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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 333-80523 SUSQUEHANNA MEDIA CO. (Exact name of registrant as specified in its charter) DELAWARE
    
    23-2722964(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 140 East Market Street
York, Pennsylvania 17401
(717) 848-5500
(Address, including zip code and telephone
number, including area code, of
registrants principal executive
offices) (Former name, former address and former fiscal year,
if changed since last report)
(Not Applicable) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X]    NO
[   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [   ]   NO [X] As of May 14, 2004, the Registrant had 1,100,000 total shares of common stock,
$1.00 par value outstanding, all of which was owned by Susquehanna Pfaltzgraff
Co., the Registrants parent.




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SUSQUEHANNA MEDIA CO.
FORM 10-Q TABLE OF CONTENTS PART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets
    
    
    2Condensed Consolidated Income Statements
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    14PART II  OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    14Signature
    
    
    15EX-31.1EX-31.2EX-32.1EX-32.2




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31, 2004
    
    December 31,(Unaudited)
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    
    
    
    $
    525Accounts receivable, less allowance for doubtful
accounts of $1,675 in 2004 and $1,971 in 2003
    
    
    42,372
    
    
    
    52,192Current portion of notes receivable from Parent
    
    
    4,690
    
    
    
    4,690Deferred income taxes
    
    
    6,493
    
    
    
    6,621Interest receivable from Parent
    
    
    1,674
    
    
    
    Other current assets
    
    
    9,801
    
    
    
    6,818Total Current Assets
    
    
    65,030
    
    
    
    70,846Property, Plant and Equipment, at costLand
    
    
    5,948
    
    
    
    5,948Buildings and improvements
    
    
    23,448
    
    
    
    23,399Equipment
    
    
    303,243
    
    
    
    272,734Construction-in-progress
    
    
    15,428
    
    
    
    12,443348,067
    
    
    
    314,524Accumulated depreciation and amortization
    
    
    160,799
    
    
    
    154,610Property, Plant and Equipment, net
    
    
    187,268
    
    
    
    159,914Intangible Assets and Goodwill, net
    
    
    491,196
    
    
    
    402,466Notes Receivable from Parent
    
    
    104,951
    
    
    
    104,951Investments and Other Assets
    
    
    28,434
    
    
    
    38,973$
    876,879
    
    
    $
    777,150LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesCash overdrafts
    
    $
    179
    
    
    $
    Current portion of long-term debt
    
    
    34
    
    
    
    34Accounts payable
    
    
    10,253
    
    
    
    11,225Accrued employee-related costs
    
    
    14,263
    
    
    
    14,997Accrued income taxes
    
    
    8,781
    
    
    
    7,144Accrued interest
    
    
    10,824
    
    
    
    4,663Accrued franchise and licensing fees
    
    
    1,539
    
    
    
    2,944Deferred income
    
    
    2,947
    
    
    
    1,542Other accrued expenses
    
    
    7,407
    
    
    
    6,893Total Current Liabilities
    
    
    56,227
    
    
    
    49,442Long-term Debt
    
    
    604,215
    
    
    
    515,671Other Liabilities
    
    
    13,642
    
    
    
    13,845Deferred Income Taxes
    
    
    71,722
    
    
    
    71,216Minority Interests
    
    
    67,953
    
    
    
    67,223Stockholders EquityPreferred stock  Voting, 7% cumulative with $100
par value, authorized 110,000 shares
    
    
    7,050
    
    
    
    7,050Common stock  Voting, $1 par value, 1,100,000
shares authorized
    
    
    1,100
    
    
    
    1,100Retained earnings
    
    
    54,970
    
    
    
    51,603Total Stockholders Equity
    
    
    63,120
    
    
    
    59,753$
    876,879
    
    
    $
    777,150
 The accompanying notes are an integral part of these condensed consolidated financial statements. 2




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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED INCOME STATEMENTS
 For the Three MonthsEnded March 31,2004
    
    2003RevenuesRadio
    
    $
    46,679
    
    
    $
    44,917Cable
    
    
    39,111
    
    
    
    32,990Other
    
    
    1,071
    
    
    
    2,554Total revenues
    
    
    86,861
    
    
    
    80,461Operating ExpensesOperating and programming
    
    
    34,588
    
    
    
    31,085Selling
    
    
    9,691
    
    
    
    9,183General and administrative
    
    
    19,678
    
    
    
    17,164Depreciation and amortization
    
    
    8,966
    
    
    
    7,906Total operating expenses
    
    
    72,923
    
    
    
    65,338Operating Income
    
    
    13,938
    
    
    
    15,123Other Income (Expense)Interest expense
    
    
    (8,843
    )
    
    
    (6,525
    )Interest income from Parent
    
    
    1,656
    
    
    
    1,704Other
    
    
    63
    
    
    
    (195
    )Income Before Income Taxes and
Minority Interests
    
    
    6,814
    
    
    
    10,107Provision for Income Taxes
    
    
    2,573
    
    
    
    3,728Income Before Minority Interests
    
    
    4,241
    
    
    
    6,379Minority Interests
    
    
    (750
    )
    
    
    (939
    )Net Income
    
    
    3,491
    
    
    
    5,440Preferred Dividends Declared
    
    
    (123
    )
    
    
    (123
    )Net Income Available for Common Shares
    
    $
    3,368
    
    
    $
    5,317
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three MonthsEnded March 31,2004
    
    2003Cash Flows from Operating ActivitiesNet income
    
    $
    3,491
    
    
    $
    5,440Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    8,966
    
    
    
    7,906Deferred income taxes
    
    
    632
    
    
    
    1,357Minority interests
    
    
    750
    
    
    
    939Equity in earnings of investees
    
    
    36
    
    
    
    182Deferred financing amortization
    
    
    755
    
    
    
    271Changes in assets and liabilities:Decrease in accounts receivable, net
    
    
    9,820
    
    
    
    11,967Increase in other current assets
    
    
    (2,983
    )
    
    
    (1,879
    )Increase in interest receivable from parent
    
    
    (1,674
    )
    
    
    (1,723
    )Decrease in accounts payable
    
    
    (973
    )
    
    
    (2,804
    )Increase in accrued interest
    
    
    6,161
    
    
    
    3,065Increase (decrease) in accrued income taxes
    
    
    1,639
    
    
    
    (2,708
    )Decrease in other accrued expenses
    
    
    (220
    )
    
    
    (448
    )Decrease in other liabilities
    
    
    (203
    )
    
    
    (1,219
    )Net cash provided by operating activities
    
    
    26,198
    
    
    
    20,346Cash Flows from Investing ActivitiesPurchase of property, plant and equipment, net
    
    
    (5,345
    )
    
    
    (9,504
    )Acquisition
    
    
    (109,696
    )
    
    
    Increase in investments, other assets and intangible assets
    
    
    (267
    )
    
    
    (1,856
    )Net cash used by investing activities
    
    
    (115,308
    )
    
    
    (11,360
    )Cash Flows from Financing ActivitiesIncrease (decrease) in revolving credit borrowings
    
    
    12,800
    
    
    
    (4,700
    )New term loan borrowings
    
    
    250,000
    
    
    
    Repayment of term loans
    
    
    (174,251
    )
    
    
    (4,250
    )Increase in cash overdraft
    
    
    179
    
    
    
    112Payment of preferred dividends
    
    
    (123
    )
    
    
    (123
    )Non-voting subsidiary common stock transactions
    
    
    (19
    )
    
    
    (25
    )Net cash provided by (used by) financing activities
    
    
    88,586
    
    
    
    (8,986
    )Net Decrease in Cash and Cash Equivalents
    
    
    (525
    )
    
    
    Cash and Cash Equivalents, beginning
    
    
    525
    
    
    
    Cash and Cash Equivalents, ending
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed consolidated interim financial statements included
herein have been prepared, without audit, by Susquehanna Media Co. (the
Company or Media). The financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and with the instructions to the
Form 10-Q and Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted; however, Media believes that the disclosures are adequate
to make the information presented not misleading. The condensed consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and the notes thereto included in Medias
Annual Report on Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission. The condensed consolidated financial statements (the financial
statements) include the accounts of Media and all its subsidiaries. All
significant intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying condensed consolidated
interim financial statements contain all material adjustments (consisting only
of normal recurring adjustments) necessary to present fairly Medias
consolidated financial position as of March 31, 2004 and the results of its
operations for the three months ended March 31, 2004 and 2003 and its cash
flows for the three months ended March 31, 2004 and 2003. 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 at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Interim results are not necessarily indicative of results for the full year or
future periods. 2. Recent Developments Recent Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46
addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. FIN 46 applies immediately to
variable interests in variable interest entities created after January 31,
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. SFAS 150 is effective
for financial instruments entered into or modified after May 31, 2003. A Media
subsidiary has non-controlling interests that are subject to mandatory
repurchase. However, the FASB has indefinitely deferred implementation of SFAS
150s provisions related to these non-controlling interests. Acquisition Acquisitions are accounted for as purchases. The purchase price of
acquisitions are allocated to the tangible and intangible assets and to
liabilities assumed at fair values. In determining fair value, Media makes
estimates and assumptions, 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 Condensed
Consolidated Statements of Operations from their acquisition dates. 5




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On March 9, 2004, Susquehanna Media Co. (Media) purchased cable systems
from RCN Telecom Services, Inc. (RCN) for $119.7 million. 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 purchase price was allocated as follows based on an independent
valuation (in thousands): Tangible assetsCable distribution and premises equipment
    
    $
    28,204Other tangible assets
    
    
    1,287Intangible assets with determinable livesAcquired subscriber base
    
    
    33,980Intangible assets with indefinite livesCable franchise values
    
    
    55,811Goodwill
    
    
    414Total
    
    $
    119,696
 Purchase price adjustments and working capital prorations are expected to
be finalized within ninety days after closing. The acquisition was funded
using new credit facilities described under New Borrowings. 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 $0.4 million through March 31, 2004. The following amounts attributable to the Carmel acquisition were included
in Medias condensed consolidated financial statements for the quarter (in
thousands): Current assets
    
    $
    2,240Property, plant and equipment, net
    
    
    28,875Intangible assets, net
    
    
    89,305Current liabilities
    
    
    2,354Revenues
    
    
    1,700Depreciation and amortization
    
    
    1,516Operating loss
    
    
    (1,253
    )Interest expense
    
    
    549
 3. Long-term Debt New Borrowings Media funded the Carmel acquisition on March 9, 2004 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 repay all of the Old Facilities
(approximately $195 million). The New Facilities were effective March 9, 2004 and are comprised of a
$200 million Revolving Credit Loan commitment, a $150 million Term A Loan and a
$250 Term B Loan. 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 the equity for all subsidiaries and a pledge of the Parents stock
of Media. 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
bears 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 March 31, 2004, the effective interest rate on Revolving Credit Loan and
Term B Loan borrowings was 2.72% and 3.15%, respectively. 6




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The Revolving Credit Loan commitment does not amortize and matures in
March 2011. The Term A Loan begins amortizing in 2006 and matures in March
2011. The Term B Loan begins amortizing in 2005 and matures in March 2012. As
of March 30, 2004, the following amounts were borrowed and available for
borrowing (in millions): Borrowed
    
    AvailableRevolving Credit Loan
    
    $
    54
    
    
    $
    146Term A Loan
    
    
    
    
    
    
    150Term B Loan
    
    
    250
    
    
    
    Totals
    
    $
    304
    
    
    $
    296
 The New Facilities 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. 8.5% Senior Subordinated Notes Media has notified its trustee for the 8.5% Senior Subordinated Notes
(Notes) that it intends to call the Notes on May 15, 2004. On May 17, 2004,
a total of $162.75 million will be paid to bondholders. The amount to be
redeemed includes the Notes $150.0 million principal balance, a $6.375 million
call premium and $6.375 million of accrued interest. The second quarters
statement of operations will recognize an $8.3 million loss on extinguishment,
including a $1.9 million charge for unamortized note issuance costs. The Notes redemption will be funded using Medias New Facilities. 7




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4. Segment Information The Companys business units have separate management teams 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 of these businesses and its financial reporting
structure. Accounting policies, as described in the Companys most recent
audited financial statements, are applied consistently across all segments. Segment information follows (in thousands): Radio
    
    Cable
    
    Other
    
    TotalFor the Three Months Ended March 31, 2004Operating income (loss)
    
    $
    8,503
    
    
    $
    6,344
    
    
    $
    (909
    )
    
    $
    13,938Interest expense, net
    
    
    1,719
    
    
    
    3,612
    
    
    
    3,512
    
    
    
    8,843Depreciation and amortization
    
    
    1,665
    
    
    
    7,212
    
    
    
    89
    
    
    
    8,966Income (loss) before income taxes
    
    
    6,883
    
    
    
    2,732
    
    
    
    (2,801
    )
    
    
    6,814Identifiable assets
    
    
    407,846
    
    
    
    342,052
    
    
    
    126,981
    
    
    
    876,879Capital expenditures
    
    
    661
    
    
    
    4,545
    
    
    
    139
    
    
    
    5,345For the Three Months Ended March 31, 2003Operating income (loss)
    
    $
    7,948
    
    
    $
    7,841
    
    
    $
    (666
    )
    
    $
    15,123Interest expense, net
    
    
    1,484
    
    
    
    2,254
    
    
    
    2,787
    
    
    
    6,525Depreciation and amortization
    
    
    1,646
    
    
    
    6,209
    
    
    
    51
    
    
    
    7,906Income (loss) before income taxes
    
    
    6,450
    
    
    
    5,587
    
    
    
    (1,930
    )
    
    
    10,107Identifiable assets
    
    
    394,495
    
    
    
    215,214
    
    
    
    130,748
    
    
    
    740,457Capital expenditures
    
    
    1,565
    
    
    
    7,119
    
    
    
    820
    
    
    
    9,504
 5. Subsequent Events On
April 1, 2004, Media purchased the remaining sixty percent interest in 1051FM, LLC
from Jesscom, Inc. (Jesscom) for $15 million cash. Media now completely owns
and operates KFME-FM. Existing credit facilities were used to fund the
acquisition. Under the terms of a joint operating agreement, Media formerly
sold commercial airtime on Radio Station KFME-FM and Jesscom programmed and
operated the station. KFME-FM is licensed to Garden City, Missouri and serves
the Kansas City marketplace. An independent valuation of the purchase is in
progress. Annually, on April 1, share values for the Radio Employee Stock Plan and
the Cable Performance Share Plan are changed based on the results of the
Parents annual independent valuation for ESOP purposes. On April 1, 2004,
Media will recognize compensation expense for the $1.5 million increase in the
value of Cable Performance Share Plan shares. The $5.3 million increase in
value of outstanding Radio Employee Stock Plan shares will be recognized as
minority interests in the second quarters statement of operations. Media expects to redeem approximately $7.6 million of Radio Employee
Stock Plan shares in May 2004 from employees. Approximately $2.9 million
of the redeemed shares will be paid out over two years. Existing credit
facilities will be utilized to fund the redemptions. 8




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Note Regarding Forward-Looking Statements Some of the statements in this Form 10-Q, as well as statements made by us
in filings with government regulatory bodies, including the Securities and
Exchange Commission, and in periodic press releases and other public comments
and communications, constitute forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology, such as believes, expects, may,
will, should, estimates, intends, plans, approximately, or
anticipates or the negative thereof or other variations thereof or comparable
terminology, or by discussion of strategies, each of which involves risks and
uncertainties. We have based these forward-looking statements on our current
expectations and projections about future events and trends affecting the
financial condition of our business that may prove to be incorrect. These
forward-looking statements relate to future events, our future financial
performance, and involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance, achievements or
industry results to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. You should specifically consider the various factors identified in
this report and in any other documents filed by us with the SEC that could
cause actual results to differ materially from our forward-looking statements.
All statements other than of historical facts included herein or therein,
including those regarding market trends, our financial position, business
strategy, projected plans and objectives of management for future operations,
are forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results or performance to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Such factors include, but are not limited to:  
    
    general economic and business conditions, both nationally and in our markets;  
    
    interest rate movements;  
    
    terrorists acts or adverse reactions to United States anti-terrorism activities;  
    
    expectations and estimates concerning future financial performance;  
    
    the amount and timing of payments required under the Radio Employee Stock Plan and the Cable Performance Share Plan;  
    
    acquisition opportunities and our ability to successfully integrate acquired businesses, properties or other assets and
realize anticipated benefits of such acquisitions;  
    
    our ability to successfully enter new lines of business, from time to time, such as telephony;  
    
    financing plans and access to adequate capital on favorable terms;  
    
    our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our
businesses;  
    
    the impact of competition from other radio stations, media forms, communication service providers and telephony service
providers;  
    
    changes in accounting principles generally accepted in the United States and SEC rules and regulations;  
    
    the impact of existing and future regulations affecting our businesses, including radio licensing and ownership rules and
cable television regulations;  
    
    the possible non-renewal of cable franchises;  
    
    increases in programming costs;  
    
    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-Q might not transpire. You should also read carefully the factors
described in the Risk Factors section of our annual report on Form 10-K for
the year ended December 31, 2003. 9




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##### Table of Contents



General Media
is a diversified communications company with operations in radio broadcasting
and cable television. We are the largest privately-owned radio
broadcaster and the 11th largest radio broadcaster overall in the
United States of America based on 2003 revenues. We are also the 18th
largest cable television multiple system operator in the United
States of America based on subscribers as of December 31, 2003.
Through our subsidiary, SusQtech, we provide Internet content
management, eCommerce and eProcurement solutions to clients in the
mid-Atlantic region. For
first quarter 2004, 54% of Medias revenues were from Radio and
45% were from Cable. Medias
outstanding common stock is owned by its corporate parent,
Susquehanna Pfaltzgraff Co. The
Radio business focuses on acquiring, operating and developing radio
stations in the United States 40 largest markets. Our
Radio stations offer programming over a broad range of formats.
Revenues are generated by broadcasting local advertising, national advertising and client events
on our stations. The
Cable business provides a broad range of cable television, high-speed
Internet access and telephony services to geographically clustered
subscribers in small to medium-sized communities. Our Cable
operations focus on providing subscribers with high-quality service
offerings, superior customer service and attractive programming
choices at reasonable rates. Cables revenues are generated by
providing basic and expanded basic cable television service, digital
cable services, premium services, pay-per-view services, high-speed
Internet access and in certain areas, telephony services. On
March 9, 2004, Cable purchased assets serving approximately
29,100 cable television subscribers in the Carmel, New York
area from RCN for $119.7 million cash. This purchase marked
Cables entry into providing telephony services to approximately
9,000 Carmel-area subscribers. Media utilized new borrowing
facilities, described later, to fund this acquisition. Results of Operations The following table summarizes Medias consolidated historical results
of operations and consolidated historical results of operations as a
percentage of revenues for the three months ended March 31, 2004 and 2003
(in millions): Three months ended March 31, 2004Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    46.7
    
    
    
    100.0
    %
    
    $
    39.1
    
    
    
    100.0
    %
    
    $
    1.1
    
    
    
    100.0
    %
    
    $
    86.9
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    15.6
    
    
    
    33.4
    %
    
    
    18.3
    
    
    
    46.8
    %
    
    
    .7
    
    
    
    63.6
    %
    
    
    34.6
    
    
    
    39.8
    %Selling
    
    
    8.2
    
    
    
    17.6
    %
    
    
    1.4
    
    
    
    3.6
    %
    
    
    .2
    
    
    
    18.2
    %
    
    
    9.8
    
    
    
    11.3
    %General and administrative
    
    
    12.8
    
    
    
    27.4
    %
    
    
    5.9
    
    
    
    15.1
    %
    
    
    .9
    
    
    
    81.8
    %
    
    
    19.6
    
    
    
    22.6
    %Depreciation and amortization
    
    
    1.6
    
    
    
    3.4
    %
    
    
    7.2
    
    
    
    18.4
    %
    
    
    .1
    
    
    
    9.1
    %
    
    
    8.9
    
    
    
    10.2
    %Total operating expenses
    
    
    38.2
    
    
    
    81.8
    %
    
    
    32.8
    
    
    
    83.9
    %
    
    
    1.9
    
    
    
    172.7
    %
    
    
    72.9
    
    
    
    83.9
    %Operating income (loss)
    
    $
    8.5
    
    
    
    18.2
    %
    
    $
    6.3
    
    
    
    16.1
    %
    
    $
    (0.8
    )
    
    
    (72.7
    )%
    
    
    14.0
    
    
    
    16.1
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.8
    )
    
    
    (10.1
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    1.8
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )
    
    
    (3.0
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.7
    )
    
    
    (0.8
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.5
    
    
    
    4.0
    %
 Three months ended March 31, 2003Radio
    
    Cable
    
    Internet and Other
    
    TotalRevenues
    
    $
    44.9
    
    
    
    100.0
    %
    
    $
    33.0
    
    
    
    100.0
    %
    
    $
    2.6
    
    
    
    100.0
    %
    
    $
    80.5
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    15.4
    
    
    
    34.3
    %
    
    
    14.0
    
    
    
    42.4
    %
    
    
    1.6
    
    
    
    61.5
    %
    
    
    31.0
    
    
    
    38.5
    %Selling
    
    
    8.1
    
    
    
    18.0
    %
    
    
    .7
    
    
    
    2.1
    %
    
    
    .4
    
    
    
    15.4
    %
    
    
    9.2
    
    
    
    11.5
    %General and administrative
    
    
    11.9
    
    
    
    26.5
    %
    
    
    4.3
    
    
    
    13.0
    %
    
    
    1.1
    
    
    
    42.3
    %
    
    
    17.3
    
    
    
    21.5
    %Depreciation and amortization
    
    
    1.6
    
    
    
    3.6
    %
    
    
    6.2
    
    
    
    18.8
    %
    
    
    .1
    
    
    
    3.9
    %
    
    
    7.9
    
    
    
    9.8
    %Total operating expenses
    
    
    37.0
    
    
    
    82.4
    %
    
    
    25.2
    
    
    
    76.4
    %
    
    
    3.2
    
    
    
    123.1
    %
    
    
    65.4
    
    
    
    81.3
    %Operating income (loss)
    
    $
    7.9
    
    
    
    17.6
    %
    
    $
    7.8
    
    
    
    23.6
    %
    
    $
    (0.6
    )
    
    
    (23.1
    )%
    
    
    15.1
    
    
    
    18.7
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.5
    )
    
    
    (8.1
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    2.1
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.2
    )
    
    
    (0.3
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    (4.6
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.9
    )
    
    
    (1.1
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5.4
    
    
    
    6.7
    %
 10




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##### Table of Contents



Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31,
2003 Consolidated Revenues. Consolidated revenues increased $6.4 million or 8% from
2003 to 2004. Radio and Cable revenues were 54% and 45% of consolidated
revenues, respectively. Operating and programming expenses.Operating and programming
expenses increased $3.6 million or 12% from 2003 to 2004. The majority of
the increase in operating and programming expense occurred in the Cable
segment. General and administrative expenses.General and administrative
expenses increased $2.3 million or 13% from 2003 to 2004. Radio and Cable
general and administrative expenses were 65% and 30% of consolidated
general and administrative expenses, respectively. Operating income.Operating income decreased $1.1 million or 7% from
2003 to 2004, largely due to the increase in Cables operating and general
and administrative expenses. Net income.Net income decreased $1.9 million or 35% from 2003 to 2004.
The decrease in net income is the result of decreased operating income in Cable
and higher interest expense. The effective rate for income taxes did not
change significantly between 2004 and 2003. Depreciation and amortization.Depreciation and amortization increased
$1.0 million or 13% from 2003 to 2004. Cables acquisition of the Carmel cable
systems and the impact of plant rebuilds and infrastructure improvements to
support growing cable modem and digital video service revenues were responsible
for the increase. Interest expense. Interest expense increased $2.3 million or 35% from
2003 to 2004. The issuance of $150.0 million 7.375% Senior Subordinated Notes
in April, 2003 created an effective interest rate increase for the three months
ended March 31, 2004 compared to the same period in 2003. Interest expense
also increased from additional debt used to acquire the Carmel cable systems. Radio Segment Revenues. Radio revenues increased $1.8 million or 4% from 2003 to
2004 largely on improvement in our Kansas City and Atlanta operations and
the impact of WSOX-FM (acquired August 2003). On a same stations basis
(not including WSOX-FM) revenues increased $1.1 million or 2%. Operating and programming expenses.Operating and programming
expenses were virtually unchanged due to very low inflationary pressure and
increased efficiencies, resulting in a decrease as a percentage of
revenues. General and administrative expenses.Radio general and
administrative expenses increased $0.9 million or 8% from 2003 to 2004.
Approximately half the increase in general and administrative expenses was
attributable to increased ESOP benefit expense caused primarily by the
September 2003 change in allocation methodology. Other general and
administrative costs were relatively unchanged. Operating income.Operating income increased $0.6 million or 8% from 2003
to 2004. On a same stations basis, Radio operating income increased
$0.8 million or 10% from 2003 to 2004. Operating income increased over 2003 in
Kansas City, Atlanta and Houston. WSOX-FM related depreciation and
amortization decreased operating income for the York stations. 11




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##### Table of Contents



Cable Segment Revenues. Cable revenues increased $6.1 million or 18% from 2003 to
2004. As of January 1st, BlazeNets Internet Service Provider access and
hosting operations that were previously reported within the Internet and
Other segment were merged into Cables operation. Other Internet-related
services remain in the Other segment. The change in segment composition
reflects the broader communications scope of Cables operations and the
resulting management realignment. Revenues for BlazeNet totaled $1.5
million for the three months ended March 31, 2004. On March 9, 2004, Media acquired cable systems serving Carmel, New
York. Approximately $1.7 million of revenue was generated by the Carmel
system from March 9, 2004 to March 31, 2004. On a same systems basis
(excluding BlazeNet and Carmel, New York revenues), revenues increased $2.9
million or 9% from 2003 to 2004. Increasing penetration of high-speed
Internet access and basic/expanded basic rate increases were responsible
for the improvement in revenues. Operating and programming expenses.Cables operating and programming
expenses increased $4.3 million or 31% from 2003 to 2004. On a
same systems
basis, operating and programming expense increased $2.4 million or 17%.
Approximately 63% of the increase in operating and programming costs
relates to our increasing cost of acquired programming from both rate
increases imposed by program owners and from the launch of new services.
The direct costs associated with delivery of high-speed Internet access
increased 32% slightly less than the 45% growth in high-speed data
revenues. The remaining operating expenses moved ratably with revenues. General and administrative expenses.Cable general and
administrative expenses increased $1.6 million or 37% from 2003 to 2004.
On a same systems basis, general and administrative expenses increased $1.0
million or 23% from 2003. Increased general and administrative expenses
were primarily from the efforts to centralize Cables customer care
operations in York, Pennsylvania. These increased costs to centralize
customer care are expected to continue through the third quarter. Carmel
transition expenses incurred in March 2004 were approximately $0.4 million.
Similar transition expenses are expected through September 2004. Depreciation and amortization.Depreciation and amortization increased
$1.0 million from 2003 to 2004 due to amortization of customer lists for the
Lawrenceburg and Carmel acquisitions and the effect of cable plant rebuilds
completed after March 2003. Operating income.Cable operating income decreased $1.5 million or 19%
from 2003 to 2004. On a same systems basis, Cable operating income decreased
$0.3 million or 4% from 2003 to 2004. The decreased operating income is
attributable to the acquisition of the Carmel cable system (operating loss of
$1.3 million in first quarter 2004) and higher programming costs. 12




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##### Table of Contents



Liquidity and Capital Resources The Companys primary sources of liquidity are cash flow from
operations, borrowings under its senior credit facilities and other
borrowings. The Companys future needs for liquidity arise primarily from
capital expenditures, potential acquisitions of radio stations and cable
systems, potential repurchases of common stock, and interest payable on
outstanding indebtedness and its senior credit facilities. From time to
time, as market conditions permit, we may also access the capital markets
with debt or equity financing. Net cash provided by operating activities was $26.2 million for the
three months ended March 31, 2004. The Companys net cash provided by
operating activities was generated by normal operations. Net cash used by investing activities was $115.3 million for the three
months ended March 31, 2004. On March 9, 2004, Media acquired the assets
of cable systems serving Carmel, New York for $119.7 million cash. Capital
expenditures, excluding acquisitions, were $5.3 million and $9.5 million
for the three months ended March 31, 2004 and 2003, respectively. Capital
expenditures were primarily used to upgrade and maintain our cable systems.
The Company expects to make capital expenditures of $35.7 million during
the remainder of 2004, primarily for cable systems upgrades. We expect to
utilize our New Facilities and operating cash flow to fund cable systems
upgrades. Net cash provided by financing activities was $88.6 million for the three
months ended March 31, 2004. Coincident with the acquisition of the Carmel,
New York cable system on March 9, 2004, Media replaced its senior secured
credit facility with the New Facilities. The New Facilities Revolving Credit
Loan and Term A Loan had $295.9 million available at March 31, 2004.
Approximately $156.4 million of the New Facilities availability will be
utilized to call our $150.0 million 8.5% Senior Subordinated Notes (Notes)
as of May 15, 2004. Media expects to redeem approximately $7.6 million of Radio Employee
Stock Plan shares in May 2004 from employees. Approximately $2.9 million
of the redeemed shares will be paid out over two years. Existing credit
facilities will be utilized to fund the redemptions. The following tables reflect our contractual cash obligations as of March
31, 2004 in the respective periods in which they are due (in thousands): Contractual Cash
    
    TotalObligations
    
    Amounts Committed
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterLong-term debt
    
    $
    900,000
    
    
    $
    150,000
    
    
    $
    1,875
    
    
    $
    13,750
    
    
    $
    23,125
    
    
    $
    30,625
    
    
    $
    680,625Notes premium
    
    
    6,375
    
    
    
    6,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Broadcast rights
    
    
    12,925
    
    
    
    6,675
    
    
    
    3,050
    
    
    
    3,200
    
    
    
    
    
    
    
    
    
    
    
    RCN transition
    
    
    2,755
    
    
    
    2,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    33,591
    
    
    
    5,142
    
    
    
    5,017
    
    
    
    4,843
    
    
    
    4,345
    
    
    
    3,168
    
    
    
    11,076Total
    
    $
    955,646
    
    
    $
    170,947
    
    
    $
    9,942
    
    
    $
    21,793
    
    
    $
    27,470
    
    
    $
    33,793
    
    
    $
    691,701
 Media was in compliance with its loan covenants, as each is defined under
the New Facilities, as of March 31, 2004. A summary of the most restrictive
covenants, the required covenant value and the corresponding actual value
follows: Covenant Test
    
    Actual ValueFixed charge coverage ratio must be at least 1.10
    
    
    1.97Maximum consolidated leverage ratio may not exceed 6.50
    
    
    4.17Interest coverage ratio must be at least 2.00
    
    
    5.22
 Our New Facilities include a provision that allows our lender to refuse
additional borrowings if our financial condition suffers a material adverse
change. Violation of covenants under the New Facilities could result in a
default of our 8.5% Senior Subordinated Notes and our 7.375% Senior
Subordinated Notes. A default under either the 8.5% Senior Subordinated Notes
or the 7.375% Senior Subordinated Notes could result in a default under our New
Facilities. A default under the 8.5% Senior Subordinated Notes could result in
a default under the 7.375% Senior Subordinated Notes. Any such cross defaults
would permit our lenders and noteholders to accelerate the debt. 13




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##### Table of Contents



On April 5, 2004, we gave the trustee notice of our intention to call the
$150.0 million Notes as of May 15, 2004. We expect to fund the Notes
repurchase using our New Facilities. In addition to the Notes principal
amount, a call premium of $6.4 million will be paid to noteholders. The call
premium and unamortized deferred issue costs will be recognized as an $8.3
million second quarter loss on debt extinguishment. Media believes funds generated from operations and funds available from
our New Facilities will be sufficient to finance its current operations, its
debt service obligations, and its planned capital expenditures. From time to
time, Media evaluates potential acquisitions of radio stations and cable
television systems. In connection with future acquisition opportunities, Media
may incur additional debt or issue additional equity or debt securities
depending on market conditions and other factors. Except as disclosed in this
Form 10-Q, Media has no current commitments or agreements with respect to any
material acquisitions. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We monitor and evaluate changes in market conditions on a regular basis.
Based upon the most recent review, management has determined that through March
31, 2004, there have been no material developments affecting market risk since
the filing of Medias December 31, 2003 Annual Report on Form 10-K filed with
the SEC. 
 ITEM 4. CONTROLS AND PROCEDURES Pursuant to Rule 15d-15(b) under the Securities Exchange Act of 1934, we
carried out an evaluation, with the participation of our management, including
our principal executive officer and principal financial officer, of the
effectiveness of our disclosure controls and procedures (as defined under Rule
15d-15(e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report. Based upon that evaluation, our principal
executive officer and principal financial officer, concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us required to be included in our periodic SEC
filings. There has been no change in our internal control over financial
reporting during the quarter ended March 31, 2004 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting. Management acknowledges that any system of internal
control over financial reporting, however well constructed and monitored, can
only provide a reasonable assurance that the objectives of that control system
are met and that the maintenance and monitoring of such control system is an
ongoing process. Accordingly, the Companys internal control over financial
reporting may change in the future. 
 PART II  OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Filed Herewith:  31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Peter P. Brubaker.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by John L. Finlayson.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Peter P. Brubaker.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John L. Finlayson. (b) Reports on Form 8-K:  
    
    The Company furnished a Form 8-K on February 17, 2004 under
Item 9. Regulation FD Disclosure, concerning new borrowing plans.
    
    The Company filed a Form 8-K on March 12, 2004 under Item 2.
Acquisition or Disposition of Assets, concerning the purchase of
cable systems from RCN. 14




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized. May 17, 2004
    SUSQUEHANNA MEDIA CO.By:
    /s/ John L. FinlaysonJohn L. Finlayson
Vice President and Principal
Financial and Accounting Officer