has issued in interim and
annual financial statements for guarantees issued or modified after December
31,
2002. For certain guarantees, a guarantor may be required to recognize a
liability for the fair value of the obligation at its inception. FIN 45
does not specify an approach for subsequently measuring and recording the
change in fair value of the obligation. The interpretations disclosure
provisions apply to interim or annual financial statements for periods
ending after
December 15, 2002. Media adopted this pronouncement as of January 1, 2003
without material impact.In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46).
FIN 46 addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. FIN 46 applies
immediately to variable interests in variable interest entities created
after January 31, 59




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Significant Accounting Policies, continued2003, and to variable interests in variable interest entities obtained after
January 31, 2003. In December 2003, the FASB issued FIN 46R, a revision to
FIN 46, that delayed implementation of FIN 46 for entities other than Special
Purpose Entities. Media must adopt FIN 46R in 2005. The impact of this
interpretation has not yet been determined.In April 2003, the FASB issued Statement of Financial Accounting Standard
No. 149 Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts entered into or modified after June
30, 2003, for hedging activities designated after that same date and for
certain existing contracts. Media has not entered into or modified any
subject contracts since June 30, 2003.In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity (SFAS 150). SFAS 150 requires certain
financial instruments previously classified as equity to be classified as
liabilities, or possibly assets, if they have certain characteristics. SFAS
150 is effective for financial instruments entered into or modified after
May 31, 2003. A Media subsidiary has non-controlling interests
that are
subject to mandatory repurchase. However, the FASB has indefinitely
deferred implementation of SFAS 150s provisions related to these
non-controlling interests.In December 2003, the SEC issued Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 104 revises or rescinds portions of
interpretative guidance on revenue recognition. SAB No. 104 became
effective immediately upon release and requires registrants to either
restate prior financial statements or report a change in accounting
principle. The adoption of SAB 104 did not have a material impact on
the Companys consolidated financial statements.2.
    
    AcquisitionsAll acquisitions have been accounted for as purchases. The results of
acquired operations have been included in the Consolidated Statements of
Operations since their acquisition dates.On August 1, 2003, Media purchased certain assets of WSOX-FM, an Oldies
radio station, licensed to Red Lion, Pennsylvania from Lancaster-York
Broadcasting, LLC for $23.0 million cash. Existing credit facilities funded
the acquisition.Effective June 30, 2003, Media acquired from Galaxy Cable, Inc.
approximately 2,900 basic cable subscribers and related assets serving
Canton, Mississippi for $5.2 million cash, including $0.2 million of working
capital. Existing credit facilities were utilized to fund the acquisition.
The subscribers will be integrated into the existing Rankin County operation
after rebuild of the cable plant and headend elimination. Media anticipates
that the rebuild and headend elimination will be completed by June 2004 at
an estimated cost of $2.3 million.On September 30, 2002, Media purchased the assets of Radio Station WYGY-FM
from Caron Broadcasting, Inc. for $45.0 million cash. Radio Station WYGY-FM
is licensed to Lebanon, Ohio and serves the Cincinnati, Ohio marketplace.
Existing credit facilities were utilized for the acquisition. 60




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  2.
    
    Acquisitions, continuedOn April 1, 2002, Cable purchased certain assets of Fairbanks
Communications, Inc. for $26.7 million cash, including $0.1 million of
working capital. The assets served 11,300 subscribers in the Lawrenceburg,
Indiana area when acquired. The purchased assets are being integrated into
the Midwest system. Existing credit facilities were utilized to finance the
acquisition.On August 31, 2001, Cable acquired the assets of River Valley Cable for $8.0
million cash. Existing credit facilities were used to finance the
acquisition. This cable system served 3,800 customers when purchased and is
contiguous to the Williamsport, PA cable system. The Company eliminated the
headend and upgraded the cable plant which has been fully integrated into
its Williamsport system.On May 25, 2001, Radio purchased all of the stock of Sunnyside
Communications, Inc. for $3.3 million. Sunnyside Communications, Inc. owns
and operates WQKC-FM and WZZB-AM serving Seymour, Indiana and WAVG-AM
serving Jeffersonville, Indiana and Louisville, Kentucky. Existing credit
facilities were used to finance the acquisition. An unrelated party is
operating these stations under a local marketing agreement.On February 15, 2001, Radio purchased a forty-percent interest in 1051FM,
LLC from Jesscom, Inc. (Jesscom) for $10 million cash. Existing credit
facilities were used to finance the acquisition. The purchase cost was
included in Investments and Other Assets. 1051FM, LLC owned a construction
permit to build a Class C-1 radio station with call letters KFME-FM licensed
to Garden City, Missouri, which serves the Kansas City market. Under the
terms of a joint sales agreement, Radio sells commercial airtime on the
station and Jesscom programs and operates the station. Radio is required to
pay 1051FM, LLCs monthly operating expenses and additional fees. On
January 7, 2004, Media agreed to purchase Jesscoms interests in 1051FM, LLC
for $15.0 million. The purchase is subject to FCC approval. A second
quarter 2004 closing is expected.The purchase price of acquisitions are allocated to the tangible and
intangible assets and to liabilities assumed at fair values. In determining
fair value, Media makes estimates and assumptions that affect these
allocations. Independent valuations are obtained to value significant
acquisitions. Medias estimates and assumptions are believed to be
reasonable. Acquisitions have been allocated to the following classes of
assets and liabilities (in thousands of dollars): 2003
    
    2002
    
    2001RadioPlant and equipment
    
    $
    571
    
    
    $
    1,091
    
    
    $
    Investments and
other
    
    
    
    
    
    
    
    
    
    
    10,000Intangible assets
    
    
    22,469
    
    
    
    43,862
    
    
    
    3,300Total
    
    $
    23,040
    
    
    $
    44,953
    
    
    $
    13,300CablePlant and equipment
    
    $
    180
    
    
    $
    9,365
    
    
    $
    696Intangible assets
    
    
    4,815
    
    
    
    17,221
    
    
    
    7,304Total
    
    $
    4,995
    
    
    $
    26,586
    
    
    $
    8,000
 61




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  3.
    
    Long-Term Debt  Long-term debt includes (in thousands): 2003
    
    20028.5% Senior Subordinated Notes
    
    $
    150,000
    
    
    $
    150,0007.375% Senior Subordinated Notes
    
    
    150,000
    
    
    
    Term Loan A
    
    
    76,000
    
    
    
    92,000Term Loan B
    
    
    98,250
    
    
    
    99,250Revolving Credit Commitment
    
    
    41,300
    
    
    
    179,700Other
    
    
    155
    
    
    
    187515,705
    
    
    
    521,137Less amounts payable within one year
    
    
    34
    
    
    
    17,032$
    515,671
    
    
    $
    504,105
  The $150.0 million 8.5% Senior Subordinated Notes are due in 2009. Interest
is payable semi-annually. Media may call these notes beginning in 2004 at a
4.25% premium. The fair value of the notes was $157.5 million as of
December 31, 2003.On April 23, 2003, the Company issued $150.0 million of 7.375% Senior
Subordinated Notes at par. The Notes are due in 2013. Interest is payable
semi-annually. The $148.3 million net proceeds from issuance were
immediately used to pay down the revolving credit facility. In June 2003,
the Company exchanged the notes for Senior Subordinated Exchange Notes, with
the same terms and maturity, that were registered with the Securities and
Exchange Commission. The fair value of the notes was $156.4 million as of
December 31, 2003.The Company maintains Senior Secured Credit Facilities (Facilities) with a
group of banks. The Revolving Credit Commitment began reducing in 2002.
The Facilities term loans began amortizing in 2002. As of December 31,
2003, the Revolving Credit Commitments maximum borrowing was $190 million.
The Revolving Credit Commitment and term loans bear interest at the LIBOR
rate plus an applicable margin based on certain ratios. The effective
interest rate on the Revolving Credit Commitment was 2.43% and 2.83% at
December 31, 2003 and 2002, respectively. The interest rate on Term Loan
A was 2.03% and 2.79% and the interest rate on Term Loan B was 3.66% and
3.9% at December 31, 2003 and 2002, respectively. Interest is payable
quarterly or on maturity of a LIBOR-based tranche. At December 31, 2003,
approximately $148.6 million was available for borrowing under the revolving
credit commitment. On March 9, 2004, Media replaced the Facility (see Note
15). Debt maturities reflect terms of the new facilities.The banks hold collateralized interests in certain FCC licenses and stock
pledges from shareholders of the Company and its subsidiaries. The banks
are further collateralized by a first lien on all assets (tangible and
intangible) of the Company and its subsidiaries excluding realty and
vehicles. The Company must maintain debt coverage and financial ratios at
prescribed levels. The Company has further consented to restrict payment of
common stock dividends, investment transactions with affiliates, ownership
changes, sale of assets, and issuance of additional debt.Derivative financial instruments are used solely to limit interest rate
exposure related to the revolving credit commitment and are not used for
trading purposes. As of December 31, 2003, the Company is party to a swap
with a $20 million notional value that expires in 2005. The effect of this
swap converts the interest rate on $20.0 million of variable rate debt to 62




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  3.
    
    Long-Term Debt, continued3.84% fixed rate debt. The Company has not elected hedge accounting for
this swap. As of December 31, 2003 and 2002, interest rate swap liabilities
were recognized at their $0.4 million and $0.7 million fair values,
respectively. Interest swaps increased (decreased) interest expense for the
years ended December 31, 2003, 2002 and 2001 by $(0.3) million, $(0.8)
million and $1.5 million, respectively.The non-current portion of long-term debt matures in the following years (in
thousands): 2005
    
    $
    37
    
    
    
    2008
    
    
    $
    215,5502006
    
    
    40
    
    
    
    2009
    
    
    
    150,0002007
    
    
    44
    
    
    
    2013
    
    
    
    150,000
  4.
    
    Income TaxesThe provision for income taxes is summarized as follows for the years ended
December 31, (in thousands): 2003
    
    2002
    
    2001CurrentFederal
    
    $
    9,729
    
    
    $
    7,857
    
    
    $
    2,212State
    
    
    1,309
    
    
    
    1,132
    
    
    
    952Total current
    
    
    11,038
    
    
    
    8,989
    
    
    
    3,164DeferredFederal
    
    
    12,637
    
    
    
    7,173
    
    
    
    2,588State
    
    
    1,695
    
    
    
    1,742
    
    
    
    664Total deferred
    
    
    14,332
    
    
    
    8,915
    
    
    
    3,252Provision for income taxes
    
    $
    25,370
    
    
    $
    17,904
    
    
    $
    6,416
  Income tax payments for the years 2003, 2002, and 2001 were $9.9 million,
$4.2 million, and $1.2 million, respectively.The Company is included in the consolidated federal income tax return of its
Parent. The Companys tax provision is computed on a separate return basis.
Losses of other companies in the consolidated federal return may reduce the
Companys tax payments. As of December 31, 2003 and 2002, the Companys tax
sharing account had a liability balance of $7.1 million and $5.6 million,
respectively. The tax sharing account is included in accrued income taxes.
The tax sharing account must be paid if a loss member leaves the
consolidated tax return group.Reconciliations of the difference between the U.S. statutory income tax rate
and the Companys effective book income tax rate follow: 2003
    
    2002
    
    2001U.S. statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of Federal income tax benefit
    
    
    2.9
    
    
    
    5.7
    
    
    
    (11.9
    )Non-deductible charge for Radio Employee Stock Plan
    
    
    
    
    
    
    18.2
    
    
    
    (84.8
    )Non-deductible amortization and expenses
    
    
    0.4
    
    
    
    0.9
    
    
    
    (6.9
    )Other
    
    
    (0.9
    )
    
    
    (5.3
    )
    
    
    (2.0
    )Effective book income tax rate
    
    
    37.4
    %
    
    
    54.5
    %
    
    
    (70.6
    )%
 63




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  4.
    
    Income Taxes, continuedAt December 31, 2003 and 2002, deferred tax assets and liabilities resulted
from the following temporary differences (in thousands): 2003
    
    2002Deferred tax assets:Allowance for doubtful accounts
    
    $
    789
    
    
    $
    601Investments
    
    
    139
    
    
    
    433Self-insured risks
    
    
    198
    
    
    
    133Intangible assets
    
    
    3,318
    
    
    
    2,605State net operating loss carryforwards
    
    
    6,633
    
    
    
    5,581Pension benefits
    
    
    413
    
    
    
    120Deferred income
    
    
    1,757
    
    
    
    2,359Investments
in flow through entities
    
    
    308
    
    
    
    Liabilities not recognized for tax purposes
    
    
    760
    
    
    
    383Tangible assets
    
    
    
    
    
    
    827Stock option benefits/deferred compensation
    
    
    4,110
    
    
    
    4,207Total deferred tax assets before valuation
allowances
    
    
    18,425
    
    
    
    17,249Deferred tax liabilities:Pension benefits
    
    
    2,234
    
    
    
    2,036Tangible assets
    
    
    26,033
    
    
    
    22,709Intangible assets
    
    
    45,539
    
    
    
    35,034Investments
in flow-through entities
    
    
    2,395
    
    
    
    2,032Deferred income
    
    
    148
    
    
    
    Other liabilities
    
    
    38
    
    
    
    120Total deferred tax liabilities
    
    
    76,387
    
    
    
    61,931Valuation allowances
    
    
    (6,633
    )
    
    
    (5,581
    )Net deferred tax liabilities
    
    $
    64,595
    
    
    $
    50,263
  The Company has approximately $97.6 million and $77.9 million of state net
operating loss carryforwards as of December 31, 2003 and 2002, respectively.
The loss carryforwards were generated primarily by amortization and bonus
depreciation. The Company has established a full valuation allowance for
the tax effects of these loss carryforwards as utilization is uncertain. No
current tax benefits have been provided for these state tax losses. The valuation allowance as of
December 31, 2003 and 2002 was $6.6 million and $5.6 million, respectively.SFAS No. 142 Goodwill and Intangible Assets stopped the amortization of
goodwill and indefinite-lived assets (such as Radio FCC broadcast licenses
and Cable franchise values) for financial statement purposes as of January
1, 2002. Since amortization on these assets are allowed for tax purposes,
deferred income tax liabilities related to these assets will become larger
unless these assets are sold or an impairment is recognized. 64




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  5.
    
    Intangible Assets and GoodwillIntangible assets are comprised of the following (in thousands): 2003
    
    2002Indefinite-lived, at carrying value:Federal Communications
Commission licenses
    
    $
    306,411
    
    
    $
    295,379Cable franchise values
    
    
    74,299
    
    
    
    72,017Goodwill
    
    
    14,793
    
    
    
    13,971Subtotal
    
    
    395,503
    
    
    
    381,367Finite-lived, at cost:Cable subscriber lists
    
    
    12,152
    
    
    
    10,630Favorable leases
    
    
    3,348
    
    
    
    3,348Exclusive cable rights
    
    
    1,988
    
    
    
    Other
    
    
    1,195
    
    
    
    86518,683
    
    
    
    14,843Less accumulated amortization
    
    
    11,720
    
    
    
    8,327Subtotal
    
    
    6,963
    
    
    
    6,516$
    402,466
    
    
    $
    387,883
  Prior to adoption of SFAS 142, goodwill and FCC licenses were amortized over
40 year periods using the straight-line method. Cable franchise values were
formerly amortized over 15 years using the straight-line method. Upon
adoption of SFAS 142 on January 1, 2002, amortization of FCC licenses, cable
franchise values and goodwill ceased. The following financial information
is presented as if SFAS No. 142 was adopted as of January 1, 2001 (in
thousands): 2003
    
    2002
    
    2001Net income (loss):As reported:
    
    $
    36,187
    
    
    $
    11,162
    
    
    $
    (17,203
    )SFAS No. 142 impact
    
    
    
    
    
    
    
    
    
    
    9,165As adjusted
    
    $
    36,187
    
    
    $
    11,162
    
    
    $
    (8,038
    )
 65




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  5.
    
    Intangible Assets and Goodwill, continuedChanges in the carrying value of goodwill and indefinite-lived intangible
assets follow (in thousands): Radio Federal Communications Commission Licenses:Balance January, 1 2002
    
    $
    245,960Acquisitions
    
    
    39,419Contract fee payable
    
    
    10,000Balance December 31, 2002
    
    
    295,379Acquisitions
    
    
    21,032Contract fee payable
    
    
    (10,000
    )Balance December 31, 2003
    
    $
    306,411Cable Franchise Values:Balance January 1, 2002
    
    
    59,488Acquisitions
    
    
    12,342Purchase price reallocation
    
    
    187Balance December 31, 2002
    
    
    72,017Acquisitions
    
    
    3,248Purchase price reallocation
    
    
    (966
    )Balance December 31, 2003
    
    $
    74,299
 Internet &Radio
    
    Cable
    
    Other
    
    TotalGoodwill:Balance January 1, 2002
    
    $
    1,964
    
    
    $
    5,227
    
    
    $
    6,898
    
    
    $
    14,089Acquisitions
    
    
    4,443
    
    
    
    207
    
    
    
    
    
    
    
    4,650Purchase price reallocation
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    232Impairment loss
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    (5,000
    )Balance December 31, 2002
    
    
    6,639
    
    
    
    5,434
    
    
    
    1,898
    
    
    
    13,971Acquisitions
    
    
    1,188
    
    
    
    147
    
    
    
    
    
    
    
    1,335Purchase price reallocation
    
    
    (513
    )
    
    
    
    
    
    
    
    
    
    
    (513
    )Balance December 31, 2003
    
    $
    7,314
    
    
    $
    5,581
    
    
    $
    1,898
    
    
    $
    14,793
  SFAS 142 required the Company to perform a transitional assessment of
goodwill and intangible assets with indefinite lives as of January 1, 2002.
In order to perform this transitional assessment, Media (1) identified its
reporting units, (2) determined the carrying value of each reporting unit,
and (3) determined the fair value of each reporting unit using discounted
cash flows and other indicators of value. An impairment loss is indicated
if an intangible assets carrying value exceeds its fair value.As required by SFAS 142, the Company evaluated the recoverability of its
goodwill and indefinite-lived intangible assets as of December 31, 2002.
Based on an impairment assessment of these assets, a $5.0 million Internet
goodwill impairment loss was recognized. The Parents independent appraisal
for ESOP valuation purposes as of December 31, 2002
was utilized in determining the impairment loss. For disclosures related to
the consolidated statements of cash flows, the Internet and other goodwill
impairment loss is a non-cash item. 66




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  5.
    
    Intangible Assets and Goodwill, continuedCable subscriber lists are amortized based on independent appraisals.
Favorable leases are amortized using the straight-line method over their
respective terms. Total amortization for the years ended December 31, 2003,
2002, and 2001 was $2.5 million, $1.8 million, and $14.9 million,
respectively. These finite-lived intangible assets amortize as follows (in
thousands): 2004
    
    $
    1,870
    
    
    
    2007
    
    
    $
    6972005
    
    
    1,188
    
    
    
    2008
    
    
    
    5342006
    
    
    926
    
    
    Thereafter
    
    
    1,748
  WHMA-FM was moved from Anniston, Alabama in 2001 to serve the Atlanta,
Georgia metropolitan area based upon a FCC Report and Order. The original
purchase agreement provided that if a Final Order was received by May 2003,
Media would pay the sellers an additional $10 million. Management believed
that it was probable that a timely Final Order would be issued and
accordingly recorded a contract fee payable for the $10 million in 2002.
Since a Final Order was not issued in the time required, management and
counsel believe that payment is not due. The contract fee payable and the
corresponding intangible assets were reversed in September 2003. The
reversal was treated as a noncash transaction for disclosures related to the
consolidated statement of cash flows.6.
    
    Investments and Other AssetsA subsidiary is a 50% general partner in Susquehanna Adelphia Business
Solutions, a competitive access provider. Our partner in this partnership
is not included in its parents bankruptcy filings. Partnership operations
are continuing. As of December 31, 2003 and 2002, Medias investments and
other assets included $2.5 million and $3.9 million related to this
partnership, respectively. For the years ended December 31, 2003, 2002 and
2001, a $0.6 million loss, a $0.6 million loss and
$1.4 million of income
were included in the statement of operations, respectively. On December 19,
2003, Media signed a dissolution agreement that would distribute certain
assets and customers to the partners. Media intends to continue operations
after the expected May 2004 dissolution.Unamortized deferred financing expenses were $5.4 million and $4.8 million
at December 31, 2003 and 2002, respectively.Investment losses totaling $1.5 million were recognized during the year
ended December 31, 2001 based on managements judgment that Medias
investments in Radiowave and Etour were not realizable. The losses were
included in other expense.7.
    
    Radio Employee Stock PlanRadios Employee Stock Plan (Plan) allows certain key employees to
purchase Susquehanna Radio Corp. Class B non-voting common stock at a
formula value set by the Plan. For each share purchased, participants
receive an immediately vested option to purchase two additional shares at
the same price. Total shares and options offered may not exceed 4,000,000
shares. Options expire ten years and one month after grant date. Options 67




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  7.
    
    Radio Employee Stock Plan, continuedawarded may be subject to settlement in cash. Shares are subject to
repurchase by Radio, generally at values determined annually by the Plan
agreement. Radio has a right of first
refusal to purchase outstanding shares and may require a terminated employee
to resell outstanding shares at the current formula value. An employee who
dies or becomes disabled, who retires on or after the age of 60 or who
terminates employment at or after age 60 may require Radio to repurchase
outstanding shares. Participants may require redemption of shares on a
change of control. The Plans transaction year is April 1 through March 31.
Although Radio may modify, suspend, or terminate the Plan at any time,
previously offered purchase rights or options are not subject to change.On April 10, 2000, Susquehanna Pfaltzgraff Co.s Board of Directors changed
the method of determining the Plans share value effective July 1, 2000.
Over a period that ended April 1, 2002, Plan share value transitioned from a
formula value to a value based upon Susquehanna
Pfaltzgraff Co.s annual independent ESOP valuation (Appraised Value). On
July 1, 2000, share value was based one-third on Appraised Value and
two-thirds on formula value. As of April 1, 2001, share value was based
two-thirds on Appraised Value and one-third on formula value. As of April
1, 2002 and thereafter, Plan share value is based on Radios Appraised
Value.The July 1, 2000 change in the method for valuing shares was reconsidered to
be a plan modification that subjected shares formerly accounted for under
APB 25 to Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123). As of July 1, 2000, shares
formerly accounted for as minority interests were reclassified to a Radio
Employee Share Plan Liability. As of April 1, 2002, Plan shares were
reclassified from Radio Share Plan Liability to minority interests.
Subsequent increases in Plan share value are recognized on April 1st of each
year as a component of minority interests in the consolidated statement of
operations.On June 18, 2002, certain key employees purchased a total of 1,390 newly
issued Plan shares at $17.06 per share. For each share purchased, a fully
vested option was granted to purchase two additional shares at $17.06 per
share during a period ending ten years and one month from the purchase date.
A $0.3 million compensation expense was recognized related to the sale of
stock and grant of options.In May 2003, Susquehanna Radio Corp. repurchased and retired approximately
$6.6 million of Plan shares. Existing credit facilities were utilized to
fund the repurchases.In August 2003, Susquehanna Radio Corp.s shares and options were split ten
for one. The number of prior shares and their values have been restated for
the split.On November 13, 2003, certain key employees were granted vested options to
purchase 81,100 Plan shares at $23.86 per share. Compensation expense of
$0.3 million was recognized related to this grant.As of December 31, 2003, the total value of outstanding Plan shares was
approximately $47.5 million. This liability was included in accrued
employee-related costs ($6.5 million) and minority interests ($41.0
million). Unexercised Plan share options as of December 31, 2003 totaled
108,300. 68




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  8.
    
    Cable Performance Share PlanThe Susquehanna Cable Co. Performance Share Plan is a non-qualified deferred
compensation plan for certain key employees. Participants are granted
performance share rights that may be
purchased by deferring compensation. Cable performance shares are accounted
for as stock appreciation rights. Participants may require redemption
of shares on a change of control. On April 10, 2000, the Susquehanna
Pfaltzgraff Co. Board of Directors also changed the method of determining
performance share value. Performance shares were formerly valued using a
formula based on stockholders equity and prior earnings.Over a period that ended April 1, 2002, performance share value transitioned
to a value based upon Susquehanna Pfaltzgraff Co.s annual independent ESOP
valuation (Appraised Value). On July 1, 2000, performance share value was
based one-third on Appraised Value and two-thirds on the previous formula
value. On April 1, 2001, performance share value was
based two-thirds on Appraised Value and one-third on the previous formula
value. On April 1, 2002 and annually thereafter, changes in performance
share value are based on Cables Appraised Value and are recognized in the
statement of operations.Based on the ESOP valuations performed as of December 31, 2002, 2001, and
2000, a $0.4 million expense reduction, a $4.1 million expense and a $4.2
million expense was recognized in 2003, 2002 and 2001, respectively. The
change in performance shares is included in general and administrative
expenses.On June 18, 2002, certain key employees purchased a total of 250 Cable
performance shares at $267.91 per share. For each share purchased, a fully
vested option was granted to purchase two additional performance shares at
$267.91 per share during a period ending ten years and one month from the
purchase date. A $0.1 million compensation expense was recognized related
to the sale of performance shares and issuance of performance share options.As of December 31, 2003 and 2002, the fair value of outstanding Cable
performance shares, as contained in other liabilities, was $10.3 million and
$10.7 million, respectively.9.
    
    Employee BenefitsFull-time employees participate in an Employee Stock Ownership Plan (ESOP) of
the Companys Parent. ESOP expense of approximately $12.0 million, $9.1
million and $8.3 million, was recognized for the years ended December 31,
2003, 2002 and 2001, respectively.Coincident with the ESOPs 1999 creation, the Company made a $116.9 million
twenty-year loan to its Parent at a 6% interest rate. Loan proceeds were
used to fund the Parents ESOP. On July 18, 2001, coincident with a second
ESOP transaction, the Company loaned its Parent $14.6 million at a 6.5%
interest rate.Many full-time Company employees were covered by its Parents Susquehanna
Pfaltzgraff Co. Pension Plan, a noncontributory qualified defined benefit
pension plan. Benefits under this pension plan were based on employees
years of service and earnings over part or all of their careers through April
1999, when benefit accruals ceased. 69




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  9.
    
    Employee Benefits, continuedThe funded status of the Parents pension plan at December 31, was as follows
(in thousands): 2003
    
    2002Benefit obligation, beginning of year
    
    $
    29,318
    

    
    $
    26,779Interest cost
    
    
    1,972
    
    
    
    1,887Actuarial losses
    
    
    3,646
    
    
    
    1,888Benefits paid
    
    
    (1,405
    )
    
    
    (1,236
    )Benefit obligation, end of year
    
    
    33,531
    
    
    
    29,318Fair value of plan assets, beginning of year
    
    
    30,098
    
    
    
    35,437Actual return on plan assets
    
    
    7,662
    
    
    
    (4,103
    )Benefits paid
    
    
    (1,405
    )
    
    
    (1,236
    )Fair value of plan assets, end of year
    
    
    36,355
    
    
    
    30,098Excess of fair value of plan assets over benefit
obligation at end of year
    
    
    2,824
    
    
    
    780Unrecognized net actuarial loss
    
    
    8,389
    
    
    
    9,298Unrecognized prior service costs
    
    
    576
    
    
    
    621Prepaid pension cost at December 31,
    
    $
    11,789
    
    
    $
    10,699
  The Parents pension plans net pension costs for the years ended December
31, included the following components (in thousands): 2003
    
    2002
    
    2001Service cost
    
    $
    200
    
    
    $
    210
    
    
    $
    210Interest cost
    
    
    1,972
    
    
    
    1,887
    
    
    
    1,787Expected return on plan assets
    
    
    (3,307
    )
    
    
    (3,444
    )
    
    
    (3,297
    )Amortization of net asset
    
    
    
    
    
    
    
    
    
    
    (53
    )Amortization of prior service cost
    
    
    44
    
    
    
    44
    
    
    
    44Net periodic pension cost (income)
    
    $
    (1,091
    )
    
    $
    (1,303
    )
    
    $
    (1,309
    )
  The Company recognized negative pension cost of $0.3 million, $0.5 million,
$0.5 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Included in investments and other assets were prepaid pension
costs of $5.8 million and $5.3 million as of December 31, 2003 and 2002,
respectively.The Parents funding policy is to make contributions, as required by various
regulations, not to exceed the maximum amounts deductible for federal income
tax purposes (none in 2003, 2002 and 2001). Plan assets, primarily listed
bonds and stocks, are held by independent trustees. The weighted average
discount rate used in determining the actuarial present value of projected
benefit obligations was 6.1% and 6.75% for 2003 and 2002, respectively. The
expected long-term rate of return on Plan assets was 8.75% for both 2003 and
2002.The Parent also sponsors a defined contribution (401k) plan, which covers all
full-time employees. The plan matches 75% of the first 2% of salary
contributed by a participant. From September 7, 2001 through May 1, 2002,
the match was suspended as a cost-savings measure. The Company contributed
approximately $0.9 million, $0.5 million, and $0.6 million to this plan for
the years ended December 31, 2003, 2002 and 2001, respectively. 70




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  10.
    
    Lease CommitmentsRental expense for operating leases was $6.7 million, $6.0 million and $6.1
million for the years ended December 31, 2003, 2002 and 2001, respectively.Annual aggregate minimum rental commitments under non-cancelable operating
leases are
as follows (in thousands): 2004
    
    $
    4,939
    
    
    2007
    
    $
    4,1292005
    
    
    4,804
    
    
    2008
    
    
    2,9542006
    
    
    4,624
    
    
    2009 and beyond
    
    
    10,861
  11.
    
    Related PartiesThe Company purchases management services, office space and administrative
services from related parties, primarily its Parent. General and
administrative expenses for the following years included (in thousands): 2003
    
    2002
    
    2001Management fees
    
    $
    6,711
    
    
    $
    6,326
    
    
    $
    5,743Accounting, internal audit
and tax services
    
    
    1,255
    
    
    
    955
    
    
    
    855Human resources
    
    
    1,028
    
    
    
    1,049
    
    
    
    957Treasury
    
    
    385
    
    
    
    366
    
    
    
    317Occupancy, vehicle rentals and
administrative services
    
    
    286
    
    
    
    519
    
    
    
    870$
    9,665
    
    
    $
    9,215
    
    
    $
    8,742
  Expenses are allocated based on the Parents best estimates of proportional
or incremental costs; whichever is more representative of costs on a
stand-alone basis. In managements
opinion, expenses shown in the financial statements approximate expenses on
a stand-alone basis.Media purchased approximately 34,000 square feet of office space in a
building constructed by a related company, at a total cost of approximately
$3.6 million in February 2003. Terms of the purchase were no less favorable
than terms for unrelated purchasers of office space in the project.
Existing credit facilities were utilized to fund the purchase.Media has notes receivable from Parent that require level annual repayments
of principal and interest through 2018. The notes have an average interest
rate of 6.1%. The Parent used the proceeds from these notes to make loans
to its ESOP. On December 30, 2003 and 2002, the Parent made principal
payments of $4.4 million and $4.2 million, respectively. Due to the
Parent-subsidiary relationship, it is impracticable to determine the fair
value of these notes.Medias preferred stock is held by related parties. 71




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  12.
    
    Contingencies and CommitmentsOn July 10, 2003, Media signed a purchase agreement with RCN Telecom
Services, Inc. to acquire the assets of the cable system serving Carmel, New
York for $120.0 million cash. The cable system serves approximately 29,000
video subscribers. A $10 million deposit on the acquisition was included in
Investments and Other Assets at December 31, 2003. On March 9, 2004 this
acquisition was completed (see Note 15).KNBR, Inc., a subsidiary of Media, is a limited partner in San Francisco
Baseball Associates L.P. KNBR, Inc. has entered into a rights agreement
that allows radio station KNBR-AM to broadcast Giants baseball games
through the 2004 baseball season. The agreement requires annual rights
payments ranging to $6 million in 2004. KNBR, Inc. expensed rights payments
of $5.7 million during the 2003 baseball season and $5.4 million during the
2002 baseball season.On October 26, 2001, the National Football League (NFL) approved a contract
extending KCFX-FMs broadcast rights for the Kansas City Chiefs NFL
franchise through the 2006 football season. The contract requires rights
payments ranging from $2.8 million for the 2003 football season to $3.2
million for the 2006 football season.An unrelated cable television Multiple System Operator (MSO) owns a 14.9%
interest in Susquehanna Cable Co. and a 17.75% interest in each of Cables
operating subsidiaries. If the MSO offers to purchase Medias interest in
its cable television operations, Media must either accept or reject the
offer within sixty days. If Media rejects the offer, the MSO may require
Media to repurchase the MSOs holdings at the offer price plus a fee equal
to 3% of the MSOs $25.0 million investment, compounded annually from 1993.Cable pays programming fees monthly under multi-year contracts based on the
number of subscribers receiving the programming. Programming costs may
increase over a contracts life. Cable programming costs, included in the
statements of operations operating and programming expenses, were as
follows for the years ended December 31, (in thousands): 2003
    
    2002
    
    2001$35,085
    
    $32,839
    
    $27,415
  The Company is involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In managements
opinion, the Companys recovery, if any, or the Companys liability, if any,
under any pending litigation or administrative proceeding would not
materially affect its financial condition or operations.13.
    
    SegmentsThe Companys four business units have separate management teams and
infrastructures
that offer different products and services. The business units have been
aggregated into 72




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  13.
    
    Segments, continuedthree reportable segments: Radio, Cable, and Internet and Other. Internet
and Other include Internet access, hosting, and web creation revenues.
Operating income from intersegment revenues is not significant.The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on operating income of the respective business units.Segment information for the years ended December 31,
2003, 2002 and 2001 was
as follows (in thousands): InternetRadio
    
    Cable
    
    and Other
    
    ConsolidatedFor the Year Ended December 31, 2003Operating income (loss)
    
    $
    62,599
    
    
    $
    30,429
    
    
    $
    (511
    )
    
    $
    92,517Interest expense, net
    
    
    6,909
    
    
    
    10,619
    
    
    
    13,192
    
    
    
    30,720Depreciation and amortization
    
    
    6,467
    
    
    
    23,931
    
    
    
    571
    
    
    
    30,969Income (loss) before income taxes and
minority interests
    
    
    55,521
    
    
    
    19,810
    
    
    
    (7,409
    )
    
    
    67,922Provision (benefit) for income taxes
    
    
    20,130
    
    
    
    7,820
    
    
    
    (2,580
    )
    
    
    25,370Identifiable assets
    
    
    417,532
    
    
    
    231,258
    
    
    
    128,360
    
    
    
    777,150Capital expenditures
    
    
    6,769
    
    
    
    25,347
    
    
    
    1,455
    
    
    
    33,571For the Year Ended December 31, 2002Operating income (loss)
    
    $
    42,617
    
    
    $
    21,082
    
    
    $
    (7,431
    )
    
    $
    56,268Interest expense, net
    
    
    6,272
    
    
    
    10,773
    
    
    
    12,155
    
    
    
    29,200Radio Employee Stock Plan
    
    
    17,065
    
    
    
    
    
    
    
    
    
    
    
    17,065Depreciation and amortization
    
    
    5,745
    
    
    
    23,125
    
    
    
    600
    
    
    
    29,470Income (loss) before income taxes and
minority interests
    
    
    35,592
    
    
    
    10,309
    
    
    
    (13,077
    )
    
    
    32,824Provision (benefit) for income taxes
    
    
    18,477
    
    
    
    4,210
    
    
    
    (4,783
    )
    
    
    17,904Identifiable assets
    
    
    400,912
    
    
    
    216,996
    
    
    
    128,619
    
    
    
    746,527Capital expenditures
    
    
    5,710
    
    
    
    20,902
    
    
    
    1,717
    
    
    
    28,329For the Year Ended December 31, 2001Operating income (loss)
    
    $
    19,599
    
    
    $
    7,764
    
    
    $
    (5,208
    )
    
    $
    22,155Interest expense, net
    
    
    9,099
    
    
    
    11,861
    
    
    
    16,927
    
    
    
    37,887Radio Employee Stock Plan
    
    
    22,305
    
    
    
    
    
    
    
    
    
    
    
    22,305Depreciation and amortization
    
    
    12,012
    
    
    
    28,789
    
    
    
    1,038
    
    
    
    41,839Income (loss) before income taxes and
minority interests
    
    
    9,438
    
    
    
    (4,096
    )
    
    
    (14,435
    )
    
    
    (9,093
    )Provision (benefit) for income taxes
    
    
    12,409
    
    
    
    (790
    )
    
    
    (5,203
    )
    
    
    6,416Identifiable assets
    
    
    341,999
    
    
    
    188,412
    
    
    
    135,314
    
    
    
    665,725Capital expenditures
    
    
    8,539
    
    
    
    22,772
    
    
    
    428
    
    
    
    31,739
 73




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  14.
    
    Valuation and Qualifying AccountsChanges in the allowance for doubtful accounts for the years ended December
31, 2003, 2002 and 2001 were as follows (in thousands): AdditionsBalance
    
    Chargedat
    
    to Costs
    
    Deductions
    
    BalanceBeginning
    
    and
    
    from
    
    at Endof Year
    
    Expenses
    
    Reserves
    
    of Year2003
    
    $
    2,111
    
    
    $
    2,835
    
    
    $
    3,227
    
    
    $
    1,7192002
    
    $
    1,970
    
    
    $
    3,780
    
    
    $
    3,639
    
    
    $
    2,1112001
    
    $
    1,920
    
    
    $
    4,602
    
    
    $
    4,552
    
    
    $
    1,970
  Additions charged to costs and expenses are net of recoveries.15.
    
    Subsequent EventsOn March 9, 2004, Media purchased cable systems from RCN Corporation (RCN)
for approximately $120 million. The systems serve approximately 29,000
subscribers in and around Carmel, New York with video, high-speed data and
telephony services.The purchase price has been tentatively allocated based on a draft
independent valuation as follows (in thousands): Tangible assetsCable distribution and premises equipment
    
    $
    29,499Other tangible assets
    
    
    1,269Intangible assets with determinable livesAcquired subscriber base
    
    
    34,340Intangible assets with indefinite livesCable franchise values
    
    
    54,266Goodwill
    
    
    626Total
    
    $
    120,000
  Purchase price adjustments and working capital prorations will be finalized
within ninety days after closing. Additional closing costs and taxes may be allocated to
the purchase price.RCN has agreed to provide transition services to support telephony services
for a period of time and to assist Media in migrating the video and
high-speed data subscriber base to Medias own billing, customer care and
provisioning systems for additional fees. 74




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  15.
    
    Subsequent Events, continuedMedia funded the acquisition on March 9, 2004 utilizing new credit
facilities (New Facilities) totaling $600 million that replaced its prior
senior credit facilities (Old Facilities). Proceeds from the New
Facilities were used to repay all of the Old Facilities. Financial and
other covenants related to the New Facilities are generally no more
restrictive than financial and other covenants in the Old Facilities. 75




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##### 



Item 9.Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure. As previously reported, effective December 19, 2002, our board of directors
engaged KPMG LLP as our independent accountants to replace
PricewaterhouseCoopers LLP, who was dismissed as our independent accountants
on November 15, 2002. 
 Item 9A. Controls and Procedures. Pursuant to Rule 15d-15(b) under the Securities Exchange Act of 1934, we
carried out an evaluation, with the participation of our management, including
our principal executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as defined under Rule
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report. Based upon that evaluation, our principal
executive officer and principal financial officer, concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us required to be included in our periodic SEC
filings. There has been no change in our internal control over financial
reporting during the quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting. Management acknowledges that any system of internal
control over financial reporting, however well constructed and monitored, can
only provide a reasonable assurance that the objectives of that control system
are met and that the maintenance and monitoring of such control system is an
ongoing process. Accordingly, the Companys internal control over financial
reporting may change in the future. 76




---



##### 



PART III 
 Item 10. Directors and Executive Officers of the Registrant Our by-laws provide that the number of directors shall not be less than
three nor more than seven and may be fixed from time to time by resolution of
our board of directors. Our board is currently comprised of six directors.
All members of our board of directors are elected annually by our sole
shareholder and corporate Parent, Susquehanna Pfaltzgraff Co. The following table sets forth certain information with respect to our
directors and executive officers and other key employees: Name
    
    Age
    
    Position(s)William H. Simpson
    
    
    61
    
    
    Chairman of the Board of DirectorsLouis J. Appell, Jr.
    
    
    79
    
    
    DirectorPeter P. Brubaker
    
    
    57
    
    
    Director, Chief Executive Officer and PresidentCraig W. Bremer
    
    
    55
    
    
    Secretary and General CounselJohn L. Finlayson
    
    
    62
    
    
    Director and Vice PresidentDavid E. Kennedy
    
    
    51
    

    
    Director and Vice PresidentAlan L. Brayman
    
    
    52
    
    
    TreasurerJames D. Munchel
    
    
    49
    
    
    President and Chief Operating Officer ofSusquehanna Cable
 William
H. Simpson is the Chairman of the Board of Directors and has been a
director since 1993. He has been employed by Susquehanna Pfaltzgraff or an
affiliated corporation since 1971 and was promoted to his current position as
President and Chief Executive Office on January 1, 2002. He was formerly
President of The Pfaltzgraff Co. from 1981 to 2001 and Vice President and
General Counsel of Susquehanna Pfaltzgraff from 1971 to 1981. Mr. Simpson is a
graduate of the United States Air Force Academy and Harvard Law School. Louis
J. Appell, Jr. is a Director of
Susquehanna Media, a position he has held since 1993. He is also Chairman of
the Board of Susquehanna Pfaltzgraff. He has over fifty years of experience in
the communications industry. Mr. Appell holds a BA degree from Harvard
College. Peter P. Brubaker is a Director, the Chief Executive Officer and President
of Susquehanna Media. He has been a director and officer of Susquehanna Media
since 1993. Prior to 1995, Mr. Brubaker was Vice President/Finance of
Susquehanna Pfaltzgraff. He joined Susquehanna Pfaltzgraff in 1977 and assumed
responsibility for the cable operations in 1979. He holds a BA degree from
Wesleyan University and an MBA degree from the Harvard Business School. Mr.
Brubaker serves as a director of the National Cable Television Association. Craig W. Bremer is the Secretary and General Counsel of
Susquehanna Media, positions he has held since 1993. He is also the Secretary
of Susquehanna Pfaltzgraff. Mr. Bremer has been employed by Susquehanna
Pfaltzgraff since 1978. Prior to joining Susquehanna Pfaltzgraff, Mr. Bremer
was an associate with a law firm in Harrisburg, Pennsylvania. He holds a JD
degree from Dickinson School of Law and is a member of the Pennsylvania Bar.
He earned a BA degree from Washington & Lee University. John L. Finlayson is a Director and Vice President of Susquehanna Media
and the Chief Financial Officer of Susquehanna Pfaltzgraff, where he has been
employed since 1978. He has been a Vice President of Susquehanna Media since
1993. Prior to 1978, Mr. Finlayson was an audit manager with Arthur Andersen &
Co. He is a CPA and a graduate of Franklin and Marshall College. 77




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##### 



David E. Kennedy is a Director and a Vice President of Susquehanna Media.
He has also been President of Susquehanna Radio since 1993. Mr. Kennedy joined
the radio group in 1973 as an on-air personality of its former Toledo, Ohio
station. He has held positions in programming, planning and research during
his career. Mr. Kennedy is a graduate of the University of Toledo and holds
masters and
doctoral degrees from Bowling Green State University. He serves as a director
of the Radio Advertising Bureau and as a director of the National Association
of Broadcasters. Alan L. Brayman is the Treasurer of Susquehanna Media. He is also Vice
President and Treasurer of Susquehanna Pfaltzgraff Co. Mr. Brayman joined
Susquehanna Media in February 1998. Prior to that, he was a principal of
Global Treasury Solutions from 1996 through January 1998. Mr. Brayman was also
Assistant Treasurer and an officer of VF Corporation, an apparel manufacturer,
from January 1993 to December 1995. Prior to that, Mr. Brayman was employed by
Armstrong World Industries Inc., a diversified manufacturer, from 1973 to 1992,
where he was Assistant Treasurer. Mr. Brayman is a graduate of the University
of Delaware and has an MBA from Shippensburg University. James D. Munchel is the President and Chief Operating Officer of
Susquehanna Cable. Mr. Munchel oversees the operations of all Susquehanna
Cable systems. He joined a predecessor of Susquehanna Media in 1981 and was
promoted to General Manager of the York cable system in 1986. Mr. Munchel was
promoted to his current position in 1999. He is a graduate of Shippensburg
University. We do not have a standing audit committee. However, the audit committee
of our corporate parent and sole shareholder, Susquehanna Pfaltzgraff Co.,
serves as our audit committee and is designated to oversee our financial
reporting process. The audit committee has a written charter that provides
that the audit committee recommend the engagement of the principal accountant
to our board of directors. The audit committee approves all fees paid to the
principal accountant. The principal accountant is permitted to perform only
services that are pre-approved by the audit committee. Our corporate
parent is a privately-held company and is not required to, and has
not designated an audit committee financial expert. We
have not adopted a Code of Ethics that applies to our chief executive
officer, chief financial officer, controller, and persons performing similar
functions as defined in Item 406 of Regulation SK. Adoption of a code
of ethics will be on the agenda for our corporate parents May
2004 meeting of its Board of Directors. Such Code of Ethics will
apply to all subsidiaries. 
 Item 11. Executive Compensation We do not compensate directors for services provided in that capacity. We have no executive employees. All of our executive officers are also
executive officers of Susquehanna Pfaltzgraff Co., our parent company.
Susquehanna Pfaltzgraff paid all compensation of our executive officers under
a management agreement between Susquehanna Pfaltzgraff and us. Under that
agreement, we pay a fee to Susquehanna Pfaltzgraff for executive office
space, services of the legal department and management services, including
compensation for the services rendered to us by the executive officers of
Susquehanna Pfaltzgraff. Under the agreement, we paid a management fee in
the amount of $6.7 million in 2003. As executive officers of Susquehanna
Pfaltzgraff, our executive officers will continue to render services to
Susquehanna Pfaltzgraff and its other subsidiaries in addition to us. 78




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##### 



Item 12. Security Ownership of Certain Beneficial Owners and Management Susquehanna Media Co. We have the authority under our charter to issue 1,100,000 shares of
common stock, par value $1.00 per share, and 110,000 shares of 7% cumulative
preferred voting stock, par value $100.00 per share. As of December 31, 2003,
we had outstanding 1,100,000 shares of common stock and 70,499.22 shares of
preferred stock. The holders of our preferred stock are entitled to an annual
cumulative preferential dividend of $7.00 per share. After payment of the
preferred stock dividend, holders of our preferred stock do not participate in
dividends on our common stock. In the event of a liquidation of our company,
our preferred stockholders are entitled to a $100.00 liquidation preference and
any accrued and unpaid preferred stock dividends. Thereafter, only common
stockholders are entitled to distributions. Our preferred stock is not
convertible into our common stock. The holders of our preferred stock and
common stock vote together as one class on all matters voted upon by our
stockholders. Both classes receive one vote per share. All of the outstanding common stock of Susquehanna Media is owned by our
parent, Susquehanna Pfaltzgraff Co. (Susquehanna Pfaltzgraff). All of our
preferred stock is owned by related parties. The following table sets forth
certain information regarding the beneficial ownership of our preferred stock
as of December 31, 2003 by:  
    
    each of our directors and executive officers;
    
    all of our directors and executive officers as a group; and
    
    each person (or group of affiliated persons) known by
us to beneficially own more than 5% of our outstanding preferred
stock. Unless otherwise indicated, each person has sole voting and investment
power with respect to the preferred shares shown as beneficially owned by such
person. Shares Beneficially OwnedName Of Beneficial Owner
    
    Number
    
    PercentDirectors and Executive OfficersLouis J. Appell, Jr. (1)
    
    
    5,095.98
    
    
    
    7.2
    %Peter P. Brubaker
    
    
    793.77
    
    
    
    1.1
    %Craig W. Bremer
    
    
    
    
    
    
    William H. Simpson
    
    
    
    
    
    
    John L. Finlayson
    
    
    
    
    
    
    Alan L. Brayman
    
    
    
    
    
    
    David E. Kennedy
    
    
    
    
    
    
    All directors and executive officers as a
group (7 persons)
    
    
    5,889.75
    
    
    
    8.3
    %Other 5% HoldersLouis J. Appell, III (2)
    
    
    7,513.71
    
    
    
    10.7
    %
 79




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##### 



Shares Beneficially OwnedName Of Beneficial Owner
    
    Number
    
    PercentHelen F. Appell, II (3)
    
    
    7,513.71
    
    
    
    10.7
    %Barbara F. Appell (4)
    
    
    7,513.71
    
    
    
    10.7
    %Walter M. Norton (5)
    
    
    32,085.41
    
    
    
    45.5
    %
   (1)
    
    Shares held by Louis J. Appell, Jr. and Josephine S. Appell, as trustees
of the Louis J. Appell, Jr. revocable trust. Address is 140 East Market
Street, York, PA 17401.(2)
    
    Address is 1331 Via Colonna Terrace, Davis, CA 95616.(3)
    
    Address is 1700 Powder Mill Road, York, PA 17403.(4)
    
    Address is 306 West Princess Street, York, PA 17404.(5)
    
    Of these shares, (a) 8,324.26 are held jointly with Helen A. Norton; (b)
5,109.81 are held individually; (c) 277.48 are held by Helen A. and
Walter M. Norton as trustees of the Helen A. Norton revocable trust; and
(d) 18,373.86 are held in trust by Walter M. Norton. Address is 126
Skassen Lane, Harpswell, ME 04079. Susquehanna Pfaltzgraff Susquehanna Pfaltzgraff Co. (Susquehanna Pfaltzgraff) has the authority
under its charter to issue 40,000,000 shares of common stock, par value $.01
per share, 50,000,000 shares of ESOP common stock, par value $.01 per share,
and 10,000,000 shares of Class A nonvoting common stock, par value $.01 per
share. At December 31, 2003, we had outstanding 18,241,800 shares of common
stock, 6,808,505 shares of ESOP common stock and 2,297,000 shares of Class A
nonvoting common stock. The holders of the ESOP common stock are entitled to
an annual cumulative preferential dividend of approximately $1.05 per share
through 2008. After payment of the ESOP common stock dividend, the ESOP common
stock, the common stock and the Class A nonvoting common stock share equally
and ratably on a share for share basis in dividends. In the event of a
liquidation of Susquehanna Pfaltzgraff, the holders of ESOP common stock are
entitled to the payment of all accrued and unpaid dividends before any
distributions to holders of common stock or Class A common stock. Thereafter,
all three classes of stock share in distributions on a pro rata basis. Except
as required by law, the holders of Class A nonvoting common stock have no
voting rights. Each share of common stock and ESOP common stock is entitled to
one vote on all matters submitted to a vote of stockholders. The following table sets forth certain information regarding the
beneficial ownership of Susquehanna Pfaltzgraffs common stock, ESOP common
stock and Class A nonvoting common stock as of December 31, 2003 by:  
    
    each of our directors and executive officers;
    
    all of our directors and executive officers as a group; and
    
    each person (or group of affiliated persons) known by
us to beneficially own more than 5% of our outstanding common
stock. Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares shown as beneficially owned by such person. 80




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##### 



Percentage
    
    Number of
    
    Percentage
    
    Number ofNumber of
    
    of
    
    ESOP
    
    of ESOP
    
    Class A
    
    PercentageCommon
    
    Common
    
    Common
    
    Common
    
    Common
    
    Of Class AShares
    
    Shares
    
    Shares
    
    Shares
    
    Shares
    
    Common Shares
    
    TotalName of Beneficial
    
    Beneficially
    
    Beneficially
    
    Beneficially
    
    Beneficially
    
    Beneficially
    
    Beneficially
    
    VotingOwner
    
    Owned
    
    Owned
    
    Owned
    
    Owned
    
    Owned
    
    Owned
    
    Power (4)Directors and Executive
OfficersLouis J. Appell, Jr. (1)
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    1,252,900
    
    
    
    54.5
    %
    
    
    William H. Simpson (1)
    
    
    
    
    
    
    
    
    
    
    2,196
    
    
    
    
    
    
    
    420,860
    
    
    
    18.3
    %
    
    
    Peter B. Brubaker (1)
    
    
    
    
    
    
    
    
    
    
    2,616
    
    
    
    
    
    
    
    310,450
    
    
    
    13.5
    %
    
    
    John L. Finlayson (1)
    
    
    
    
    
    
    
    
    
    
    2,416
    
    
    
    
    
    
    
    311,485
    
    
    
    13.6
    %
    
    
    Craig W. Bremer (1)
    
    
    
    
    
    
    
    
    
    
    2,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alan L. Brayman (1)
    
    
    
    
    
    
    
    
    
    
    2,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David E. Kennedy (1)
    
    
    
    
    
    
    
    
    
    
    2,616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Officers and directors as a
group (7 persons)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,295,695
    
    
    
    99.9
    %
    
    
    Other 5% HoldersLouis J.
Appell Trusts (2)
    
    
    16,824,300
    
    
    
    92.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.2
    %Susquehanna
Pfaltzgraff ESOP (3)
    
    
    
    
    
    
    
    
    
    
    5,301,473

    
    
    
    77.9
    %
    
    
    
    
    
    
    
    
    
    
    27.2
    %
  (1)
    
    All addresses are 140 East Market Street, York, PA 17401.  (2)
    
    Includes shares held as follows: (a) Louis J. Appell residuary trust for
the benefit of Louis J. Appell, Jr. (5,861,800 shares); (b) Louis J.
Appell residuary trust for the benefit of Helen A. Norton (5,922,793 shares); and (c) Louis J. Appell residuary trust for the benefit of George
N. Appell and his descendants (4,993,600 shares). Addresses for each
trust are 140 East Market Street, York, PA 17401.  (3)
    
    Held of record by State Street Bank and Trust Co., as trustee of the
Susquehanna Pfaltzgraff Co. Employee Stock Ownership Plan. Address is
P.O. Box 1521, Boston, MA 02104-9818.  (4)
    
    Except in limited circumstances, the ESOP trustee votes all allocated
ESOP shares held in trust. Therefore, voting power reflects the voting of
all allocated trust shares. 
 Item 13.Certain Relationships and Related Transactions Related Party Transactions Susquehanna Pfaltzgraff, our parent company, provides us with management
services, executive office space and services of the legal department. Under
an agreement between Susquehanna Pfaltzgraff and us, we paid a management fee
for such services in 2003 and 2002 in the amount of $6.7 million and $6.3
million, respectively. Susquehanna Pfaltzgraff also provides us, at cost,
accounting and tax services, 81




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human resources services, treasury services and
administrative services. For such services in 2003 and 2002, we paid
Susquehanna Pfaltzgraff an aggregate of $2.9 million in both years. Expenses
are allocated
based on the parents best estimates of proportional or incremental cost,
whichever is deemed more representative of cost on a stand-alone basis. We purchased approximately 34,000 square feet of office space in a
building constructed by a related company at a total cost of approximately $3.6
million in February 2003. Terms of that purchase were no less favorable than
terms for unrelated purchasers in the same project. An indirect subsidiary of ours leased vehicles and equipment from Queen
Street Leasing until December 2002 when it purchased the vehicles and equipment
for $0.4 million. Radio leased a studio property from G-III Partners until
December 2002, when Radio purchased the building for $1.4 million based on an
independent appraisal. We paid Queen Street Leasing and G-III Partners
approximately $133,000 and $178,000, respectively, in 2002 under such leases.
Queen Street Leasing and G-III Partners were limited partnerships owned
directly and indirectly by Susquehanna Pfaltzgraff Co. and certain members of
the Appell families. In December 2002, both limited partnerships ceased
operations and were subsequently dissolved. We and certain of our subsidiaries have entered into a Tax Sharing
Agreement with Susquehanna Pfaltzgraff, The Pfaltzgraff Co. and certain
subsidiaries of The Pfaltzgraff Co. for the payment of federal income taxes on
a consolidated basis. The Tax Sharing Agreement establishes a method for the
computation, collection and payment of taxes by Susquehanna Pfaltzgraff and the
contribution to such payment by us and The Pfaltzgraff Co. Upon completion of the 1999 offering of senior subordinated notes, we
loaned $116.9 million to Susquehanna Pfaltzgraff, which it then loaned to its
newly formed employee stock ownership plan. The employee stock ownership plan
used the proceeds of the loan to purchase approximately $116.9 million of
Susquehanna Pfaltzgraff Co.s common stock from trusts for the benefit of Mr.
Appell, his siblings and certain members of their families. On July 18, 2001,
we loaned $14.6 million to Susquehanna Pfaltzgraff, which it then loaned to its
employee stock ownership plan. The employee stock ownership plan used the
proceeds of the loan to purchase a similar amount of Susquehanna Pfaltzgraff
stock from members of the Appell families. Our employees participate in the
employee stock ownership plan. The loans to Susquehanna Pfaltzgraff Co.
matures on December 30, 2018 and bears interest at a per annum rate of 6.0% on
the original loan and 6.5% on the 2001 loan. We expect the loan to be repaid
in annual installments of principal and interest. Related interest income was
$6.9 million, $7.2 million and $6.9 million in 2003, 2002 and 2001,
respectively. We have 70,499.22 shares of voting preferred stock, $100 par value per
share outstanding. The holders of the preferred stock are entitled to a
cumulative annual dividend of 7.0%. The total amount of dividends paid on the
preferred stock in 2003 was $0.5 million. The preferred stock is held by
certain members of Mr. Appells family, trusts of which such persons are
trustees or beneficiaries and Peter P. Brubaker. The holders of the preferred
stock have no right to require us to redeem their preferred stock. Each of these transactions was on terms and conditions no less favorable
to us than we would be able to obtain from unaffiliated third parties. The Lenfest Agreement Pursuant to an agreement among Lenfest Communications, Inc. (Lenfest),
Susquehanna Cable and certain of its subsidiaries (as amended, the
Agreement), Lenfest held minority ownership interests equal to 14.9% of
Susquehanna Cable and 17.75% of each of its principal operating subsidiaries.
Lenfests 82




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##### 



ownership interests were acquired in exchange for capital
contributions of $11.0 million in cash in May 1993 and cable television systems
in December 1993 valued at $14.0 million. The cable systems are
located in Red Lion and Mount Wolf, Pennsylvania and are now part of the York
system. In January 2000, Comcast Corporation acquired Lenfest Communications,
Inc. and consequently, Lenfests interest in Susquehanna Cable and certain of
its subsidiaries. Comcast has succeeded to the Agreements rights and
obligations. The Agreement provides for a right of first refusal whereby neither
Comcast nor Susquehanna Cable may sell its ownership interests without offering
them first to the other party. In addition, Susquehanna Cable may not sell any
cable television systems without offering them first to Comcast. If
Susquehanna Cable decides to sell the assets of a cable system and Comcast does
not exercise its right of first refusal, Susquehanna Cable must offer to
repurchase Comcasts shares in the subsidiary that is selling assets. The Agreement contains a buy-sell provision granting Susquehanna Media,
Susquehanna Cable or Comcast the right to make an offer to purchase the other
partys ownership interests in Susquehanna Cable and its subsidiaries. If such
an offer is made and rejected, the party to whom the offer was made is then
obligated to purchase the offering partys ownership interests in Susquehanna
Cable and its subsidiaries on the same terms and conditions. If we purchase
Comcasts interests pursuant to the buy-sell agreement, Comcast is entitled to
receive a fee equal to 3.0% of the original $25.0 million investment compounded
annually. This fee is not payable if Comcast buys Susquehanna Cables
interests.  Item 14. Principal Accounting Fees and Services Audit Fees.The aggregate fees billed by our principal accountant, KPMG
LLP, for professional services rendered for the audit of Medias annual
financial statements, review of financial statements included in Form 10-Q or
services provided in connection with statutory and regulatory filings for the
years ended December 31, 2003 and 2002 were $222,500 and $250,000,
respectively. Media
paid no other audit-related, tax or other fees to KPMG LLP during
these periods. Susquehanna Pfaltzgraff Co. holds all of Medias common stock. Its audit
committee functions as Medias audit committee. The audit committee charter
provides that the audit committee recommends engagement of the principal
accountant to the Board of Directors. The audit committee approves all fees
paid to the principal accountant. The principal accountant is permitted to
perform only services pre-approved by the audit committee. 83




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##### 



PART IV 
 Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K a) The following documents are filed as part of this report:  1.
    
    Consolidated Financial Statements Filed:  Please refer to Item 6 - Selected Annual and Quarterly Financial
Data and Item 8  Consolidated Financial Statements and
Supplementary Data.  3.
    
    Exhibits Filed: Exhibit Number
    
    Description2.1
    
    Asset Purchase Agreement, dated May 11, 2000, among Susquehanna Radio
Corp. and Entercom Communications Corp., Entercom Kansas City, LLC and
Entercom Kansas City License, LLC (incorporated herein by reference from
Exhibit 2 to the Companys Current Report on Form 8-K filed August 2,
2000, file no. 333-80523)3.1
    
    Certificate of Incorporation of Susquehanna Media Co., as amended
(incorporated herein by reference from Exhibit 3.1 to the Companys
Registration Statement on Form S-4, file No. 333-80523)3.2
    
    By-laws of Susquehanna Media Co. (incorporated herein by reference from
Exhibit 3.2 to the Companys Registration Statement on Form S-4, file No.
333-80523)4.1
    
    Indenture for the 81/2% Senior Subordinated Notes due 2009, dated as of
May 12, 1999, between Susquehanna Media Co. and Chase Manhattan Trust
Company, National Association, as Trustee (incorporated herein by
reference from Exhibit 4.1 to the Companys Registration Statement on Form
S-4, file No. 333-80523)4.2
    
    Form of Exchange Global Note for 81/2% Senior Subordinated Note due
2009 (incorporated herein by reference from Exhibit 4.2 to the Companys
Registration Statement on Form S-4, file No. 333-80523)4.3
    
    Form of Exchange Certificated note for 81/2% Senior Subordinated Note
due 2009 (incorporated herein by reference from Exhibit 4.3 to the
Companys Registration Statement on Form S-4, file No. 333-80523)4.4
    
    Indenture for the 7.375% Senior Subordinated Notes due 2013, dated as of
April 23, 2003, between Susquehanna Media Co. and J. P. Morgan Trust
Company, National Association, as Trustee (incorporated herein by
reference from Exhibit 4.4 to the Companys Registration Statement on Form
S-4, file No. 333-104963)4.5
    
    Form of Exchange Global Note for 7.375% Senior Subordinated Note due 2013
(incorporated herein by reference from Exhibit 4.2 to the Companys
Registration Statement on Form S-4, file No. 333-104963)
 84




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##### 



Exhibit Number
    
    Description4.6
    
    Form of Exchange Certificated note for 7.375% Senior Subordinated Note
due 2013 (incorporated herein by reference from Exhibit 4.3 to the
Companys Registration Statement on Form S-4, file
No. 333-104963)10.1
    
    $450 million syndicated credit facility arranged by First Union Capital
Markets Corp. (incorporated herein by reference from Exhibit 10.1 to the
Companys Registration Statement on Form S-4, file No. 333-80523)10.2
    
    Agreement dated November 6, 1992, by and among Lenfest Communications,
Inc., Susquehanna Cable Co. and certain subsidiaries of Susquehanna Cable
Co., as amended (incorporated herein by reference from Exhibit 10.2 to the
Companys Registration Statement on Form S-4, file No. 333-80523)10.3
    
    Management Agreement dated May 24, 1993 by and between Susquehanna
Pfaltzgraff Co. and Susquehanna Media Co. (incorporated herein by
reference from Exhibit 10.3 to the Companys Registration Statement on
Form S-4, file No. 333-80523)12
    
    Computation of ratios of earnings to fixed charges21
    
    Subsidiaries of Susquehanna Media Co. (incorporated
herein by reference from Exhibit
to the Companys Registration Statement on Form S-4, file No. 333-80523)31.1
    
    Principal Executive Officers Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Principal Financial Officers Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Principal Executive Officers
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Principal Financial Officers
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  b)
    
    Fourth Quarter 2003 Reports onForm 8-K. We filed a Current Report on Form 8-K (Item 12) on November 13, 2003 with
respect to our earnings press release for the three and nine months ended
September 30, 2003. 85




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##### 



Supplementary Information to be Furnished With Reports filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act. No annual report or proxy materials have been sent to security holders
during the fiscal year ended December 31, 2003. No annual report or proxy
materials will be sent to security holders subsequent to the filing of this
annual report on Form 10-K. 86




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##### 



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. SUSQUEHANNA MEDIA CO. /s/ Peter P. BrubakerBy:
    
    Peter P. Brubaker,Chief Executive Officer and PresidentDate: March 29, 2004
 Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ William H. Simpson
William H. Simpson
    
    Chairman of the Board of Directors
    
    March 29, 2004/s/ Louis J. Appell, Jr.
Louis J. Appell, Jr.
    
    Director
    
    March 29, 2004/s/ Peter P. Brubaker
Peter P. Brubaker
    
    Director, Chief
Executive Officer and
President
    
    March 29, 2004/s/ David E. Kennedy
David E. Kennedy
    
    Director, Vice President
    
    March 29, 2004/s/ John L. Finlayson
John L. Finlayson
    
    Director, Vice President (and
principal financial and
accounting officer)
    
    March 29, 2004
 87