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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

(Mark One)

For the transition period from ___________ to ____________

Commission file number: 333-80523

SUSQUEHANNA MEDIA CO.

Registrant’s telephone number, including area code: (717) 848-5500

Securities Registered Pursuant To Section 12(b) of The Act: None

Securities Registered Pursuant To Section 12(g) of The Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and 2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [   ] No [X]

As of June 30, 2002, the aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates was $0.

     As of March 31, 2003, there were 1,100,000 shares of Common Stock outstanding all of which was held by Susquehanna Pfaltzgraff Co., the Registrant’s parent.

DOCUMENTS INCORPORATED BY REFERENCE

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the statements in this report, as well as statements made by us in filings with government regulatory bodies, including the Securities and Exchange Commission (“SEC”), and in periodic press releases and other public comments and communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should,” “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.

     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 possibly material impact and timing of compensation expenses related to changes in performance share values and the change in value of minority interests subject to required repurchase;
	•		acquisition opportunities and our ability to successfully integrate acquired businesses, properties or other assets and realize anticipated benefits of such acquisitions;
	•		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 and communication service providers;
	•		the impact of existing and future regulations affecting our businesses, including radio licensing and ownership rules and cable television regulations;
	•		changes in generally accepted accounting principles and standards, as well as SEC rules and 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 report might not transpire. You should also read carefully the factors described in the “Risk Factors” section of this report.

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RISK FACTORS

     Before you invest in our securities, you should be aware that there are various risks involved in your investment. You should read and consider carefully each of the following factors, as well as the other information contained in this report before making a decision to invest in our securities.

RISKS RELATING TO US AND OUR BUSINESSES

Our significant debt service obligations will limit our cash flow and affect how we operate our company.

     We have a significant level of debt and debt service obligations. As of December 31, 2002, we had approximately $521.1 million of indebtedness. We also had the ability to incur $50.2 million of additional debt under our senior credit facility. If we add new debt to our current debt levels, the related risks that we now face could intensify.

     Our substantial indebtedness poses important consequences to you, including the risks that:

	•		we will use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;
	•		our indebtedness may limit our ability to obtain additional financing on satisfactory terms;
	•		insufficient cash flow from operations may force us to sell assets, restructure or refinance our debt, or seek additional equity capital, which we may be unable to do at all or on satisfactory terms;
	•		our level of indebtedness may make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures;
	•		indebtedness under the senior credit facility bears interest at variable rates which could create higher debt service requirements if market interest rates increase; and
	•		our failure to comply with the financial and other covenants applicable to our debt could result in an event of default, which, if not cured or waived, could have a material adverse effect on us.

These risks may directly impact our ability to service our debt obligations.

We depend upon our subsidiaries for the cash flow necessary to service our debt obligations.

     Susquehanna Media is a holding company. We conduct our business through our operating subsidiaries and do not have any operations of our own. As a result, we are dependent upon the ability of our subsidiaries to provide us with cash, in the form of dividends, inter-company credits, loans or otherwise, to meet our debt service obligations. These subsidiaries are separate and distinct legal entities and have no obligations to pay any amounts due on our indebtedness or to make any funds available therefore. In addition, dividends, loans or other distributions to us from our subsidiaries may be subject to contractual or other restrictions, will depend upon the results of operations of such subsidiaries and may be subject to other business considerations.

     Not all of our subsidiaries are wholly-owned. To the extent that subsidiaries of Susquehanna Media that are not wholly-owned declare dividends or make other distributions to stockholders, these minority stockholders will receive their shares of such payments, and such amounts will not be available to service our indebtedness. The indenture governing our senior subordinated notes does, however, limit the amount of dividends and other distributions that may be paid to these minority stockholders.

Our indebtedness prohibits us from engaging in activities that may benefit us.

     Our senior credit facility and the indenture governing our senior subordinated notes each contain a number of significant covenants. These covenants limit or restrict our ability to:

•

incur additional debt;

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	•		pay dividends and make distributions;
	•		repurchase securities;
	•		make certain investments;
	•		incur liens;
	•		transfer or sell assets;
	•		enter into transactions with insiders or related parties;
	•		issue or sell stock of subsidiaries; or
	•		merge or consolidate.

     These limitations and restrictions may adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our best interests.

Our senior credit facility contains cross-default provisions that may enable senior lenders to proceed against collateral in the event of a default on our senior subordinated notes.

     The events that qualify under the indenture governing our senior subordinated notes as events of default, including a change of control, may also be events of default under our senior credit facility or other indebtedness. An event of default under the senior credit facility would permit our lenders to accelerate our indebtedness. If we cannot repay such borrowings when due, the lenders could proceed against the collateral securing the debt.

If we do not successfully integrate future acquisitions, we may not successfully increase our cash flow.

     As part of our business strategy, we intend to acquire suitable radio stations and cable systems. In the event that we acquire additional radio stations and cable systems, we may have difficulty integrating the operations, systems and management of such businesses, and unforeseen integration difficulties may require a disproportionate amount of management’s attention and our other resources. In addition, there can be no assurance that any future acquisitions will be as successful as recent acquisitions, and future acquisitions may not increase our cash flow or yield other anticipated benefits.

Recent events that are beyond our control have increased the level of public and regulatory scrutiny in general and in the capital markets and have resulted in increased regulation and new accounting standards. The reaction to these events may have negative impacts on our business, financial condition and access to capital.

     As a result of the bankruptcy filings by the Enron Corporation and WorldCom, Inc., recently discovered accounting irregularities of public companies, alleged insider trading violations and investigations by governmental authorities of companies in different industries, businesses have been under a generally increased amount of public and regulatory scrutiny. Recently discovered accounting irregularities have caused regulators and legislators to review current accounting practices, financial disclosures and companies’ relationships with their independent auditors. The capital markets and rating agencies also have increased their level of scrutiny. We believe that we are complying with all applicable laws, and we have taken steps to avoid these events, but it is difficult or impossible to predict or control what effect these types of disruptions may have on our business, financial condition or our access to the capital markets.

     Additionally, it is unclear what laws or regulations may develop, and we cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies or in our operations specifically. Any such new accounting standards could impact the way we are required to record revenues, assets and liabilities. These changes in accounting standards could lead to negative impacts on reported earnings or increases in liabilities that could, in turn, affect our reported results of operations.

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RISKS RELATING TO THE RADIO BROADCASTING INDUSTRY

We are dependent upon advertising revenues to generate income and cash flow. A concentration of stations in any particular market intensifies our exposure to economic declines.

     We derive substantially all of our broadcast revenues from the sale of advertising on our radio stations. For the years ended December 31, 2002, 2001 and 2000, 93%, 92% and 92% of our radio revenues, respectively, were generated from the sale of broadcast advertising. Because advertisers generally reduce their spending during economic downturns, we could be adversely affected by a future national recession. In addition, because a substantial portion of our broadcast revenues are derived from local advertisers, our ability to generate advertising revenues in specific markets could be adversely affected by local or regional economic downturns.

     A concentration of stations in any particular market intensifies our exposure to economic declines. We are particularly dependent on advertising revenue from the San Francisco and Dallas markets, which generated 36% and 21%, respectively of our total radio revenue for the year ended December 31, 2001. Advertising revenue from the San Francisco and Dallas markets, generated 27% and 25%, respectively of our total radio revenue for the year ended December 31, 2002. In 2001, a dramatic decrease in advertising by Internet businesses decreased our San Francisco stations’ revenues. The decreased revenues resulted in lower operating income. During 2002, the San Francisco economy has experienced a modest recovery, however its recovery has trailed other markets.

The ongoing impact of acts of war and terrorism, which have further depressed economic activity in the United States and globally, may reduce our advertising revenues and have other negative effects on our business.

     The general slowdown in the Unites States economy, as well as the ongoing impact of acts of war and terrorism against the United States, and the country’s response thereto, could cause our advertising revenues to decline due to advertising cancellations, delays or defaults in payment for advertising time, and other factors. In addition, these ongoing events have further depressed economic activity in the United States and globally, including the markets in which we operate, and may have other negative effects on our business, the nature and duration of which we cannot predict. If these acts of war or terrorism or weak economic conditions continue or worsen, our financial condition and results of operations may be materially and adversely affected.

Competition from other radio stations and media forms could reduce our advertising revenues and cash flow.

     The radio broadcasting industry is very competitive. The success of each of our stations is dependent upon its audience ratings and share of the overall advertising revenues within its market. Our stations compete for audiences and advertising revenues directly with other radio stations, and some of the owners of those competing stations have much greater financial resources than we do. Our stations also compete with other media such as cable television, newspapers, magazines, direct mail, compact discs, music videos, the Internet and outdoor advertising. We cannot be sure that any of our stations can maintain or increase its current audience ratings or market share. In addition, other stations may change their format or programming to compete directly with our stations for audience and advertisers or engage in aggressive promotional campaigns. If this happens, the ratings and advertising revenues of our stations could decrease, the promotion and other expenses of our stations could increase, and our stations would have lower broadcast cash flow.

     New media technologies are also being introduced to compete with the radio broadcasting industry. Some of these new technologies are:

	•		digital audio broadcasting and satellite digital audio radio service, which provide for the delivery of multiple new, high quality audio programming formats to local and national audiences; and
	•		streaming audio delivered through the Internet.

     We cannot predict at this time the effect, if any, that any of these new technologies may have on the radio broadcasting industry in general or our stations in particular.

Licensing and ownership rules may limit the growth of our radio broadcasting operations.

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     The radio broadcasting industry is subject to extensive regulation by the Federal Communications Commission under the Communications Act of 1934. FCC approval is required for the issuance, renewal or transfer of radio broadcast station operating licenses. We cannot operate our radio stations without FCC licenses. The failure to renew our licenses on their expiration dates or the inclusion of conditions or qualifications in our licenses could have a negative impact on our business. The Communications Act and FCC rules impose specific limits on the number of stations an entity can own in a single market. Ownership rules may affect our acquisition strategy because they may prevent us from acquiring additional stations in a particular market. We may also be prevented from engaging in a swap transaction if the swap would cause us to violate these rules.

     The FCC has indicated that it may examine and may impose limits upon the advertising revenue share acquired by one entity in a single market. It is not clear how the FCC will proceed in this area. In addition, the Department of Justice, either directly through its administration of the Hart-Scott-Rodino pre-merger notification requirements, or generally, has taken an active role in reviewing acquisitions of stations in particular markets and, in some instances, has conditioned its clearance on the parties’ agreement to limit market share to a level approved by the Department.

Media Ownership Policy Reexamination

     In 2001, the FCC began rulemaking proceedings on two of its broadcast ownership rules — the Broadcast-Newspaper Cross-Ownership Rule and the Local Radio Ownership Rule. In September of 2002, the FCC issued a Notice of Proposed Rulemaking, or NPRM, in which it sought comment on its four other broadcast ownership rules: the Television-Radio Cross-Ownership Rule; the Dual Network Rule; the Local Television Ownership Rule; and the National Television Ownership Rule. The September NPRM consolidated the three proceedings into a single biennial review for all broadcast ownership rules; such biennial reviews are required in accordance with the 1996 Telecom Act. Final comments were due to be filed no later than February 3, 2003, and a decision whether to retain the existing rules or perhaps relax them may be forthcoming from the FCC as early as the end of March 2003. Relaxation of the multiple ownership rules may allow us, and competitors, to increase the number of stations we own in a particular market, and may permit us, and competitors, to own other media in a particular market. We cannot predict the impact of the results of the FCC’s rulemaking on our business.

RISKS RELATING TO THE CABLE TELEVISION INDUSTRY

Competition from other communication service providers could reduce our revenues and cash flow.

     Cable television systems operate in a very competitive business environment, and we may compete against competitors with fewer regulatory burdens, greater financial and personnel resources, greater brand name recognition and long-standing relationships with regulatory authorities. Moreover, mergers, joint ventures and alliances among franchise, wireless or private cable television operators, regional bell operating companies and others may result in providers capable of offering cable television and other telecommunications services in direct competition with us.

     Our cable television systems face competition from:

•

alternative methods of receiving and distributing television signals, including:

	1.		direct broadcast satellite, which is a satellite service of one or more program channels that can be received on a subscriber’s premises directly using an antenna;
	2.		multichannel multipoint distribution systems, which use low power microwave frequencies with increased channel capacity to transmit video programming over the air to customers;
	3.		satellite master antenna television systems, which use one central antenna to receive and deliver programming to a concentrated group of viewers, such as in apartments, hotels or hospitals; and
	4.		broadcast digital television, which can deliver high definition television pictures, digital-quality programs and CD-quality audio programming;

•

data transmission and Internet service providers;

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	•		regional bell operating companies, other telephone companies, public utility companies and other entities that are in the process of entering the cable television business; and
	•		other sources of news, information and entertainment such as newspapers, movie theaters, live sporting events and home video products, including videotape cassette recorders and digital video disc players.

If our cable franchises are not renewed or if our franchises encounter competition, we may experience a significant decline in our revenues and cash flow.

     Cable television companies operate under non-exclusive franchises granted by local authorities, which are subject to renewal and renegotiation from time to time. Our business is dependent upon the retention and renewal of our local franchises. The non-renewal or termination of franchises relating to a significant portion of our subscribers could have a material adverse effect on our revenues and cash flow. A franchise is generally granted for a fixed term ranging from 5 to 15 years, but in many cases the franchise may be terminated if the franchisee fails to comply with the material provisions of the franchise agreement. Franchises typically impose conditions relating to the use and operation of the cable television system, including requirements relating to the payment of fees, system bandwidth capacity, customer service requirements, franchise renewal and termination. The Cable Communications Policy Act of 1984 provides for an orderly franchise renewal process in which franchise renewal will not be unreasonably withheld. If renewal is denied and the franchising authority acquires ownership of the system or effects a transfer of the system to another person, the operator generally is entitled to the “fair market value,” but with no value allocated to the franchise itself in a non-renewal situation, for the system covered by such franchise. No assurances can be given that we will be able to retain or renew our franchises or that the terms of any such renewals will be on terms as favorable to us as our existing franchises.

Changes in cable television regulation could increase our costs and reduce our revenues.

     Federal, state and local regulation can increase the costs of operating our cable systems and limit the rates we can charge. The Cable Television Consumer Protection and Competition Act of 1992, the Telecommunications Act of 1996 and the FCC’s rules implementing these acts have increased the administrative and operational expenses of cable television systems. The FCC and local or state franchise authorities have also gained additional regulatory oversight powers under these acts. The FCC is currently considering whether franchise authorities should be allowed to collect a franchise fee on revenues derived from cable modem service. The FCC and Congress continue to be concerned that rates for programming services are rising at a rate exceeding inflation. It is therefore possible that, notwithstanding the recent elimination of cable programming service tiers rate regulation, Congress may enact legislation in the future to reimpose additional rate controls on cable systems.

     Cable television systems generally operate pursuant to non-exclusive franchises, permits or licenses granted by a municipality or other state or local governmental entity. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. A number of states subject cable systems to the jurisdiction of centralized state governmental agencies. No state in which we currently operate has enacted state level regulation. We cannot predict whether any of the states in which we currently operate will engage in such regulation in the future. If we become subject to this type of regulation, the costs of operating our cable systems may increase and the rates we can charge may be limited.

If our programming costs continue to increase and we cannot pass them along to our customers, our cash flow will decrease.

     Our cable programming costs are increasing. Programming has been and is expected to continue to be our largest single expense item and accounted for approximately 33% and 29% of the our total operating costs for the years ended December 31, 2002 and 2001, respectively. In recent years, the cable industry has experienced a rapid escalation in the cost of programming, particularly sports programming. Moreover, television stations have become increasingly aggressive in demanding cash or other consideration in return for granting retransmission consent for our ability to carry such stations. This escalation may continue, and we may not be able to pass programming cost increases on to our subscribers. In addition, as we add programming to our limited and “expanded basic” tiers, we may face additional market constraints on our ability to pass these costs on to our subscribers. Our financial condition, results of operations and cash flows could be negatively affected by further increases in programming costs.

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PART I

Item 1. Business

     Overview of Susquehanna Media

     Susquehanna Media was incorporated in 1993 as a cable and radio broadcasting holding company subsidiary of Susquehanna Pfaltzgraff Co. (“Susquehanna Pfaltzgraff”). Susquehanna Pfaltzgraff was founded in 1941 by Louis J. Appell, Sr. to own and operate WSBA-AM, our flagship radio station in York, Pennsylvania. In 1954, The Pfaltzgraff Co., a leading manufacturer of ceramic dinnerware, was merged into Susquehanna Pfaltzgraff. The Pfaltzgraff Co. had been owned by the family of Mrs. Louis J. Appell, Sr. We entered the cable television business in 1965 when we were awarded a franchise to operate in York, Pennsylvania.

     We are a diversified communications company with operations in radio broadcasting and cable television. We are the second largest privately owned radio broadcaster and the 11th largest radio broadcaster overall in the United States based on 2001 revenues. As of December 31, 2002, we owned and operated nineteen FM and eight AM stations that serve four of the nation’s ten largest radio markets (San Francisco, Dallas, Houston and Atlanta), as well as four other markets (Cincinnati, Indianapolis, Kansas City, and York, Pennsylvania). We were also the 18th largest cable multiple system operator in the United States based on subscribers with five cable systems serving approximately 206,500 subscribers as of December 31, 2002.

     We also provide Internet access and enhanced services to residential and business customers under the trade name “BlazeNet.” Our services include (i) Internet access via telephone dial-up service or cable modem, (ii) website creation, hosting and maintenance, and (iii) local and wide area network design, construction and operation. Custom designed web integrated solutions and services for the media and entertainment, retail and associations and not-for-profit markets are provided to commercial customers under the trade name of “Susquehanna Technologies.”

     Radio Broadcasting

     Our radio broadcasting business focuses on operating, acquiring and developing radio stations in the 40 largest markets in the United States. We have over 60 years of experience operating radio properties and currently own stations serving the demographically attractive San Francisco, Dallas, Houston and Atlanta markets, four of the top ten radio markets in the United States. Our radio stations offer a broad range of programming formats, such as country, top 40, adult contemporary, oldies, rock, and sports and talk radio, each targeted to a specific demographic audience within a market. We believe that our large market radio presence and variety of programming formats makes us attractive to a diverse base of local and national advertisers and enables us to capitalize on our ratings to generate higher market revenue share.

     Our business strategy for radio includes the following key elements intended to establish leadership positions in the markets we serve and to enhance our operating and financial performance:

•

Focus on large markets. For the year ended December 31, 2002, we generated approximately 73% of our radio revenues from the ten largest markets in the United States and more than 97% from top 40 markets. We intend to continue focusing on large markets.

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	•		Employ targeted programming and market research. We seek to maximize station operating performance through extensive market research, innovative programming, and distinctive marketing campaigns.
	•		Emphasize sales and marketing. We place great emphasis on being familiar with our listening audience and their lifestyle characteristics in order to match effectively our audience’s demographics with the specific target audiences of our advertisers.
	•		Decentralize management. We decentralize much of our operations to regional and local levels. Each of our regional and local station groups is managed by a team of experienced broadcasters who understand the musical tastes, demographics, and competitive opportunities of their particular market.
	•		Selectively pursue strategic acquisitions. In addition to seeking continued internal growth, we intend to pursue acquisition opportunities that would allow us to continue to compete more effectively for advertising revenues and to increase our growth rate of revenues and cash flow.

     The Radio Broadcasting Industry

The radio broadcasting industry is characterized by the following key factors:

     Significant growth. The sale of advertising time to local and national spot advertisers and to national network advertisers is the primary source of revenues for radio stations. Local and national spot advertising is generally used to target the market where a station is located or to cover regions larger than the markets where a station is located. National network advertising is included in national syndicated programming aired on radio stations. The growth in total radio advertising revenue tends to be fairly stable, growing over the last 25 years at an approximately 8.6% compound annual rate, compared to a gross domestic product growth rate of approximately 6.8%.

     Broad market coverage. According to the Radio Advertising Bureau’s Radio Marketing Guide and Fact Book for Advertisers 2002-2003, each week radio reaches approximately 96% of all Americans over 12 years of age. More than one-half of all radio listening occurs outside the home, and 84% of adults are reached by car radio each week. The average listener spends approximately three hours per day listening to radio. The highest portion of radio listening occurs during the morning, particularly between the time a listener wakes up and the time he reaches work. This “morning drive time” period reaches more than 85% of people over 12 years of age, and as a result, radio advertising sold during this period achieves premium advertising rates.

     Low-cost advertising. The cost to reach a thousand listeners, or impressions, is the benchmark for comparing different media with different reach and frequency aspects. Radio is recognized by the advertising community for its ability to generate a high frequency of commercial impressions cost efficiently. This is caused by its low cost per minute, or low cost per rating point. Stations are generally classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station’s format and style of presentation enables it to efficiently target certain demographics. By capturing a specific share of a market’s radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to enable advertisers to maximize their reach for each dollar of advertising expenditures.

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     Radio Properties

     Our radio subsidiary, Susquehanna Radio Corp., operates radio stations in San Francisco, Dallas, Houston and Atlanta, all of which are top ten markets, as well as radio stations in Cincinnati, Indianapolis, Kansas City, and York, Pennsylvania. The following table sets forth certain information regarding our radio stations and their respective markets as of December 31, 2002. The table excludes WABZ-FM in Albemarle, North Carolina, KIKT-FM and KGVL-AM in Greenville, Texas, WAVG-AM in Jeffersonville, Indiana, KQKC-FM and WZZB-AM in Seymour, Indiana, and KKLF-AM in Dallas/Ft. Worth, Texas, which are owned by us, but operated by third parties under a time brokerage agreement. Market rank by revenue is based upon market revenue size of the primary radio market served by the station among all radio markets in the United States, as reported in Duncan’s 2002 Radio Market Guide for the year 2001. Station rank and audience share are based upon a station’s share of its primary demographic target for the period Monday through Sunday, 6 a.m. to 12 midnight by market, as reported by Arbitron in Fall 2002. Combined market revenue share represents our share of the total radio advertising revenue from the market, as reported in Duncan’s 2002 Radio Market Guide. Combined market revenue rank represents our rank in the market as measured by the amount of its radio advertising revenue from the market, as reported in Duncan’s 2002 Radio Market Guide.

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     Market Overviews

We own and operate radio stations in the following markets:

     San Francisco. We have operated in the San Francisco market since 1983, and currently own three FM and two AM stations in the area. We own KNBR-AM, one of the original 50,000 watt, clear channel AM licenses, which provides clear reception throughout northern California and as far inland as eastern Nevada. The station is currently programmed with a sports talk format and has the broadcast rights to the San Francisco Giants and the Golden State Warriors. Three of our stations, KNBR-AM, KFOG/KFFG-FM and KSAN-FM, are each ranked among the top 5 stations in their respective target demographics.

     Dallas/Ft. Worth. We have been operating in the Dallas/Ft. Worth market since 1974, and currently own four FM and five AM stations in the area. Three of our stations, KTCK-AM, KTBK-AM, and KTDK-FM, which are programmed with a sports talk format and are simulcast, are each ranked 1st in the market among males 25 to 54. KPLX-FM, which is programmed with a “Texas” country format, is rated 1st in the market among persons 25 to 54. On January 3, 2002, KDBN-FM changed its format to classic rock. KIKT-FM and KGVL-AM in Greenville, Texas, and KKLF-AM in Dallas/Ft. Worth, Texas are owned by us, but operated by third parties under a time brokerage agreement.

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     Atlanta. Atlanta represents one of the most desirable radio broadcast markets in the country, with only 20 FM and 30 total radio stations serving the market. We currently own two FM stations in the market. We entered the Atlanta market in 1974 with the acquisition of WNNX-FM, which is programmed with modern rock and ranked 5th among men 18 to 34. In November 2000, the FCC granted our petition to move WHMA-FM, a country station in Anniston, Alabama, to the Atlanta market. Station call letters were changed to WWWQ-FM when it debuted in the Atlanta market on January 22, 2001 with a Top 40 format.

     Houston. We entered the Houston market in 1986 when we acquired KRBE-FM, which serves the Houston market with a Top 40 radio format. KRBE-FM has been a dominant radio station in Houston since the 1970s and is ranked 3rd among women 18 to 34. This station attracts over 700,000 listeners each week.

     Cincinnati. We have operated in Cincinnati since 1972, and currently own three FM stations in the market. WRRM-FM, which is programmed with adult contemporary, is the sole adult contemporary station in the market and is ranked 1st among women 25 to 54. WMOJ-FM, which is programmed as a rhythmic oldies station, placing 2nd among women 35 to 64. WYGY-FM is a country station, which we purchased in the fall of 2002.

     Indianapolis. We have operated in Indianapolis since 1972, and currently own three FM stations in the market. WFMS-FM, which is programmed with contemporary country, is the second ranked station among women 25 to 54 and has ranked either 1st or 2nd in the market since 1992. Oldies WGLD, with its 50 kilowatt transmitting power, effectively targets adults 35-54, ranking 3rd in the market. Since switching its format from Young Country to Eighties’ Hits on December 26, 2001, WGRL-FM has seen improvement in audience ratings and renewed interest from the advertising community.

     Kansas City. In July 2000, we acquired three radio stations serving the Kansas City market. Oldies KCMO-FM is ranked 4th in its target adult 35-54 demographic. KCFX-FM ranks 3rd among adults 25 to 54 and is the flagship station for the Kansas City Chiefs. KCMO-AM is one of the oldest continuously operated talk radio stations in the United States, on the air since 1936. In 2001, the Company agreed to sell KFME-FM’s commercial airtime under a joint sales agreement with Jesscom, Inc., who is programming and operating the station. The Company holds a 40% interest in joint venture with Jesscom, Inc. to operate KFME-FM.

     York. We have operated in York since 1942, and currently own two stations in the market. WARM-FM, which is programmed with an adult contemporary format, ranking 1st among women 25 to 54. WSBA-AM, which is programmed talk and news, is the AM ratings leader in York.

     Advertising

     Most of our radio revenues are generated from the sale of local, regional and national advertising for broadcast on our radio stations. In 2002, approximately 80% of our radio revenues were generated from the sale of local and regional advertising, compared to 81% in 2001 and 78% in 2000. We generate additional radio revenues by marketing our proprietary database of listeners, selling print advertising and sponsoring local events. These important and growing sources of revenue supplement our traditional advertising revenues without increasing on-air commercial time.

     Each radio station’s local sales staff solicits advertising either directly from local advertisers or indirectly through advertising agencies. We employ personnel in each of our markets to produce commercials for advertisers. National advertising sales are made by a firm specializing in such sales in

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exchange for a commission from us based on our gross revenue, net of agency commission from the advertising sold. Regional advertising sales, which we define as sales in regions surrounding our markets to companies that advertise in our markets, are generally made by our local sales staff.

     We estimate the optimum number of advertisements available for sale by a station for a particular time period. The number of advertisements that can be broadcast without jeopardizing listening levels (and resulting ratings) is limited in part by the programming format of a particular station. We seek to maximize revenue by managing on-air inventory of advertising time and adjusting prices to local market conditions and to our ability, through our marketing efforts, to provide advertisers with an effective means of reaching a targeted demographic group. Each of our stations has a general target level of on-air inventory that it makes available for advertising. This target level may vary at different times of the day but tends to remain stable over time. Much of our selling activity is based on demand for our on-air inventory, and in general, we respond to this demand by varying prices rather than varying our target inventory level for a particular station. As a result, most changes in revenue are explained by demand-driven pricing changes rather than changes in available inventory.

     We believe that radio is one of the most efficient and cost-effective means for advertisers to reach specific demographic groups. Advertising rates charged by radio stations are based primarily on:

	•		a station’s share of audiences in the demographic groups targeted by advertisers;
	•		the number of stations in the market competing for the same demographic groups;
	•		the supply of and demand for radio advertising time; and
	•		certain qualitative factors.

     Rates are generally highest during morning and afternoon commuting hours. A station’s listenership is reflected in ratings surveys that estimate the number of listeners tuned to the station and the time they spend listening. Each station’s ratings are used by its advertisers and advertising representatives in connection with advertising sales and are used by us to chart audience growth, set advertising rates and adjust programming. The radio broadcast industry’s and our principal rating agency is Arbitron, which publishes periodic ratings surveys for significant domestic radio markets.

     Competition

     The radio broadcasting industry is very competitive. The success of each of our stations depends largely upon its audience ratings and its share of the overall advertising revenues within its market. Our audience ratings and advertising revenue are subject to change, and any adverse change in a particular market affecting advertising expenditures or an adverse change in the relative market positions of the stations located in a particular market could have a material adverse effect on the revenues of our radio stations located in that market. There can be no assurance that any one or all of our radio stations will be able to maintain or increase current audience ratings or advertising revenue market share.

     Our stations compete directly for listeners and advertising revenues with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base comprised of specific demographic groups in each of its markets, we are able to attract advertisers seeking to reach those listeners. Radio stations periodically change their formats to compete directly with other stations for listeners and advertisers. Another station’s decision to convert to a format similar to that of one of our

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radio stations in the same geographic area or launch an aggressive promotional campaign may result in lower ratings and advertising revenue, increased promotion and other expenses and, accordingly, lower our operating income.

     Factors that are material to a radio station’s competitive position include management experience, the station’s local audience rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market area. We attempt to improve our competitive position in each of our markets by extensively researching our stations’ programming, by implementing advertising campaigns aimed at the demographic groups for which our stations program and by managing our sales efforts to attract a larger share of advertising dollars for each individual station. In selling advertising, however, we compete with many organizations that have substantially greater financial and other resources.

     Recent changes in the Communications Act and the FCC’s rules and policies permit increased ownership and operation of multiple local radio stations. As a result, organizations are acquiring and operating larger blocks of radio stations. We compete with these organizations, as well as other radio station groups, to purchase additional stations. Some of these groups are owned or operated by companies that have substantially greater financial and other resources.

     Although the radio broadcasting industry is highly competitive, and competition is enhanced to some extent by changes in existing radio station formats and upgrades of power, certain regulatory limitations on market entry continue to exist. The operation of a radio broadcast station requires a license from the FCC, and the number of radio stations that an entity can operate in a given market is limited by the availability of FM and AM radio frequencies allotted or assigned by the FCC to communities in that market, as well as by the FCC’s multiple ownership rules regulating the number of stations that may be owned and controlled by a single entity. See “Federal Regulation of Radio Broadcasting.”

     In addition to other radio stations, we compete for advertising revenues with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons, Internet and outdoor advertising. The radio broadcasting industry also competes with new media technologies, such as the delivery of audio programming by cable television systems, over the Internet, and by satellite digital audio radio services. Digital audio radio services may deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The delivery of information through the presently unregulated Internet also could create a new form of competition. Despite the introduction of new technologies for the delivery of entertainment and information, including television broadcasting, cable television, audiotapes and compact discs, the radio broadcasting industry historically has grown. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the introduction of new media technology will not have an adverse effect on the radio broadcasting industry.

     Cable Television

     We entered the cable television industry in 1965, when we were awarded the franchise to operate in York, Pennsylvania. Our cable systems currently serve approximately 206,500 subscribers as of December 31, 2002 through five cable systems with a total of ten signal receiving and transmitting facilities (headends) in Pennsylvania, Mississippi, Maine, Illinois and Indiana. We own, develop and operate geographically clustered cable television systems in small and medium-sized communities. We believe that these systems are less susceptible to competition and subscriber turnover than urban cable television systems and result in more predictable revenue and cash flow.

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     Our business strategy for cable television includes the following key elements intended to enhance our operating and financial performance:

	•		Build strategic clusters. To maximize operating efficiencies, we have pursued the development and acquisition of cable television systems in communities that are within close proximity to our existing systems.
	•		Focus on customer satisfaction. To maximize customer satisfaction, we strive to provide reliable, high-quality service offerings, superior customer service and attractive programming choices at reasonable rates.
	•		Continue upgrade of technical facilities. We seek to provide reliable, high-quality cable television services to our customers. To achieve this goal we are continually expanding and upgrading our cable systems to increase channel capacity, enhance signal quality, improve technical reliability and reduce the number of headends in existing systems.
	•		Develop new sources of revenues. The investment we have made in our cable systems has enabled us to generate additional revenue by providing expanded tiers of basic programming, digital cable services, premium services, and additional pay-per-view services. In addition, we are expanding new services, such as Internet access, high-speed data and are evaluating video-on-demand, telephony, and other interactive services.

     The Cable Television Industry

     Total customers of a cable system include customers who subscribe to either the basic video service or Internet Access using a cable modem. A cable customer generally pays an initial installation charge and fixed monthly fees for cable television services and for other services (such as the rental of converters and remote control devices). Such monthly service fees constitute the primary source of revenue for cable television operators. In addition to these services, cable television operators generate revenue from additional fees paid by customers for pay-per-view programming of movies and special events and from the sale of available advertising spots on advertiser-supported programming. Additionally, cable television operators frequently offer their customers home shopping services, from which the systems receive a share of revenue from sales of products in the systems’ service areas. Cable television operators are also generating increasing revenues from the sale of enhanced data services. Cable television revenues tend to be stable, growing over the last 15 years at a 10.2% compound annual rate, compared to a gross domestic product growth rate of 5.4%. Cable television did not experience a single down year in revenue during this period of time. Cable television systems offer customers various levels (or “tiers”) of cable television services consisting of:

	•		a limited basic service, comprised of off-air broadcast television signals, local origination programming produced by the cable system and/or public access groups, and a limited number of satellite services such as home shopping channels and C-Span; and
	•		an expanded basic service, comprised of satellite delivered, non-broadcast channels such as: Cable News Network (CNN), Entertainment and Sports Programming Network (ESPN) and Lifetime Network (LIFE).

     For an extra monthly charge, cable television systems also offer premium television services. These services (such as Home Box Office, Cinemax and Showtime) are satellite delivered channels

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offering feature films, live sporting events, concerts and other special entertainment features presented without commercial interruption.

     Digital cable, offers enhanced television viewing with interactive guides, compact disc quality music channels, theater sound quality, and multiple services of premium and pay-per-view channels. These additional product offerings are made possible by use of bandwidth-saving digital compression.

     On an a la carte basis or for an additional monthly charge, our basic subscribers can also get Internet access via a cable modem, which offers broadband access to the Internet at speeds exceeding standard dial-up access. Services offered include residential and commercial Internet access, e-mail and commercial point-to-point circuits. Cable modem revenues from Cable subscribers are included in the Cable segment.

     A cable television system receives television, radio and data signals that are transmitted to the system’s headend by means of off-air antennae, microwave relay systems and satellite earth stations. These signals are then modulated, amplified and distributed, through coaxial cable and fiber optic cable, to customers who pay a fee for this service. Cable television systems may also originate their own television programming and other information services for distribution through the system. Cable television systems generally are constructed and operated pursuant to non-exclusive franchises or similar licenses granted by local governmental authorities for a specified term of years, generally for extended periods of up to 20 years.

     Cable Properties

     The following table sets forth certain information regarding our cable systems as of December 31, 2002. Homes passed represents the maximum number of homes that could become subscribers in the particular cable system. Total customers represents the total of video only and cable modem only customers. Total customer penetration represents total customers as a percentage of homes passed. Basic penetration represents basic subscribers as a percentage of homes passed. Digital penetration represents digital terminals as a percentage of basic subscribers. Premium penetration represents premium units as a percentage of basic subscribers. Premium units represents the aggregate number of individual premium services (e.g., HBO, Cinemax, Showtime) for which customers have subscribed. Cable modem penetration represents cable modem subscribers as a percentage of homes passed. Average monthly revenue per basic subscriber (television and cable modem) represents revenues divided by 12 divided by the weighted average number of subscribers for the year.

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     Cable Systems

     The following table sets forth certain selected technical, operating and financial data for each of our cable systems as of and for the year ended December 31, 2002. Density represents homes passed divided by miles of plant. Plant bandwidth represents percentage of plant mileage within a system served by the indicated plant bandwidth. Increased bandwidth offers greater capacity for signals and resultant additional revenues. Total customer penetration represents total customers as a percentage of homes passed. Basic penetration represents basic subscribers as a percentage of homes passed. A basic subscriber is a household receiving at least our lowest level of video service. Digital terminals represents the number of active terminals for which customers have subscribed to digital services. Digital penetration represents digital terminals as a percentage of basic subscribers. Premium units represents the aggregate number of individual premium services (e.g., HBO, Cinemax, Showtime) for which customers have subscribed. Premium penetration represents premium units as a percentage of basic subscribers. Cable modem penetration represents cable modem subscribers as a percentage of homes passed. Average monthly revenue per basic subscriber represents revenues divided by 12 divided by the weighted average number of subscribers for the year.

     York. The York, Pennsylvania cable system is our largest, serving subscribers in 51 municipalities and accounting for 44% of our total subscribers and 46% of our 2002 Cable revenues. A hybrid fiber/coaxial rebuild of the York system began in 1995 and is now completed. The entire cable plant now has a capacity of 750 MHz. The York system is two-way capable, which allows cable modem service and other interactive services. Cable modem service has been provided to customers since 1997, with approximately 11% penetration to homes passed as of December 31, 2002. Digital services were

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launched in October 1999, with penetration exceeding 25% of basic customers as of December 31, 2002. The York system was one of the first systems in the country to launch interactive shopping and games on digital terminals.

     Williamsport. The Williamsport system accounts for 20% of our total subscribers and 20% of our 2002 Cable revenues. The system has been completely rebuilt to 750 MHz and is two-way capable. Cable modem services are presently offered to residential and commercial customers with penetration of nearly 10% of homes passed as of December 31, 2002. Digital services were launched in June 2000 with penetration of nearly 19% of basic customers as of December 31, 2002.

     Rankin. The Rankin County, Mississippi cable system encompasses three small towns, many upscale suburban developments and the southeastern shore of an attractive reservoir recreation area just east of the state capital of Jackson. The area continues to experience housing growth. Over the past five years, the average annual compound internal growth rate of new subscribers to the Rankin system has been 2.8%, and the system accounts for 11% of our total subscribers and 11% of our 2002 Cable revenues. Approximately 35% of the Rankin system currently has a bandwidth of 550 MHz or greater. The system launched digital technology in February 2000, and digital penetration is approximately 34% of basic customers as of December 31, 2002. Rankin does not offer cable modem service.

     Brunswick. The Brunswick cable system serves the communities of Brunswick, Freeport, Bath, Harpswell and Woolwich, Maine and accounts for 10% of our total subscribers and 11% of our 2002 Cable revenues. The Brunswick system is two-way capable. The system has been providing cable modem service since 1996 to commercial customers and since 1998 to residential customers. Cable modem penetration is approximately 23% of homes passed as of December 31, 2002. Digital services were launched in August 2000, and exceed 20% penetration to basic customers as of December 31, 2002.

     Midwest. The Midwest cable system serves Shelbyville and Lawrenceburg, Indiana and Olney and DuQuoin, Illinois. The Lawrenceburg area was acquired April 1, 2002 and added 11,300 basic video subscribers to the Midwest system. The Midwest system accounts for 14% of our total subscribers and approximately 12% of our 2002 Cable revenues. The system currently has bandwidth ranging from 450 MHz to 750 MHz, with 74% between 550 and 750 MHz. Rebuilds have been completed in all areas except for a portion of the acquired Lawrenceburg, Indiana system. Digital services were launched in 2000, with penetration of nearly 15% of basic customers as of December 31, 2002.

     Programming

     We have various contracts to obtain basic, satellite and premium programming for our cable systems from the National Cable Television Cooperative, Comcast Corporation and in some cases directly from program suppliers, including, in limited circumstances, some broadcast stations, with compensation generally based on a fixed fee per customer or a percentage of the gross receipts for the particular service. Some program suppliers provide volume discount pricing structures and some offer marketing support.

     Programming costs are expected to increase in the ordinary course of our business as a result of increases in the number of basic subscribers, increased costs to purchase cable programming, expansion of the number of channels provided to customers and contractual rate increases from programming suppliers. In the event that we acquire Comcast’s ownership interests in Susquehanna Cable, our programming costs will increase faster than they would otherwise. See Part III, Item 13 of this annual report for additional details regarding our relationship with Comcast.

     Marketing, Customer Service And Community Relations

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     Our cable marketing strategy is designed to increase total revenues and revenues per subscriber by:

	•		aggressively promoting and marketing our current services;
	•		expanding our product offerings; and
	•		providing superior customer service.

     We believe that this strategy will enable us to acquire new customers and maintain a positive relationship with existing customers to retain their business and sell them additional products. Implementation strategies include:

	•		targeted marketing campaigns using direct mail and telemarketing;
	•		price promotions, such as installation specials, to attract new subscribers and a one month premium sampling program for all new digital video customers;
	•		multiplexed premium channels to improve their price/value perception; and
	•		advertisement and sponsorship of community-based events to enhance our local presence.

     We believe that providing superior customer service is a key element of our long-term success because the quality of customer service affects our ability to retain customers. We believe that it also contributes to subscriber growth and positions us to sell additional products and services. To enhance customer service, we have initiated programs to improve the skills of our employees. In 2000, we introduced an initiative for customer service employees entitled Sales Training for Excellence in Leadership, Learning and Retention (STELLAR, then STELLAR Plus in 2001), which includes extensive training, performance follow-up and standardized customer service and sales skills for all customer service representatives.

     Recognizing that positive franchise and public relations are crucial to our overall success, we emphasize maintaining good working relationships with municipal officials in our franchise areas and with the communities that we serve. Our local management meets regularly with municipal officials to keep them informed of both our activities and trends in the industry. As a result of these working relationships, we receive valuable feedback on our standing with the municipalities and the satisfaction of our customers. Local management is also responsible for maintaining a high level of visibility for us, which is accomplished through active involvement in various community and nonprofit organizations.

     Technology

     As part of our commitment to customer service, we seek to provide reliable, high-quality cable television service. As such, our primary objective with respect to Susquehanna Cable’s capital expenditures is to maintain, expand and upgrade its cable plant to improve and expand its cable television services. Through a capital investment program, we have expanded channel capacity, enhanced signal quality, improved technical reliability and provided a platform to deliver high-speed data services, including Internet access. We believe that such technical improvements and upgrades create additional revenue opportunities, enhance operating efficiencies, improve franchising relations and increase customer satisfaction. We expect capital spending in 2003 for rebuild activities to total approximately $11.1 million, which we expect to be funded by operations and existing credit facilities.

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     The following table summarizes, as of December 31, 2002, our existing bandwidth profile and our bandwidth profile upon completion of work-in-progress projects (which are generally expected to be completed by the end of 2003).

     Our use of fiber optic technology as an enhancement to coaxial is enabling us to consolidate headends and reduce amplifier cascades, thereby improving picture quality and system reliability and reducing headend and maintenance expenditures. Fiber optic strands are capable of carrying hundreds of video, data and voice channels over extended distances without the extensive signal amplification typically required for coaxial cable. In our larger systems, fiber optic technology is deployed in a “ring” design providing a redundant path for video and data signals being delivered to large subscriber groups. This approach provides an extra degree of reliability in the event that fiber optic cable is damaged on the primary path.

     Digital compression is a technology that enables cable operators to increase channel capacity of cable television systems by permitting a significantly increased number of digitalized video signals to fit within a cable television system’s existing bandwidth. At December 31, 2002, digitally compressed services were available to 99% of our customer base.

     The provision of high-speed cable modems to residential and business customers has become a significant source of additional revenue to the cable industry. Cable modem revenues represented approximately 8% and 5% of 2002 and 2001 Cable revenues, respectively. Cable modems provide Internet access at higher speeds and lower costs than the technologies offered by other communication providers. For example, a 10 megabit-capable cable modem provides Internet access at download speeds approximately 10 times faster than typical 56.0-kilobit dial-up telephone modem connections. Cable modem service is available in every system except our Rankin County facility.

     Internet and Other Services

     For the years ended December 31, 2002 and 2001, our Internet and Other segment accounted for approximately 2.8% and 3.4% of our total revenues.

     Susquehanna Data Services. Susquehanna Data Services, Inc., a subsidiary of ours, was formed in 1996 to provide Internet and data networking services to residential and business customers. Marketing its products and services under the trade name “BlazeNet,” Susquehanna Data Services offers Internet access over both telephone and cable modems, website creation, hosting and maintenance, local and wide area network design, construction and operation, and telecommunications products from Susquehanna Adelphia Telecommunications and other local telephone companies. As a website host, we provide a central computer that is connected to the Internet 24 hours a day. We store all of our

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customers’ website files on our computer so that each website and all of its content are available to users worldwide at all times. Our local and wide area network services enable us to provide network services in both a limited area, such as a building or campus, or a larger area extending beyond a single building or campus. As of December 31, 2002, BlazeNet provided access service to approximately 10,200 business and consumer accounts. Former BlazeNet residential cable modem subscribers are now served by our York cable operations.

     Susquehanna Technologies. The web design company that we acquired in October 2000 has been remarketed as Susquehanna Technologies. Susquehanna Technologies’ focus is on custom designed web integration solutions and services to the media and entertainment, retail and associations and government sectors. Due to the collapse of the Internet sector in 2001, which has continued through 2002, sales for Susquehanna Technologies have been stagnant. A $5.0 million goodwill impairment loss related to this reporting unit was recognized for the year ended December 31, 2002.

     Adelphia Partnership. In 1997, Susquehanna Media, through its wholly-owned subsidiary Susquehanna Fiber Systems, Inc., entered into a 50/50 partnership with Adelphia Business Solutions, Inc. to enter the competitive local exchange carrier business in the York, Pennsylvania market. The partnership provides long distance access circuits to businesses bypassing the local telephone company, point-to-point data circuits and switched business access services. Susquehanna’s York cable operation has constructed and maintains a 242 mile fiber optic SONET ring network that is leased to the partnership under a long-term contract. As of December 31, 2002, the partnership provided service to 94 buildings in the York area and had over 9,400 access and long distance lines installed. During 2002, our partner’s parent company declared bankruptcy under Chapter 11. The partnership is not currently included in this bankruptcy proceeding.

     Franchises

     Cable television systems are constructed and operated under fixed-term non-exclusive franchises or other types of operating permits that are granted by local governmental authorities. These franchises contain many conditions, such as:

	•		time limitations on commencement and completion of construction;
	•		conditions of service, including mix of programming required to meet the needs and interests of the community;
	•		the provision of free service to schools and certain other public institutions;
	•		the maintenance of insurance and indemnity bonds; and
	•		the payment of fees to communities.

     Certain of these franchises may require the imposition of penalties if the franchise agreements are violated. Certain provisions of these local franchises are subject to limits imposed by federal law.

     As of December 31, 2002, we held a total of 149 franchises. Many franchise agreements require the payment of fees to the issuing authorities ranging from 1% to 5% of gross revenues (with the majority in the 3% to 5% range) from the related cable system. The Cable Communications Policy Act of 1984 (1984 Cable Act) prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross annual revenues and permits the cable television system operator to seek renegotiation and

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modification of franchise requirements if warranted by changed circumstances that render performance commercially impracticable.

     Our cable franchises expire at various times through 2022. The following table sets forth certain information relating to our franchises:

     The 1984 Cable Act and the Cable Television Consumer Protection and Competition Act of 1992 (1992 Cable Act) provide, among other things, for an orderly franchise renewal process, which limits a franchising authority’s ability to deny a franchise renewal if the incumbent operator follows prescribed renewal procedures. In addition, the 1984 and 1992 Cable Acts establish comprehensive renewal procedures, which require, when properly elected by an operator, that an incumbent franchisee’s renewal application be assessed on its own merits and not as part of a comparative process with competing applications. Upon a franchise renewal request, however, a franchise authority may seek to add new and more onerous requirements upon the cable operator, such as significant upgrades in facilities and services or increased franchise fees, as a condition or renewal. We believe that our relationship with local franchise authorities is good. Although we cannot provide guarantees, we anticipate our franchises will be renewed upon expiration.

     Competition

     Cable television systems face competition from alternative methods of distributing video programming and from other sources of news, information and entertainment. These sources include direct broadcast satellite, off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive online computer services, webcasts and home video products, including DVDs and videotape cassette recorders. The extent to which a cable television system is competitive depends, in part, upon that system’s ability to provide, at a reasonable price to customers, a greater variety of programming and other communications services than those available off-air or through alternative delivery sources and upon superior technical performance and customer service.

     Competing Franchises. Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. Franchising authorities may not unreasonably deny requests for additional franchises and may operate cable television systems themselves. Well-financed businesses from outside the cable television industry (such as the public utilities that own the poles to which cable is attached) or neighboring cable operators may become competitors for franchises or providers of competing services. Within Susquehanna Cable Co. systems there exists a small overbuild by a neighboring cable operator consisting of approximately 3,000 homes passed (1% of total homes passed) which started ten years ago by two cable operators no longer in the business. Susquehanna acquired one of the operators in 1999. In the last three years the boundaries of the overbuild area has not expanded. Additional cable television systems may be constructed in the future in our other franchise areas.

     Digital Broadcast Satellites. The fastest growing method of satellite distribution is by high-powered direct broadcast satellites utilizing video compression technology, which provides more than 200

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channels of programming over a single high-powered digital broadcast satellite. Digital broadcast satellite service can be received virtually anywhere in the United States through small rooftop or side-mounted antennae/dishes and is not subject to certain local restrictions on the location and use of digital broadcast satellite and other satellite receiver dishes. Digital broadcast satellite service is presently being heavily marketed on a nationwide basis by two service providers. Digital broadcast satellite systems offer all of their programming with digital quality, but may have higher up-front costs or require long-term agreements and may lack local programming and service. Both digital broadcast satellite providers offer some local signals in a limited number of large markets. Digital broadcast satellite providers in the Indiana portion of our Midwest market offer some local programming and one digital broadcast satellite provider is offering local signals in the York market.

     Satellite Master Antenna Television Systems. Cable television operators also face competition from private satellite master antenna television systems that serve condominiums, apartment and office complexes and private residential developments. Like cable television systems, satellite master antenna television systems offer both improved reception of local television stations and many of the same satellite-delivered program services. Satellite master antenna television operators often enter into exclusive agreements with building owners or homeowners associations, although some states have enacted laws that authorize franchised cable television operators access to such private complexes. Packages of data and video services are also being offered to private residential and commercial developments. As long as they do not use public rights-of-way, satellite master antenna television systems can interconnect non-commonly owned buildings without having to comply with many of the local, state and federal regulations that are imposed on cable television systems. Our ability to compete for customers in residential and commercial developments served by satellite master antenna television operators is uncertain.

     Local Multipoint Distribution Service. Local multipoint distribution service, a wireless service, can deliver over 100 channels of programming directly to consumers’ homes. A large amount of this spectrum was auctioned in March 1998, and cable television operators and local telephone companies were restricted in their participation in this auction. It is uncertain whether this spectrum will be used to deliver multichannel video programming and other services to subscribers and thereby compete with franchised cable television systems.

     Multichannel Multipoint Distribution Systems. Multichannel multipoint distribution systems use low power microwave frequencies to transmit video programming over the air to customers. Wireless distribution services provide many of the same programming services as cable television systems, and digital compression technology is likely to increase significantly the channel capacity of their systems. Multichannel multipoint distribution systems service requires unobstructed “line of sight” transmission paths. In the majority of our franchise service areas, prohibitive topography and “line of sight” access have limited, and are likely to continue to limit, competition from multichannel multipoint distribution systems. Moreover, in the majority of our franchise areas, multichannel multipoint distribution systems operators face significant barriers to growth because lower population densities make these areas less attractive. We are not aware of any significant multichannel multipoint distribution systems operation currently within our cable television franchise service areas. Wireless One, owned by MCI/Worldcom has announced that they are discontinuing their residential multichannel multipoint distribution system, which was in direct competition with our Rankin County Mississippi cable system. MCI has indicated that they intend to utilize the frequencies for commercial data transport.

     Local Exchange Carriers. The Telecommunications Act of 1996 (1996 Telecom Act) allows local exchange carriers and others to compete with cable television systems and other video services in their telephone service territory, subject to certain regulatory requirements. Local exchange carriers use a variety of distribution methods, including both broadband wire facilities and wireless transmission

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facilities within and outside of their telephone service areas. Local exchange carriers and other telephone companies have an existing relationship with the households in their service areas, have substantial financial resources, and may have an existing infrastructure capable of delivering cable television service. Unlike cable television systems, local exchange carriers are not required, under certain circumstances, to obtain local franchises to deliver video services and are not subject to certain obligations imposed under such franchises. We believe that our rural markets are unlikely to support competition in the provision of video and telecommunications broadband services given the lower population densities and higher capital costs per household of installing plant. However, the Secretary of Agriculture announced the launch of the Rural Utilities Service’s (“RUS”) Rural Broadband Access Loan and Loan Guarantee Program. The program will allow RUS to make available $1.2 billion in loans and loan guarantees during fiscal year 2003 to provide broadband facilities in eligible rural communities. To be eligible, communities must not have more than 20,000 inhabitants and not be located in a designated standard metropolitan statistical area. It is uncertain whether this incentive program will prompt additional competition in our markets, or what the impact such potential competition may have on our cable operations.

     Public Utilities. Registered utility holding companies and their subsidiaries may provide telecommunications services (including cable television). Electric utilities must establish separate subsidiaries known as “exempt telecommunications companies” and must apply to the FCC for operating authority. Due to their resources, electric utilities could be formidable competitors to traditional cable television systems. Electric utilities also have the potential to become significant competitors in the video marketplace, as many of them already possess fiber optic transmission lines in certain areas they serve.

     Other New Technologies. Other new technologies, including Internet-based services, may compete with cable television systems. Incumbent television broadcast licensees may obtain licenses for digital television, which can deliver high definition television pictures, multiple digital-quality program streams, as well as CD-quality audio programming and advanced digital services, such as data transfer or subscription video. Television broadcast stations are authorized to transmit textual and graphic information. Commercial and noncommercial FM stations may use their sub-carrier frequencies to provide non-broadcast services, including data transmissions. In addition, over-the-air interactive video and data service permits two-way interaction with commercial and educational programming, along with informational and data services. Local exchange carriers and other common carriers provide facilities for the transmission and distribution of video services, including interactive computer-based services like the Internet, data and other non-video services.

     Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environments, are constantly occurring. We are not, therefore, able to predict the effect that current or future developments might have on the cable industry or on our operations. See “Cautionary Note Regarding Forward-Looking Statements.”

     Employees

We have approximately 1,567 employees as of December 31, 2002. No employees are covered by collective bargaining agreements, and we consider relations with our employees to be good.

     Radio Employee Stock Plan

     The Radio Employee Stock Plan (“Plan”), as established in 1987, offers certain key employees a right to purchase non-voting Susquehanna Radio Corp. shares at a formula value. For each share purchased, a participant receives a vested option to purchase two additional shares at the same price for a ten year and one month period from the date of grant.

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     On April 10, 2000, the Susquehanna Pfaltzgraff Co. Board of Directors changed the method of determining the Plan’s share value effective July 1, 2000. Over a period ending April 1, 2002, Plan share value transitioned from a formula value to a value based upon Susquehanna Pfaltzgraff Co.’s annual independent ESOP valuation (“Appraised Value”). On July 1, 2000, share value was based one-third on Appraised Value and two-thirds on formula value. As of April 1, 2001, share value was based two-thirds on Appraised Value and one-third on formula value. As of April 1, 2002 and thereafter, Plan share value was based solely on Radio’s Appraised Value.

     The July 1, 2000 change in the method for valuing shares was a plan modification that subjected shares formerly accounted for under Accounting Principles Board Opinion 25 “Accounting for Stock Issued to Employees” to Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation”. Accordingly, as of July 1, 2000, shares formerly accounted for as minority interests were recast as a Radio Employee Share Plan liability. Changes in share value formerly charged directly against retained earnings have been reflected as noncash charges to operating income. Our consolidated financial statements for 2001 and 2000 have been restated (See Notes 7 and 15 to the consolidated financial statements). Financial statements for interim periods have also been restated. As of April 1, 2002, Plan share value became based solely on Appraised Value and the Radio Employee Share Plan Liability was recast as minority interests. Subsequent increases in Plan share value will be accounted for as an increase in minority interests in the consolidated statement of operations.

     Cable Performance Share Plan

     On July 1, 2000, the first of a three-step change in the valuation of Susquehanna Cable’s performance share plan occurred. Performance shares were previously valued using a formula. On July 1, 2000, performance shares were revalued based 2/3 on the former formula and 1/3 on fair value as determined by an independent valuation of Susquehanna Pfaltzgraff Co. for ESOP purposes performed as of December 31, 1999. On April 1, 2001, performance shares were valued based 1/3 on the former formula and 2/3 on fair value as of December 31, 2000. As of April 1, 2002, performance share value was wholly based on fair value as of December 31, 2001.

     Federal Regulation of Radio Broadcasting

     Introduction

     The ownership, operation and sale of broadcast stations, including those licensed to us, are subject to the jurisdiction of the FCC, which acts under authority derived from the Communications Act of 1934 (the Communications Act). The Communications Act was amended in 1996 by the 1996 Telecom Act to make changes in several broadcast laws. Among other things, the FCC grants permits and licenses to construct and operate radio stations; assigns frequency bands for broadcasting; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations and the operating power and other technical parameters of stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates some forms of radio broadcasting programming; and has the power to impose penalties for violations of its rules under the Communications Act.

     License Grant and Renewal

     Radio broadcast licenses are granted and renewed for maximum terms of eight years. Licenses must be renewed through an application to the FCC. The Communications Act requires that the FCC grant the renewal of a station’s license if the FCC finds that, during the preceding term of the license, the

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station has served the public interest, convenience and necessity, that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC, and that there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute a pattern of abuse.

     Petitions to deny license renewal applications can be filed by interested parties, including members of the public. Such petitions may raise various issues before the FCC. The FCC is required to hold hearings on renewal applications if it is unable to determine that renewal of a license would serve the public interest, convenience and necessity, or if a petition to deny raises a “substantial and material question of fact” as to whether the grant of the renewal application would be prima facie inconsistent with the public interest, convenience and necessity. Also, during certain periods when a renewal application is pending, the transferability of the applicant’s license may be restricted. Historically, we have not experienced any material problems renewing our licenses to operate our radio stations and are not currently aware of any facts that would prevent the timely renewal of our licenses. There can be no assurance, however, that our licenses will be renewed.

     The following table sets forth certain regulatory information regarding each of the stations owned by us. “HAAT,” which applies to FM stations only, represents height above average terrain. Height above average terrain means the actual height of the station’s transmitting antenna above the ground level of the surrounding terrain and is used to measure the coverage of an FM station. The FCC class determines the maximum power and maximum height above average terrain for the particular station. Height Above Average Terrain is not applicable to AM stations.