##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q/A
(Amendment No. 1) (Mark One) x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR o   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.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    23-2722964
(I.R.S. Employer
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 o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). YES o 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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EXPLANATORY NOTE This Amendment No. 1 to Form 10-Q of Susquehanna Media Co, (Media), for the quarter ended
September 30, 2004 is being filed to restate Medias financial statements for the quarter ended
September 30, 2004, as filed in Medias Form 10-Q on November 12, 2004. This amendment is not
intended to update other information presented in this report as originally filed, except where
noted. Media is not required to, and has not updated any forward-looking statements previously
included in the Form 10-Q. Certain cable programming is purchased through a third-party cable operator (Operator) due
to favorable rates. During third quarter 2004, the Operator notified Media of an agreement with an
unrelated programming supplier (Supplier) that resulted in a decrease in programming costs
totaling $1.5 million which was retroactive through first quarter 2003. The retroactive decrease
was used to offset current programming costs. The total retroactive decrease in programming costs
was recognized in the three months ended September 30, 2004. Subsequent to the filing of
Form 10-Q, the Supplier questioned Medias right to purchase through the Operator. After further
investigation, it was determined that Media was not eligible to purchase this programming through
the Operator. The retroactive expense decrease previously recognized was not realizable.
Additionally, the Supplier required Media to pay $0.7 million in higher programming costs
retroactive to first quarter 2003 as a result of Media utilizing discounts in prior periods that
were not allowable. The consolidated financial statements as of and for the three and nine months
ended September 30, 2004 have been restated to recognize $2.2 million additional programming costs.
The effect on 2003 and prior 2004 interim periods was not material. This Amendment No. 1 is being filed to amend and restate the items described below contained
in the above referenced Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on November 12, 2004. This amendment amends Part I, Item 1, Financial Statements; Part
I, Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations;
Part I, Item 4, Controls and Procedures; and Part II, Item 1, Legal Proceedings for the following
purposes:  
    To amend Part I, Item 1, Financial Statements, to restate our unaudited
condensed consolidated financial statements and the related notes thereto as more
fully described in Note 8 to the financial statements;
    To amend Part I, Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations, to reflect the effect of the restatement;
    To amend Part I, Item 4, Controls and Procedures, to reflect the matters discussed above;
    To amend Part II, Item 1, Legal Proceedings, to update matters originally disclosed.




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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
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 6. Exhibits
    
    
    21Signature
    
    
    22




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##### 



PART I  FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data) September 30,
    
    
    December 31,2004
    
    
    2003(Restatedsee Note 8)ASSETSCurrent 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
    
    
    10,646
    
    
    
    11,225Accrued employee-related costs
    
    
    23,365
    
    
    
    14,997Accrued income taxes
    
    
    8,697
    
    
    
    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
    
    
    71,428
    
    
    
    49,442Long-term Debt
    
    
    603,999
    
    
    
    515,671Other Liabilities
    
    
    14,874
    
    
    
    13,845Deferred Income Taxes
    
    
    77,679
    
    
    
    71,216Minority Interests
    
    
    67,321
    
    
    
    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
    
    
    62,555
    
    
    
    51,603Total Stockholders Equity
    
    
    70,705
    
    
    
    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
(Unaudited, in thousands) For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Restated
    
    
    
    
    
    
    (Restatedsee Note 8)
    
    
    
    
    
    
    see Note 8)RevenuesRadio
    
    $
    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
    
    
    43,746
    
    
    
    37,762
    
    
    
    121,199
    
    
    
    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
    
    
    87,303
    
    
    
    74,523
    
    
    
    247,160
    
    
    
    211,883Operating Income
    
    
    21,130
    
    
    
    24,474
    
    
    
    59,453
    
    
    
    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
    
    
    15,532
    
    
    
    18,107
    
    
    
    31,565
    
    
    
    48,718Provision for Income Taxes
    
    
    6,440
    
    
    
    6,794
    
    
    
    12,500
    
    
    
    18,445Income Before Minority Interests
    
    
    9,092
    
    
    
    11,313
    
    
    
    19,065
    
    
    
    30,273Minority Interests
    
    
    (814
    )
    
    
    (1,121
    )
    
    
    (7,743
    )
    
    
    (5,169
    )Net Income
    
    
    8,278
    
    
    
    10,192
    
    
    
    11,322
    
    
    
    25,104Preferred Dividends Declared
    
    
    (123
    )
    
    
    (123
    )
    
    
    (370
    )
    
    
    (370
    )Net Income Available for Common Shares
    
    $
    8,155
    
    
    $
    10,069
    
    
    $
    10,952
    
    
    $
    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
(Unaudited, in thousands) For The Nine Months EndedSeptember 30,2004
    
    
    2003(Restatedsee Note 8)CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    11,322
    
    
    $
    25,104Adjustments to reconcile net income to net cash:Depreciation and amortization
    
    
    32,260
    
    
    
    22,573Deferred income taxes
    
    
    6,804
    
    
    
    6,033Minority interests
    
    
    7,743
    
    
    
    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
    
    
    (589
    )
    
    
    (1,672
    )Increase in accrued interest
    
    
    2,356
    
    
    
    7,712Increase in accrued income taxes
    
    
    1,296
    
    
    
    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 is 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 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, 2004
    
    
    
    
    
    (Restated)
    
    
    
    
    
    
    (Restated)Operating income (loss)
    
    $
    17,290
    
    
    $
    4,469
    
    
    $
    (629
    )
    
    $
    21,130Interest expense, net
    
    
    970
    
    
    
    2,970
    
    
    
    3,428
    
    
    
    7,368Depreciation and amortization
    
    
    1,603
    
    
    
    10,370
    
    
    
    101
    
    
    
    12,074Income (loss) before income
taxes
    
    
    16,430
    
    
    
    1,498
    
    
    
    (2,396
    )
    
    
    15,532Identifiable 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
    
    
    
    6,041
 Radio
    
    
    Cable
    
    
    Other
    
    
    TotalFor the Nine Months Ended September 30, 2004
    
    
    
    
    
    (Restated)
    
    
    
    
    
    
    (Restated)Operating income (loss)
    
    $
    45,072
    
    
    $
    17,247
    
    
    $
    (2,866
    )
    
    $
    59,453Interest 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
    
    
    
    1,483
    
    
    
    (9,123
    )
    
    
    31,565Identifiable 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




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##### 



8. Restatement Certain cable programming is purchased through another cable operator (Operator) due to
favorable rates. During third quarter 2004, the Operator notified Media of an agreement that
resulted in a decrease in programming costs totaling $1.5 million that was retroactive through
first quarter 2003. The retroactive decrease was used to offset current programming fees. The
total retroactive decrease in programming costs was recognized in the three months ended September
30, 2004. Subsequently, the affected programming supplier questioned Medias right to purchase
through the Operator. After further investigation, it was determined that Media was not eligible
to purchase this programming through the Operator. The retroactive expense decrease previously
recognized was not realizable. Additionally, the programming supplier required Media to pay $0.7
million in higher programming costs retroactive to first quarter 2003 as a result of Media
utilizing discounts in prior periods that were not allowable. The consolidated financial
statements as of and for the three and nine months ended September 30, 2004 have been restated to
recognize $2.2 million additional programming costs. The effect on 2003 and prior 2004 interim
periods was not material. The effects of the restatement are summarized below (in thousands): September 30, 2004
    
    
    September 30, 2004(Restated)
    
    
    (As previously reported)Consolidated Balance SheetAccounts payable
    
    $
    10,646
    
    
    
    8,451Accrued income taxes
    
    
    8,697
    
    
    
    9,585Minority interests
    
    
    67,321
    
    
    
    67,590Retained earnings
    
    
    62,555
    
    
    
    63,593Total stockholders equity
    
    
    70,705
    
    
    
    71,743
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2004
    
    
    2004
    
    
    2004
    
    
    2004(Restated)
    
    
    (As previously
    
    
    (Restated)
    
    
    (As previouslyreported)
    
    
    
    
    
    
    reported)Consolidated Statements of
OperationsOperating and programming costs
    
    $
    43,746
    
    
    $
    41,551
    
    
    $
    121,199
    
    
    $
    119,004Operating income
    
    
    21,130
    
    
    
    23,325
    
    
    
    59,453
    
    
    
    61,648Income before income taxes and
minority interests
    
    
    15,532
    
    
    
    17,727
    
    
    
    31,565
    
    
    
    33,760Provision for income taxes
    
    
    6,440
    
    
    
    7,328
    
    
    
    12,500
    
    
    
    13,388Income before minority interests
    
    
    9,092
    
    
    
    10,399
    
    
    
    19,065
    
    
    
    20,372Minority interests
    
    
    (814
    )
    
    
    (1,083
    )
    
    
    (7,743
    )
    
    
    (8,012
    )Net income
    
    
    8278
    
    
    
    9316
    
    
    
    11,322
    
    
    
    12,360
 For the nine months ended September 30, 2004(Restated)
    
    
    (As previously reported)Consolidated Statement of Cash FlowsCash Flows From Operating ActivitiesNet income
    
    $
    11,322
    
    
    
    12,360Minority interests
    
    
    7,743
    
    
    
    8,012Decrease in accounts payable
    
    
    (589
    )
    
    
    (2,784
    )Increase in accrued income taxes
    
    
    1,296
    
    
    
    2,184
 10




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##### 



9. 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. 11




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS Cautionary Note Regarding Forward-Looking Statements Some of the statements in this Form 10-Q, as well as statements made by us in filings with
government regulatory bodies, including the Securities and Exchange Commission, and in periodic
press releases and other public comments and communications, constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Certain,
but not necessarily all, of such forward-looking statements can be identified by the use of
forward-looking terminology, such as believes, expects, may, will, should, estimates,
intends, plans, approximately, or anticipates or the negative thereof or other variations
thereof or comparable terminology, or by discussion of strategies, each of which involves risks and
uncertainties. We have based these forward-looking statements on our current expectations and
projections about future events and trends affecting the financial condition of our business that
may prove to be incorrect. These forward-looking statements relate to future events, our future
financial performance, and involve known and unknown risks, uncertainties and other factors which
may cause our actual results, performance, achievements or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
forward-looking statements. You should specifically consider the various factors identified in this
report and in any other documents filed by us with the SEC that could cause actual results to
differ materially from our forward-looking statements. All statements other than of historical
facts included herein or therein, including those regarding market trends, our financial position,
business strategy, projected plans and objectives of management for future operations, are
forward-looking statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results or performance to be materially
different from any future results, performance or achievements expressed or implied by the
forward-looking statements. Such factors include, but are not limited to:  
    general economic and business conditions, both nationally and in our markets;
    interest rate movements;
    terrorists acts or adverse reactions to United States anti-terrorism activities;
    expectations and estimates concerning future financial performance;
    the amount and timing of payments required under the Radio Employee Stock Plan and the Cable Performance Share Plan;
    acquisition opportunities and our ability to successfully integrate acquired businesses, properties or other assets and
realize anticipated benefits of such acquisitions;
    our ability to successfully enter new lines of business, from time to time, such as telephony;
    financing plans and access to adequate capital on favorable terms;
    our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our
businesses;
    the impact of competition from other radio stations, media forms, communication service providers and telephony service
providers;
    changes in accounting principles generally accepted in the United States and SEC rules and regulations;
    the impact of existing and future regulations affecting our businesses, including radio licensing and ownership rules and
cable television regulations;
    the possible non-renewal of cable franchises;
    increases in programming costs;
    the accuracy of anticipated trends in our businesses, including those discussed in Managements Discussion and Analysis of
Financial Condition and Results of Operations herein;
    advances in technology and our ability to adapt to and capitalize on such advances;
    decreases in our customers advertising and entertainment expenditures; and
    other factors over which we may have little or no control. All forward-looking statements attributable to us or to persons acting on our behalf are
expressly qualified in their entirety by this cautionary statement. Any forward-looking statement
speaks only as of the date it was made, and except for our ongoing obligations to disclose material
information as required by the federal securities laws, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this Form 10-Q might not transpire. You should also read carefully the
factors described in the Risk Factors section of our annual report on Form 10-K for the year
ended December 31, 2003. 12




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##### 



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 pro forma
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.
    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. 13




---



##### 



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: (in millions)
    
    Three months ended September 30, 2004Radio
    
    
    Cable (Restated)
    
    
    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
    %
    
    
    22.7
    
    
    
    49.1
    %
    
    
    0.8
    
    
    
    89.0
    %
    
    
    43.8
    
    
    
    40.4
    %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
    %
    
    
    41.9
    
    
    
    90.7
    %
    
    
    1.4
    
    
    
    155.6
    %
    
    
    87.3
    
    
    
    80.5
    %Operating income (loss)
    
    $
    17.3
    
    
    
    28.2
    %
    
    $
    4.3
    
    
    
    9.3
    %
    
    $
    (0.5
    )
    
    
    (55.6
    )%
    
    
    21.1
    
    
    
    19.5
    %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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.4
    )
    
    
    (5.9
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.8
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8.3
    
    
    
    7.7
    %
 (in millions)
    
    Three months ended September 30, 2003Radio
    
    
    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
    %
 14




---



##### 



(in millions)
    
    Nine months ended September 30, 2004Radio
    
    
    Cable (Restated)
    
    
    Other
    
    
    Total (Restated)Revenues
    
    $
    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
    %
    
    
    62.5
    
    
    
    47.3
    %
    
    
    2.3
    
    
    
    95.8
    %
    
    
    121.2
    
    
    
    39.5
    %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
    %
    
    
    114.8
    
    
    
    87.0
    %
    
    
    5.3
    
    
    
    220.8
    %
    
    
    247.2
    
    
    
    80.6
    %Operating income (loss)
    
    $
    45.1
    
    
    
    26.2
    %
    
    $
    17.2
    
    
    
    13.0
    %
    
    $
    (2.9
    )
    
    
    (120.8
    )%
    
    
    59.4
    
    
    
    19.4
    %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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.5
    )
    
    
    (4.1
    )%Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.8
    )
    
    
    (2.5
    )%Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11.3
    
    
    
    3.7
    %
 (in millions)
    
    Nine months ended September 30, 2003Radio
    
    
    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
    %
 15




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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 $6.0 million
or 16% 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). 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 $3.3 million or 14% 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 $1.9 million or 19% 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
$6.9 million or 44% from 2003 to 2004, due to Carmel. On a same systems basis, operating and
programming expense increased $1.2 million or 8%. The cost of acquired programming
represented 58% of Cable operating and programming costs and increased on a same systems basis
by 7%. The remainder of the increase is attributable to increasing penetration of high-speed
Internet access which is growing at a faster pace than revenues in total. 16




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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 $2.7 million or 39% from 2003 to 2004. On
a same systems basis, Cable operating income decreased $0.1 million or 2% 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 $14.6
million or 14% 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 $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 $7.3 million or 11% from 2003 to 2004,
largely due to the increase in Cables operating, general and administrative and depreciation
and amortization expenses. Net income.Net income decreased $13.8 million or 55% 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. 17




---



##### 



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
$17.6 million or 39% from 2003 to 2004, primarily due to Carmel. On a same systems basis,
operating and programming expense increased $4.8 million or 11%. Increases in the cost of
acquired programming on a same system basis were 9% and represented 46% of the same system
increase in operating and programming costs. In addition, the direct costs for delivery of
high-speed Internet access increased 41%, representing 22% of the same system increase in
operating and programming costs. 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
Lawrenceburg and Carmel acquisitions. Operating income.Cable operating income decreased $6.2 million or 27% from 2003 to 2004. On
a same systems basis, Cable operating income decreased $0.8 million or 3% 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 $13.8 million for the nine months compared
to 2003, cash provided by operating activities increased $4.1 million over 2003. 18




---



##### 



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 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. 19




---



##### 



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 the original report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure
controls and procedures were effective in timely alerting them to material information relating to
us required to be included in our periodic SEC filings. There was 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. Subsequent to filing the original report, it was determined that third-party information
management relied upon in determining, paying, recording and reporting cable programming costs was
incorrect. Non-disclosure agreements limit Medias ability to verify some programming cost
information. The impact of this restatement is further described in Note 7 to the Condensed
Consolidated Financial Statements. Despite the nature of the facts and circumstances involved, particularly the application of
judgment in managements decision to accept limited information concerning some cable programming
costs, and the level of internal analysis, review and approval of the decision to originally
recognize the reduction in programming costs in the third quarter of 2004, our Chief Executive
Officer and Chief Financial Officer concluded that the circumstances that led to this interim
period restatement constituted a material weakness in our internal control structure. Management acknowledges that any system of internal control over financial reporting,
however well constructed and monitored, can only provide a reasonable assurance that the objectives
of that control system are met 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. 20




---



##### 



PART II  OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On July 29, 2004, Bridge Capital Investors II (BCI) 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. On January 26, 2005, the United States District Court for the Northern District of Georgia granted
summary judgment in favor of BCI against Media. The summary judgment grants BCI the sum of $10.0
million with interest at the rate of 9% per annum from January 22, 2001 and allows BCIs recovery
of attorneys fees and costs. On February 22, 2005, Media appealed the judgment. ITEM 6. EXHIBITS  (a)
    Exhibits Filed Herewith: 31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by David E. Kennedy.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 David E. Kennedy.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John L. Finlayson.
 21




---



##### 



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. March 30, 2005
    SUSQUEHANNA MEDIA CO.By:
    /s/ John L. FinlaysonJohn L. FinlaysonVice President and Chief
Financial Officer