Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF- 1934

For the transition period from to

Commission file number: 333-80523

SUSQUEHANNA MEDIA CO.

(Exact name of registrant as specified in its charter)

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  þ       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  þ

As of November 12, 2003, there were 1,100,000 total shares of common stock, $1.00 par value outstanding, all of which were owned by Susquehanna Pfaltzgraff Co.

SUSQUEHANNA MEDIA CO.
FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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 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, 2002 filed with the Securities and Exchange Commission. The statement of operations for the three and nine months ended September 30, 2002 and the statement of cash flows for the nine months ended September 30, 2002 reflect restated amounts as disclosed in the Form 10-K.

     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 at September 30, 2003 and the results of its operations for the three and nine months ended September 30, 2003 and 2002 and its cash flows for the nine months ended September 30, 2003 and 2002.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Interim results are not necessarily indicative of results for the full year or future periods.

2. Recent Developments

New Borrowing

     On April 23, 2003, Media issued $150.0 million of 7.375% Senior Subordinated Notes (“Notes”) due in 2013 at par. Interest is payable semi-annually, commencing October 15, 2003. The $148.3 million net proceeds were immediately used to pay down Media’s existing revolving credit facility. In June 2003, the Notes were exchanged for Senior Subordinated Exchange Notes, with the same terms and maturity, that were registered with the Securities and Exchange Commission.

Acquisition, Commitments and Relocations

     On July 10, 2003, Media signed a purchase agreement with RCN Telecom Services, Inc. to acquire the assets of a cable system serving Carmel, New York for $120.0 million cash. The cable system serves approximately 29,800 video subscribers. The agreement contemplates that the cable facilities will be fully upgraded to 750 MHz and two-way capable before the first quarter 2004 anticipated closing. The system is currently providing digital video, residential high-speed Internet access and circuit switched telephony over the rebuilt areas of the cable system. Existing debt facilities, which were utilized for the $10 million deposit made on July 10, 2003, are expected to provide the remaining funding for the acquisition.

     On August 1, 2003, Media purchased certain assets of WSOX-FM, an “Oldies” radio station, licensed to Red Lion, Pennsylvania from Lancaster-York Broadcasting, LLC for $23.0 million cash. Existing credit facilities funded the acquisition. Based on a preliminary valuation, approximately $22.8 million of the purchase price has been allocated to intangible assets with indefinite lives. A final purchase price allocation will be completed before year-end.

5

     Effective June 30, 2003, Media purchased approximately 2,900 basic cable subscribers and related assets serving Canton, Mississippi from Galaxy Cable, Inc. for $5.2 million cash. Existing credit facilities were utilized to fund the acquisition. The subscribers will be integrated into the existing Rankin County operation after rebuild of the cable plant and headend elimination. Media anticipates that rebuild and headend elimination costs will total $2.3 million over twelve months.

     In February 2003, Media’s Radio and Cable corporate management groups, the York Cable system customer service and administrative staffs, and the Media management group moved their offices to a York, Pennsylvania complex developed by a related party. The offices are located in a Keystone Opportunity Zone. Related capital expenditures totaled $5.9 million. Media will receive Keystone Opportunity Zone benefits including certain Pennsylvania and local tax abatements through 2010.

Intangible Assets

     Media is required to annually test the carrying value of goodwill and intangible assets with indefinite lives for impairment. That assessment will be performed as of December 31, 2003. Although no triggering event has occurred through September 30, 2003, certain operations with lower than expected operating results may be identified as potentially impaired in that assessment.

Interest Rate Swap

     At September 30, 2003, Media was party to an interest rate swap agreement, which effectively changed $20.0 million of variable rate debt to fixed rate debt. The effective fixed interest rate on the $20.0 million was 4.09% at September 30, 2003. The interest rate swap was recorded at its fair value as of September 30, 2003. Interest expense was increased by $0.1 million due to swaps for the nine months ended September 30, 2003. Although Media has not elected hedge accounting for this swap contract, hedge accounting may be elected for future contracts.

Radio Employee Stock Plan

     In May 2003, Susquehanna Radio Corp. (“Radio”) repurchased and retired approximately $6.5 million of Class “B” common non-voting shares from former and current employees. Existing credit facilities were utilized to fund the repurchases. On August 15, 2003, Radio offered certain employees a 90 day right to purchase approximately $1.1 million of Class “B” common non-voting shares at the current fair value. Purchasers will be issued a fully vested option to purchase two additional Class “B” common non-voting shares at the same price with each share purchased. Options are granted only with stock purchases. No rights were exercised as of September 30, 2003.

Recent Accounting Pronouncements

     Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations” (“SFAS 143”) specifies financial and reporting obligations pertaining to the retirement of tangible long-lived assets and associated retirement costs. Media adopted SFAS 143 as of January 1, 2003. Adoption had no material effect on Media’s financial position or results of operations.

     Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”) amended SFAS 123 to provide for alternative methods of transitioning to the fair value method of valuing stock-based compensation. Media is using the fair value method of valuing stock-based compensation. As of September 30, 2003, the number and value of stock options granted and outstanding was not material.

     Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Requirements for Guarantees, Including Guarantees of Indebtedness of Others” (“FIN 45”), requires a guarantor to disclose its obligations under certain guarantees that it has issued in interim and annual financial statements for guarantees issued or modified after December 31, 2002. For certain guarantees, a guarantor may be required to recognize a liability for the fair value of the obligation at its inception. FIN 45 does not specify an approach for subsequently measuring and recording the change in fair value of the obligation. The interpretation’s disclosure provisions applied to interim or annual financial statements for periods ending after December 15, 2002. Media adopted this pronouncement as of January 1, 2003 without material impact.

     In January 2003, the Financial Accounting Standards Board 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. For enterprises, such as the Company, with a variable interest in a variable interest entity created before February 1, 2003, FIN 46 is applied to the enterprise no later than the end

6

of the first interim or annual reporting period beginning after June 15, 2003. The application of FIN 46 is not expected to have a material effect on Media’s financial position or results of operations.

     In April 2003, the FASB issued Statement of Financial Accounting Standard No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts entered into or modified after June 30, 2003, for hedging activities designated after that same date and for certain existing contracts. Media has not entered into or modified any subject contracts since June 30, 2003.

     In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 requires certain financial instruments previously classified as equity to be classified as liabilities, or possibly assets, if they have certain characteristics. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. Since the Company’s common stock is not publicly held, it is unclear when SFAS 150 must be implemented.

Contingency

     WHMA-FM was moved from Anniston, Alabama to serve the Atlanta, Georgia metropolitan area based upon a Federal Communications Commission (“FCC”) Report and Order. The original purchase agreement provided that if a Final Order was received by May 2003, Media would pay the sellers an additional $10 million. Management believed that it was probable that a timely Final Order would be issued and accordingly recorded a contract fee payable for the $10 million at December 31, 2002. Since a Final Order was not issued in the time required, management and counsel believe that payment is not due. As of September 30, 2003, the contract fee payable and the corresponding intangible assets were reversed. The reversal has been treated as a noncash transaction for disclosures related to the condensed consolidated statement of cash flows for the nine months ended September 30, 2003.

3. 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 Internet and Other. 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.

7

     Segment information follows (in thousands of dollars):

8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

     This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “estimates,” “intends,” “plans,” “projection,” “will continue” and words of similar import. 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. Many, but not all of the factors that may impact actual results are discussed in the “Risk Factors” section of the Company’s Form 10-K for the year ended December 31, 2002. You should read these “Risk Factors” carefully. 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 amounts 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 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 and in other SEC filings;
	•		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,

9

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.

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-month periods ended September 30, 2003 and 2002. Dollars are in millions.