##### 



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 June 30, 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 August 12, 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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TABLE OF CONTENTS PART I - FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets
    
    
    2Condensed Consolidated Statements of Operations
    
    
    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
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 5. Exhibits and Reports on Form 8-K
    
    
    19Signature
    
    
    20




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PART I - FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 
 June 30, 2004
    
    December 31, 2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    92
    
    
    $
    525Accounts receivable, less allowance for doubtful
accounts of $1,950 in 2004 and $2,039 in 2003
    
    
    56,156
    
    
    
    52,192Current portion of notes receivable from Parent
    
    
    4,690
    
    
    
    4,690Deferred income taxes
    
    
    6,557
    
    
    
    6,621Interest receivable from Parent
    
    
    3,330
    
    
    
    Other current assets
    
    
    6,863
    
    
    
    6,818Total Current Assets
    
    
    77,688
    
    
    
    70,846Property, Plant and Equipment, at costLand
    
    
    5,948
    
    
    
    5,948Buildings and improvements
    
    
    23,696
    
    
    
    23,399Equipment
    
    
    305,048
    
    
    
    272,734Construction-in-progress
    
    
    23,513
    
    
    
    12,443358,205
    
    
    
    314,524Accumulated depreciation and amortization
    
    
    166,874
    
    
    
    154,610Property, Plant and Equipment, net
    
    
    191,331
    
    
    
    159,914Intangible Assets and Goodwill, net
    
    
    512,149
    
    
    
    402,466Notes Receivable from Parent
    
    
    104,951
    
    
    
    104,951Investments and Other Assets
    
    
    19,945
    
    
    
    38,973$
    906,064
    
    
    $
    777,150LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesCurrent portion of long-term debt
    
    $
    2,116
    
    
    $
    34Accounts payable
    
    
    9,493
    
    
    
    11,225Accrued employee-related costs
    
    
    19,764
    
    
    
    14,997Accrued income taxes
    
    
    10,298
    
    
    
    7,144Accrued interest
    
    
    3,610
    
    
    
    4,663Accrued franchise and licensing fees
    
    
    2,351
    
    
    
    2,944Deferred income
    
    
    3,943
    
    
    
    1,542Other accrued expenses
    
    
    9,334
    
    
    
    6,893Total Current Liabilities
    
    
    60,909
    
    
    
    49,442Long-term Debt
    
    
    628,133
    
    
    
    515,671Other Liabilities
    
    
    14,884
    
    
    
    13,845Deferred Income Taxes
    
    
    73,080
    
    
    
    71,216Minority Interests
    
    
    66,508
    
    
    
    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
    
    
    54,400
    
    
    
    51,603Total Stockholders Equity
    
    
    62,550
    
    
    
    59,753$
    906,064
    
    
    $
    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 STATEMENTS OF OPERATIONS
   For the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2004
    
    2003
    
    2004
    
    2003RevenuesRadio
    
    $
    64,233
    
    
    $
    62,567
    
    
    $
    110,912
    
    
    $
    107,484Cable
    
    
    46,590
    
    
    
    34,037
    
    
    
    85,701
    
    
    
    67,027Other
    
    
    496
    
    
    
    2,513
    
    
    
    1,567
    
    
    
    5,067Total revenues
    
    
    111,319
    
    
    
    99,117
    
    
    
    198,180
    
    
    
    179,578Operating ExpensesOperating and programming
    
    
    42,865
    
    
    
    37,761
    
    
    
    77,453
    
    
    
    68,846Selling
    
    
    11,264
    
    
    
    10,502
    
    
    
    20,955
    
    
    
    19,685General and administrative
    
    
    21,585
    
    
    
    16,807
    
    
    
    41,263
    
    
    
    33,971Depreciation and amortization
    
    
    11,220
    
    
    
    6,952
    
    
    
    20,186
    
    
    
    14,858Total operating expenses
    
    
    86,934
    
    
    
    72,022
    
    
    
    159,857
    
    
    
    137,360Operating Income
    
    
    24,385
    
    
    
    27,095
    
    
    
    38,323
    
    
    
    42,218Other Income (Expense)Interest expense
    
    
    (7,990
    )
    
    
    (7,985
    )
    
    
    (16,833
    )
    
    
    (14,510
    )Loss on extinguishment of debt
    
    
    (9,065
    )
    
    
    
    
    
    
    (9,065
    )
    
    
    Interest income from loan to Parent
    
    
    1,656
    
    
    
    1,723
    
    
    
    3,312
    
    
    
    3,427Other
    
    
    233
    
    
    
    (329
    )
    
    
    296
    
    
    
    (524
    )Income Before Income Taxes and Minority
Interests
    
    
    9,219
    
    
    
    20,504
    
    
    
    16,033
    
    
    
    30,611Provision for Income Taxes
    
    
    3,487
    
    
    
    7,923
    
    
    
    6,060
    
    
    
    11,651Income Before Minority Interests
    
    
    5,732
    
    
    
    12,581
    
    
    
    9,973
    
    
    
    18,960Minority Interests
    
    
    (6,179
    )
    
    
    (3,109
    )
    
    
    (6,929
    )
    
    
    (4,048
    )Net Income (Loss)
    
    
    (447
    )
    
    
    9,472
    
    
    
    3,044
    
    
    
    14,912Preferred Dividends Declared
    
    
    (123
    )
    
    
    (124
    )
    
    
    (247
    )
    
    
    (247
    )Net Income (Loss) Available for Common Shares
    
    $
    (570
    )
    
    $
    9,348
    
    
    $
    2,797
    
    
    $
    14,665
 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 Six MonthsEnded June 30,2004
    
    2003Cash Flows from Operating ActivitiesNet income
    
    $
    3,044
    
    
    $
    14,912Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    20,186
    
    
    
    14,858Deferred income taxes
    
    
    2,131
    
    
    
    3,811Minority interests
    
    
    6,929
    
    
    
    4,048Loss on extinguishment of debt
    
    
    2,690
    
    
    
    Equity in (earnings) loss of investees
    
    
    (121
    )
    
    
    394Deferred financing amortization
    
    
    840
    
    
    
    547Changes in assets and liabilities:Increase in accounts receivable, net
    
    
    (3,963
    )
    
    
    (2,737
    )Decrease (increase) in other current assets
    
    
    (9
    )
    
    
    87Increase in interest receivable from parent
    
    
    (3,330
    )
    
    
    (3,445
    )Decrease in accounts payable
    
    
    (1,742
    )
    
    
    (4,439
    )Increase (decrease) in accrued interest
    
    
    (1,053
    )
    
    
    1,985Increase in accrued income taxes
    
    
    2,951
    
    
    
    1,960Increase in other current liabilities
    
    
    9,016
    
    
    
    3,972Increase (decrease) in other liabilities
    
    
    1,039
    
    
    
    (1,993
    )Net cash provided by operating activities
    
    
    38,608
    
    
    
    33,960Cash Flows from Investing ActivitiesPurchase of property, plant and equipment, net
    
    
    (16,739
    )
    
    
    (17,454
    )Acquisitions
    
    
    (124,496
    )
    
    
    (5,170
    )Advance on WSOX-FM acquisition
    
    
    
    
    
    
    (2,500
    )Increase in investments, other assets and intangible assets
    
    
    (4,476
    )
    
    
    (1,734
    )Net cash used by investing activities
    
    
    (145,711
    )
    
    
    (26,858
    )Cash Flows from Financing ActivitiesIncrease (decrease) in revolving credit borrowings
    
    
    35,900
    
    
    
    (140,500
    )New borrowings
    
    
    400,000
    
    
    
    150,000Repayment of borrowings
    
    
    (324,250
    )
    
    
    (8,500
    )Decrease in cash overdraft
    
    
    
    
    
    
    (849
    )Payment of preferred dividends
    
    
    (247
    )
    
    
    (247
    )Non-voting subsidiary common stock transactions
    
    
    (4,733
    )
    
    
    (6,530
    )Net cash provided by (used by) financing activities
    
    
    106,670
    
    
    
    (6,626
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (433
    )
    
    
    476Cash and Cash Equivalents, beginning
    
    
    525
    
    
    
    Cash and Cash Equivalents, ending
    
    $
    92
    
    
    $
    476
 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 June 30, 2004 and the results of its
operations for the three and six months ended June 30, 2004 and 2003 and its
cash flows for the six months ended June 30, 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. Acquisitions 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 April 1, 2004, Media purchased Jesscom, Inc.s (Jesscom) sixty
percent interest in 1051FM, LLC for $14.8 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 that terminated
April 1, Media formerly sold commercial airtime on Radio Station KFME-FM and
Jesscom had programmed and operated the station. KFME-FM is licensed to Garden
City, Missouri and serves the Kansas City market. The purchase price has been
substantially allocated to FCC license pending a final independent valuation. On March 9, 2004, Susquehanna Media Co. (Media) purchased cable systems
from RCN Telecom Services, Inc. (RCN) for $119.4 million cash. 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 has been 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
    
    
    55,535Goodwill
    
    
    414Total
    
    $
    119,420
 Purchase price adjustments and working capital prorations were expected to
be finalized within ninety days after closing; however, that settlement period
has been extended. The acquisition was funded using new credit facilities
described under New Facilities. RCN 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 expensed services were
approximately $2.0 million through June 30, 2004. The following amounts attributable to the Carmel acquisition were included
in Medias condensed consolidated balance sheet as of June 30, 2004 (in
thousands): Current assets
    
    $
    3,280Property, plant and equipment, net
    
    
    30,010Intangible assets, net
    
    
    86,502Current liabilities
    
    
    4,563
 The following amounts attributable to the Carmel acquisitions operations
were included in Medias condensed consolidated statement of operations from
the acquisition date through June 30, 2004 (in thousands): Revenues
    
    $
    9,957Depreciation and amortization
    
    
    5,453Operating loss
    
    
    (2,954
    )Interest expense
    
    
    1,911
 3. Long-term Debt New Facilities 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 became effective March 9, 2004. They include a $200
million Revolving Credit Loan commitment, a $150 million Term A Loan and a $250
million 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. 6




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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 June 30, 2004, the effective interest rate on Revolving Credit Loan, Term
Loan A and Term B Loan borrowings was 2.52%, 2.79% and 3.15%, respectively. 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 June 30, 2004, the following amounts were borrowed and available for
borrowing (in millions): Borrowed
    
    AvailableRevolving Credit Loan
    
    $
    77
    
    
    $
    123Term A Loan
    
    
    150
    
    
    
    Term B Loan
    
    
    250
    
    
    
    Totals
    
    $
    477
    
    
    $
    123
 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 Redemption Media called its 8.5% Senior Subordinated Notes (Notes) on 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 recognized a $9.1 million loss on debt extinguishment which included
$2.7 million of unamortized deferred financing costs. The redemption was funded
using Medias New Facilities. 4. Radio Employee Stock Plan and Cable Performance Share Plan 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 recognized 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 related to the increase
in valuation was recognized as minority interests in the condensed consolidated
statement of operations. Media redeemed approximately $7.6 million of Radio Employee Stock Plan
shares in May 2004 from retirees and employees. Approximately $2.9 million
of the redeemed shares were exchanged for a note that will be paid out over
two years. Existing credit facilities were utilized to fund the
redemptions. 5. Broadcast Rights On June 7, 2004, Media renewed its broadcast rights for 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. 7




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6. 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 June 30, 2004Operating income (loss)
    
    $
    19,279
    
    
    $
    6,434
    
    
    $
    (1,328
    )
    
    $
    24,385Interest expense, net
    
    
    1,382
    
    
    
    3,498
    
    
    
    3,110
    
    
    
    7,990Depreciation and amortization
    
    
    1,745
    
    
    
    9,373
    
    
    
    102
    
    
    
    11,220Income (loss) before income taxes
    
    
    15,892
    
    
    
    (2,747
    )
    
    
    (3,926
    )
    
    
    9,219Identifiable assets
    
    
    436,051
    
    
    
    343,545
    
    
    
    126,468
    
    
    
    906,064Capital expenditures
    
    
    1,104
    
    
    
    10,228
    
    
    
    62
    
    
    
    11,394For the Three Months Ended June 30, 2003Operating income
    
    $
    18,315
    
    
    $
    8,542
    
    
    $
    238
    
    
    $
    27,095Interest expense, net
    
    
    1,780
    
    
    
    2,651
    
    
    
    3,554
    
    
    
    7,985Depreciation and amortization
    
    
    1,400
    
    
    
    5,478
    
    
    
    74
    
    
    
    6,952Income (loss) before income taxes
    
    
    16,419
    
    
    
    5,892
    
    
    
    (1,807
    )
    
    
    20,504Identifiable assets
    
    
    407,451
    
    
    
    221,609
    
    
    
    135,135
    
    
    
    764,195Capital expenditures
    
    
    1,322
    
    
    
    6,084
    
    
    
    544
    
    
    
    7,950
 Radio
    
    Cable
    
    Other
    
    TotalFor the Six Months Ended June 30, 2004Operating income (loss)
    
    $
    27,782
    
    
    $
    12,778
    
    
    $
    (2,237
    )
    
    $
    38,323Interest expense, net
    
    
    3,101
    
    
    
    7,110
    
    
    
    6,622
    
    
    
    16,833Depreciation and amortization
    
    
    3,410
    
    
    
    16,585
    
    
    
    191
    
    
    
    20,186Income (loss) before income taxes
    
    
    22,775
    
    
    
    (15
    )
    
    
    (6,727
    )
    
    
    16,033Identifiable assets
    
    
    436,051
    
    
    
    343,545
    
    
    
    126,468
    
    
    
    906,064Capital expenditures
    
    
    1,765
    
    
    
    14,773
    
    
    
    201
    
    
    
    16,739For the Six Months Ended June 30, 2003Operating income (loss)
    
    $
    26,263
    
    
    $
    16,383
    
    
    $
    (428
    )
    
    $
    42,218Interest expense, net
    
    
    3,264
    
    
    
    4,905
    
    
    
    6,341
    
    
    
    14,510Depreciation and amortization
    
    
    3,046
    
    
    
    11,687
    
    
    
    125
    
    
    
    14,858Income (loss) before income taxes
    
    
    22,869
    
    
    
    11,479
    
    
    
    (3,737
    )
    
    
    30,611Identifiable assets
    
    
    407,451
    
    
    
    221,609
    
    
    
    135,135
    
    
    
    764,195Capital expenditures
    
    
    2,887
    
    
    
    13,203
    
    
    
    1,364
    
    
    
    17,454
 8




---



##### 



7. Subsequent Events Media has agreed to sell the assets of Radio Station WABZ-FM, licensed to
Albemarle, North Carolina, for approximately $11.5 million cash, subject to FCC
approval. The gain on sale, if approved, may approximate $10 million. A
fourth quarter closing is anticipated. On July 29, 2004, Bridge Capital Investors II sued Susquehanna Radio
Corp., a Media subsidiary, for $10.0 million alleging breach of contract and
unjust enrichment in connection with Medias acquisition of Radio Station
WHMA-FM. The station was originally licensed to Anniston, Alabama then
subsequently moved into the Atlanta, Georgia metropolitan area. Management
cannot predict the outcome of this matter but believes that the action is
without merit because all conditions precedent to the $10.0 million payment
were not met. 9




---



##### 



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. 10




---



##### 



Overview 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 the six months ended June 30, 2004, 56% of Medias revenues were from
Radio and 43% 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. Effective January 1,
2004, we merged parts of our BlazeNet operation that provided high-speed
Internet access and Internet hosting into our cable operations. Medias operations for the six months ended June 30, 2004 included the
following notable items:  -
    
    Cable acquired assets serving approximately 29,100
subscribers in the Carmel, New York area for $119.4 million cash.
This transaction was Medias largest acquisition to date.-
    
    In conjunction with the Carmel acquisition, Media replaced
its previous senior secured credit facility with a $600 million
senior secured credit facility (New Facilities).-
    
    In May 2004, Media used its New Facilities to fund the
redemption of its $150 million 8.5% Senior Subordinated Notes
(Notes). A $9.1 million loss on extinguishment was recognized
which included a $6.4 million call premium paid to bondholders and
the $2.7 million write-off of unamortized deferred financing costs.-
    
    Media acquired total ownership of 1051FM, LLC on April 1 by
purchasing Jesscom, Inc.s sixty percent interest for approximately
$14.8 million cash, using existing credit facilities.-
    
    Transition costs and higher depreciation and amortization
related to the Carmel acquisition depressed cable operating income.-
    
    Cash provided by operating activities for the six months was
$4.6 million higher than 2003.-
    
    An increase in the value of the radio and cable businesses,
according to an independent valuation performed for Susquehanna
Pfaltzgraff Co.s ESOP, increased minority interests by $5.3 million
for the Radio segment and increased general and administrative
deferred compensation expenses by $1.5 million for the Cable and
Other segments as of April 1, 2004. 11




---



##### 



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 and six months ended June 30, 2004 and
2003: Three months ended June 30, 2004(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    64.2
    
    
    
    100.0
    %
    
    $
    46.6
    
    
    
    100.0
    %
    
    $
    0.5
    
    
    
    100.0
    %
    
    $
    111.3
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    20.5
    
    
    
    31.9
    %
    
    
    21.5
    
    
    
    46.1
    %
    
    
    0.8
    
    
    
    160.0
    %
    
    
    42.8
    
    
    
    38.5
    %Selling
    
    
    9.7
    
    
    
    15.1
    %
    
    
    1.3
    
    
    
    2.8
    %
    
    
    0.2
    
    
    
    40.0
    %
    
    
    11.2
    
    
    
    10.1
    %General and administrative
    
    
    12.9
    
    
    
    20.1
    %
    
    
    7.9
    
    
    
    17.0
    %
    
    
    0.9
    
    
    
    180.0
    %
    
    
    21.7
    
    
    
    19.5
    %Depreciation and amortization
    
    
    1.8
    
    
    
    2.8
    %
    
    
    9.4
    
    
    
    20.2
    %
    
    
    0.1
    
    
    
    20.0
    %
    
    
    11.3
    
    
    
    10.1
    %Total operating expenses
    
    
    44.9
    
    
    
    69.9
    %
    
    
    40.1
    
    
    
    86.1
    %
    
    
    2.0
    
    
    
    400.0
    %
    
    
    87.0
    
    
    
    78.2
    %Operating income (loss)
    
    $
    19.3
    
    
    
    30.1
    %
    
    $
    6.5
    
    
    
    13.9
    %
    
    $
    (1.5
    )
    
    
    (300.0
    )%
    
    
    24.3
    
    
    
    21.8
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    (7.2
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    1.5
    %Loss on extinguishment of debt
and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.8
    )
    
    
    (7.9
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.5
    )
    
    
    (3.1
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.2
    )
    
    
    (5.5
    )%Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (0.5
    )
    
    
    (0.4
    )%
 Three months ended June 30, 2003(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    62.6
    
    
    
    100.0
    %
    
    $
    34.0
    
    
    
    100.0
    %
    
    $
    2.5
    
    
    
    100.0
    %
    
    $
    99.1
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    21.2
    
    
    
    33.9
    %
    
    
    15.0
    
    
    
    44.1
    %
    
    
    1.6
    
    
    
    64.0
    %
    
    
    37.8
    
    
    
    38.1
    %Selling
    
    
    9.3
    
    
    
    14.9
    %
    
    
    0.8
    
    
    
    2.4
    %
    
    
    0.4
    
    
    
    16.0
    %
    
    
    10.5
    
    
    
    10.6
    %General and administrative
    
    
    12.4
    
    
    
    19.8
    %
    
    
    4.2
    
    
    
    12.3
    %
    
    
    0.2
    
    
    
    8.0
    %
    
    
    16.8
    
    
    
    17.0
    %Depreciation and amortization
    
    
    1.4
    
    
    
    2.2
    %
    
    
    5.5
    
    
    
    16.2
    %
    
    
    
    
    
    
    
    %
    
    
    6.9
    
    
    
    7.0
    %Total operating expenses
    
    
    44.3
    
    
    
    70.8
    %
    
    
    25.5
    
    
    
    75.0
    %
    
    
    2.2
    
    
    
    88.0
    %
    
    
    72.0
    
    
    
    72.7
    %Operating income
    
    $
    18.3
    
    
    
    29.2
    %
    
    $
    8.5
    
    
    
    25.0
    %
    
    $
    0.3
    
    
    
    12.0
    %
    
    
    27.1
    
    
    
    27.3
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    (8.1
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    1.7
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.9
    )
    
    
    (7.9
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.1
    )
    
    
    (3.1
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9.5
    
    
    
    9.6
    %
 12




---



##### 



Six months ended June 30, 2004(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    110.9
    
    
    
    100.0
    %
    
    $
    85.7
    
    
    
    100.0
    %
    
    $
    1.6
    
    
    
    100.0
    %
    
    $
    198.2
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    36.1
    
    
    
    32.5
    %
    
    
    39.8
    
    
    
    46.4
    %
    
    
    1.5
    
    
    
    93.8
    %
    
    
    77.4
    
    
    
    39.1
    %Selling
    
    
    17.9
    
    
    
    16.1
    %
    
    
    2.7
    
    
    
    3.2
    %
    
    
    0.4
    
    
    
    25.0
    %
    
    
    21.0
    
    
    
    10.6
    %General and administrative
    
    
    25.7
    
    
    
    23.2
    %
    
    
    13.8
    
    
    
    16.1
    %
    
    
    1.8
    
    
    
    112.5
    %
    
    
    41.3
    
    
    
    20.8
    %Depreciation and amortization
    
    
    3.4
    
    
    
    3.1
    %
    
    
    16.6
    
    
    
    19.4
    %
    
    
    0.2
    
    
    
    12.5
    %
    
    
    20.2
    
    
    
    10.2
    %Total operating expenses
    
    
    83.1
    
    
    
    74.9
    %
    
    
    72.9
    
    
    
    85.1
    %
    
    
    3.9
    
    
    
    243.8
    %
    
    
    159.9
    
    
    
    80.7
    %Operating income (loss)
    
    $
    27.8
    
    
    
    25.1
    %
    
    $
    12.8
    
    
    
    14.9
    %
    
    $
    (2.3
    )
    
    
    (143.8
    )%
    
    
    38.3
    
    
    
    19.3
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.8
    )
    
    
    (8.5
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3
    
    
    
    1.7
    %Loss on extinguishment of debt and
other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.8
    )
    
    
    (4.4
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.1
    )
    
    
    (3.1
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.9
    )
    
    
    (3.5
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.0
    
    
    
    1.5
    %
 Six months ended June 30, 2003(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    107.5
    
    
    
    100.0
    %
    
    $
    67.0
    
    
    
    100.0
    %
    
    $
    5.1
    
    
    
    100.0
    %
    
    $
    179.6
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    36.6
    
    
    
    34.0
    %
    
    
    29.1
    
    
    
    43.4
    %
    
    
    3.1
    
    
    
    60.8
    %
    
    
    68.8
    
    
    
    38.3
    %Selling
    
    
    17.5
    
    
    
    16.3
    %
    
    
    1.4
    
    
    
    2.1
    %
    
    
    0.8
    
    
    
    15.7
    %
    
    
    19.7
    
    
    
    11.0
    %General and administrative
    
    
    24.1
    
    
    
    22.4
    %
    
    
    8.4
    
    
    
    12.5
    %
    
    
    1.5
    
    
    
    29.4
    %
    
    
    34.0
    
    
    
    18.9
    %Depreciation and amortization
    
    
    3.0
    
    
    
    2.8
    %
    
    
    11.7
    
    
    
    17.5
    %
    
    
    0.2
    
    
    
    3.9
    %
    
    
    14.9
    
    
    
    8.3
    %Total operating expenses
    
    
    81.2
    
    
    
    75.5
    %
    
    
    50.6
    
    
    
    75.5
    %
    
    
    5.6
    
    
    
    109.8
    %
    
    
    137.4
    
    
    
    76.5
    %Operating income (loss)
    
    $
    26.3
    
    
    
    24.5
    %
    
    $
    16.4
    
    
    
    24.5
    %
    
    $
    (0.5
    )
    
    
    (9.8
    )%
    
    
    42.2
    
    
    
    23.5
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14.5
    )
    
    
    (8.1
    )%Interest income from loan to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.4
    
    
    
    1.9
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.3
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.6
    )
    
    
    (6.5
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )
    
    
    (2.2
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14.9
    
    
    
    8.3
    %
 Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30,
2003 Consolidated Revenues. Consolidated revenues increased $12.2 million or 12% from
2003 to 2004. Radio and Cable revenues were 58% and 42% of consolidated
revenues, respectively. 13




---



##### 



Operating and programming expenses.Operating and programming expenses
increased $5.0 million or 13% from 2003 to 2004. The entire increase in
operating and programming expense occurred in the Cable segment
and was related to the
Carmel, New York cable systems acquisition and the merger of the BlazeNet
Internet Service Provider operation into Cable, which was previously included
in the Internet and Other segment. General and administrative expenses.General and administrative expenses
increased $4.9 million or 29% from 2003 to 2004. Radio and Cable general and
administrative expenses were 59% and 36% of consolidated general and
administrative expenses, respectively. Approximately 76% 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. Increased general and administrative costs in the Other segment
were caused by recognition of deferred compensation expense related to the
Cable Performance Share Plan. Operating income.Operating income decreased $2.8 million or 10% from
2003 to 2004, largely due to the increase in Cables operating, general and
administrative and depreciation and amortization expenses. Net loss.Net income decreased $10.0 million or 105% from net income of
$9.5 million in 2003 to a net loss of $0.4 million in 2004. The decrease in
net income is the result of decreased operating income in Cable and other
expense of $9.1 million related to the early retirement of the Notes. The
effective rate for income taxes did not change significantly between 2003 and
2004. The $5.1 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
$4.4 million or 64% 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 was unchanged from 2003 to 2004.
Interest expense from increased debt to acquire the Carmel, New York cable
systems and the remaining interest in 1051FM, LLC was offset by a reduction in
the effective interest rate due to the redemption of the Notes on May 15, 2004.
The Notes were redeemed using Term A Loan (which had a 2.8% interest rate as
of June 30, 2004). The $9.1 million charge included the call premium and the
write-off of the Notes unamortized deferred financing costs. Radio Segment Revenues. Radio revenues increased $1.6 million or 3% from 2003 to
2004 largely on improvement in our Atlanta, San Francisco and Kansas City
operations and the impact of WSOX-FM (acquired August 2003). On a same
stations basis (excluding WSOX-FM) revenues increased $0.7 million or 1%. Operating and programming expenses.Operating and programming
expenses decreased $0.7 million or 3% due to low inflationary pressure and
increased operating efficiencies. Operating income.Operating income increased $1.0 million or 5% from 2003
to 2004. On a same stations basis, Radio operating income increased $0.9
million or 5% from 2003 to 2004. Operating income increased over 2003 in the
Atlanta, Kansas City, San Francisco and York markets. Cable Segment Revenues. Cable revenues increased $12.6 million or 37% 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 June 30, 2004. On March 9, 2004, Media acquired cable systems serving Carmel, New
York. Approximately $8.3 million of revenue was generated by the Carmel
systems for the quarter. On a same systems basis (excluding BlazeNet and
Carmel, New York revenues), revenues increased $2.8 million or 8% from 2003
to 2004. Increasing penetration of high-speed Internet access and
basic/expanded basic rate increases were responsible for the improvement in
revenues. 14




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Operating and programming expenses.Cables operating and programming
expenses increased $6.5 million or 43% from 2003 to 2004, primarily due to
Carmel. On a same systems basis, operating and programming expense
increased $1.3 million or 9%. Direct expenses related to delivery of our
high-speed Internet access product over cable modems caused the majority of
the increase in costs. General and administrative expenses.Cable general and
administrative expenses increased $3.7 million or 88% from 2003 to 2004.
On a same systems basis, general and administrative expenses increased $1.9
million or 47% from 2003. Increased general and administrative expenses
were primarily from the efforts to centralize Cables customer care
operations in York, Pennsylvania and deferred compensation expense related
to the current year change in the price of Cable Performance Shares. The
increased costs to centralize customer care are expected to continue
through the third quarter. Carmel transition expenses incurred in second
quarter were approximately $1.6 million. Media will assume functions
provided by RCN in several phases through January 2005 when the transition
will be completed. The Contractual Cash Obligations table in the Liquidity
and Capital Resources section of this report includes the costs for this
transition. Depreciation and amortization.Depreciation and amortization increased
$3.9 million or 71% from 2003 to 2004 due to the depreciation of the tangible
assets and amortization of the customer list for the Carmel acquisition and the
effect of cable plant rebuilds completed after June 2003. Operating income.Cable operating income decreased $2.0 million or 24%
from 2003 to 2004. On a same systems basis, Cable operating income decreased
$0.4 million or 5% from 2003 to 2004. The decreased operating income is
attributable to the acquisition of the Carmel cable systems (operating loss of
$1.7 million in second quarter 2004), higher general and administrative
expenses and higher depreciation and amortization from rebuilds. Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003 Consolidated Revenues. Consolidated revenues increased $18.6 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 $8.6 million or 13% 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 $7.3 million or 21% from 2003 to 2004. Radio and Cable
general and administrative expenses were 62% and 33% of consolidated
general and administrative expenses, respectively. Approximately 74% 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 $3.9 million or 9% 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 $11.9 million or 80% from 2003 to 2004.
The decrease in net income is the result of decreased operating income in Cable
and other expense of $9.1 million related to the early retirement of the Notes.
The effective rate for income taxes did not change significantly between 2003
and 2004. The $5.1 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
$5.3 million or 36% 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 16% from
2003 to 2004. Interest expense from increased debt to acquire the Carmel, New
York cable systems and the remaining interest in 1051FM, LLC was offset by a
reduction in the effective interest rate related to the call of the Notes on
May 15, 2004. The Notes redemption was funded by the New Facilities Term
A Loan (which had a 2.8% interest rate at June 30, 2004). 15




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Radio Segment Revenues. Radio revenues increased $3.4 million or 3% from 2003 to
2004 largely on improvements in our Atlanta, Kansas City and San Francisco
operations and the impact of WSOX-FM (acquired August 2003). On a same
stations basis (excluding WSOX-FM) revenues increased $1.9 million or 2%. Operating and programming expenses.Operating and programming
expenses decreased due to operating efficiencies and low inflationary
pressure on expenses. General and administrative expenses.General and administrative
expenses increased $1.6 million or 7% from 2003 to 2004. Approximately 57%
of the increase in Radio general and administrative expenses was caused by
the increase in ESOP expense caused by the September 2003 change in
allocation methodology. Operating income.Operating income increased $1.5 million or 6% from 2003
to 2004. On a same stations basis, Radio operating income increased $1.6
million or 6% from 2003 to 2004. Operating income increased over 2003 in the
Atlanta, Kansas City and York markets. Cable Segment Revenues. Cable revenues increased $18.7 million or 28% from 2003 to
2004. On a same systems basis (excluding BlazeNet and Carmel, New York
revenues), revenues increased $5.7 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 on a
same systems basis. Operating and programming expenses.Cables operating and programming
expenses increased $10.7 million or 37% from 2003 to 2004, primarily due to
Carmel. On a same systems basis, operating and programming expense
increased $3.6 million or 12%. Approximately 50% 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 for delivery of high-speed
Internet access increased 40% or slightly less than the 43% growth in
high-speed data revenues on a same systems basis. Remaining operating
expenses changed ratably with revenues. General and administrative expenses.Cable general and
administrative expenses increased $5.4 million or 64% from 2003 to 2004.
On a same systems basis, general and administrative expenses increased $3.0
million or 36% from 2003. Similar to the second quarter, increased general
and administrative expenses were primarily from the efforts to centralize
Cables customer care operations in York, Pennsylvania 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 June 30, 2004 were approximately $2.0 million. Media will
assume functions provided by RCN in several phases through January 2005
when the transition will be completed. The Contractual Cash Obligations
table in the Liquidity and Capital Resources section of this report
includes the costs for this transition. Depreciation and amortization.Depreciation and amortization increased
$4.9 million or 42% from 2003 to 2004 due to depreciation on tangible assets
and amortization of customer lists for the Lawrenceburg (acquired April 1,
2003) and Carmel acquisitions and the effect of cable plant rebuilds completed
after June 2003. Operating income.Cable operating income decreased $3.6 million or 22%
from 2003 to 2004. On a same systems basis, Cable operating income decreased
$0.7 million or 4% from 2003 to 2004. Decreased operating income is
attributable to the acquisition of the Carmel cable systems (operating loss of
$2.9 million from March 9, 2004 through June 30, 2004), higher programming,
general and administrative expenses and depreciation and amortization expenses. 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
ongoing operations, 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. 16




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Net cash provided by operating activities was $38.6 million for the
six months ended June 30, 2004. The Companys net cash provided by
operating activities was generated by normal operations. Although net
income decreased for the six months compared to 2003, cash provided by
operating activities increased $4.6 million over 2003. Net cash used by investing activities was $145.7 million for the six
months ended June 30, 2004. On March 9, 2004, Media acquired the assets of
cable systems serving Carmel, New York for $119.4 million cash. On April
1, 2004, Media purchased the remaining sixty percent interest in 1051FM,
LLC from Jesscom, Inc. for $14.8 million cash. In conjunction with renewal
of radios broadcast rights for the San Francisco Giants baseball games,
Radio invested an additional $1.5 million in the partnership that owns the
team. On a cost basis, Radios investment in the Giants was $4.0 million
as of June 30, 2004. Capital expenditures, excluding acquisitions, were
$16.7 million and $17.5 million for the six months ended June 30, 2004 and
2003, respectively. Capital expenditures were primarily used to upgrade
and maintain our cable systems and centralize customer care operations.
Media expects to make capital expenditures of $26.8 million during the
remainder of 2004, primarily for cable systems upgrades. We expect to
utilize our New Facilities and cash flow generated from operations to fund
cable systems upgrades. Net cash provided by financing activities was $106.7 million for the six
months ended June 30, 2004. Coincident with the acquisition of the Carmel,
New York cable systems on March 9, 2004, Media replaced its senior secured
credit facilities with the New Facilities. The New Facilities Revolving Credit
Loan had $122.8 million available at June 30, 2004. Media redeemed approximately $7.6 million of Radio Employee Stock Plan
shares in May 2004 from employees. Approximately $2.9 million of the
redeemed shares were exchanged for a note to be paid out over two years.
Existing credit facilities were utilized to fund the redemptions. The following tables reflect our contractual cash obligations as of June
30, 2004 in the respective periods in which they are due (in thousands): TotalContractual Cash
    
    AmountsObligations
    
    Committed
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterLong-term debt
    
    $
    630,249
    
    
    $
    17
    
    
    $

    3,368
    
    
    $
    15,246
    
    
    $
    23,168
    
    
    $
    30,625
    
    
    $
    557,825Broadcast rights
    
    
    52,117
    
    
    
    5,367
    
    
    
    10,650
    
    
    
    11,200
    
    
    
    8,000
    
    
    
    8,250
    
    
    
    8,650RCN transition
    
    
    3,675
    
    
    
    3,150
    
    
    
    525
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    34,196
    
    
    
    5,176
    
    
    
    5,042
    
    
    
    4,870
    
    
    
    4,375
    
    
    
    3,207
    
    
    
    11,526Total
    
    $
    720,237
    
    
    $
    13,710
    
    
    $
    19,585
    
    
    $
    31,316
    
    
    $
    35,543
    
    
    $
    42,082
    
    
    $
    578,001
 Media was in compliance with its loan covenants, as each is defined under
the New Facilities, as of June 30, 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
    
    
    1.87Maximum
consolidated total leverage ratio may not exceed 6.50
    
    
    4.35Interest coverage ratio must be at least 2.00
    
    
    4.92
 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
cross-default of our 7.375% Senior Subordinated Notes (7.375% Notes). A
default under the 7.375% Notes could result in a default under our New
Facilities. Any such defaults would permit our lenders and noteholders to
accelerate payment of the debt which would likely have a material adverse
impact on our financial condition and results of operations. 17




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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 Media monitors and evaluates changes in market conditions on a regular
basis. Based upon the most recent review, management has determined that the
redemption of the Notes has affected market risk since $150 million of formerly
fixed interest rate debt is now subject to changes in variable interest rates. As of June 30, 2004, we had $477.2 million in variable rate debt and $150
million in fixed rate debt. The fair value of the variable rate debt
approximates its carrying value. Variable rate debt matures as follows (in
thousands): 2005
    
    $
    1,8752006
    
    
    13,7502007
    
    
    23,1252008
    
    
    30,6252009
    
    
    38,1252010
    
    
    45,6252011
    
    
    265,3252012
    
    
    58,750
 The maturities shown above reflect debt in place at June 30, 2004. Our
interest rate exposure is primarily impacted by changes in LIBOR rates. At June
30, 2004, the weighted average interest rate for the variable rate debt was
2.9%. If LIBOR rates increased 1%, and sustained that increased rate for an
entire year, annual interest expense on variable rate debt incurred as of June
30, 2004 would increase by $4.8 million. 
 ITEM 4. 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 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 June 30, 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. 18




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PART II - OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS On July 29, 2004, Bridge Capital Investors II sued Susquehanna Radio
Corp., a Media subsidiary, for $10.0 million alleging breach of contract and
unjust enrichment in connection with Medias acquisition of Radio Station
WHMA-FM. The suit was filed in Federal District Court for the Northern
District of Georgia. The station was originally licensed to Anniston, Alabama
then subsequently moved into the Atlanta, Georgia metropolitan area. Although
Management cannot predict the outcome of this matter, it believes that the
action is without merit because all conditions precedent to the $10.0 million
payment were not met. 
 ITEM 5. 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 April 1, 2004 under Item
12. Results of Operations and Financial Condition announcing fourth
quarter 2003 results and a conference call.
    
    The Company furnished a Form 8-K on May 14, 2004 under Item
12. Results of Operations and Financial Condition announcing first
quarter 2004 results and a conference call. 19




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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. August 13, 2004
    
    SUSQUEHANNA MEDIA CO.By:
    
    /s/ John L. FinlaysonJohn L. FinlaysonVice President and Principal
Financial and Accounting Officer