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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2004ORo
    
    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
    
    (I.R.S. Employer Identification No.)incorporation or organization)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 þ No o 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 þ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). Yes o No þ As of June 30, 2004, the aggregate market value of the voting and non-voting common equity held by
non-affiliates was $0. As of March 29, 2005, 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 PageCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    3RISK FACTORS
 
    
    5PART I
    
    
    11Item 1. Business
    
    
    11Item 2. Properties
    
    
    32Item 3. Legal Proceedings
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33PART II
    
    
    34Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    34Item 6. Selected Annual and Quarterly Financial Data
    
    
    34Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    35Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    44Item 8. Consolidated Financial Statements and Supplementary Data
    
    
    45Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    66Item 9A. Controls and Procedures
    
    
    66Item 9B. Other Information
    
    
    66PART III
    
    
    67Item 10. Directors and Executive Officers of the Registrant
    
    
    67Item 11. Executive Compensation
    
    
    68Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    68Item 13. Certain Relationships and Related Transactions
    
    
    71Item 14. Principal Accounting Fees and Services
    
    
    72PART IV
    
    
    72Item 15. Exhibits and Financial Statement Schedules
    
    
    72
 2




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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 (SEC), 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 and availability of programming; 3




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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. 4




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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 on our indebtedness 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, 2004, we
had approximately $577.2 million of indebtedness. We had the ability to incur approximately $175.8
million of additional debt under our senior credit facilities as of that date. 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 and other cash
obligations. Media is a holding company. 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. Our 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. Dividends, loans or other distributions to us from our subsidiaries may be
subject to contractual or other restrictions and may also be subject to the results of operations
of such subsidiaries and other business considerations. Not all of our subsidiaries are wholly-owned. To the extent that our subsidiaries that are not
wholly-owned declare dividends or make other distributions to stockholders, minority stockholders
will receive their shares of such payments, and such amounts will not be available to service our
indebtedness. The indentures governing our outstanding senior subordinated notes do, however, limit
the amount of dividends and other distributions that may be paid to these minority stockholders. 5




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Our indebtedness prohibits us from engaging in activities that may benefit us. Our senior credit facilities and the indenture governing 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 senior credit facilities contain 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 indenture governing our 7.375% senior
subordinated notes due 2013 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 may 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 6




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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 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 each of the years ended December 31, 2004, 2003 and 2002, approximately 93% of
our radio revenues 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 generated approximately 26% and 24%, respectively of our total radio revenue for the
year ended December 31, 2004. Advertising revenue from the San Francisco and Dallas markets each
generated 26% of our total radio revenue for the year ended December 31, 2003. The decline in
Dallas revenues can be attributed to competitive pressures. An economic decline in these markets
could adversely impact our cash flow and results of operations. The ongoing impact of acts of war and terrorism in the United States and globally, may reduce our
advertising revenues and have other negative effects on our business. A general slowdown in the Unites States economy, as well as the 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 could depress 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 continue or economic conditions weaken, 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 (including satellite radio), 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. 7




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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. 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 will no longer, on its own initiative, examine and may impose
limits upon the advertising revenue share acquired by one entity in a single market. 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, 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. In June 2004, the Third Circuit remanded to the FCC for further explanation or modification
many of the radio multiple ownership rule changes adopted by the FCC in June 2003; the court did,
however, indicate its approval of the FCCs decisions to repeal the ban on newspaper-radio
cross-ownership, to use Arbitron Metro markets to define local markets and to count non-commercial
educational radio stations in determining the size of a market, to attribute radio stations whose
advertising is brokered under a Joint Sales Agreement to a brokering stations permissible
ownership totals, and impose a transfer restriction. As to these approved changes, the Third
Circuit in September 2004 granted an FCC motion and partially lifted its stay on the implementation
of these rules. Thus, at the present time, the FCC is processing radio broadcast applications for
new stations and for consent to assignments of license and transfers of control under their June
2003 rules. The FCC has elected to not seek review of the Third Circuit decision in the Supreme
Court of the United States and it has filed an opposition to the efforts of private parties in the
case to seek such review. 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 ultimate outcome of
these proceedings on our business. 8




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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. In addition, 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;
    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 incumbent and competitive 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 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 affects 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. 9




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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. New York has
enacted state level regulation. We cannot predict whether any of the other 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 $45.7 million of our total
cable operating costs for the year ended December 31, 2004 and $35.1 million of our total cable
operating costs for the year ended December 31, 2003. In recent years, the cable industry has
experienced a rapid escalation in 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. Some
programming is acquired through another cable operator. The availability and cost of this
programming could negatively impact our operating results and cash flow. 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 provided telephony
services to approximately 9,800 subscribers in the Carmel, New York cable service area as of
December 31, 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. 10




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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 12th largest radio
broadcaster overall in the United States based on 2003 revenues. As of December 31, 2004, we owned
and operated 20 FM and 7 AM stations. We also own 6 stations operated by third parties under local
marketing agreements (LMAs). Our 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 17th largest cable
multiple system operator in the United States, based on subscribers, with nine cable systems
serving approximately 233,100 subscribers as of December 31, 2004. As of December 31, 2004, our
cable systems were 95% 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, which was merged into our cable
operations in 2004 and was re-branded SusCom Business Solutions, focuses 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 $120.6 million cash. This acquisition marked our entry into providing telephony
services to cable subscribers using cable infrastructure. 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 (rank 41); and York, Pennsylvania (rank 103). 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 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, 2004, we generated
approximately 71% of our radio revenues from our four largest markets and approximately 87%
from Arbitron top 40 markets. We intend to continue focusing on large markets. 11




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
    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 may 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 nationally 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
7.6% compound annual rate, compared to a gross domestic product growth rate of approximately 6.3%
over the same period. Broad market coverage. According to the Radio Advertising Bureaus Radio Marketing Guide and
Fact Book for Advertisers 2004-2005, 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 81% 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 82% 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 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,
2004. The table excludes 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 2004 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
2004. 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. 12




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##### 



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.3
    %
    
    
    3KFOG/KFFG-FM (1)
    
    
    
    
    
    Adult Album
    
    
    1983/1995
    
    
    
    A 25-54
    
    
    
    4
    
    
    
    3.9
    %AlternativeKNBR /KTCT-AM (1)
    
    
    
    
    
    Sports/Talk
    
    
    1989/1997
    
    
    
    M 25-54
    
    
    
    2
    
    
    
    5.3
    %KSAN-FM
    
    
    
    
    
    Classic Rock
    
    
    1997
    
    
    
    M 25-44
    
    
    
    3
    
    
    
    3.6
    %Dallas/Ft. Worth, TX
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.0
    %
    
    
    3KTCK/KTBK-AM/

KTDK-FM (1)
    
    
    
    
    
    Sports/Talk
    
    
    1996
    
    
    
    M 25-54
    
    
    
    3
    
    
    
    5.5
    %KPLX-FM
    
    
    
    
    
    Country
    
    
    1974
    
    
    
    A 25-54
    
    
    
    6
    
    
    
    3.8
    %KLIF-AM
    
    
    
    
    
    Talk
    
    
    1980/1998
    
    
    
    A 35-64
    
    
    
    20
    
    
    
    2.0
    %KDBN-FM
    
    
    
    
    
    Classic Rock
    
    
    1996/1998
    
    
    
    M 25-54
    
    
    
    11
    t
    
    
    3.2
    %Atlanta, GA
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.8
    %
    
    
    7WNNX-FM
    
    
    
    
    
    New Rock
    
    
    1974
    
    
    
    M 18-34
    
    
    
    5
    
    
    
    4.6
    %WWWQ-FM
    
    
    
    
    
    Contemporary
    
    
    1997
    
    
    
    W 18-34
    
    
    
    7
    
    
    
    4.6
    %Hit RadioHouston, TX
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.5
    %
    
    
    6KRBE-FM
    
    
    
    
    
    Contemporary
    
    
    1986
    
    
    
    W 18-34
    
    
    
    2
    
    
    
    8.3
    %Hit RadioCincinnati, OH
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.8
    %
    
    
    3WRRM-FM
    
    
    
    
    
    Adult
    
    
    1972
    
    
    
    W 25-54
    
    
    
    2
    
    
    
    8.0
    %ContemporaryWMOJ-FM
    
    
    
    
    
    Rhythmic
    
    
    1997
    
    
    
    W 25-54
    
    
    
    3
    
    
    
    7.5
    %OldiesWYGY-FM
    
    
    
    
    
    Country
    
    
    2002
    
    
    
    W 35-54
    
    
    
    10
    
    
    
    4.0
    %Indianapolis, IN
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24.6
    %
    
    
    2WFMS-FM
    
    
    
    
    
    Country
    
    
    1972
    
    
    
    A 25-54
    
    
    
    2
    
    
    
    10.9
    %WGLD-FM
    
    
    
    
    
    Oldies
    
    
    1993
    
    
    
    A 35-54
    
    
    
    6
    t
    
    
    4.7
    %WISG-FM (2)
    
    
    
    
    
    Contemporary
    
    
    1997
    
    
    
    A 25-54
    
    
    
    11
    t
    
    
    3.3
    %ChristianKansas City, KS
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.5
    %
    
    
    3KCMO-FM
    
    
    
    
    
    Oldies
    
    
    2000
    
    
    
    A 35-54
    
    
    
    8
    t
    
    
    4.3
    %KCFX-FM
    
    
    
    
    
    Classic Rock
    
    
    2000
    
    
    
    A 25-54
    
    
    
    7
    
    
    
    4.9
    %KCMO-AM
    
    
    
    
    
    Talk
    
    
    2000
    
    
    
    A 35-64
    
    
    
    10
    
    
    
    3.7
    %KCJK-FM (3)
    
    
    
    
    
    Adult Contemporary
    
    
    2001
    
    
    
    A 25-54
    
    
    
    8
    
    
    
    4.5
    %York, PA
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.8
    %
    
    
    1WARM-FM
    
    
    
    
    
    Adult
    
    
    1962
    
    
    
    W 25-54
    
    
    
    1
    
    
    
    12.0
    %ContemporaryWSBA-AM
    
    
    
    
    
    Talk
    
    
    1942
    
    
    
    A 35-64
    
    
    
    5
    
    
    
    6.0
    %WSOX-FM
    
    
    
    
    
    Oldies
    
    
    2003
    
    
    
    A 35-64
    
    
    
    4
    
    
    
    6.9
    %
   (1)
    
    These stations are simulcast and have been combined for market rank and audience share.(2)
    
    WGRL-FM changed its call letters to WISG-AM effective August 11, 2004.(3)
    
    Prior to April 1, 2004, the Company owned only 40% of KCJK-FM (formerly KFME-FM), which held the
stations license. The Company sold the stations commercial airtime under a joint sales
agreement with Jesscom, Inc., who was the entity programming and operating the station. On
April 1, 2004 the Company purchased the remaining 60% interest in the station. Effective
October 15, 2004 the station changed its call letters from KFME-FM to KCJK-FM. 13




---



##### 



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. All of our San
Francisco stations are 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, 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 ranked third in
the market among males 25 to 54. KPLX, which is programmed with a Texas country format, is rated
sixth in the market among persons 25 to 54. KIKT-FM and KGVL-AM in Greenville, Texas are owned by
us, but operated by a third party 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 second 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 fifth 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 seventh 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 second among women 25 to 54. WMOJ-FM, which is programmed as a
rhythmic oldies station, is a strong contender, placing third 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. On July 9, 2004
WISG-FM (formerly WGRL-FM) changed its format from Eighties Hits to Contemporary Christian. Kansas City.In July 2000, we acquired three radio stations serving the Kansas City market.
Oldies KCMO-FM is tied for eighth in its target adult 35-54 demographic. KCFX-FM 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. Prior to April 1, 2004, the Company owned
only 40% of KCJK-FM (formerly KFME-FM). On April 1, 2004, the company purchased the remaining 60%
ownership in KCJK-FM. 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, ranks first among women 25-54.
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 now ranked fourth 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 2004, approximately 80% of our radio revenues
were generated from the sale of local and regional advertising, compared to 79% in 2003 and 80% in
2002. We generate additional radio 14




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##### 



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 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. 15




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##### 



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. 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 233,100 total subscribers as of
December 31, 2004 through 12 signal receiving and transmitting facilities (headends) in
Pennsylvania, New York, Mississippi, Maine, Illinois and Indiana. 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 2005, we expect to complete the construction
and implementation of a 24/7 consolidated customer service center in York, Pennsylvania in
order to provide a higher level of customer service. 16




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##### 




    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 are currently 95% rebuilt. Management expects to complete the entire
rebuild during 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 telephony. We will be deploying video-on-demand, telephony, digital video
recording (DVR) technology and other interactive services in 2005. 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 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 have grown over the
last 15 years at a 9.2% 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 obtain
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 were 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. 17




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##### 



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, 2004. 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 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
    
    
    CARMEL
    
    
    RANKIN
    
    
    BRUNSWICK
    
    
    MIDWEST
    
    
    TOTALTECHNICAL DATA:Miles of Plant
    
    
    1,881
    
    
    
    1,037
    
    
    
    782
    
    
    
    997
    
    
    
    875
    
    
    
    978
    
    
    
    6,550Density
    
    
    70
    
    
    
    52
    
    
    
    50
    
    
    
    48
    
    
    
    36
    
    
    
    54
    
    
    
    55Head-ends
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    12Plant Bandwidth:330-450MHz
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    26.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    5.0
    %550 MHz
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    19.0
    %
    
    
    32.0
    %
    
    
    49.0
    %
    
    
    14.0
    %750 or >MHz
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    55.0
    %
    
    
    68.0
    %
    
    
    51.0
    %
    
    
    81.0
    %OPERATING DATA:Homes passed
    
    
    131,606
    
    
    
    54,429
    
    
    
    39,356
    
    
    
    47,958
    
    
    
    31,222
    
    
    
    52,592
    
    
    
    357,163Total customers
    
    
    89,892
    
    
    
    38,920
    
    
    
    29,159
    
    
    
    24,213
    
    
    
    21,249
    
    
    
    29,668
    
    
    
    233,101Total customer
penetration
    
    
    68.3
    %
    
    
    71.5
    %
    
    
    74.1
    %
    
    
    50.5
    %
    
    
    68.1
    %
    
    
    56.4
    %
    
    
    65.3
    %Basic Subscribers
    
    
    88,956
    
    
    
    38,206
    
    
    
    29,159
    
    
    
    24,112
    
    
    
    20,516
    
    
    
    28,911
    
    
    
    229,860Basic penetration
    
    
    67.6
    %
    
    
    70.2
    %
    
    
    74.1
    %
    
    
    50.3
    %
    
    
    65.7
    %
    
    
    55.0
    %
    
    
    64.4
    %Digital customers
    
    
    22,994
    
    
    
    7,745
    
    
    
    11,939
    
    
    
    7,306
    
    
    
    4,941
    
    
    
    5,361
    
    
    
    60,286Digital penetration
    
    
    25.8
    %
    
    
    20.3
    %
    
    
    40.9
    %
    
    
    30.3
    %
    
    
    24.1
    %
    
    
    18.5
    %
    
    
    26.2
    %Cable modem
customers
    
    
    25,250
    
    
    
    8,480
    
    
    
    14,654
    
    
    
    832
    
    
    
    9,840
    
    
    
    6,443
    
    
    
    65,499Cable modem
penetration
    
    
    19.2
    %
    
    
    15.6
    %
    
    
    37.2
    %
    
    
    1.7
    %
    
    
    31.5
    %
    
    
    12.3
    %
    
    
    18.3
    %FINANCIAL DATA:Revenue (in thousands)
    
    $
    72,938
    (1)
    
    $
    28,125
    
    
    $
    26,555
    (2)
    
    $
    15,646
    
    
    $
    17,072
    
    
    $
    18,518
    
    
    $
    178,854Average monthly
revenue per basic
subscriber
    
    $
    67.95
    
    
    $
    60.48
    
    
    $
    90.51
    
    
    $
    53.21
    
    
    $
    67.97
    
    
    $
    52.47
    
    
    $
    65.52
   (1)
    
    York and Total Cable revenues include $5.9 million of revenues from the BlazeNet ISP
operation formerly included in the Other segment.(2)
    
    Carmel revenues are from March 9, 2004 through December 31, 2004. York.The York, Pennsylvania cable area is Susquehannas largest, serving subscribers in 51
municipalities and accounting for 39% of total customers and 41% of 2004 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 19% penetration to homes passed as of December 31, 2004. Digital services were
launched in October 1999, with penetration equaling 26% of basic customers as of December 31, 2004.
The consolidated customer care center with 24/7 customer care has been deployed to two cable
system, with the remaining systems to be brought into the customer care facility by third quarter 2005. 18




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Williamsport.The Williamsport, Pennsylvania area accounts for 17% of total customers and 16%
of its 2004 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 16% of homes passed as of December 31, 2004. Digital services were launched in June
2000 with penetration of 20% of basic customers as of December 31, 2004. 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 $120.6 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. There were 8,900 telephony
subscribers at acquisition. The Carmel system accounts for 13% of total customers and 16% of 2004
Cable revenues. As of December 31, 2004 there were approximately 9,800 circuit-switched telephony
customers served by the Carmel cable plant. Rankin.The Rankin County, Mississippi cable service area accounts for 10% of total customers
and 9% of its 2004 Cable revenues. A rebuild of the cable plant to 860 MHz is underway and is
expected to be complete in second quarter 2005. Rankin launched digital technology in February
2000, and digital penetration is approximately 30% of basic customers as of December 31, 2004.
Cable modem high speed Internet access service was launched during 2004 to homes that have been
rebuilt. Penetration to total homes passed is approximately 2% at December 31, 2004. Brunswick.The Brunswick cable service area serves 11 communities in Maine, including
Brunswick, Freeport, Bath, Harpswell and Woolwich. Brunswick accounts for 9% of total customers and
10% of 2004 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 32% of homes passed as of December 31, 2004. Digital services
were launched in August 2000, and total 24% penetration to basic customers as of December 31, 2004. Midwest.The Midwest cable service area serves Shelbyville and Lawrenceburg, Indiana and Olney
and DuQuoin, Illinois. The area accounts for 13% of total customers and approximately 10% of 2004
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 passed is approximately 12% as of December 31, 2004. Digital services were
launched in 2000, with penetration of nearly 19% of basic customers as of December 31, 2004. Programming We have various contracts to obtain basic, satellite and premium programming for our 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. Some cable programming is purchased in conjunction with another operator. 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. 19




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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. 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. During 2004 we began building a state-of-the-art Unified Customer Care
Center (UC3) in York, Pennsylvania, that utilizes the most advanced customer care provisioning
technologies. The UC3 is handling calls for approximately 43% of our customers and Cable expects to
have customer care provided by the UC3 by third quarter 2005. By effectively combining customer
care 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
2005 for rebuild activities to total approximately $7.0 million, which we expect to be funded by
operations and existing credit facilities. The following table summarizes, as of December 31, 2004, 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
    
    
    261
    
    
    
    947
    
    
    
    5,342% miles of plant
    
    
    5
    %
    
    
    14
    %
    
    
    81
    %BANDWIDTH PROFILE
UPON COMPLETION OF
WORK IN PROGRESS
Miles of plant
    
    
    36
    
    
    
    715
    
    
    
    5,955% miles of plant
    
    
    1
    %
    
    
    11
    %
    
    
    88
    %
   (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 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. 20




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##### 



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, 2004,
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 15% and 11% of 2004 and 2003 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 those portions of Rankin County
that are undergoing plant rebuild. During 2004, we partnered with MCI in providing telephone services in our Carmel, New York
cable system. Carmel telephone subscribers were migrated from the previous owners telephone
platform to Susquehanna/MCI platform in February 2005. Other Services For the years ended December 31, 2004, 2003 and 2002, our Other segment accounted for 3% 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. The
BlazeNet ISP operation was merged into the York, Pennsylvania Cable operation during 2004. During
2004, Susquehanna Technologies became a direct subsidiary of Susquehanna Media. Susquehanna
Technologies will continue as part of the Other segment. Susquehanna Technologies.The web design company acquired in October 2000 has been remarketed
as Susquehanna Technologies. Susquehanna Technologies focus is on custom designed web integration
solutions and services provided to the media, entertainment, government, retail and associations
sectors. Due to the collapse of the Internet sector in 2001, and continued industry softness
through 2004, revenues for Susquehanna Technologies were depressed. A $5.0 million goodwill
impairment loss related to this operation was recognized for the year ended December 31, 2002.
Based on an independent appraisal performed as of December 31, 2004 for the annual ESOP valuation,
no additional impairment was indicated. 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 TelCove, 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, 2004, the partnership provided service
to 94 buildings in the York area and had over 7,400 access and long distance lines installed. In
December 2003, we signed an agreement to dissolve the partnership, wherein we would receive certain
assets and the majority of the partnerships customers. During 2004, Media decided to not proceed
with the dissolution of the Partnership. Agreement has been reached with TelCove for Media to sell
100% of its interest in the Partnership. Closing on the sale of Medias partnership interest is
expected upon regulatory approval in 2005. 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 2004 were renewed or extended. These franchises contain many
conditions, such as:  
    time limitations on commencement and completion of construction; 21




---



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
    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, 2004, we held a total of 166 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 2024. 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 Subscribers2005
    
    
    15
    
    
    
    9
    %
    
    
    21
    %2006
    
    
    17
    
    
    
    10
    %
    
    
    10
    %2007
    
    
    8
    
    
    
    5
    %
    
    
    4
    %2008 and after
    
    
    126
    
    
    
    76
    %
    
    
    65
    %Total
    
    
    166
    
    
    
    100
    %
    
    
    100
    %
 Included in the 2005 franchise expiration total are 9 franchise areas in the Carmel, New York
cable system that are under Letters of Authority issued by the New York Public Service Commission.
The Letter of Authority allows a cable operator to continue to provide service while negotiating
franchise renewals. All of these Letters of Authority were in place at acquisition from RCN.
Negotiations are underway with these franchise areas. Media expects to renew all of the Carmel
area franchise agreements. 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. 22




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Competing Video Service Providers.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), local telephone companies or neighboring cable
operators may become competitors for franchises or providers of competing services. Certain
telephone companies have begun to deploy fiber more extensively in their networks and some have
announced plans to deploy broadband services, including video programming services, in a manner
that may avoid the same regulatory burdens imposed on our business. The 1996 amendments to the Cable Act allow registered utility holding companies and
subsidiaries to provide telecommunications services, including cable television, notwithstanding
the Public Utilities Holding Company Act of 1935, as amended. In 2004, the FCC adopted rules that
affirmed the ability of electric service providers to provide broadband Internet access services
over their distribution systems and to avoid interference with existing services. Electric power
providers could be strong competitors to our cable services. One of our service areas has a small overbuild by a neighboring cable operator consisting of
approximately 3,000 homes passed (1% of total homes passed). 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, but the future of
this service is in doubt. Some of the VOOM assets may be acquired by another DBS provider,
strengthening its ability to compete. In Williamsport, total customer penetration to homes passed
declined from 74.4% as of December 31, 2003 to 71.5% as of December 31, 2004. In Rankin County,
total customer penetration to homes passed declined from 54.0% as of December 31, 2002 to 50.5% as
of December 31, 2004. We believe that the loss of subscribers in the Williamsport market is
indicative of local economic conditions and competitive pressure from DBS providers. 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 News Corp. take-over of Direct TV or the recently announced
acquisition of additional satellite capacity by Echostar 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,
however, the outcome of this competition in the future 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 23




---



##### 



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 may not be 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
$2.2 billion available in fiscal year 2005 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. Certain telephone companies have begun to deploy fiber more extensively in their
networks and some have announced plans to deploy broadband services, including video programming
services, in a manner designed to avoid the same regulatory burdens imposed on our business. It is
uncertain whether any such construction will take place in our rural service areas. 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 1,675 employees as of December 31, 2004. 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
annually thereafter, Plan shares are valued at fair value, Radios Appraised Value as of December
31, of the preceding year. 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 values were based solely on Appraised Value and the Radio Employee Share Plan
Liability was recast as minority interests. Subsequent increases in Plan share value were accounted
for as minority interests in the consolidated statement of operations. 24




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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 and thereafter,
performance shares values were valued at fair value based on the Parents annual independent ESOP
valuation. As of April 1, 2004, the Cable and Other segments recognized charges against operating
income of $1.0 million and $0.5 million, respectively. For 2003, the Cable and Other segments
recognized a reduction of expense of $0.3 million and $0.1 million, respectively. In 2002, the
Cable and Other segments recognized charges against operating income of $2.7 million and $1.5
million, respectively. 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. 25




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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
    
    442
    
    7.9 KW
    
    December 1, 2005KFFG-FM
    
    Los Altos
    
    97.7 MHz
    
    A
    
    137
    
    3.2 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
    
    
    
    0.5 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
    
    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, 2012WWWQ-FM
    
    College Park
    
    100.5 MHz
    
    C3
    
    291
    
    3 KW
    
    April 1, 2012Cincinnati, OHWRRM-FM
    
    Cincinnati
    
    98.5 MHz
    
    B
    
    246
    
    18 KW
    
    October 1, 2012WMOJ-FM
    
    Fairfield
    
    94.9 MHz
    
    B
    
    322
    
    10.5 KW
    
    October 1, 2012WYGY-FM
    
    Lebanon
    
    96.5 MHz
    
    B
    
    247
    
    19.5 KW
    
    October 1, 2012Indianapolis, INWFMS-FM
    
    Indianapolis
    
    95.5 MHz
    
    B
    
    301
    
    13 KW
    
    August 1, 2012WISG-FM (3)
    
    Fishers
    
    93.9 MHz
    
    A
    
    150
    
    2.75 KW
    
    August 1, 2012WGLD-FM
    
    Noblesville
    
    104.5 MHz
    
    B
    
    150
    
    50 KW
    
    August 1, 2012WAVG-AM (2)
    
    Jeffersonville
    
    1450 MHz
    
    C
    
    
    
    1 KW
    
    August 1, 2012WZZB-AM (2)
    
    Seymour
    
    1390 MHz
    
    B
    
    
    
    1 KW
    
    August 1, 2012WQKC-FM (2)
    
    Seymour
    
    93.7 MHz
    
    B
    
    213
    
    25 KW
    
    August 1, 2012Kansas City, MOKCMO-FM
    
    Kansas City
    
    94.9 MHz
    
    C0
    
    332
    
    100 KW
    
    February 1, 2013KCMO-AM
    
    Kansas City
    
    710 KHz
    
    B
    
    
    
    10 KW
    
    February 1, 2013KCFX-FM
    
    Harrisonville, MO
    
    101.1 MHz
    
    C0
    
    335
    
    100 KW
    
    February 1, 2013KCJK-FM (4)
    
    Garden City, MO
    
    105.1 MHz
    
    C1
    
    349
    
    69 KW
    
    February 1, 2013York/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
    
    290
    
    13.5 KW
    
    August 1, 2006
   (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.(3)
    
    WGRL-FM changed its call letters to WISG-FM effective August 11, 2004.(4)
    
    KFME-FM changed its call letters to KCJK-FM effective October 15, 2004. 26




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##### 



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 5% 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. 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s general policy is that it will 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 27




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##### 



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. 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 franchise
authorities that are certified to regulate basic service, installation and equipment rates, three
in Maine and one in Mississippi. Existing regulations require cable television systems to permit customers to purchase video
programming that it chooses to offer 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. The FCC recently
conducted an inquiry into the advisability of mandating the a la carte offering of programming, as
opposed to the cable industrys practice of packaging numerous channels into tiers. Although the
FCC recommended against an a la carte mandate, it is possible that in the future rate regulation on
the cable industry could be expanded to include new restrictions on the retail pricing or packaging
of cable programming. Such restrictions could adversely impact our business. 28




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Telephony Regulation Media provides local exchange services to subscribers in the Carmel, New York area. While the
regulatory status of telephone service offered over cable television systems has not been finally
determined, a telecommunications service is generally subject to varying degrees of federal, state
and local regulation. The FCC exercises jurisdiction over all aspects of interstate and
international telecommunications services and the facilities used to provide those services. The
1996 Telecommunications Act established a national policy of promoting local exchange competition
and set standards to govern relationships among telecommunications providers, including, among
others, the interconnection of competitive carriers and the unbundling of monopoly incumbent local
telephone company services. Medias ability to offer telephone services in competition with
incumbent local telephone companies and others will be affected by the degree and form of
regulatory flexibility ultimately afforded by the FCC to incumbent local telephone companies and
other companies, and will depend, in part, upon FCC determinations regarding telecommunications
markets generally. 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). Under legislation enacted in 1999, Congress barred broadcasters from entering into exclusive
retransmission consent agreements (through 2006) and required that broadcasters negotiate
retransmission consent agreements in good faith. In November 2004, Congress extended the ban on
exclusive retransmission consent agreements to cover all multi-channel video programming
distributors. The FCC has opened an inquiry into the impact on competition in the multichannel video
programming distribution market of the Cable Acts provisions and the FCCs rules on retransmission
consent, network non-duplication, syndicated exclusivity and sports blackouts. The FCCs inquiry
will form the basis for a report to Congress mandated by the Satellite Home Viewer Extension and
Reauthorization Act of 2004, which is due September 8, 2005. Neither the outcome of these
proceedings nor their impact upon subsequent legislation, FCC regulations or the cable industry or
our business or operations can be predicted at this time. 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 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
(Dual Format Broadcast Stations), 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 their analog channel. In its proceeding to determine whether cable operators will be
required to carry the digital signal of Dual Format Broadcast Stations that currently have
must-carry rights for their analog signals, the FCC recently affirmed that it will not adopt the
dual carriage requirement during the transition, and that a cable operator need only carry a
broadcasters primary video service (rather than all of the digital multi-cast services). In
addition, in November 2004, Congress passed a non-binding resolution urging that legislation be 29




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##### 



considered in 2005 that would set a firm date for the broadcasters to return their analog
spectrum. The final outcome of this proceeding or any subsequent legislation or court decisions
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 procedural and substantive safeguards 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 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. We believe that we have
generally complied with the terms of our franchises and have provided quality levels of service and
we are not aware of any current or past material failure on our part to comply with our franchise
agreements. Historically, we have not experienced any material problems renewing our franchise
agreements, however, we cannot predict the outcome of any future franchise renewals. 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
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. In connection with its decision in March 2002
classifying high-speed Internet services provided over a cable system as interstate information
services and therefore exempt from local regulation of the service, the FCC stated that revenues
derived from cable operators Internet services should not be included in the revenue base from
which franchise fees are calculated. In 2003 an appellate court vacated the FCCs decision
classifying cable operators Internet services; however, the United States Supreme Court has agreed
to hear the FCCs appeal of the appellate court decision. Because of the FCCs decision, we are no
longer collecting and remitting franchise fees on our high-speed Internet service revenues. We are
unable to predict the ultimate resolution of these matters. 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. 30




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##### 



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 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 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. 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 statute 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. 31




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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 19 of
our radio stations and lease 14 other main broadcast towers. We own the real property under ten of
our main broadcast towers and lease the land under our other 23 main towers. We own 2 auxiliary
towers and lease 7 others as backup facilities for main broadcast towers. We own the real property
under one of our auxiliary towers and lease the land under the other. We own nine, and lease five, headend facilities for our cable television operations. In
connection with our cable operations, we own nine tower locations and lease eight others. In
addition, we own the real estate for five and lease the real estate for three 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. Item 3.Legal Proceedings On July 29, 2004, Bridge Capital Investors II (BCI) sued Media for $10.0 million alleging
breach of contract and unjust enrichment in connection with Medias acquisition of Radio Station
WHMA-FM. On January 26, 2005, the United States District Court for the Northern District of Georgia
granted summary judgment in favor of BCI against Media. The summary judgment granted BCI $10.0
million, interest at 9% per annum from January 22, 2001 and recovery of attorneys costs. On
February 22, 2005, Media appealed the judgment. See the notes to the consolidated financial
statements which describe the accounting for this matter. 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, other than the above,
that, in our opinion, is likely to have a material adverse effect on us. 32




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Item 4.Submission of Matters to a Vote of Security Holders None. 33




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PART II Item 5.Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities 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 or purchase any of our equity securities during
2004. Item 6.Selected Annual and Quarterly Financial Data The below selected financial data as of and for the years ended December 31, 2004, 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, 2004, 2003 and
2002 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 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in Thousands)INCOME STATEMENT DATA:Revenues:Radio
    
    $
    231,058
    
    
    $
    228,966
    
    
    $
    216,222
    
    
    $
    198,039
    
    
    $
    220,886Cable
    
    
    178,854
    
    
    
    137,228
    
    
    
    122,754
    
    
    
    104,758
    
    
    
    93,113Other
    
    
    3,615
    
    
    
    10,066
    
    
    
    9,670
    
    
    
    10,632
    
    
    
    6,590Total revenues
    
    
    413,527
    
    
    
    376,260
    
    
    
    348,646
    
    
    
    313,429
    
    
    
    320,589Total operating expenses
    
    
    331,347
    
    
    
    283,743
    
    
    
    292,378
    
    
    
    291,274
    
    
    
    263,373Operating income
    
    
    82,180
    
    
    
    92,517
    
    
    
    56,268
    
    
    
    22,155
    
    
    
    57,216Interest expense, net
    
    
    34,224
    
    
    
    30,720
    
    
    
    29,200
    
    
    
    37,887
    
    
    
    37,523Interest income from loan to parent company
    
    
    6,641
    
    
    
    6,909
    
    
    
    7,162
    
    
    
    6,895
    
    
    
    6,696Other income (loss) (1)
    
    
    1,454
    
    
    
    (784
    )
    
    
    (1,406
    )
    
    
    (256
    )
    
    
    (1,474
    )Income (loss) before income taxes
    
    
    56,051
    
    
    
    67,922
    
    
    
    32,824
    
    
    
    (9,093
    )
    
    
    24,915Provision for income taxes
    
    
    21,938
    
    
    
    25,370
    
    
    
    17,904
    
    
    
    6,416
    
    
    
    16,762Income (loss) before minority interests
    
    
    34,113
    
    
    
    42,552
    
    
    
    14,920
    
    
    
    (15,509
    )
    
    
    8,153Minority interests
    
    
    (9,011
    )
    
    
    (6,365
    )
    
    
    (3,758
    )
    
    
    (1,694
    )
    
    
    (3,839
    )Net income (loss)
    
    $
    25,102
    
    
    $
    36,187
    
    
    $
    11,162
    
    
    $
    (17,203
    )
    
    $
    4,314BALANCE SHEET DATA(at end of period):Total assets
    
    $
    790,981
    
    
    $
    777,150
    
    
    $
    746,527
    
    
    $
    665,725
    
    
    $
    657,342Total debt
    
    
    577,232
    
    
    
    515,705
    
    
    
    521,137
    
    
    
    495,106
    
    
    
    500,600Stockholders equity (deficit)(2)
    
    
    (20,606
    )
    
    
    59,753
    
    
    
    24,059
    
    
    
    13,390
    
    
    
    31,086RATIO OF EARNINGS TO FIXED CHARGES (3):
    
    
    2.5
    x
    
    
    3.0
    x
    
    
    2.0
    x
    
    
    0.8
    x
    
    
    1.6
    xSUPPLEMENTARY FINANCIAL DATA:Cash flows provided by (used for):Operating activities
    
    $
    110,785
    
    
    $
    82,915
    
    
    $
    86,035
    
    
    $
    66,954
    
    
    $
    67,105Investing activities
    
    
    (165,782
    )
    
    
    (69,249
    )
    
    
    (95,387
    )
    
    
    (60,760
    )
    
    
    (163,478
    )Financing activities
    
    
    54,472
    
    
    
    (13,141
    )
    
    
    9,352
    
    
    
    (6,194
    )
    
    
    95,734Capital expenditures
    
    $
    42,033
    
    
    $
    33,571
    
    
    $
    28,329
    
    
    $
    31,739
    
    
    $
    36,913
   (1)
    
    Other income (loss) includes gain on sale of WABZ and loss on extinguishment of debt in 2004.(2)
    
    The reclassification of notes receivable from Parent as of December 31, 2004 resulted in a
stockholders
deficit. See the notes to the consolidated financial statements for more information.(3)
    
    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). 34




---



##### 



Unaudited Quarterly Financial Information The following unaudited quarterly financial information for 2004 and 2003 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. 2004
    
    1st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th QtrRevenuesRadio
    
    $
    46,679
    
    
    $
    64,233
    
    
    $
    61,243
    
    
    $
    58,903Cable
    
    
    39,111
    
    
    
    46,590
    
    
    
    46,250
    
    
    
    46,903Other
    
    
    1,071
    
    
    
    496
    
    
    
    940
    
    
    
    1,108Total Revenues
    
    
    86,861
    
    
    
    111,319
    
    
    
    108,433
    
    
    
    106,914Operating Expenses
    
    
    72,923
    
    
    
    86,934
    
    
    
    87,304
    
    
    
    84,186Operating Income
    
    
    13,938
    
    
    
    24,385
    
    
    
    21,129
    
    
    
    22,728Interest Expense, net
    
    
    7,187
    
    
    
    6,334
    
    
    
    5,694
    
    
    
    8,368Loss on Early Extinguishment of Debt
    
    
    
    
    
    
    9,065
    
    
    
    
    
    
    
    Gain on Sale of Radio Station
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,151Depreciation and
Amortization
    
    
    8,966
    
    
    
    11,220
    
    
    
    12,074
    
    
    
    12,229Net Income (Loss)
    
    $
    3,491
    
    
    $
    (447
    )
    
    $
    8,278
    
    
    $
    13,780
 2003
    
    1st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th QtrRevenuesRadio
    
    $
    44,917
    
    
    $
    62,567
    
    
    $
    61,743
    
    
    $
    59,739Cable
    
    
    32,990
    
    
    
    34,037
    
    
    
    34,719
    
    
    
    35,482Other
    
    
    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
 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 Annual and
Quarterly 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 12th largest radio
broadcaster overall in the United States based on revenues. As of December 31, 2004 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 17th largest cable multiple system operator
in the United States with nine cable systems serving approximately 233,100 subscribers as of
December 31, 2004. We also sell 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. 35




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##### 



For the year ended December 31, 2004, we had revenues and operating income of $413.5 million
and $82.2 million, respectively, with approximately 78% of operating income generated by our radio
broadcast operations and 26% by our cable television operations. Our Other segment incurred a $3.6
million operating loss. For the year ended December 31, 2004, our net income was $25.1 million, our
cash flows from (used in) operating, investing and financing activities were $110.8 million,
$(165.8) million and $54.5 million, respectively, and our ratio of earnings to fixed charges was
2.5x. 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, 2002
through 2004, 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 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 in 2002 recognize the increase in value of the plan during the
transition to fair value that ended April 1, 2002. 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. Starting in 2004, cable operating expenses 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), the value of long-lived assets, income taxes, fair value of financial
instruments, allowances for doubtful 36




---



##### 



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
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. 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 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 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. 37




---



##### 



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, 2004, 2003 and 2002 (in millions of dollars): Year ended December 31, 2004Radio
    
    
    Cable
    
    
    Other
    
    
    TotalRevenues
    
    $
    231.1
    
    
    
    100.0
    %
    
    $
    178.8
    
    
    
    100.0
    %
    
    $
    3.6
    
    
    
    100.0
    %
    
    $
    413.5
    
    
    
    100.0
    %Operating expenses:Operating and programming,
    
    
    73.3
    
    
    
    31.7
    %
    
    
    84.9
    
    
    
    47.5
    %
    
    
    3.3
    
    
    
    91.7
    %
    
    
    161.5
    
    
    
    39.0
    %Selling
    
    
    37.0
    
    
    
    16.0
    %
    
    
    6.1
    
    
    
    3.4
    %
    
    
    0.8
    
    
    
    22.2
    %
    
    
    43.9
    
    
    
    10.6
    %General and administrative
    
    
    50.2
    
    
    
    21.7
    %
    
    
    28.7
    
    
    
    16.1
    %
    
    
    2.5
    
    
    
    69.4
    %
    
    
    81.4
    
    
    
    19.7
    %Depreciation and amortization
    
    
    6.6
    
    
    
    2.9
    %
    
    
    37.4
    
    
    
    20.9
    %
    
    
    0.5
    
    
    
    13.9
    %
    
    
    44.5
    
    
    
    10.8
    %Total operating expenses
    
    
    167.1
    
    
    
    72.3
    %
    
    
    157.1
    
    
    
    87.9
    %
    
    
    7.1
    
    
    
    197.2
    %
    
    
    331.3
    
    
    
    80.1
    %Operating income (loss)
    
    $
    64.0
    
    
    
    27.7
    %
    
    $
    21.7
    
    
    
    12.1
    %
    
    $
    (3.5
    )
    
    
    (97.2
    )%
    
    $
    82.2
    
    
    
    19.9
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34.2
    )
    
    
    (8.3
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.6
    
    
    
    1.6
    %Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.1
    %Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.1
    )
    
    
    (2.2
    )%Gain on sale of radio station
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.2
    
    
    
    2.5
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.9
    )
    
    
    (5.3
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9.0
    )
    
    
    (2.2
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25.1
    
    
    
    6.1
    %
 Year ended December 31, 2003Radio
    
    
    Cable
    
    
    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
    %
 38




---



##### 



Year ended December 31, 2002Radio
    
    
    Cable
    
    
    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
    %
 Year Ended December 31, 2004 Compared to the year ended December 31, 2003 Consolidated Revenues. Consolidated revenues increased $37.2 million or 10% from 2003 to 2004. Radio
and Cable revenues were 56% and 43% of consolidated revenues, respectively. Operating and programming expenses.Operating and programming expenses increased $20.4
million or 15% from 2003 to 2004. The entire increase in operating and programming expense
occurred in the Cable segment primarily due to the Carmel, New York cable system acquisition
and the merger of the BlazeNet ISP operation into Cable. General and administrative expenses.General and administrative expenses increased
$10.8 million or 15% from 2003 to 2004. Radio and Cable general and administrative expenses
were 62% and 35% of consolidated general and administrative expenses, respectively.
Approximately 92% of the increase in general and administrative expenses was incurred in the
Cable segment. The increase in Cable can be attributed to the Carmel acquisition, deferred
compensation related to the Cable Performance Share Plan and to costs associated with the
consolidation of the customer care operation in York, Pennsylvania. The Other segment also
incurred deferred compensation expense related to the Cable Performance Share Plan. Operating income.Operating income decreased $10.3 million or 11% from 2003 to 2004,
largely due to the increase in Cables operating, general and administrative and depreciation
and amortization expenses. Net income.Net income decreased $11.1 million or 31% from 2003 to 2004. The decrease in net
income is the result of decreased operating income in Cable, other expense of $9.1 million related
to the early retirement of the Notes, $3.6 million of interest expense related to an unfavorable
judgment handed down by the United States District Court for the Northern District of Georgia
related to a contract dispute on the move of radio station WHMA-FM (now WWWQ-FM) from Anniston,
Alabama to Atlanta, Georgia metropolitan area, and gain of $10.2 million on the sale of radio
station WABZ-FM.. The $5.3 million increase in the valuation for Radio Employee Stock Plan shares
on April 1, 2004 increased minority interests. Depreciation and amortization.Depreciation and amortization increased $13.5 million or 44%
from 2003 to 2004. Cables acquisition of the Carmel cable system was responsible for the
increase. Interest expense. Interest expense increased $3.5 million or 11% from 2003 to 2004. Interest
expense from additional debt incurred to acquire the Carmel, New York cable systems, interest
related to the unfavorable judgment on contract dispute and the remaining interest in 1051FM, LLC
was partially offset by a reduction in the effective interest rate due to redeeming our 8.5% Senior
Subordinated Notes (Notes) on May 15, 2004. The Notes redemption was funded by the New
Facilities Term A Loan. Interest income on a state income tax refund was $0.6 million in 2004. 39




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##### 



Radio Segment Revenues. Radio revenues increased $2.1 million or 1% from 2003 to 2004 largely on
improvements in our Atlanta and Kansas City markets and the impact of WSOX-FM (acquired August
2003). On a same stations basis (excluding WSOX-FM) revenues increased $0.2 million. Operating and programming expenses.Operating and programming expenses decreased due to
operating efficiencies and low inflationary pressure on expenses. Operating income.Operating income increased $1.4 million or 2% from 2003 to 2004. On a
same stations basis, Radio operating income increased $1.7 million or 3% from 2003 to 2004.
Operating income increased over 2003 in the Atlanta, Kansas City and San Francisco markets. Cable Segment Revenues. Cable revenues increased $41.6 million or 30% from 2003 to 2004. On a same
systems basis (excluding BlazeNet and Carmel, New York revenues), revenues increased $9.2
million or 7% from 2003 to 2004. Increasing penetration of high-speed Internet access,
basic/expanded basic rate increases and increasing penetration of digital services were
responsible for the improvement in revenues on a same systems basis. Operating and programming expenses.Cables operating and programming expenses increased
$24.2 million or 40% from 2003 to 2004, primarily due to Carmel. On a same systems basis,
operating and programming expense increased $5.9 million or 10%. Increases in the cost of
acquired programming on a same system basis was 9% and represented 47% of the same system
increase in operating and programming costs. In addition the direct costs for delivery of
high-speed Internet access increased 40%, representing 25% of the same system increase in
operating and programming costs. Selling expenses.Cable selling expenses increased $2.7 million or 80% from 2003 to
2004. On a same systems basis, selling expenses increased $1.5 million or 43% to address
increasing competition. General and administrative expenses.Cable general and administrative expenses
increased $9.9 million or 53% from 2003 to 2004. On a same systems basis, general and
administrative expenses increased $3.9 million or 21% from 2003. Increased general and
administrative expenses were primarily from the efforts to centralize Cables customer care
operations in York, Pennsylvania (UC3) and deferred compensation expense related to the
current year change in the price of Cable Performance Shares. Carmel transition expenses
incurred from March 9, 2004 through December 31, 2004 were approximately $4.6 million. Media
has started assuming functions previously provided by RCN and will continue the transition
through February 2005. Depreciation and amortization.Depreciation and amortization increased $13.5 million or 57%
from 2003 to 2004 due to depreciation on tangible assets and amortization of customer lists for the
Lawrenceburg and Carmel acquisitions. Operating income.Cable operating income decreased $8.7 million or 29% from 2003 to 2004. On
a same systems basis, Cable operating income decreased $0.7 million or 2% from 2003 to 2004.
Decreased operating income is attributable to the acquisition of the Carmel cable systems (which
sustained an $8.0 million operating loss from March 9, 2004 through December 31, 2004), the cost of
acquired programming rising faster than revenues and general and administrative expenses related to
the implementation of the UC3 in York. 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-stations 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 40




---



##### 



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
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. 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 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. 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. 41




---



##### 



Net cash provided by operating activities was $110.8 million and $82.9 million for the years
ended December 31, 2004 and 2003, respectively. Our net cash provided by operating activities was
generated primarily by normal operations. Net cash used by investing activities was $165.8 million and $69.2 million for the years ended
December 31, 2004 and 2003, respectively. Acquisition of the Carmel cable television service area
and the remaining interest in a radio station, as detailed in Note 2 to the consolidated financial
statements, totaled $125.4 million for 2004. Capital expenditures, excluding acquisitions, were
$42.0 million for the year ended December 31, 2004 compared to $33.6 million in 2003. Capital
expenditures were used primarily to upgrade and maintain our cable plant. The sale of WABZ
provided $11.5 million cash and our Parent repaid $4.7 million on its outstanding loans in 2004. Net cash provided by (used by) financing activities was $54.5 million and $(13.1) million for
the year ended December 31, 2004 and 2003, respectively. Net cash provided by financing activities
was generated by 2004 borrowings under Medias New Facilities, described below. Proceeds were
used to acquire a cable television service area in Carmel, New York with approximately 29,000 basic
video subscribers and 8,900 telephone customers and to fund the 2004 repurchase of Radio stock held
by employees totaling $5.1 million. 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
$42.0 million, $33.6 million and $28.3 million for the years ended December 31, 2004, 2003 and
2002, respectively. Capital expenditures over this period were used primarily to upgrade and
maintain our cable system. We expect to make capital expenditures totaling approximately $38.0
million in 2005 for upgrading our cable system, for radio-related equipment and for information
technology projects. If our appeal of the BCI judgment is unsuccessful, we will be required to pay
$13.7 million to BCI. The $13.7 million liability was recorded as of December 31, 2004. As of December 31, 2004, the fair value of the 7.375% Senior Subordinated Notes due 2013 was
$160.5 million. Changes in interest rates affect the market value of these notes, however cash
outflows for semi-annual interest payments are fixed. The $600 million New Facilities with a group of banks consist of a $150 million Term A Loan, a
$250 million Term B Loan and a $200 million Revolving Credit. The Term A Loan amortizes beginning
in the third year and matures in March 2011. The Term B 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 December 31,
2004, Term A Loan and Term B Loan were fully utilized at $150 million and $250 million,
respectively. Approximately $24.2 million was borrowed under the Revolving Credit at a weighted
average interest rate of 4.1%. Interest is payable quarterly or on maturity of a LIBOR-based
tranche. At December 31, 2003, our senior secured credit facilities (Old 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 Old Facilities constained covenants
requiring us to maintain certain financial leverage and interest coverage ratios. As of December
31, 2003, the average interest rate on all outstanding borrowings was approximately 5.8%. On March
9, 2004, the Old Facilities were replaced by the New Facilities. The New Facilities are collaterized by tangible 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 utilized these New Facilities to fund a call of all our outstanding 8.5% Senior
Subordinated Notes in May 2004, at a cost of approximately $156 million. 42




---



##### 



The Company was in compliance with its debt covenants as of December 31, 2004. The following
debt covenants now in effect are considered the most restrictive: Covenant
Test
    
    Covenant
    
    
    Actual ValueFixed charge coverage ratio must
be at least:
    
    
    1.10
    
    
    
    1.66Consolidated total leverage ratio
may not exceed:
    
    
    6.50
    
    
    
    4.13Interest coverage must exceed:
    
    
    2.00
    
    
    
    4.64
 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 7.375% senior subordinated notes. A default under the
7.375% senior subordinated notes could result in a default under our New Facilities. Any such cross
defaults would permit our lenders and noteholders to accelerate approximately $566.6 million of our
outstanding debt at March 29, 2005. Contractual Obligations The following tables reflect our contractual cash obligations in the respective periods in
which they are due (in thousands). Contractual
    
    TotalCash
    
    AmountsObligations
    
    Committed
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    ThereafterLong-term debt
    
    $
    577,232
    
    
    $
    3,368
    
    
    $
    15,246
    
    
    $
    23,168
    
    
    $
    30,625
    
    
    $
    38,125
    
    
    $
    466,700Broadcast rights
    
    
    46,117
    
    
    
    10,017
    
    
    
    11,200
    
    
    
    8,000
    
    
    
    8,250
    
    
    
    8,650
    
    
    
    Operating leases
    
    
    42,558
    
    
    
    5,298
    
    
    
    5,091
    
    
    
    4,929
    
    
    
    4,723
    
    
    
    4,333
    
    
    
    18,184Total
    
    $
    665,907
    
    
    $
    18,683
    
    
    $
    31,537
    
    
    $
    36,097
    
    
    $
    43,598
    
    
    $
    51,108
    
    
    $
    484,884
 Information regarding our contractual obligations at December 31, 2004, is included in
the notes to the consolidated financial statements. Future debt maturities, lease obligations and
broadcast rights are included in Notes 3, 10, and 12, respectively. 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. Off-Balance Sheet Arrangements 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 applicable
to Media. 43




---



##### 



Item 7A. Quantitative and Qualitative Disclosure About Market Risk. As of December 31, 2004, we had $424.2 million in variable rate debt. The fair value of this
debt approximates its carrying value. Variable rate debt matures as follows (in thousands): 2005
    
    $
    1,8752006
    
    
    13,7502007
    
    
    23,1252008
    
    
    30,6252009
    
    
    38,125
 The maturities shown above reflect debt in place at December 31, 2004. Our interest rate
exposure is primarily impacted by changes in LIBOR rates. At December 31, 2004, the weighted
average interest rate for the variable rate debt was 4.1%. 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, 2004 would increase by $4.2 million. Variable rate debt as of March 29,
2005 was approximately $416.6 million. Our interest rate swaps, disclosed in the notes to the
financial statements, could decrease the impact of an increase in interest rates. 44




---



##### 



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: PageReport of Independent Registered Public Accounting Firm
    
    
    46Financial StatementsConsolidated Balance Sheets
    
    
    47Consolidated Statements of Operations
    
    
    48Consolidated Statements of Stockholders Equity (Deficit)
    
    
    49Consolidated Statements of Cash Flows
    
    
    50Notes to Consolidated Financial Statements
    
    
    51 - 65
 45




---



##### 



Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Susquehanna Media Co.: We have audited the accompanying consolidated balance sheets of Susquehanna Media Co. and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations, stockholders equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2004. 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 the standards of the Public Company Accounting
Oversight Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. /s/ KPMG LLP 
 
 46




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(In thousands, except share data) December 31,2004
    
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    
    
    
    $
    525Accounts receivable, less allowance for doubtful accounts
of $1,822 in 2004 and $1,719 in 2003 (Note 3)
    
    
    50,332
    
    
    
    52,192Deferred income taxes (Note 4)
    
    
    
    
    
    
    6,621Current portion of notes receivable from Parent (Notes 9 and 11)
    
    
    
    
    
    
    4,690Other current assets
    
    
    7,278
    
    
    
    6,818Total Current Assets
    
    
    57,610
    
    
    
    70,846Property, Plant and Equipment, at cost (Notes 2 and 3)Land
    
    
    6,233
    
    
    
    5,948Buildings and improvements
    
    
    26,722
    
    
    
    23,399Equipment
    
    
    334,471
    
    
    
    272,734Construction-in-progress
    
    
    14,872
    
    
    
    12,443382,298
    
    
    
    314,524Accumulated depreciation and amortization
    
    
    182,549
    
    
    
    154,610Property, Plant and Equipment, net
    
    
    199,749
    
    
    
    159,914Intangible Assets and Goodwill, net (Notes 2, 3 and 5)
    
    
    514,299
    
    
    
    402,466Notes Receivable from Parent (Notes 9 and 11)
    
    
    
    
    
    
    104,951Investments and Other Assets (Notes 3, 6 and 9)
    
    
    19,323
    
    
    
    38,973$
    790,981
    
    
    $
    777,150LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current LiabilitiesCash overdraft
    
    $
    1,428
    
    
    $
    Current portion of long-term debt (Note 3)
    
    
    3,368
    
    
    
    34Accounts payable
    
    
    13,181
    
    
    
    11,225Accrued employee-related costs (Note 7)
    
    
    12,812
    
    
    
    14,997Accrued income taxes
    
    
    11,781
    
    
    
    7,144Deferred income taxes (Note 4)
    
    
    5,114
    
    
    
    Accrued interest (Note 5)
    
    
    7,564
    
    
    
    4,663Accrued franchise and licensing fees
    
    
    2,864
    
    
    
    2,944Deferred income
    
    
    3,943
    
    
    
    1,542Other current liabilities (Note 5)
    
    
    18,311
    
    
    
    6,893Total Current Liabilities
    
    
    80,366
    
    
    
    49,442Long-term Debt (Note 3)
    
    
    573,864
    
    
    
    515,671Other Liabilities (Note 8)
    
    
    13,964
    
    
    
    13,845Deferred Income Taxes (Note 4)
    
    
    74,894
    
    
    
    71,216Minority Interests (Notes 7 and 12)
    
    
    68,499
    
    
    
    67,223Stockholders Equity (Deficit) (Note 3)Preferred stock  Voting, 7% cumulative with par value of $100,
110,000 shares authorized
    
    
    7,050
    
    
    
    7,050Common stock  Voting, $1 par value, 1,100,000 shares authorized
    
    
    1,100
    
    
    
    1,100Retained earnings
    
    
    76,212
    
    
    
    51,603Note receivable from Parent (Notes 9 and 11)
    
    
    (104,968
    )
    
    
    Total Stockholders Equity (Deficit)
    
    
    (20,606
    )
    
    
    59,753$
    790,981
    
    
    $
    777,150
 47




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands) For the Years Ended December 31,2004
    
    
    2003
    
    
    2002RevenuesRadio
    
    $
    231,058
    
    
    $
    228,966
    
    
    $
    216,222Cable
    
    
    178,854
    
    
    
    137,228
    
    
    
    122,754Other
    
    
    3,615
    
    
    
    10,066
    
    
    
    9,670Total revenues
    
    
    413,527
    
    
    
    376,260
    
    
    
    348,646Operating ExpensesOperating and programming
    
    
    161,560
    
    
    
    141,061
    
    
    
    131,869Selling
    
    
    43,866
    
    
    
    41,096
    
    
    
    40,414General and administrative
    
    
    81,432
    
    
    
    70,617
    
    
    
    68,560Radio Employee Stock Plan (Note 7)
    
    
    
    
    
    
    
    
    
    
    17,065Depreciation and amortization
    
    
    44,489
    
    
    
    30,969
    
    
    
    29,470Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    5,000Total operating expenses
    
    
    331,347
    
    
    
    283,743
    
    
    
    292,378Operating Income
    
    
    82,180
    
    
    
    92,517
    
    
    
    56,268Other Income (Expense)Interest expense (Note 5)
    
    
    (34,224
    )
    
    
    (30,720
    )
    
    
    (29,200
    )Loss on extinguishment of debt (Note 3)
    
    
    (9,065
    )
    
    
    
    
    
    
    Gain on sale of WABZ (Note 2)
    
    
    10,151
    
    
    
    
    
    
    
    Interest income from loan to Parent (Note 11)
    
    
    6,641
    
    
    
    6,909
    
    
    
    7,162Other
    
    
    368
    
    
    
    (784
    )
    
    
    (1,406
    )Income Before Income Taxes and and Minority
Interests
    
    
    56,051
    
    
    
    67,922
    
    
    
    32,824Provision for Income Taxes(Note 4)
    
    
    21,938
    
    
    
    25,370
    
    
    
    17,904Income Before Minority Interests
    
    
    34,113
    
    
    
    42,552
    
    
    
    14,920Minority Interests
    
    
    (9,011
    )
    
    
    (6,365
    )
    
    
    (3,758
    )Net Income and Comprehensive Income
    
    
    25,102
    
    
    
    36,187
    
    
    
    11,162Preferred Dividends Declared
    
    
    (493
    )
    
    
    (493
    )
    
    
    (493
    )Net Income Available for Common Shares
    
    $
    24,609
    
    
    $
    35,694
    
    
    $
    10,669
 48




---



##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In thousands) NoteReceivablePreferred Stock
    
    
    Common Stock
    
    
    Retained
    
    
    FromShares
    
    
    Amounts
    
    
    Shares
    
    
    Amounts
    
    
    Earnings
    
    
    Parent
    
    
    TotalBalance, January 1, 2002
    
    
    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

    
    
    
    
    
    
    
    59,753Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,102
    
    
    
    
    
    
    
    25,102Reclass of Note Receivable
from Parent (Note 9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,641
    )
    
    
    (109,641
    )Principal payment by Parent
(Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,673
    
    
    
    4,673Preferred dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493
    )
    
    
    
    
    
    
    (493
    )Balance, December 31, 2004
    
    
    70
    
    
    $
    7,050
    
    
    
    1,100
    
    
    $
    1,100
    
    
    $
    76,212
    
    
    $
    (104,968
    )
    
    $
    (20,606
    )
 49




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##### 



SUSQUEHANNA MEDIA CO. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) 2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    25,102
    
    
    $
    36,187
    
    
    $
    11,162Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    44,489
    
    
    
    30,969
    
    
    
    29,470Deferred income taxes
    
    
    15,413
    
    
    
    14,332
    
    
    
    8,915Radio Employee Stock Plan
    
    
    289
    
    
    
    370
    
    
    
    17,065Cable Performance Share Plan
    
    
    1,455
    
    
    
    (446
    )
    
    
    3,500Write-off of deferred financing costs
    
    
    2,690
    
    
    
    
    
    
    
    Gain on sale of WABZ
    
    
    (10,151
    )
    
    
    
    
    
    
    Goodwill impairment loss
    
    
    
    
    
    
    
    
    
    
    5,000Minority interests
    
    
    9,011
    
    
    
    6,365
    
    
    
    3,758Deferred financing amortization
    
    
    1,468
    
    
    
    1,386
    
    
    
    1,074Equity in (income) losses of investees
    
    
    (121
    )
    
    
    616
    
    
    
    630Changes in assets and liabilities:Decrease (increase) in accounts receivable, net
    
    
    1,861
    
    
    
    (2,514
    )
    
    
    (4,900
    )Decrease (increase) in other current assets
    
    
    (423
    )
    
    
    (1,606
    )
    
    
    928Increase (decrease) in accounts payable
    
    
    1,946
    
    
    
    (1,810
    )
    
    
    4,649Increase (decrease) in accrued income taxes
    
    
    4,637
    
    
    
    (2,617
    )
    
    
    6,606Increase (decrease) in accrued interest
    
    
    2,901
    
    
    
    2,179
    
    
    
    (2,807
    )Increase in other current liabilities
    
    
    11,554
    
    
    
    2,385
    
    
    
    1,859Decrease in other liabilities
    
    
    (1,336
    )
    
    
    (2,881
    )
    
    
    (874
    )Net cash provided by operating activities
    
    
    110,785
    
    
    
    82,915
    
    
    
    86,035CASH FLOWS FROM INVESTING ACTIVITIESParents repayment of notes
    
    
    4,673
    
    
    
    4,422
    
    
    
    4,169Purchase of property, plant and equipment, net
    
    
    (42,033
    )
    
    
    (33,571
    )
    
    
    (28,329
    )Acquisitions
    
    
    (125,404
    )
    
    
    (28,035
    )
    
    
    (71,539
    )Proceeds from sale of WABZ
    
    
    11,500
    
    
    
    
    
    
    
    Deposit on RCN acquisition
    
    
    
    
    
    
    (10,000
    )
    
    
    Decrease (increase) in investments, other assets and intangible assets
    
    
    5,482
    
    
    
    (2,065
    )
    
    
    312Net cash used by investing
    
    
    (165,782
    )
    
    
    (69,249
    )
    
    
    (95,387
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in revolving credit borrowings
    
    
    (17,100
    )
    
    
    (138,400
    )
    
    
    34,800Long-term borrowing
    
    
    400,000
    
    
    
    150,000
    
    
    
    Repayment of term loans
    
    
    (174,250
    )
    
    
    (17,000
    )
    
    
    (8,750
    )Repayment of Senior Subordinated Notes
    
    
    (150,000
    )
    
    
    
    
    
    
    Increase (decrease) in cash overdrafts
    
    
    1,428
    
    
    
    (849
    )
    
    
    (1,838
    )Radio Employee Stock Plan transactions
    
    
    (5,113
    )
    
    
    (6,399
    )
    
    
    (14,367
    )Payments of preferred dividends
    
    
    (493
    )
    
    
    (493
    )
    
    
    (493
    )Net cash provided (used) by financing activities
    
    
    54,472
    
    
    
    (13,141
    )
    
    
    9,352NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (525
    )
    
    
    525
    
    
    
    CASH AND CASH EQUIVALENTS, January 1,
    
    
    525
    
    
    
    
    
    
    
    CASH AND CASH EQUIVALENTS, December 31,
    
    $
    
    
    
    $
    525
    
    
    $
    
   50




---



##### 



1.
    Significant Accounting PoliciesNature of Operations  Susquehanna Media Co. (Media) and its subsidiaries, Susquehanna
Radio Corp. (Radio), Susquehanna Cable Co. (Cable), Susquehanna Data Services, Inc., Susquehanna Fiber Systems, Inc., Susquehanna ET Investment Inc., and Media PCS
Ventures, Inc. (collectively, the Company), are primarily in the businesses of radio
broadcasting, cable television services, Internet services 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, New York, Maine, Mississippi, Illinois, and Indiana.
High speed Internet access is provided in all Cable markets. Radio advertising, cable television
subscriptions, and Internet services account for approximately 56%, 43%, and 1% of 2004
consolidated revenues, respectively. Radio, Cable and Internet services revenues were 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.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 requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.Cash and Cash Equivalents  The Company considers all highly liquid debt instruments
purchased with 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 the cable segments delinquent subscribers. The allowance for bad debts is
determined by using historical experience, payment trends and credit information in the context
of existing 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 $33.7 million, $28.5 million and $27.7 million for the
years ended December 31, 2004, 2003 and 2002, respectively.Asset 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. The timing of any asset
retirement obligations is not estimable.Valuation of Long-Lived and Indefinite-Lived Intangible 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 and appraisals, trends or other indicators of fair value are 51




---



##### 



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.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 for Radio 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 to secure a new franchise. Cables franchises are non-exclusive rights to
operate granted by local governments and 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 are 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 and 2004 was performed at the segment level. Costs to renew
cable franchises are capitalized as other intangible assets and amortized using the
straight-line method over the franchise renewal term.Other goodwill is evaluated at the segment level. In 2002, a $5.0 million impairment was
recognized.Indefinite-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,
collars and floors may either be treated as hedges or marked-to-market through income, as
elected on a contract-by-contract basis.The Company has entered into interest rate swaps and floors to limit exposure to interest rate
changes on a portion of its variable rate debt. Hedge accounting has not been elected.
Variations in the fair value of swaps and floors are marked-to-market as a component of interest
expense in the consolidated statements of operations.Investments and Other Assets  Existing investments of less than 20% in other entities
are 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 other
entities, which are at least 20% and not more than 50% owned, are reported using the equity
method. New investments in partnerships, limited partnerships and limited liability companies
of at least 3% are reported using the equity method.Revenues  Radio, Cable and Other revenues are recognized in the period that 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, 2004, 2003 and
2002 were $33.2 million, $33.2 million and $31.2 million, respectively. Cable subscriber
revenues are recognized when services are provided. Cable installation revenues are recognized
to the extent of direct selling costs incurred. Cable franchise fees, which may be up to 5% of
subscriber 52




---



##### 



revenues, must be collected and remitted to franchising authorities. Franchise fees are passed
through to subscribers as permitted and are included in cable revenues. Other revenues are
recognized when services are provided or performed. Revenues are concentrated in the following
geographic areas: 2004
    
    
    2003
    
    
    2002San Francisco, CA
    
    
    14
    %
    
    
    16
    %
    
    
    17
    %York, PA
    
    
    19
    %
    
    
    21
    %
    
    
    21
    %Dallas  Fort Worth, TX
    
    
    14
    %
    
    
    16
    %
    
    
    15
    %
  Interest  Interest paid was $30.2 million, $27.8 million and $31.7 million for the
years ended December 31, 2004, 2003 and 2002, respectively. Interest relating to construction
of buildings and equipment is capitalized as part of the related assets cost. Approximately
$0.5 and $0.3 million of interest was capitalized during the years ended December 31, 2004 and
2003, respectively.Deferred financing costs are included in Investments and Other Assets and 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 reflect the future tax consequences of temporary differences between the
tax bases of assets and liabilities and their financial reporting balances 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.
Compensation expense on options is recognized using minimum value.Recent Accounting Pronouncements  In January 2003, the Financial Accounting Standards
Board (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, 2003,
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 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. Radio has
non-controlling interests that are subject to mandatory repurchase and are classified as
minority interests. However, FASB has indefinitely deferred the measurement provisions of SFAS
150 for these non-controlling interests.In September 2004, FASB issued EITF Topic D-108, Use of the Residual Method to Value Acquired
Assets Other Than Goodwill. Topic D-108 requires that intangible assets other than goodwill
acquired in business combinations completed after September 29, 2004 be valued using a direct
value method. Intangible assets other than goodwill that were valued using the residual method
must be tested for impairment using a direct method no later than the beginning of the first
fiscal year beginning after December 31, 2004. Any impairment recognized upon application of a
direct value method would be reported as a cumulative effect of a change in accounting
principle. Media performed the required impairment tests as of December 31, 2004 using a direct
value method. No impairment was indicated.In December 2004, FASB issued SFAS No. 123R Share-Based Payment (SFAS 123R) replacing SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123) and superseding APB Opinion No.
25, Accounting for Stock Issued to Employees. Under SFAS 123R, Media is a non-public company.
SFAS 123R requires Media to recognize the cost of employee service received in exchange for an
award of equity instruments, including stock 53




---



##### 



options, based on the grant date fair value of those equity instruments. Grant date fair value
may not be measured using minimum value, but must include the effect of expected volatility
based on an appropriate historical industry sector index. SFAS 123R is effective for Media as
of January 1, 2006. Since Media previously adopted SFAS 123, and all outstanding options are
fully vested, no transition provisions apply unless those options are modified, repurchased or
cancelled after SFAS 123Rs effective date. We have not determined the effect of adopting SFAS
123R.2.
    Acquisitions and DispositionAcquisitions have been accounted for as purchases. Acquisition purchase price is allocated to
the tangible and intangible assets and to liabilities assumed at fair values. In determining
fair value, Media makes estimates and assumptions, which it believes are reasonable, that affect
the fair values. Independent valuations are utilized to value significant acquisitions.
Operating results of acquisitions are included in the Consolidated Statements of Operations from
their acquisition dates.On April 1, 2004, Media purchased Jesscom, Inc.s (Jesscom) sixty percent in 1051FM, LLC for
$14.8 million cash. Media now completely owns and operates KCJK-FM, formerly KFME-FM. Existing
credit facilities were used to fund the acquisition. Under the terms of a joint operating
agreement that terminated April 1, 2004, Media formerly sold commercial airtime on Radio Station
KFME-FM and Jesscom had programmed and operated the station. KCJK-FM is licensed to Garden
City, Missouri and serves the Kansas City market.On March 9, 2004, Media purchased cable systems from RCN Telecom Services, Inc. (RCN) for
$120.6 million cash. A $10.0 million deposit on this acquisition was made during third quarter
2003. As of the date of acquisition, the systems served approximately 29,100 subscribers in
eleven communities in and surrounding Carmel, New York with video, high speed data and telephony
services.The Carmel cable systems purchase price was allocated based on an independent valuation. The
final purchase price was allocated as follows (in thousands): Tangible assetsCable distribution and premises equipment
    
    $
    29,402Other tangible assets
    
    
    1,346Intangible assets with determinable livesAcquired subscriber base
    
    
    33,980Intangible assets with indefinite livesCable franchise values
    
    
    55,798Goodwill
    
    
    55Total
    
    $
    120,581
  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. Fees for these services
were approximately $4.6 million through December 31, 2004.The following amounts attributable to the Carmel acquisition were included in Medias
consolidated financial statements for the year ended December 31, 2004 (in thousands): Current assets
    
    $
    2,191Property, plant and equipment, net
    
    
    28,051Intangible assets, net
    
    
    80,925Current liabilities
    
    
    3,577Revenues
    
    
    26,555Depreciation and amortization
    
    
    14,223Operating loss
    
    
    (7,970
    )Interest expense
    
    
    4,494
 54




---



##### 



The acquisition was funded using new credit facilities described under Long-Term Debt.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, 2005 at an estimated cost of $2.8 million.The costs of acquisitions have been allocated to the following classes of assets and liabilities
(in thousands): 2004
    
    
    2003CablePlant and equipment
    
    $
    30,748
    
    
    $
    180Intangible assets
    
    
    89,833
    
    
    
    4,815Total
    
    $
    120,581
    
    
    $
    4,995RadioPlant and equipment
    
    $
    590
    
    
    $
    571Intangible assets
    
    
    14,197
    
    
    
    22,469Working capital
    
    
    36
    
    
    
    Total
    
    $
    14,823
    
    
    $
    23,040
  On November 12, 2004, Media sold the assets of radio station WABZ-FM, licensed to Albemarle,
North Carolina for $11.5 million cash. The gain on the sale was $10.2 million.3.
    Long-Term DebtLong-term debt at December 31, includes (in thousands): 2004
    
    
    20038.5% Senior Subordinated Notes
    
    $
    
    
    
    $
    150,0007.375% Senior Subordinated Notes
    
    
    150,000
    
    
    
    150,000Term A Loan
    
    
    150,000
    
    
    
    76,000Term B Loan
    
    
    250,000
    
    
    
    98,250Revolving Credit Commitment
    
    
    24,200
    
    
    
    41,300Other
    
    
    3,032
    
    
    
    155577,232
    
    
    
    515,705Less amounts payable within one year
    
    
    3,368
    
    
    
    34$
    573,864
    
    
    $
    515,671
  The 8.5% Senior Subordinated Notes were due in 2009. Interest was payable semi-annually. Media
called the 8.5% Senior Subordinated Notes (Notes) as of May 15, 2004. On May 17, 2004, a
total of $162.75 million was paid to bondholders. The amount paid included the Notes $150.0
million principal balance, a $6.375 million call premium and $6.375 million of accrued interest.
The statement of operations recognizes a $9.1 million loss on debt extinguishment (including
$2.7 million of unamortized deferred financing costs). Media used its New Facilities, as
described below, to fund the redemption. 55




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##### 



Media funded the Carmel acquisition utilizing new credit facilities from a group of banks (New
Facilities) totaling $600 million that replaced its prior $450 million senior credit facilities
(Old Facilities). Proceeds from the New Facilities were used to retire the Old Facilities
(approximately $195 million) and to repurchase the 8.5% Senior Subordinated Notes. The New
Facilities were effective March 9, 2004, and include a $200 million Revolving Credit Loan
commitment, a $150 million Term A Loan and a $250 million Term B Loan.The Revolving Credit Loan and Term A Loan borrowings bear interest based on either a base rate
plus an applicable margin (0.0%  1.0%) or on LIBOR plus an applicable margin (1.00%  2.25%)
based on leverage. Term B Loan borrowings bear interest based on either a base rate plus an
applicable margin (0.50%  0.75%) or LIBOR plus an applicable margin (1.75%  2.00%) based on
leverage. Interest is payable quarterly or on the maturity of a LIBOR-based borrowing. As of
December 31, 2004, the effective interest rate on Revolving Credit Loan, Term A Loan and Term B
Loan borrowings was 4.13%, 3.75% and 4.14%, respectively.The Revolving Credit Loan commitment does not amortize and matures in March 2011. The Term A
Loan begins amortizing in June 2006 and matures in March 2011. The Term B Loan begins
amortizing in June 2005 and matures in March 2012. As of December 31, 2004, $175.8 million was
available for borrowing.New Facilities covenants require Media to maintain ratios based on interest coverage, leverage
and fixed charge coverage at prescribed levels. Media has consented to restrict its payment of
dividends and management fees, investment transactions with affiliates, ownership changes, the
sale of assets and the issuance of additional debt. The New Facilities are guaranteed by Medias
subsidiaries and are collateralized by Medias assets (except for real estate and vehicles), a
pledge of Medias equity in all subsidiaries and a pledge of the Parents stock of Media.On April 23, 2003, the Company issued $150.0 million of 7.375% Senior Subordinated Notes
(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 then-existing 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 $160.5 million as of December 31, 2004.The Company maintained Old Facilities with a group of banks. The effective interest rate on its
revolving credit commitment was 2.43% at December 31, 2003. The interest rate on its Term Loan
A was 2.03% and the interest rate on its Term Loan B was 3.66% at December 31, 2003.
Interest was payable quarterly or on the maturity of a LIBOR-based tranche.Derivative financial instruments are used solely to limit interest rate exposure and are not
used for trading purposes. As of December 31, 2004, the Company was party to two swaps with
notional values totaling $70 million ($20 million expires in 2005 and $50 million expires in
2007). The Company was also party to a 2.5% interest floor on a $50 million notional value.
The Company has not elected hedge accounting for these instruments. As of December 31, 2004 and
2003, the liabilities related to these instruments were recognized at their $0.4 million fair
values. Interest expense increased (decreased) by $0.1 million, $(0.3) million and $(0.8)
million due to these instruments for the years ended December 31, 2004, 2003 and 2002,
respectively.The non-current portion of long-term debt matures in the following years (in thousands): 2006
    
    $
    15,246
    
    
    
    2009
    
    
    $
    38,1252007
    
    
    23,168
    
    
    
    2010
    
    
    
    45,6252008
    
    
    30,625
    
    
    2011 and thereafter
    
    
    
    421,075
 56




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##### 



4.
    Income Taxes  The provision for income taxes for the years ended December 31, follows (in thousands): 2004
    
    
    2003
    
    
    2002CurrentFederal
    
    $
    6,968
    
    
    $
    9,729
    
    
    $
    7,857State
    
    
    (443
    )
    
    
    1,309
    
    
    
    1,132Total current
    
    
    6,525
    
    
    
    11,038
    
    
    
    8,989DeferredFederal
    
    
    10,912
    
    
    
    12,637
    
    
    
    7,173State
    
    
    4,501
    
    
    
    1,695
    
    
    
    1,742Total deferred
    
    
    15,413
    
    
    
    14,332
    
    
    
    8,915Provision for income taxes
    
    $
    21,938
    
    
    $
    25,370
    
    
    $
    17,904
  Income tax payments made during 2004, 2003, and 2002 were $3.4 million, $9.9 million and $4.2
million, respectively.The Company is included in its Parents consolidated federal income tax return. The Companys
tax provision is computed on a separate return basis. Other consolidated return member losses
utilized in the consolidated return may reduce the Companys tax payments.Reconciliations of the difference between the U.S. statutory income tax rate and the annual
effective book income tax rate follow: 2004
    
    
    2003
    
    
    2002U.S. statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State income taxes, net of Federal income
tax benefit
    
    
    7.3
    
    
    
    2.9
    
    
    
    5.7Favorable state income tax audit refund
    
    
    (2.6
    )
    
    
    
    
    
    
    Non-deductible charge for Radio
Employee Stock Plan
    
    
    
    
    
    
    
    
    
    
    18.2Non-deductible amortization and expenses
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.9Other
    
    
    (1.1
    )
    
    
    (0.9
    )
    
    
    (5.3
    )Effective book income tax rate
    
    
    39.1
    %
    
    
    37.4
    %
    
    
    54.5
    %
  On October 23, 2004, a Media subsidiary received a $2.1 million state income tax refund that
included approximately $0.6 million of interest on the refund. The refund represents settlement
of a state income tax audit for years 1997 through 2000. Due to significant uncertainties
concerning the audits outcome, no income tax benefit was previously recognized.During 2004 and 2003, Media made payments to its Parent that reduced its tax sharing account
liability by $3.0 million and $4.5 million, respectively. 57




---



##### 



At December 31, 2004, 2003 and 2002, deferred tax assets and liabilities resulted from the
following temporary differences (in thousands): 2004
    
    
    2003
    
    
    2002Deferred tax assets:Allowance for doubtful accounts
    
    $
    758
    
    
    $
    789
    
    
    $
    601Investments
    
    
    190
    
    
    
    139
    
    
    
    433Self-insured risks
    
    
    233
    
    
    
    198
    
    
    
    133Intangible assets
    
    
    7,316
    
    
    
    3,318
    
    
    
    2,605State net operating loss carryforwards
    
    
    7,669
    
    
    
    6,633
    
    
    
    5,581Pension benefits
    
    
    529
    
    
    
    413
    
    
    
    120Deferred income
    
    
    1,115
    
    
    
    1,757
    
    
    
    2,359Investments in flow-through entities
    
    
    327
    
    
    
    308
    
    
    
    Liabilities not recognized for tax purposes
    
    
    2,641
    
    
    
    760
    
    
    
    383Tangible assets
    
    
    
    
    
    
    
    
    
    
    827Stock option benefits/deferred compensation
    
    
    4,486
    
    
    
    4,110
    
    
    
    4,207Total deferred tax assets before valuation
Allowances
    
    
    25,264
    
    
    
    18,425
    
    
    
    17,249Deferred tax liabilities:Pension benefits
    
    
    2,474
    
    
    
    2,234
    
    
    
    2,036Tangible assets
    
    
    29,077
    
    
    
    22,116
    
    
    
    18,792Intangible assets
    
    
    63,643
    
    
    
    49,456
    
    
    
    38,951Investments in flow-through entities
    
    
    2,389
    
    
    
    2,395
    
    
    
    2,032Deferred income
    
    
    
    
    
    
    148
    
    
    
    Other liabilities
    
    
    20
    
    
    
    38
    
    
    
    120Total deferred tax liabilities
    
    
    97,603
    
    
    
    76,387
    
    
    
    61,931Valuation allowances
    
    
    (7,669
    )
    
    
    (6,633
    )
    
    
    (5,581
    )Net deferred tax liabilities
    
    $
    80,008
    
    
    $
    64,595
    
    
    $
    50,263
  The Company had approximately $98.1 million and $97.6 million of state net operating loss
carryforwards as of December 31, 2004 and 2003, respectively. The loss carryforwards were
generated primarily by amortization and bonus depreciation. The Company established a full
valuation allowance for the tax effects of these loss carryforwards as utilization is uncertain.
No current tax benefits were provided for these state tax losses. The change in the valuation
allowance is primarily due to changes in apportionment and restructuring of state taxes.5.
    Intangible Assets and GoodwillIntangible assets as of December 31, are comprised of the following (in thousands): 2004
    
    
    2003Indefinite-lived, at carrying value:Federal Communications Commission licenses
    
    $
    339,974
    
    
    $
    306,411Cable franchise values
    
    
    130,195
    
    
    
    74,299Goodwill and other
    
    
    13,958
    
    
    
    14,793Subtotal
    
    
    484,127
    
    
    
    395,503Finite-lived, at cost:Cable subscriber lists
    
    
    45,905
    
    
    
    12,152Favorable leases
    
    
    3,348
    
    
    
    3,348Exclusive cable rights
    
    
    1,988
    
    
    
    1,988Other
    
    
    1,178
    
    
    
    1,19552,419
    
    
    
    18,683Less accumulated amortization
    
    
    22,247
    
    
    
    11,720Subtotal
    
    
    30,172
    
    
    
    6,963$
    514,299
    
    
    $
    402,466
 58




---



##### 



Changes in the carrying value of goodwill and indefinite-lived intangible assets follow (in
thousands): Radio Federal Communications Commission Licenses:Balance January, 1 2003
    
    $
    295,379Acquisitions
    
    
    21,032Contract fee payable
    
    
    (10,000
    )Balance December 31, 2003
    
    
    306,411Acquisitions
    
    
    23,950Sale of station
    
    
    (387
    )Contract fee payable
    
    
    10,000Balance December 31, 2004
    
    $
    339,974Cable Franchise Values:Balance January 1, 2003
    
    
    72,017Acquisitions
    
    
    3,248Purchase price reallocation
    
    
    (966
    )Balance December 31, 2003
    
    
    74,299Acquisitions
    
    
    55,896Balance December 31, 2004
    
    $
    130,195
 Radio
    
    
    Cable
    
    
    Other
    
    
    TotalGoodwill:Balance January 1, 2003
    
    $
    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
    
    
    
    14,793Acquisitions
    
    
    323
    
    
    
    55
    
    
    
    
    
    
    
    378Sale of station
    
    
    (1,181
    )
    
    
    
    
    
    
    
    
    
    
    (1,181
    )Purchase price reallocation
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Balance December 31, 2004
    
    $
    6,456
    
    
    $
    5,636
    
    
    $
    1,866
    
    
    $
    13,958
  Cable subscriber lists are valued and 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, 2004, 2003 and 2002 was $10.8 million, $2.5
million and $1.8 million, respectively. These finite-lived intangible assets amortize as
follows (in thousands): 2005
    
    $
    9,100
    
    
    
    2008
    
    
    $
    3,1622006
    
    
    6,402
    
    
    
    2009
    
    
    
    2,2492007
    
    
    4,491
    
    
    
    Thereafter
    
    
    
    4,768
  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. A Final Order was not
issued by the date required. The contract fee payable and the corresponding intangible asset
were reversed in September 2003. On July 29, 2004, Bridge Capital Investors II (BCI) sued
Media for $10.0 million alleging breach of contract and unjust enrichment in connection with
Medias acquisition of Radio Station WHMA-FM. On January 26, 2005, the United States District
Court for the Northern District of Georgia granted summary judgment in favor of BCI against
Media. The summary judgment granted BCI $10.0 million plus interest at 9% per annum from
January 22, 2001 and recovery of attorneys costs. On February 22, 2005, Media appealed the
judgment. The statement of operations for the year ended December 31, 2004 includes $3.6
million interest and $0.1 million other expense related to this judgment. Indefinite-lived
intangible assets (FCC licenses) were increased by $10.0 million as of
December 31, 2004. The related $10.0 million liability has been classified as other current
liabilities as of December 31, 2004. 59




---



##### 



6.
    Investments and Other AssetsUnamortized deferred financing expenses were $4.3 million and $5.4 million at December 31, 2004
and 2003, respectively.A Media subsidiary is a 50% general partner in Susquehanna Adelphia Business Solutions, a
competitive access provider. As of December 31, 2004 and 2003, Medias investments and other
assets included $2.4 million and $2.5 million related to this partnership, respectively. For
the years ended December 31, 2004, 2003 and 2002, income (losses) of $0.1 million, $(0.6)
million and $(0.6) million, respectively were included in the consolidated statements of
operations. On December 19, 2003, Media signed a dissolution agreement that would distribute
certain assets and customers to the partners. Media will likely sell its interest to the other
partner at approximately book value.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. With 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 awarded 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 then current 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
Radio to repurchase 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.Plan share value is based on Radios value based upon its Parents annual independent valuation
for ESOP purposes. Share value changes annually on April 1. Changes in Plan share value are
recognized on April 1st of each year. The $5.3 million and $2.2 million increases in
the value of outstanding Radio Employee Stock Plan shares as of April 1, 2004 and 2003,
respectively were recognized as minority interests in the consolidated statement of operations.
On April 1, 2002, $17.1 million in compensation expense was recognized for the final step in the
revaluation of Plan shares from formula value to fair value.On December 23, 2004, certain key employees were granted fully-vested options to purchase 54,100
Plan shares at $26.51 per share. Compensation expense of $0.3 million was recognized related to
this grant. Unexercised Plan share options as of December 31, 2004 totaled 159,600.As of December 31, 2004 and 2003, the total value of outstanding Plan shares was approximately
$44.8 million and $47.5 million, respectively. The short and long-term expected Plan liability
as of December 31, 2004 was included in accrued employee-related costs ($6.5 million) and
minority interests ($38.3 million). The liability as of December 31, 2003 was included in
accrued employee-related costs ($6.5 million) and minority interests ($41.0 million).Media redeemed approximately $7.6 million of Radio Employee Stock Plan shares in May 2004 from
retirees and employees. Approximately $2.9 million of redeemed shares were exchanged for a note
payable over two years. Existing credit facilities were utilized to fund the redemptions.On November 13, 2003, certain key employees were granted fully-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.Media redeemed approximately $6.6 million of Radio Employee Stock Plan shares in May 2003 from
employees. Existing credit facilities were utilized to fund the redemptions. 60




---



##### 



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 performance shares on a change of
control.Performance share value is based upon Susquehanna Pfaltzgraff Co.s annual independent ESOP
valuation (Appraised Value). Performance share value changes annually on April 1. Changes in
performance share value are recognized in the consolidated statement of operations.Based on the ESOP valuations performed as of December 31, 2003 and 2002, a $1.5 million expense,
a $0.4 million expense reduction and a $4.1 million expense were recognized as of April 1, 2004,
2003 and 2002, respectively. The change in performance shares value was recognized as general
and administrative expenses.As of December 31, 2004 and 2003, the fair value of outstanding Cable performance shares
(included in other liabilities) was $11.1 million and $10.3 million, respectively.9.
    Employee BenefitsFull-time employees participate in an Employee Stock Ownership Plan (ESOP) of the Companys
Parent. ESOP expense of approximately $12.5 million, $12.0 million and $9.1 million, was
recognized for the years ended December 31, 2004, 2003 and 2002, 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 ESOPs purchase of the
Parents stock. On July 18, 2001, coincident with a second ESOP transaction, the Company made a
similar $14.6 million loan at a 6.5% interest rate. Through December 31, 2004, the Parents
other major subsidiary participated in the ESOP and made substantial contributions to the Parent
based on the value of ESOP shares awarded to its employees. Effective January 1, 2005, the
other major subsidiary ceased participation in the ESOP. Accordingly, since Medias future ESOP
expense will substantially fund repayment of the Note Receivable from Parent, the Note
Receivable from Parent was reclassified from an asset to a component of Stockholders Deficit as
of December 31, 2004.Prior to formation of the Parents ESOP, most full-time employees were covered by the Parents
defined benefit pension plan. Service credit ceased when the ESOP was established. The funded
status of the Parents pension plan at December 31, was as follows (in thousands): 2004
    
    
    2003Benefit obligation, beginning of year
    
    $
    33,531
    
    
    $
    29,318Interest cost
    
    
    2,005
    
    
    
    1,972Actuarial losses
    
    
    1,979
    
    
    
    3,646Benefits paid
    
    
    (1,289
    )
    
    
    (1,405
    )Benefit obligation, end of year
    
    
    36,226
    
    
    
    33,531Fair value of plan assets, beginning of year
    
    
    36,355
    
    
    
    30,098Actual return on plan assets
    
    
    3,636
    
    
    
    7,662Benefits paid
    
    
    (1,289
    )
    
    
    (1,405
    )Fair value of plan assets, end of year
    
    
    38,702
    
    
    
    36,355Excess of fair value of plan assets over benefit
obligation at end of year
    
    
    2,476
    
    
    
    2,824Unrecognized net actuarial loss
    
    
    9,699
    
    
    
    8,389Unrecognized prior service costs
    
    
    532
    
    
    
    576Prepaid pension cost at December 31,
    
    $
    12,707
    
    
    $
    11,789
 61




---



##### 



The Parents pension plans net pension costs for the years ended December 31, included the
following components (in thousands): 2004
    
    
    2003
    
    
    2002Service cost
    
    $
    180
    
    
    $
    200
    
    
    $
    210Interest cost
    
    
    2,005
    
    
    
    1,972
    
    
    
    1,887Expected return on plan assets
    
    
    (3,303
    )
    
    
    (3,307
    )
    
    
    (3,444
    )Amortization of (gain) / loss
    
    
    156
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    44
    
    
    
    44
    
    
    
    44Net periodic pension cost (income)
    
    $
    (918
    )
    
    $
    (1,091
    )
    
    $
    (1,303
    )
  The Company recognized its share of negative pension cost of $0.2 million, $0.3 million, and
$0.5 million for the years ended December 31, 2004, 2003 and 2002, respectively. Included in
investments and other assets were the Companys shares of prepaid pension costs totaling $6.2
million and $5.8 million as of December 31, 2004 and 2003, 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 2004, 2003 and
2002). 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 5.74% and 6.1% for 2004 and 2003, respectively. The expected long-term
rate of return on Plan assets was 8.75% for both 2004 and 2003.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 $1.0 million, $0.9 million, and $0.5 million to this plan for
the years ended December 31, 2004, 2003 and 2002, respectively.10.
    Lease CommitmentsRental expense for operating leases was $7.3 million, $6.7 million and $6.0 million for the
years ended December 31, 2004, 2003 and 2002, respectively.Annual aggregate minimum rental commitments under non-cancelable operating leases are as follows
(in thousands): 2005
    
    $
    5,298
    
    
    
    2009
    
    
    $
    4,3332006
    
    
    5,091
    
    
    
    2010-2014
    
    
    
    13,9032007
    
    
    4,929
    
    

    2015 and beyond
    
    
    
    4,2802008
    
    
    4,723
 62




---



##### 



11.
    Related PartiesThe Company purchases management services, office space and administrative services from related
parties, primarily its Parent. For the years ended December 31, general and administrative
expenses included (in thousands): 2004
    
    
    2003
    
    
    2002Management fees
    
    $
    7,831
    
    
    $
    6,711
    
    
    $
    6,326Accounting, internal audit and tax services
    
    
    1,372
    
    
    
    1,255
    
    
    
    955Human resources
    
    
    1,021
    
    
    
    1,028
    
    
    
    1,049Treasury
    
    
    385
    
    
    
    385
    
    
    
    366Occupancy, vehicle rentals and
administrative services
    
    
    266
    
    
    
    286
    
    
    
    519$
    10,875
    
    
    $
    9,665
    
    
    $
    9,215
  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 7,800 square feet of office space in a building constructed by a
related company for approximately $0.9 million in June 2004. Media purchased approximately
34,000 square feet of office space in the same building for approximately $3.6 million in
February 2003. Terms of these purchases 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s notes receivable from Parent require level annual repayments of principal and interest
through 2018. The notes have a weighted average interest rate of 6.1%. On December 30, 2004
and 2003, the Parent made principal payments of $4.7 million and $4.4 million, respectively.Medias preferred stock is held by related parties.12.
    Contingencies and CommitmentsKNBR, Inc., a subsidiary of Media, is a limited partner in San Francisco Baseball Associates
L.P. On June 7, 2004, Media renewed its broadcast rights to broadcast San Francisco Giants
games during the 2005 through 2009 baseball seasons. The contract provides for rights fees
ranging from $7.6 million in 2005 to $8.7 million in 2009. Media concurrently invested an
additional $1.5 million in the partnership that owns the team. KNBR, Inc. expensed rights
payments of $6.0 million, $5.7 million and $5.4 million during the 2004, 2003 and 2002 baseball
seasons, respectively.KCFX-FM holds broadcast rights for the Kansas City Chiefs NFL franchise through the 2006
football season. The contract requires rights payments ranging to $3.2 million for the 2006
football season. During 2004, 2003 and 2002, rights payments totaling $2.9 million, $2.8
million and $2.6 million, respectively were expensed for broadcast rights.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, Media must 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 63




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##### 



statements of operations operating and programming expenses, were as follows for the years
ended December 31, (in thousands): 2004
    
    
    2003
    
    
    2002$
    45,681
    
    
    $
    35,085
    
    
    $
    32,839
  13.
    SegmentsThe Companys business units have separate management and infrastructures that offer different
products and services. The business units have been aggregated into three reportable segments:
Radio, Cable, and Other. Effective January 1, 2004, Internet access, transport and hosting
activities became part of the Cable segment. These business segments are consistent with the
Companys management perspective and its financial reporting structure.The accounting policies of the segments are described in the significant accounting policies
footnote. The Company evaluates performance based on operating income and operating income
before depreciation and amortization.Segment information for the years ended December 31, 2004, 2003 and 2002 was as follows (in
thousands): Radio
    
    
    Cable
    
    
    Other
    
    
    ConsolidatedFor the Year Ended December 31, 2004Operating income (loss)
    
    $
    64,022
    
    
    $
    21,730
    
    
    $
    (3,572
    )
    
    $
    82,180Interest expense, net
    
    
    7,975
    
    
    
    13,532
    
    
    
    12,717
    
    
    
    34,224Depreciation and amortization
    
    
    6,605
    
    
    
    37,449
    
    
    
    435
    
    
    
    44,489Income (loss) before income taxes and
minority interests
    
    
    64,379
    
    
    
    2,515
    
    
    
    (10,843
    )
    
    
    56,051Identifiable assets
    
    
    441,206
    
    
    
    342,359
    
    
    
    7,416
    
    
    
    790,981Capital expenditures
    
    
    6,584
    
    
    
    34,561
    
    
    
    888
    
    
    
    42,033For 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
    )
    
    
    67,922Identifiable 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
    )
    
    
    32,824Identifiable assets
    
    
    400,912
    
    
    
    216,996
    
    
    
    128,619
    
    
    
    746,527Capital expenditures
    
    
    5,710
    
    
    
    20,902
    
    
    
    1,717
    
    
    
    28,329
 64




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##### 



14.Valuation and Qualifying Accounts Changes in the allowance for doubtful accounts for the years ended December 31, 2004, 2003 and
2002 were as follows (in thousands): AdditionsBalance
    
    
    Chargedat
    
    
    to Costs
    
    
    Deductions
    
    
    BalanceBeginning
    
    
    and
    
    
    from
    
    
    at Endof Year
    
    
    Expenses
    
    
    Reserves
    
    
    of Year2004
    
    $
    1,719
    
    
    $
    3,601
    
    
    $
    3,498
    
    
    $
    1,8222003
    
    $
    2,111
    
    
    $
    2,835
    
    
    $
    3,227
    
    
    $
    1,7192002
    
    $
    1,970
    
    
    $
    3,780
    
    
    $
    3,639
    
    
    $
    2,111
 Additions charged to costs and expenses are net of recoveries. Deductions from reserves are
write-offs of accounts deemed uncollectible. 65




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##### 



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Pursuant to 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, 2004 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Amendment No. 1 to Form 10-Q for the quarter ended September 30, 2004 was filed on March 30,
2005 to restate Medias financial statements for the quarter ended September 30, 2004, as
originally filed on November 12, 2004. The restated financial statements reflected $2.2 million
higher cable programming costs for the three and nine months ended September 30, 2004. Our
principal executive officer and principal financial officer concluded that the need for restatement
represented a material weakness in internal control structure. 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. The maintenance and monitoring of such internal control system is an
ongoing process. Accordingly, the Companys internal control over financial reporting may change in
the future. Item 9B. Other Events. None. 66




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##### 



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 five directors. All members of our board of directors and officers 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
    
    
    62
    
    
    Chairman of the Board of DirectorsDavid E. Kennedy
    
    
    52
    
    
    Director and Chief Executive Officer and PresidentLouis J. Appell, Jr.
    
    
    80
    
    
    DirectorCraig W. Bremer
    
    
    56
    
    
    Secretary and General CounselJohn L. Finlayson
    
    
    63
    
    
    Director and Vice PresidentNancy A. Vaeth-DuBroff
    
    
    50
    
    
    Director and Vice PresidentAlan L. Brayman
    
    
    53
    
    
    TreasurerJames D. Munchel
    
    
    50
    
    
    President and Chief Operating Officer of
Susquehanna 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. Effective February 11, 2005, David E. Kennedy was elected Director and Chief Executive Officer
of Susquehanna Media. He was Director and Vice President of Susquehanna Media as of December 31,
2004. He was 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. 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. 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. Mr.
Finlayson is a director of York Water Company. Nancy A. Vaeth-DuBroff became Director and Vice President of Susquehanna Media effective
February 11, 2005. Ms. Vaeth-DuBroff is President and COO of Radio. Ms. Vaeth-DuBroff has been
employed by Radio since 1980. She previously served as a Vice President/Regional Manager of Radio
with responsibilities for its Houston, Dallas/Fort Worth and Kansas City operations. Ms.
Vaeth-DuBroff is a graduate of Syracuse University. 67




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##### 



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. Audit Committee We do not have a standing audit committee. However, the audit committee of our corporate
parent and sole common 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
wherein it 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 that are pre-approved by the audit committee. Our corporate parent is a
privately-held company and is not required to, but has designated an audit committee financial
expert, Robert N. Pokelwaldt. Code of Conduct Media has adopted a Code of Business Conduct and 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. Medias Code of Business Conduct and Ethics is posted on its
Internet Web site and can be accessed at www.susquehannamedia.com and is available in print to any
security holder upon request by writing to Media. Media intends to satisfy the disclosure requirement
under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of the Code of
Ethics applicable to the Companys officers by posting such information on its Internet Web site,
www.susquehannamedia.com. 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 $7.8 million in 2004. 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. 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, 2004, 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 68




---



##### 



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, 2004 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
    %Craig W. Bremer
    
    
    
    
    
    
    William H. Simpson
    
    
    
    
    
    
    John L. Finlayson
    
    
    
    
    
    
    Alan L. Brayman
    
    
    
    
    
    
    David E. Kennedy
    
    
    
    
    
    
    Nancy A. Vaeth-DuBroff
    
    
    
    
    
    
    All directors and executiveofficers as a group (8 persons)
    
    
    5,095.98
    
    
    
    7.2
    %Other 5% HoldersLouis J. Appell, III (2)
    
    
    7,513.71
    
    
    
    10.7
    %Helen 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 4141 Cowell Boulevard, Apartment 19, Davis, CA 95616.(3)
    
    Address is 147 Stewart Drive, Tiburon, CA 94920.(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,
2004, we had 69




---



##### 



outstanding 18,241,800 shares of common stock, 6,702,971 shares of ESOP common stock
and 2,294,557 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, 2004 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. 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)
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    1,252,900
    
    
    
    54.6
    %
    
    
    William H. Simpson (1)
    
    
    
    
    
    
    
    
    
    
    3,514
    
    
    
    
    
    
    
    419,747
    
    
    
    18.3
    %
    
    
    John L. Finlayson (1)
    
    
    
    
    
    
    
    
    
    
    3,744
    
    
    
    
    
    
    
    311,485
    
    
    
    13.6
    %
    
    
    Craig W. Bremer (1)
    
    
    
    
    
    
    
    
    
    
    3,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alan L. Brayman (1)
    
    
    
    
    
    
    
    
    
    
    3,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David E. Kennedy (1)
    
    
    
    
    
    
    
    
    
    
    4,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nancy A. Vaeth-DuBroff
(1)
    
    
    
    
    
    
    
    
    
    
    4,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Officers and directors
as a group
(7 persons)
    
    
    
    
    
    
    
    
    
    
    22,834
    
    
    
    
    
    
    
    1,984,132
    
    
    
    86.5
    %
    
    
    Other 5% HoldersLouis J. Appell Trusts
(2)
    
    
    16,824,300
    
    
    
    92.2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.4
    %Susquehanna Pfaltzgraff
ESOP (3)
    
    
    
    
    
    
    
    
    
    
    4,948,041
    
    
    
    73.80
    %
    
    
    
    
    
    
    
    
    
    
    26.9
    %
   (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. 70




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##### 



(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 and unallocated 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 2004 and 2003 in the amount of
$7.8 million and $6.7 million, respectively. Susquehanna Pfaltzgraff also provides us, at cost,
accounting and tax services, human resources services, treasury services and administrative
services. For such services in 2004 and 2003, we paid Susquehanna Pfaltzgraff an aggregate of $3.1
million and $2.9 million, respectively. 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. We purchased an
additional 7,800 square feet in the same building for $0.9 million in June 2004. Terms of the
purchases 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. In 1999, 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. mature on December 30, 2018 and bear 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 recognized 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 a former officer. 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. 71




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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 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, 2004 and 2003 were $350,000 and $222,500, 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. PART IV Item 15. Exhibits and Financial Statement Schedules 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: 72




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Exhibit Number
    
    Description2.1
    
    Asset Purchase Agreement, dated July 10, 2003, between RCN Telecom
Services, Inc. and Susquehanna Cable Co. (incorporated herein by
reference from Exhibit 2.1 to the Companys Current Report on Form
8-K
filed March 30, 2005, 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 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)4.2
    
    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)4.3
    
    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)10.2
    
    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)10.4
    
    $600 million syndicated credit facility arranged by Wachovia Capital
Markets LLC (incorporated herein by reference from Exhibit 10.4 to
the Companys Current Report on Form 8-K filed March 30, 2005,
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
 73




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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, 2004. No annual report or proxy materials will be sent to security holders
subsequent to the filing of this annual report on Form 10-K. 74




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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.Date: March 31, 2005
    
    
    
    /s/David E. KennedyBy:
    
    David E. KennedyChief Executive Officer andPresident
 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 31, 2005/s/ Louis J. Appell, Jr.

Louis J. Appell, Jr.
    
    Director
    
    March 31, 2005/s/ David E. Kennedy

David E. Kennedy
    
    Director, Chief Executive Officer and President
    
    March 31, 2005/s/ Nancy A. Vaeth-Dubroff

Nancy A. Vaeth-Dubroff
    
    Director, Vice President
    
    March 31, 2005/s/ John L. Finlayson

John L. Finlayson
    
    Director, Vice President (and principal financial and
accounting officer)
    
    March 31, 2005
 75