##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (Mark One) [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 November 11, 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
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 6. Exhibits
    
    
    20Signature
    
    
    21




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PART I  FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    December 31,2004
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    
    
    
    $
    525Accounts receivable, less allowance for doubtful

accounts of $1,910 in 2004 and $2,039 in 2003
    
    
    53,884
    
    
    
    52,192Current portion of notes receivable from Parent
    
    
    4,690
    
    
    
    4,690Deferred income taxes
    
    
    6,537
    
    
    
    6,621Interest receivable from Parent
    
    
    5,004
    
    
    
    Other current assets
    
    
    7,130
    
    
    
    6,818Total Current Assets
    
    
    77,245
    
    
    
    70,846Property, Plant and Equipment, at costLand
    
    
    5,948
    
    
    
    5,948Buildings and improvements
    
    
    24,987
    
    
    
    23,399Equipment
    
    
    320,647
    
    
    
    272,734Construction-in-progress
    
    
    18,959
    
    
    
    12,443370,541
    
    
    
    314,524Accumulated depreciation and amortization
    
    
    174,814
    
    
    
    154,610Property, Plant and Equipment, net
    
    
    195,727
    
    
    
    159,914Intangible Assets and Goodwill, net
    
    
    508,602
    
    
    
    402,466Notes Receivable from Parent
    
    
    104,951
    
    
    
    104,951Investments and Other Assets
    
    
    19,481
    
    
    
    38,973$
    906,006
    
    
    $
    777,150LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesCash overdrafts
    
    $
    1,635
    
    
    $
    Current portion of long-term debt

    
    
    2,742
    
    
    
    34Accounts payable
    
    
    8,451
    
    
    
    11,225Accrued employee-related costs
    
    
    23,365
    
    
    
    14,997Accrued income taxes
    
    
    9,585
    
    
    
    7,144Accrued interest
    
    
    7,019
    
    
    
    4,663Accrued franchise and licensing fees
    
    
    4,628
    
    
    
    2,944Deferred income
    
    
    4,603
    
    
    
    1,542Other accrued expenses
    
    
    8,093
    
    
    
    6,893Total Current Liabilities
    
    
    70,121
    
    
    
    49,442Long-term Debt
    
    
    603,999
    
    
    
    515,671Other Liabilities
    
    
    14,874
    
    
    
    13,845Deferred Income Taxes
    
    
    77,679
    
    
    
    71,216Minority Interests
    
    
    67,590
    
    
    
    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
    
    
    63,593
    
    
    
    51,603Total Stockholders Equity
    
    
    71,743
    
    
    
    59,753$
    906,006
    
    
    $
    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 Nine MonthsEnded September 30,
    
    Ended September 30,2004
    
    2003
    
    2004
    
    2003RevenuesRadio
    
    $
    61,243
    
    
    $
    61,743
    
    
    $
    172,155
    
    
    $
    169,227Cable
    
    
    46,250
    
    
    
    34,719
    
    
    
    131,951
    
    
    
    101,746Other
    
    
    940
    
    
    
    2,535
    
    
    
    2,507
    
    
    
    7,602Total revenues
    
    
    108,433
    
    
    
    98,997
    
    
    
    306,613
    
    
    
    278,575Operating ExpensesOperating and programming
    
    
    41,551
    
    
    
    37,762
    
    
    
    119,004
    
    
    
    106,608Selling
    
    
    11,461
    
    
    
    10,584
    
    
    
    32,416
    
    
    
    30,269General and administrative
    
    
    20,022
    
    
    
    18,462
    
    
    
    61,285
    
    
    
    52,433Depreciation and amortization
    
    
    12,074
    
    
    
    7,715
    
    
    
    32,260
    
    
    
    22,573Total operating expenses
    
    
    85,108
    
    
    
    74,523
    
    
    
    244,965
    
    
    
    211,883Operating Income
    
    
    23,325
    
    
    
    24,474
    
    
    
    61,648
    
    
    
    66,692Other Income (Expense)Interest expense
    
    
    (7,368
    )
    
    
    (8,039
    )
    
    
    (24,201
    )
    
    
    (22,549
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (9,065
    )
    
    
    Interest income from loan to Parent
    
    
    1,674
    
    
    
    1,744
    
    
    
    4,986
    
    
    
    5,171Other
    
    
    96
    
    
    
    (72
    )
    
    
    392
    
    
    
    (596
    )Income Before Income Taxes and
Minority Interests
    
    
    17,727
    
    
    
    18,107
    
    
    
    33,760
    
    
    
    48,718Provision for Income Taxes
    
    
    7,328
    
    
    
    6,794
    
    
    
    13,388
    
    
    
    18,445Income Before Minority Interests
    
    
    10,399
    
    
    
    11,313
    
    
    
    20,372
    
    
    
    30,273Minority Interests
    
    
    (1,083
    )
    
    
    (1,121
    )
    
    
    (8,012
    )
    
    
    (5,169
    )Net Income
    
    
    9,316
    
    
    
    10,192
    
    
    
    12,360
    
    
    
    25,104Preferred Dividends Declared
    
    
    (123
    )
    
    
    (123
    )
    
    
    (370
    )
    
    
    (370
    )Net Income Available for Common Shares
    
    $
    9,193
    
    
    $
    10,069
    
    
    $
    11,990
    
    
    $
    24,734
 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 Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    12,360
    
    
    $
    25,104Adjustments to reconcile net income to net cash:Depreciation and amortization
    
    
    32,260
    
    
    
    22,573Deferred income taxes
    
    
    6,804
    
    
    
    6,033Minority interests
    
    
    8,012
    
    
    
    5,169Loss on extinguishment of debt
    
    
    2,690
    
    
    
    Equity in (earnings) loss of investee
    
    
    (107
    )
    
    
    439Deferred financing amortization
    
    
    1,280
    
    
    
    822Changes in assets and liabilities:Increase in accounts receivable, net
    
    
    (1,691
    )
    
    
    (2,125
    )Decrease (increase) in other current assets
    
    
    (275
    )
    
    
    201Increase in interest receivable from Parent
    
    
    (5,004
    )
    
    
    (5,260
    )Decrease in accounts payable
    
    
    (2,784
    )
    
    
    (1,672
    )Increase in accrued interest
    
    
    2,356
    
    
    
    7,712Increase in accrued income taxes
    
    
    2,184
    
    
    
    4,764Increase in other current liabilities
    
    
    14,313
    
    
    
    7,505Increase (decrease) in other liabilities
    
    
    1,029
    
    
    
    (1,958
    )Net cash provided by operating activities
    
    
    73,427
    
    
    
    69,307CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment, net
    
    
    (28,745
    )
    
    
    (23,495
    )Acquisitions
    
    
    (125,404
    )
    
    
    (28,190
    )Deposit on Cable acquisition
    
    
    
    
    
    
    (10,000
    )Increase in investments, other assets and intangible assets
    
    
    (4,484
    )
    
    
    (1,551
    )Net cash used by investing activities
    
    
    (158,633
    )
    
    
    (63,236
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in revolving credit borrowings
    
    
    12,400
    
    
    
    (134,000
    )New term loan borrowings
    
    
    400,000
    
    
    
    150,000Repayment of term loans
    
    
    (174,250
    )
    
    
    (12,750
    )Redemption of Senior Subordinated Notes
    
    
    (150,000
    )
    
    
    Increase (decrease) in cash overdrafts
    
    
    1,635
    
    
    
    (849
    )Payment of preferred dividends
    
    
    (370
    )
    
    
    (370
    )Non-voting subsidiary common stock transactions
    
    
    (4,734
    )
    
    
    (6,543
    )Net cash provided (used) by financing activities
    
    
    84,681
    
    
    
    (4,512
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (525
    )
    
    
    1,559CASH AND CASH EQUIVALENTS, beginning
    
    
    525
    
    
    
    CASH AND CASH EQUIVALENTS, ending
    
    $
    
    
    
    $
    1,559
 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 September 30, 2004 and the results of its
operations for the three and nine months ended September 30, 2004 and 2003 and
its cash flows for the nine months ended September 30, 2004 and 2003. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities 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 Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 (FIN 46). FIN 46 addresses the consolidation by
business enterprises of variable interest entities as defined in the
Interpretation. FIN 46 applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests in
variable interest entities obtained after January 31, 2003. In December 2003,
the FASB issued FIN 46R, a revision to FIN 46, that delayed implementation of
FIN 46 for entities other than special purpose entities. Media must adopt FIN
46R in 2005. The impact of this interpretation has not yet been determined. In September 2004, FASB issued EITF Topic D-108, Use of the Residual
Method to Value Acquired Assets Other Than Goodwill. Topic D-108 requires
that intangible assets other than goodwill acquired in business combinations
completed after September 29, 2004 be valued using a direct value method.
Intangible assets other than goodwill that were valued using the residual
method must be tested for impairment using a direct method no later than the
beginning of the first fiscal year beginning after December 31, 2004. Any
impairment recognized upon application of a direct value method would be
reported as a cumulative effect of a change in accounting principle. Media has
not determined the impact of this announcement. Acquisitions Acquisitions are accounted for as purchases. The purchase price of
acquisitions are allocated to the tangible and intangible assets acquired 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 KCJK-FM, formerly KFME-FM. Existing credit facilities were
used to fund the acquisition. Under the terms of a joint operating agreement
that terminated April 1, Media formerly sold commercial airtime on Radio
Station KFME-FM and Jesscom had programmed and operated the station. KCJK-FM
is licensed to Garden City, Missouri and serves the Kansas City market. Based
on an independent valuation, the purchase cost was allocated as $0.6 million to
plant and equipment, $13.3 million to Federal Communications Commission (FCC)
license and $0.9 million to goodwill. On March 9, 2004, Susquehanna Media Co. (Media) purchased cable systems
from RCN Telecom Services, Inc. (RCN) for $120.6 million cash. A $10.0
million deposit on this acquisition was made during third quarter 2003. As of
the date of acquisition, the systems served approximately 29,100 subscribers in
eleven communities in and surrounding Carmel, New York with video, high-speed
data and telephony services. The Carmel cable systems purchase price was allocated based on an
independent valuation. Certain purchase price adjustments were finalized
during third quarter. The final purchase price was allocated as follows (in
thousands): Tangible assetsCable distribution and premises equipment
    
    $
    29,402Other tangible assets
    
    
    1,346Intangible assets with determinable livesAcquired subscriber base
    
    
    33,980Intangible assets with indefinite livesCable franchise values
    
    
    55,798Goodwill
    
    
    55Total
    
    $
    120,581
 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 $3.4 million through September 30, 2004. The following amounts attributable to the Carmel acquisition were included
in Medias condensed consolidated balance sheet as of September 30, 2004 (in
thousands): Current assets
    
    $
    2,468Property, plant and equipment, net
    
    
    29,106Intangible assets, net
    
    
    83,418Current liabilities
    
    
    5,215
 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 September 30, 2004 (in thousands): Revenues
    
    $
    18,185Depreciation and amortization
    
    
    9,903Operating loss
    
    
    (5,380
    )Interest expense
    
    
    3,089
 6




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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 Medias equity in 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
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 September 30, 2004, the effective interest rate on Revolving Credit Loan,
Term A Loan and Term B Loan borrowings was 3.10%, 2.79% and 4.02%,
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 September 30, 2004, the following amounts were borrowed and available for
borrowing (in millions): Borrowed
    
    AvailableRevolving Credit Loan
    
    $
    54
    
    
    $
    146Term A Loan
    
    
    150
    
    
    
    Term B Loan
    
    
    250
    
    
    
    Totals
    
    $
    454
    
    
    $
    146
 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 $162.8 million was paid to bondholders. The
amount paid included the Notes $150.0 million principal balance, a $6.4
million call premium and $6.4 million of accrued interest. A $9.1 million loss
on extinguishment of debt, which included $2.7 million of unamortized deferred
financing costs, was recognized in the condensed consolidated statement of
operations. 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 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. 7




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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. 6. Contingencies Certain Cable programming is purchased through a related cable operator
due to favorable rates. During third quarter 2004, the operator notified Cable
of a settlement that resulted in a retroactive decrease in programming costs
totaling $1.7 million. The retroactive decrease is being used to offset
current programming fees. The total retroactive decrease in programming costs
was recognized in the three months ended September 30, 2004. 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. 8




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##### 



7. 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 September 30, 2004Operating income (loss)
    
    $
    17,290
    
    
    $
    6,664
    
    
    $
    (629
    )
    
    $
    23,325Interest expense, net
    
    
    970
    
    
    
    2,970
    
    
    
    3,428
    
    
    
    7,368Depreciation and amortization
    
    
    1,603
    
    
    
    10,370
    
    
    
    101
    
    
    
    12,074Income (loss) before income
taxes
    
    
    16,430
    
    
    
    3,693
    
    
    
    (2,396
    )
    
    
    17,727Identifiable assets
    
    
    433,762
    
    
    
    343,328
    
    
    
    128,916
    
    
    
    906,006Capital expenditures
    
    
    1,493
    
    
    
    10,459
    
    
    
    54
    
    
    
    12,006For the Three Months Ended September 30, 2003Operating income
    
    
    17,361
    
    
    
    7,046
    
    
    
    67
    
    
    
    24,474Interest expense, net
    
    
    1,876
    
    
    
    2,814
    
    
    
    3,349
    
    
    
    8,039Depreciation and amortization
    
    
    1,453
    
    
    
    5,949
    
    
    
    313
    
    
    
    7,715Income (loss) before income
taxes
    
    
    15,458
    
    
    
    4,231
    
    
    
    (1,582
    )
    
    
    18,107Identifiable assets
    
    
    417,036
    
    
    
    231,260
    
    
    
    136,450
    
    
    
    784,746Capital expenditures
    
    
    1,471
    
    
    
    4,258
    
    
    
    312
    
    
    
    6,041Radio
    
    Cable
    
    Other
    
    TotalFor the Nine Months Ended
September 30, 2004Operating income (loss)
    
    $
    45,072
    
    
    $
    19,442
    
    
    $
    (2,866
    )
    
    $
    61,648Interest expense, net
    
    
    4,071
    
    
    
    10,080
    
    
    
    10,050
    
    
    
    24,201Depreciation and amortization
    
    
    5,013
    
    
    
    26,955
    
    
    
    292
    
    
    
    32,260Income (loss) before income
taxes
    
    
    39,205
    
    
    
    3,678
    
    
    
    (9,123
    )
    
    
    33,760Identifiable assets
    
    
    433,762
    
    
    
    343,328
    
    
    
    128,916
    
    
    
    906,006Capital expenditures
    
    
    3,258
    
    
    
    25,232
    
    
    
    255
    
    
    
    28,745For the Nine Months Ended September 30, 2003Operating income (loss)
    
    
    43,624
    
    
    
    23,429
    
    
    
    (361
    )
    
    
    66,692Interest expense, net
    
    
    5,140
    
    
    
    7,719
    
    
    
    9,690
    
    
    
    22,549Depreciation and amortization
    
    
    4,499
    
    
    
    17,636
    
    
    
    438
    
    
    
    22,573Income (loss) before income
taxes
    
    
    38,327
    
    
    
    15,710
    
    
    
    (5,319
    )
    
    
    48,718Identifiable assets
    
    
    417,036
    
    
    
    231,260
    
    
    
    136,450
    
    
    
    784,746Capital expenditures
    
    
    4,358
    
    
    
    17,461
    
    
    
    1,676
    
    
    
    23,495
 9




---



##### 



8. Subsequent Events On October 23, 2004, a Media subsidiary received a $2.1 million state
income tax refund that included approximately $0.6 million of interest on the
refund. The refund represents settlement of an income tax audit for years 1997
through 2000. Due to significant uncertainties concerning the audits outcome,
no income tax benefit was previously recognized. Media will reduce the
provision for income taxes for this refund and recognize the interest income in
fourth quarter 2004. Media has agreed to sell the assets of Radio Station WABZ-FM, licensed to
Albemarle, North Carolina, for approximately $11.5 million cash. FCC approval
of the transaction has been granted. The gain on sale may approximate $10
million. Closing is expected in November 2004. 10




---



##### 



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. 11




---



##### 



Overview Media is a diversified communications company with operations in radio
broadcasting (Radio) and cable television (Cable). We are the largest
privately-owned radio broadcaster and the 12th largest radio broadcaster
overall in the United States of America based on 2003 proforma revenues. We are
also the 12th 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 nine months ended September 30, 2004, 56% of Medias revenues were
from Radio and 43% were from Cable. All of 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 the sale
of local advertising, national advertising and client-sponsored 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 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 nine months ended September 30, 2004 included
the following notable items:  -
    
    Cable acquired assets serving approximately 29,100
subscribers in the Carmel, New York area for $120.6 million cash.
This transaction was Medias largest acquisition to date.-
    
    Transition costs and higher depreciation and amortization
related to the Carmel acquisition have depressed cable operating
income.-
    
    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.-
    
    Cash provided by operating activities for the nine months was
$4.1 million higher than 2003.-
    
    A $1.7 million retroactive expense reduction for cable
programming obtained through a related operator was recognized in
third quarter 2004.-
    
    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.-
    
    The successive hurricanes that struck the United States
during the third quarter caused only minor damage to our facilities
and resulted in little service interruptions for our Radio stations
and Cable systems.-
    
    Cables election to accelerate the rebuild of the Rankin
County, Mississippi cable system to expedite the offering of
advanced services to the existing customer base has resulted in
higher than expected capital expenditures. The acceleration of the
rebuild will be hindered in the fourth quarter due to a shortage of
available construction contractors. Many construction contractors
have been assisting with repairs of areas in Florida that were
devastated by successive hurricanes. 12




---



##### 



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 nine months ended September 30,
2004 and 2003: Three months ended September 30, 2004(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    61.3
    
    
    
    100.0
    %
    
    $
    46.2
    
    
    
    100.0
    %
    
    $
    0.9
    
    
    
    100.0
    %
    
    $
    108.4
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    20.3
    
    
    
    33.1
    %
    
    
    20.5
    
    
    
    44.4
    %
    
    
    0.8
    
    
    
    89.0
    %
    
    
    41.6
    
    
    
    38.4
    %Selling
    
    
    9.5
    
    
    
    15.5
    %
    
    
    1.7
    
    
    
    3.7
    %
    
    
    0.2
    
    
    
    22.2
    %
    
    
    11.4
    
    
    
    10.5
    %General and administrative
    
    
    12.6
    
    
    
    20.6
    %
    
    
    7.1
    
    
    
    15.4
    %
    
    
    0.3
    
    
    
    33.3
    %
    
    
    20.0
    
    
    
    18.5
    %Depreciation and amortization
    
    
    1.6
    
    
    
    2.6
    %
    
    
    10.4
    
    
    
    22.5
    %
    
    
    0.1
    
    
    
    11.1
    %
    
    
    12.1
    
    
    
    11.1
    %Total operating expenses
    
    
    44.0
    
    
    
    71.8
    %
    
    
    39.7
    
    
    
    85.9

    %
    
    
    1.4
    
    
    
    155.6
    %
    
    
    85.1
    
    
    
    78.5
    %Operating income (loss)
    
    $
    17.3
    
    
    
    28.2
    %
    
    $
    6.5
    
    
    
    14.1
    %
    
    $
    (0.5
    )
    
    
    (55.6
    )%
    
    
    23.3
    
    
    
    21.5
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.4
    )
    
    
    (6.8
    )%Interest income from loan to Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    1.5
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.3
    )
    
    
    (6.7
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    (1.0
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9.3
    
    
    
    8.6
    %
 Three months ended September 30, 2003(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    61.7
    
    
    
    100.0
    %
    
    $
    34.8
    
    
    
    100.0
    %
    
    $
    2.5
    
    
    
    100.0
    %
    
    $
    99.0
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    20.5
    
    
    
    33.2
    %
    
    
    15.8
    
    
    
    45.4
    %
    
    
    1.5
    
    
    
    60.0
    %
    
    
    37.8
    
    
    
    38.2
    %Selling
    
    
    9.3
    
    
    
    15.1
    %
    
    
    0.9
    
    
    
    2.6
    %
    
    
    0.4
    
    
    
    16.0
    %
    
    
    10.6
    
    
    
    10.7
    %General and administrative
    
    
    13.1
    
    
    
    21.2
    %
    
    
    5.1
    
    
    
    14.7
    %
    
    
    0.2
    
    
    
    8.0
    %
    
    
    18.4
    
    
    
    18.6
    %Depreciation and amortization
    
    
    1.5
    
    
    
    2.4
    %
    
    
    6.0
    
    
    
    17.2
    %
    
    
    0.2
    
    
    
    8.0
    %
    
    
    7.7
    
    
    
    7.8
    %Total operating expenses
    
    
    44.4
    
    
    
    71.9
    %
    
    
    27.8
    
    
    
    79.9
    %
    
    
    2.3
    
    
    
    92.0
    %
    
    
    74.5
    
    
    
    75.3
    %Operating income
    
    $
    17.3
    
    
    
    28.1
    %
    
    $
    7.0
    
    
    
    20.1
    %
    
    $
    0.2
    
    
    
    8.0
    %
    
    
    24.5
    
    
    
    24.7
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.1
    )
    
    
    (8.2
    )%Interest income from loan to Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    1.8
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    %Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.8
    )
    
    
    (6.8
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (1.2
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10.2
    
    
    
    10.3
    %
 13




---



##### 



Nine months ended September 30, 2004(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    172.2
    
    
    
    100.0
    %
    
    $
    132.0
    
    
    
    100.0
    %
    
    $
    2.4
    
    
    
    100.0
    %
    
    $
    306.6
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    56.4
    
    
    
    32.8
    %
    
    
    60.3
    
    
    
    45.7
    %
    
    
    2.3
    
    
    
    95.8
    %
    
    
    119.0
    
    
    
    38.8
    %Selling
    
    
    27.4
    
    
    
    15.9
    %
    
    
    4.4
    
    
    
    3.3
    %
    
    
    0.6
    
    
    
    25.0
    %
    
    
    32.4
    
    
    
    10.6
    %General and administrative
    
    
    38.3
    
    
    
    22.2
    %
    
    
    20.9
    
    
    
    15.8
    %
    
    
    2.1
    
    
    
    87.5
    %
    
    
    61.3
    
    
    
    20.0
    %Depreciation and amortization
    
    
    5.0
    
    
    
    2.9
    %
    
    
    27.0
    
    
    
    20.5
    %
    
    
    0.3
    
    
    
    12.5
    %
    
    
    32.3
    
    
    
    10.5
    %Total operating expenses
    
    
    127.1
    
    
    
    73.8
    %
    
    
    112.6
    
    
    
    85.3
    %
    
    
    5.3
    
    
    
    220.8
    %
    
    
    245.0
    
    
    
    79.9
    %Operating income (loss)
    
    $
    45.1
    
    
    
    26.2
    %
    
    $
    19.4
    
    
    
    14.7
    %
    
    $
    (2.9
    )
    
    
    (120.8
    )%
    
    
    61.6
    
    
    
    20.1
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24.2
    )
    
    
    (7.9
    )%Interest income from loan to Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    1.6
    %Loss on extinguishment of debt and
other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.6
    )
    
    
    (2.8
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.4
    )
    
    
    (4.4
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    (2.6
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12.4
    
    
    
    4.0
    %
 Nine months ended September 30, 2003(in millions)
    
    Radio
    
    Cable
    
    Other
    
    TotalRevenues
    
    $
    169.2
    
    
    
    
    
    
    
    100.0
    %
    
    $
    101.8
    
    
    
    100.0
    %
    
    $
    7.6
    
    
    
    100.0
    %
    
    $
    278.6
    
    
    
    100.0
    %Operating expenses:Operating and programming
    
    
    57.0
    
    
    
    
    
    
    
    33.7
    %
    
    
    44.9
    
    
    
    44.1
    %
    
    
    4.7
    
    
    
    61.8
    %
    
    
    106.6
    
    
    
    38.3
    %Selling
    
    
    26.9
    
    
    
    
    
    
    
    15.9
    %
    
    
    2.3
    
    
    
    2.3
    %
    
    
    1.1
    
    
    
    14.5
    %
    
    
    30.3
    
    
    
    10.9
    %General and administrative
    
    
    37.2
    
    
    
    
    
    
    
    22.0
    %
    
    
    13.5
    
    
    
    13.2
    %
    
    
    1.7
    
    
    
    22.4
    %
    
    
    52.4
    
    
    
    18.8
    %Depreciation and amortization
    
    
    4.5
    
    
    
    
    
    
    
    2.6
    %
    
    
    17.7
    
    
    
    17.4
    %
    
    
    0.4
    
    
    
    5.2
    %
    
    
    22.6
    
    
    
    8.1
    %Total operating expenses
    
    
    125.6
    
    
    
    
    
    
    
    74.2
    %
    
    
    78.4
    
    
    
    77.0
    %
    
    
    7.9
    
    
    
    103.9
    %
    
    
    211.9
    
    
    
    76.1
    %Operating income (loss)
    
    $
    43.6
    
    
    
    
    
    
    
    25.8
    %
    
    $
    23.4
    
    
    
    23.0
    %
    

    $
    (0.3
    )
    
    
    (3.9
    )%
    
    
    66.7
    
    
    
    23.9
    %Other income (expense)Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22.6
    )
    
    
    (8.1
    )%Interest income from loan to Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    1.9
    %Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.2
    )%Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18.4
    )
    
    
    (6.6
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    (1.9
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25.1
    
    
    
    9.0
    %
 14




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##### 



Three Months Ended September 30, 2004 Compared to the Three Months Ended
September 30, 2003 Consolidated Revenues. Consolidated revenues increased $9.4 million or 9% from
2003 to 2004. Radio and Cable revenues were 57% and 43% of consolidated
revenues, respectively. Operating and programming expenses.Operating and programming expenses
increased $3.8 million or 10% from 2003 to 2004. The entire increase in
operating and programming expense occurred in the Cable segment and was related
to operating the new Carmel, New York cable systems, and the merger of the
BlazeNet Internet Service Provider (ISP) operation into Cable (which was
previously included in the Other segment). Cable programming expenses were
decreased for a $1.7 million retroactive expense reduction on programming
obtained through another operator. General and administrative expenses.General and administrative expenses
increased $1.6 million or 9% from 2003 to 2004. Radio and Cable general and
administrative expenses were 63% and 36% of consolidated general and
administrative expenses, respectively. All 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 and to costs associated with
the consolidation of the customer care operation in York, Pennsylvania. Operating income.Operating income decreased $1.2 million or 5% 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 $0.9 million or 9% from 2003 to 2004
with the decreased operating income. Depreciation and amortization.Depreciation and amortization increased
$4.4 million or 57% from 2003 to 2004. Cables acquisition of the Carmel cable
systems was responsible for the increase. Interest expense. Interest expense decreased $0.7 million or 9% 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. The Term A Loan had a
2.79% interest rate as of September 30, 2004. Radio Segment Revenues. Radio revenues decreased $0.4 million or 1% from 2003 to
2004 largely due to softness in the Dallas stations. Operating income.Operating income was unchanged from 2003 to 2004.
The decrease in revenues was offset with a decrease in general and
administrative expenses. General and administrative expenses in 2003
included $1.0 million additional expense to reflect a change in the ESOP
allocation methodology. Cable Segment Revenues. Cable revenues increased $11.4 million or 33% from 2003 to
2004. As of January 1st, BlazeNets Internet Service Provider access and
hosting operations that were previously reported within the 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 September 30, 2004. On March 9, 2004, Media acquired cable systems serving Carmel, New
York. Approximately $8.2 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 $1.8 million or 5% from 2003
to 2004. Increasing penetration of high-speed Internet access,
basic/expanded basic rate increases and increased penetration of digital
video services were responsible for the improvement in revenues. Operating and programming expenses.Cables operating and programming
expenses increased $4.7 million or 30% from 2003 to 2004, due to Carmel.
On a same systems basis, operating and programming expense decreased $0.9
million or 6%. Cable programming expense included a $1.7 million expense
reduction for programming acquired through another cable operator. During
the third quarter, Cable received notification of the retroactive
settlement and recognized the entire expense reduction. 15




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##### 



Selling expenses.Selling expenses increased $0.8 million or 89% from
2003 to 2004. The increase on a same systems basis was $0.6 million or 67%
for marketing efforts to address increasing competition. General and administrative expenses.Cable general and
administrative expenses increased $2.0 million or 39% from 2003 to 2004.
On a same systems basis, general and administrative expenses increased $0.4
million or 7% from 2003. Increased general and administrative expenses
were primarily from the efforts to centralize Cables customer care
operations in York, Pennsylvania. Carmel transition expenses incurred in
third quarter were approximately $1.4 million. Media has started assuming
functions previously provided by RCN and will continue the transition
through February 2005. 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
$4.4 million or 73% from 2003 to 2004 due to the depreciation of the tangible
assets and amortization of the customer list for the Carmel acquisition. Operating income.Cable operating income decreased $0.5 million or 7%
from 2003 to 2004. On a same systems basis, Cable operating income increased
$2.1 million or 30% from 2003 to 2004. The decreased operating income is
attributable to the acquisition of the Carmel cable systems (operating loss of
$2.4 million in third quarter 2004), higher general and administrative
expenses. Nine Months Ended September 30, 2004 Compared to the Nine Months Ended
September 30, 2003 Consolidated Revenues. Consolidated revenues increased $28.0 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 $12.4 million or 12% 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. A $1.7 million expense
reduction for cable programming acquired through another cable operator was
recognized in the third quarter of 2004. General and administrative expenses.General and administrative
expenses increased $8.9 million or 17% from 2003 to 2004. Radio and Cable
general and administrative expenses were 62% and 34% of consolidated
general and administrative expenses, respectively. Approximately 83% 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 $5.1 million or 8% 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 $12.7 million or 51% 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 $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
$9.7 million or 43% from 2003 to 2004. Cables acquisition of the Carmel cable
system was responsible for the increase. Interest expense. Interest expense increased $1.6 million or 7% from 2003
to 2004. Interest expense from debt incurred 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 redeeming the Notes on May 15,
2004. The Notes redemption was funded by the New Facilities Term A Loan. 16




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##### 



Radio Segment Revenues. Radio revenues increased $3.0 million or 2% from 2003 to
2004 largely on improvements in our Atlanta and Kansas City markets and the
impact of WSOX-FM (acquired August 2003). On a same stations basis
(excluding WSOX-FM) revenues increased $1.6 million or 1%. Operating and programming expenses.Operating and programming
expenses decreased due to operating efficiencies and low inflationary
pressure on expenses. Operating income.Operating income increased $1.5 million or 3% from
2003 to 2004. On a same stations basis, Radio operating income increased
$2.1 million or 5% from 2003 to 2004. Operating income increased over 2003
in the Atlanta and Kansas City markets. Cable Segment Revenues. Cable revenues increased $30.2 million or 30% from 2003 to
2004. On a same systems basis (excluding BlazeNet and Carmel, New York
revenues), revenues increased $7.5 million or 7% from 2003 to 2004.
Increasing penetration of high-speed Internet access, basic/expanded basic
rate increases and increasing penetration of digital services were
responsible for the improvement in revenues on a same systems basis. Operating and programming expenses.Cables operating and programming
expenses increased $15.4 million or 34% from 2003 to 2004, primarily due to
Carmel. On a same systems basis, operating and programming expense
increased $2.6 million or 6%. The direct costs for delivery of high-speed
Internet access increased 41%, representing 46% of the same system increase
in operating and programming costs. The recognition of a $1.7 million
expense reduction for programming acquired through another operator helped
keep operating and programming cost increases below the percentage growth
in revenues. Selling expenses.Cable selling expenses increased $2.1 million or
91% from 2003 to 2004. On a same systems basis, selling expenses increased
$1.2 million or 52% to address increasing competition. General and administrative expenses.Cable general and
administrative expenses increased $7.4 million or 55% from 2003 to 2004.
On a same systems basis, general and administrative expenses increased $3.4
million or 25% 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.
Carmel transition expenses incurred from March 9, 2004 through September
30, 2004 were approximately $3.4 million. Media has started assuming
functions previously provided by RCN and will continue the transition
through February 2005. 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
$9.3 million or 53% from 2003 to 2004 due to depreciation on tangible assets
and amortization of customer lists for the Lawrenceburgand Carmel acquisitions. Operating income.Cable operating income decreased $4.0 million or 17%
from 2003 to 2004. On a same systems basis, Cable operating income increased
$1.4 million or 6% from 2003 to 2004. Decreased operating income is
attributable to the acquisition of the Carmel cable systems (which sustained a
$5.4 million operating loss from March 9, 2004 through September 30, 2004). 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. Net cash provided by operating activities was $73.4 million for the
nine months ended September 30, 2004. The Companys net cash provided by
operating activities was generated by normal operations. Although net
income decreased $12.7 million for the nine months compared to 2003, cash
provided by operating activities increased $4.1 million over 2003. 17




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##### 



Net cash used by investing activities was $158.6 million for the nine
months ended September 30, 2004. On March 9, 2004, Media acquired the
assets of cable systems serving Carmel, New York for $120.6 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 September 30, 2004. Capital expenditures, excluding
acquisitions, were $28.7 million and $23.5 million for the nine months
ended September 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
$15.3 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. The
sale of WABZ-FM for approximately $11.5 million cash is expected to
close in November 2004. Net cash provided by financing activities was $84.7 million for the nine
months ended September 30, 2004. Coincident with the acquisition of the
Carmel, New York cable systems on March 9, 2004, Media replaced its senior
secured credit facility with the New Facilities. The New Facilities
Revolving Credit Loan had $146.3 million available at September 30, 2004. 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 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
September 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
    
    $
    606,741
    
    
    $
    9
    
    
    $
    3,368
    
    
    $
    15,246
    
    
    $
    23,168
    
    
    $
    30,625
    
    
    $
    534,325Broadcast rights
    
    
    49,200
    
    
    
    2,450
    
    
    
    10,650
    
    
    
    11,200
    
    
    
    8,000
    
    
    
    8,250
    
    
    
    8,650RCN transition
    
    
    2,000
    
    
    
    1,400
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    33,853
    
    
    
    5,191
    
    
    
    4,839
    
    
    
    4,831
    
    
    
    4,257
    
    
    
    3,209
    
    
    
    11,526Total
    
    $
    691,794
    
    
    $
    9,050
    
    
    $
    19,457
    
    
    $
    31,277
    
    
    $
    35,425
    
    
    $
    42,084
    
    
    $
    554,501
 Media was in compliance with its loan covenants, as each is defined under
the New Facilities, as of September 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
    
    
    1.68Maximum consolidated leverage ratio may not exceed 6.50
    
    
    4.22Interest coverage ratio must be at least 2.00
    
    
    5.14
 Our New Facilities include a provision that allows our lenders 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. 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. 18




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##### 



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 September 30, 2004, Media had $453.7 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
    
    
    241,8252012
    
    
    58,750
 The maturities shown above reflect debt in place at September 30, 2004.
Our interest rate exposure is primarily impacted by changes in LIBOR rates. At
September 30, 2004, the weighted average interest rate for the variable rate
debt was 3.7%. If LIBOR rates increased 1%, and sustained that increased rate
for an entire year, annual interest expense on variable rate debt incurred as
of September 30, 2004 would increase by $4.5 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 September 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. 19




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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 6. EXHIBITS (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. 20




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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. November 11, 2004
    
    SUSQUEHANNA MEDIA CO.By:
    
    /s/ John L. FinlaysonJohn L. FinlaysonVice President and PrincipalFinancial and Accounting Officer