UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

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 [X] NO [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES [  ] NO [X]

As of November 11, 2004, the Registrant had 1,100,000 total shares of common stock, $1.00 par value outstanding, all of which was owned by Susquehanna Pfaltzgraff Co., the Registrant’s parent.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES

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

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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES

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

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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES

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

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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES

1. Basis of Presentation

     Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated interim financial statements included herein have been prepared, without audit, by Susquehanna Media Co. (the “Company” or “Media”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to the Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted; however, Media believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in Media’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.

     The condensed consolidated financial statements (the “financial statements”) include the accounts of Media and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

     In the opinion of management, the accompanying condensed consolidated interim financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly Media’s consolidated financial position as of September 30, 2004 and the results of its operations for the three and nine months ended September 30, 2004 and 2003 and its cash flows for the nine months ended September 30, 2004 and 2003.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Interim results are not necessarily indicative of results for the full year or future periods.

2. Recent Developments

Recent Accounting Pronouncements

     In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46”). FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. FIN 46 applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. In December 2003, the FASB issued FIN 46R, a revision to FIN 46, that delayed implementation of FIN 46 for entities other than special purpose entities. Media must adopt FIN 46R in 2005. The impact of this interpretation has not yet been determined.

     In September 2004, FASB issued EITF Topic D-108, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill”. Topic D-108 requires that intangible assets other than goodwill acquired in business combinations completed after September 29, 2004 be valued using a direct value method. Intangible assets other than goodwill that were valued using the residual method must be tested for impairment using a direct method no later than the beginning of the first fiscal year beginning after December 31, 2004. Any impairment recognized upon application of a direct value method would be reported as a cumulative effect of a change in accounting principle. Media has not determined the impact of this announcement.

Acquisitions

     Acquisitions are accounted for as purchases. The purchase price of acquisitions are allocated to the tangible and intangible assets acquired and to liabilities assumed at fair values. In determining fair value, Media makes estimates and assumptions, which it believes are reasonable, that affect the fair values. Independent valuations are utilized to value significant acquisitions. Operating results of acquisitions are included in the condensed consolidated statements of Operations from their acquisition dates.

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     On April 1, 2004, Media purchased Jesscom, Inc.’s (“Jesscom”) sixty percent interest in 1051FM, LLC for $14.8 million cash. Media now completely owns and operates KCJK-FM, formerly KFME-FM. Existing credit facilities were used to fund the acquisition. Under the terms of a joint operating agreement that terminated April 1, Media formerly sold commercial airtime on Radio Station KFME-FM and Jesscom had programmed and operated the station. KCJK-FM is licensed to Garden City, Missouri and serves the Kansas City market. Based on an independent valuation, the purchase cost was allocated as $0.6 million to plant and equipment, $13.3 million to Federal Communications Commission (“FCC”) license and $0.9 million to goodwill.

     On March 9, 2004, Susquehanna Media Co. (“Media”) purchased cable systems from RCN Telecom Services, Inc. (“RCN”) for $120.6 million cash. A $10.0 million deposit on this acquisition was made during third quarter 2003. As of the date of acquisition, the systems served approximately 29,100 subscribers in eleven communities in and surrounding Carmel, New York with video, high-speed data and telephony services.

     The Carmel cable systems’ purchase price was allocated based on an independent valuation. Certain purchase price adjustments were finalized during third quarter. The final purchase price was allocated as follows (in thousands):

     The acquisition was funded using new credit facilities described under “New Facilities”.

     RCN agreed to provide transition services to support telephony services for a period of time and to assist Media in migrating the video and high-speed data subscriber base to Media’s own billing, customer care and provisioning systems for additional fees. Fees for these expensed services were approximately $3.4 million through September 30, 2004.

     The following amounts attributable to the Carmel acquisition were included in Media’s condensed consolidated balance sheet as of September 30, 2004 (in thousands):

     The following amounts attributable to the Carmel acquisition’s operations were included in Media’s condensed consolidated statement of operations from the acquisition date through September 30, 2004 (in thousands):

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3. Long-term Debt

New Facilities

     Media funded the Carmel acquisition on March 9, 2004 utilizing new credit facilities from a group of banks (“New Facilities”) totaling $600 million that replaced its prior $450 million senior credit facilities (“Old Facilities”). Proceeds from the New Facilities were used to repay all of the Old Facilities (approximately $195 million).

     The New Facilities became effective March 9, 2004. They include a $200 million Revolving Credit Loan commitment, a $150 million Term A Loan and a $250 million Term B Loan. The New Facilities are guaranteed by Media’s subsidiaries and are collateralized by Media’s assets (except for real estate and vehicles), a pledge of Media’s equity in all subsidiaries and a pledge of the Parent’s stock of Media.

     The Revolving Credit Loan and Term A Loan borrowings bear interest based on either a base rate plus an applicable margin (0.0% - 1.0%) or on LIBOR plus an applicable margin (1.00% - 2.25%) based on leverage. Term B Loan borrowings bear interest based on either a base rate plus an applicable margin (0.50% - 0.75%) or LIBOR plus an applicable margin (1.75% - 2.00%) based on leverage. Interest is payable quarterly or on the maturity of a LIBOR-based borrowing. As of September 30, 2004, the effective interest rate on Revolving Credit Loan, Term A Loan and Term B Loan borrowings was 3.10%, 2.79% and 4.02%, respectively.

     The Revolving Credit Loan commitment does not amortize and matures in March 2011. The Term A Loan begins amortizing in 2006 and matures in March 2011. The Term B Loan begins amortizing in 2005 and matures in March 2012. As of September 30, 2004, the following amounts were borrowed and available for borrowing (in millions):

     The New Facilities require Media to maintain ratios based on interest coverage, leverage and fixed charge coverage at prescribed levels. Media has consented to restrict its payment of dividends and management fees, investment transactions with affiliates, ownership changes, the sale of assets and the issuance of additional debt.

8.5% Senior Subordinated Notes Redemption

     Media called its 8.5% Senior Subordinated Notes (“Notes”) on May 15, 2004. On May 17, 2004, a total of $162.8 million was paid to bondholders. The amount paid included the Notes’ $150.0 million principal balance, a $6.4 million call premium and $6.4 million of accrued interest. A $9.1 million loss on extinguishment of debt, which included $2.7 million of unamortized deferred financing costs, was recognized in the condensed consolidated statement of operations. The redemption was funded using Media’s New Facilities.

4. Radio Employee Stock Plan and Cable Performance Share Plan

     Annually, on April 1, share values for the Radio Employee Stock Plan and the Cable Performance Share Plan are changed based on the results of the Parent’s annual independent valuation for ESOP purposes. On April 1, 2004, Media recognized compensation expense for the $1.5 million increase in the value of Cable Performance Share Plan shares. The $5.3 million increase in value of outstanding Radio Employee Stock Plan shares was recognized as minority interests in the condensed consolidated statement of operations.

     Media redeemed approximately $7.6 million of Radio Employee Stock Plan shares in May 2004 from retirees and employees. Approximately $2.9 million of the redeemed shares were exchanged for a note that will be paid out over two years. Existing credit facilities were utilized to fund the redemptions.

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5. Broadcast Rights

     On June 7, 2004, Media renewed its broadcast rights for San Francisco Giants games during the 2005 through 2009 baseball seasons. The contract provides for rights fees ranging from $7.6 million in 2005 to $8.7 million in 2009. Media concurrently invested an additional $1.5 million in the partnership that owns the team.

6. Contingencies

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

     On July 29, 2004, Bridge Capital Investors II sued Susquehanna Radio Corp., a Media subsidiary, for $10.0 million alleging breach of contract and unjust enrichment in connection with Media’s acquisition of Radio Station WHMA-FM. The station was originally licensed to Anniston, Alabama then subsequently moved into the Atlanta, Georgia metropolitan area. Management cannot predict the outcome of this matter but believes that the action is without merit because all conditions precedent to the $10.0 million payment were not met.

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7. Segment Information

     The Company’s business units have separate management teams and infrastructures that offer different products and services. The business units have been aggregated into three reportable segments; Radio, Cable and Other. Effective January 1, 2004, Internet access, transport and hosting activities became part of the Cable segment. These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Accounting policies, as described in the Company’s most recent audited financial statements, are applied consistently across all segments.

     Segment information follows (in thousands):

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8. Subsequent Events

     On October 23, 2004, a Media subsidiary received a $2.1 million state income tax refund that included approximately $0.6 million of interest on the refund. The refund represents settlement of an income tax audit for years 1997 through 2000. Due to significant uncertainties concerning the audit’s outcome, no income tax benefit was previously recognized. Media will reduce the provision for income taxes for this refund and recognize the interest income in fourth quarter 2004.

     Media has agreed to sell the assets of Radio Station WABZ-FM, licensed to Albemarle, North Carolina, for approximately $11.5 million cash. FCC approval of the transaction has been granted. The gain on sale may approximate $10 million. Closing is expected in November 2004.

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

Cautionary Note Regarding Forward-Looking Statements

     Some of the statements in this Form 10-Q, as well as statements made by us in filings with government regulatory bodies, including the Securities and Exchange Commission, and in periodic press releases and other public comments and communications, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should,” “estimates,” “intends,” “plans,” “approximately,” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussion of strategies, each of which involves risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events and trends affecting the financial condition of our business that may prove to be incorrect. These forward-looking statements relate to future events, our future financial performance, and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should specifically consider the various factors identified in this report and in any other documents filed by us with the SEC that could cause actual results to differ materially from our forward-looking statements. All statements other than of historical facts included herein or therein, including those regarding market trends, our financial position, business strategy, projected plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to:

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general economic and business conditions, both nationally and in our markets;

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interest rate movements;

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terrorists’ acts or adverse reactions to United States anti-terrorism activities;

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expectations and estimates concerning future financial performance;

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the amount and timing of payments required under the Radio Employee Stock Plan and the Cable Performance Share Plan;

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acquisition opportunities and our ability to successfully integrate acquired businesses, properties or other assets and realize anticipated benefits of such acquisitions;

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our ability to successfully enter new lines of business, from time to time, such as telephony;

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financing plans and access to adequate capital on favorable terms;

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our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our businesses;

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the impact of competition from other radio stations, media forms, communication service providers and telephony service providers;

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changes in accounting principles generally accepted in the United States and SEC rules and regulations;

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the impact of existing and future regulations affecting our businesses, including radio licensing and ownership rules and cable television regulations;

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the possible non-renewal of cable franchises;

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increases in programming costs;

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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;

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advances in technology and our ability to adapt to and capitalize on such advances;

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decreases in our customers’ advertising and entertainment expenditures; and

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other factors over which we may have little or no control.

     All forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Any forward-looking statement speaks only as of the date it was made, and except for our ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Form 10-Q might not transpire. You should also read carefully the factors described in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2003.

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Overview

     Media is a diversified communications company with operations in radio broadcasting (“Radio”) and cable television (“Cable”). We are the largest privately-owned radio broadcaster and the 12th largest radio broadcaster overall in the United States of America based on 2003 proforma revenues. We are also the 12th largest cable television multiple system operator in the United States of America based on subscribers as of December 31, 2003. Through our subsidiary, SusQtech, we provide Internet content management, eCommerce and eProcurement solutions to clients in the mid-Atlantic region.

     For the nine months ended September 30, 2004, 56% of Media’s revenues were from Radio and 43% were from Cable.

     All of Media’s outstanding common stock is owned by its corporate parent, Susquehanna Pfaltzgraff Co.

     The Radio business focuses on acquiring, operating and developing radio stations in the United States’ 40 largest markets. Our Radio stations offer programming over a broad range of formats. Revenues are generated by the sale of local advertising, national advertising and client-sponsored events on our stations.

     The Cable business provides a broad range of cable television, high-speed Internet access and telephony services to geographically clustered subscribers in small to medium-sized communities. Our Cable operations focus on providing subscribers with high-quality service offerings, superior customer service and attractive programming choices at reasonable rates. Cable revenues are generated by providing basic and expanded basic cable television service, digital cable services, premium services, pay-per-view services, high-speed Internet access and in certain areas, telephony services. Effective January 1, 2004, we merged parts of our BlazeNet operation that provided high-speed Internet access and Internet hosting into our cable operations.

     Media’s operations for the nine months ended September 30, 2004 included the following notable items:

-		Cable acquired assets serving approximately 29,100 subscribers in the Carmel, New York area for $120.6 million cash. This transaction was Media’s largest acquisition to date.
-		Transition costs and higher depreciation and amortization related to the Carmel acquisition have depressed cable operating income.
-		In conjunction with the Carmel acquisition, Media replaced its previous senior secured credit facility with a $600 million senior secured credit facility (“New Facilities”).
-		In May 2004, Media used its New Facilities to fund the redemption of its $150 million 8.5% Senior Subordinated Notes (“Notes”). A $9.1 million loss on extinguishment was recognized which included a $6.4 million call premium paid to bondholders and the $2.7 million write-off of unamortized deferred financing costs.
-		Media acquired total ownership of 1051FM, LLC on April 1 by purchasing Jesscom, Inc.’s sixty percent interest for approximately $14.8 million cash, using existing credit facilities.
-		Cash provided by operating activities for the nine months was $4.1 million higher than 2003.
-		A $1.7 million retroactive expense reduction for cable programming obtained through a related operator was recognized in third quarter 2004.
-		An increase in the value of the radio and cable businesses, according to an independent valuation performed for Susquehanna Pfaltzgraff Co.’s ESOP, increased minority interests by $5.3 million for the Radio segment and increased general and administrative deferred compensation expenses by $1.5 million for the Cable and Other segments as of April 1, 2004.
-		The successive hurricanes that struck the United States during the third quarter caused only minor damage to our facilities and resulted in little service interruptions for our Radio stations and Cable systems.
-		Cable’s election to accelerate the rebuild of the Rankin County, Mississippi cable system to expedite the offering of advanced services to the existing customer base has resulted in higher than expected capital expenditures. The acceleration of the rebuild will be hindered in the fourth quarter due to a shortage of available construction contractors. Many construction contractors have been assisting with repairs of areas in Florida that were devastated by successive hurricanes.

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Results of Operations

     The following table summarizes Media’s consolidated historical results of operations and consolidated historical results of operations as a percentage of revenues for the three and nine months ended September 30, 2004 and 2003:

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Three Months Ended September 30, 2004 Compared to the Three Months Ended September 30, 2003

Consolidated

     Revenues. Consolidated revenues increased $9.4 million or 9% from 2003 to 2004. Radio and Cable revenues were 57% and 43% of consolidated revenues, respectively.

     Operating and programming expenses. Operating and programming expenses increased $3.8 million or 10% from 2003 to 2004. The entire increase in operating and programming expense occurred in the Cable segment and was related to operating the new Carmel, New York cable systems, and the merger of the BlazeNet Internet Service Provider (“ISP”) operation into Cable (which was previously included in the Other segment). Cable programming expenses were decreased for a $1.7 million retroactive expense reduction on programming obtained through another operator.

     General and administrative expenses. General and administrative expenses increased $1.6 million or 9% from 2003 to 2004. Radio and Cable general and administrative expenses were 63% and 36% of consolidated general and administrative expenses, respectively. All of the increase in general and administrative expenses was incurred in the Cable segment. The increase in Cable can be attributed to the Carmel acquisition and to costs associated with the consolidation of the customer care operation in York, Pennsylvania.

     Operating income. Operating income decreased $1.2 million or 5% from 2003 to 2004, largely due to the increase in Cable’s operating, general and administrative and depreciation and amortization expenses.

     Net income. Net income decreased $0.9 million or 9% from 2003 to 2004 with the decreased operating income.

     Depreciation and amortization. Depreciation and amortization increased $4.4 million or 57% from 2003 to 2004. Cable’s acquisition of the Carmel cable systems was responsible for the increase.

     Interest expense. Interest expense decreased $0.7 million or 9% from 2003 to 2004. Interest expense from increased debt to acquire the Carmel, New York cable systems and the remaining interest in 1051FM, LLC was offset by a reduction in the effective interest rate due to the redemption of the Notes on May 15, 2004. The Notes were redeemed using Term A Loan. The Term A Loan had a 2.79% interest rate as of September 30, 2004.

Radio Segment

     Revenues. Radio revenues decreased $0.4 million or 1% from 2003 to 2004 largely due to softness in the Dallas stations.

     Operating income. Operating income was unchanged from 2003 to 2004. The decrease in revenues was offset with a decrease in general and administrative expenses. General and administrative expenses in 2003 included $1.0 million additional expense to reflect a change in the ESOP allocation methodology.

Cable Segment

     Revenues. Cable revenues increased $11.4 million or 33% from 2003 to 2004. As of January 1^st, BlazeNet’s Internet Service Provider access and hosting operations that were previously reported within the Other segment were merged into Cable’s operation. Other Internet-related services remain in the Other segment. The change in segment composition reflects the broader communications scope of Cable’s operations and the resulting management realignment. Revenues for BlazeNet totaled $1.5 million for the three months ended September 30, 2004.

     On March 9, 2004, Media acquired cable systems serving Carmel, New York. Approximately $8.2 million of revenue was generated by the Carmel systems for the quarter. On a same systems basis (excluding BlazeNet and Carmel, New York revenues), revenues increased $1.8 million or 5% from 2003 to 2004. Increasing penetration of high-speed Internet access, basic/expanded basic rate increases and increased penetration of digital video services were responsible for the improvement in revenues.

     Operating and programming expenses. Cable’s operating and programming expenses increased $4.7 million or 30% from 2003 to 2004, due to Carmel. On a same systems basis, operating and programming expense decreased $0.9 million or 6%. Cable programming expense included a $1.7 million expense reduction for programming acquired through another cable operator. During the third quarter, Cable received notification of the retroactive settlement and recognized the entire expense reduction.

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     Selling expenses. Selling expenses increased $0.8 million or 89% from 2003 to 2004. The increase on a same systems basis was $0.6 million or 67% for marketing efforts to address increasing competition.

     General and administrative expenses. Cable general and administrative expenses increased $2.0 million or 39% from 2003 to 2004. On a same systems basis, general and administrative expenses increased $0.4 million or 7% from 2003. Increased general and administrative expenses were primarily from the efforts to centralize Cable’s customer care operations in York, Pennsylvania. Carmel transition expenses incurred in third quarter were approximately $1.4 million. Media has started assuming functions previously provided by RCN and will continue the transition through February 2005. The Contractual Cash Obligations table in the Liquidity and Capital Resources section of this report includes the costs for this transition.

     Depreciation and amortization. Depreciation and amortization increased $4.4 million or 73% from 2003 to 2004 due to the depreciation of the tangible assets and amortization of the customer list for the Carmel acquisition.

     Operating income. Cable operating income decreased $0.5 million or 7% from 2003 to 2004. On a same systems basis, Cable operating income increased $2.1 million or 30% from 2003 to 2004. The decreased operating income is attributable to the acquisition of the Carmel cable systems (operating loss of $2.4 million in third quarter 2004), higher general and administrative expenses.

Nine Months Ended September 30, 2004 Compared to the Nine Months Ended September 30, 2003

Consolidated

     Revenues. Consolidated revenues increased $28.0 million or 10% from 2003 to 2004. Radio and Cable revenues were 56% and 43% of consolidated revenues, respectively.

     Operating and programming expenses. Operating and programming expenses increased $12.4 million or 12% from 2003 to 2004. The entire increase in operating and programming expense occurred in the Cable segment primarily due to the Carmel, New York cable system acquisition and the merger of the BlazeNet ISP operation into Cable. A $1.7 million expense reduction for cable programming acquired through another cable operator was recognized in the third quarter of 2004.

     General and administrative expenses. General and administrative expenses increased $8.9 million or 17% from 2003 to 2004. Radio and Cable general and administrative expenses were 62% and 34% of consolidated general and administrative expenses, respectively. Approximately 83% of the increase in general and administrative expenses was incurred in the Cable segment. The increase in Cable can be attributed to the Carmel acquisition, deferred compensation related to the Cable Performance Share Plan and to costs associated with the consolidation of the customer care operation in York, Pennsylvania. The Other segment also incurred deferred compensation expense related to the Cable Performance Share Plan.

     Operating income. Operating income decreased $5.1 million or 8% from 2003 to 2004, largely due to the increase in Cable’s operating, general and administrative and depreciation and amortization expenses.

     Net income. Net income decreased $12.7 million or 51% from 2003 to 2004. The decrease in net income is the result of decreased operating income in Cable and other expense of $9.1 million related to the early retirement of the Notes. The $5.1 million increase in the valuation for Radio Employee Stock Plan shares on April 1, 2004 increased minority interests.

     Depreciation and amortization. Depreciation and amortization increased $9.7 million or 43% from 2003 to 2004. Cable’s acquisition of the Carmel cable system was responsible for the increase.

     Interest expense. Interest expense increased $1.6 million or 7% from 2003 to 2004. Interest expense from debt incurred to acquire the Carmel, New York cable systems and the remaining interest in 1051FM, LLC was offset by a reduction in the effective interest rate due to redeeming the Notes on May 15, 2004. The Notes’ redemption was funded by the New Facilities’ Term A Loan.

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Radio Segment

     Revenues. Radio revenues increased $3.0 million or 2% from 2003 to 2004 largely on improvements in our Atlanta and Kansas City markets and the impact of WSOX-FM (acquired August 2003). On a same stations basis (excluding WSOX-FM) revenues increased $1.6 million or 1%.

     Operating and programming expenses. Operating and programming expenses decreased due to operating efficiencies and low inflationary pressure on expenses.

     Operating income. Operating income increased $1.5 million or 3% from 2003 to 2004. On a same stations basis, Radio operating income increased $2.1 million or 5% from 2003 to 2004. Operating income increased over 2003 in the Atlanta and Kansas City markets.

Cable Segment

     Revenues. Cable revenues increased $30.2 million or 30% from 2003 to 2004. On a same systems basis (excluding BlazeNet and Carmel, New York revenues), revenues increased $7.5 million or 7% from 2003 to 2004. Increasing penetration of high-speed Internet access, basic/expanded basic rate increases and increasing penetration of digital services were responsible for the improvement in revenues on a same systems basis.

     Operating and programming expenses. Cable’s operating and programming expenses increased $15.4 million or 34% from 2003 to 2004, primarily due to Carmel. On a same systems basis, operating and programming expense increased $2.6 million or 6%. The direct costs for delivery of high-speed Internet access increased 41%, representing 46% of the same system increase in operating and programming costs. The recognition of a $1.7 million expense reduction for programming acquired through another operator helped keep operating and programming cost increases below the percentage growth in revenues.

     Selling expenses. Cable selling expenses increased $2.1 million or 91% from 2003 to 2004. On a same systems basis, selling expenses increased $1.2 million or 52% to address increasing competition.

     General and administrative expenses. Cable general and administrative expenses increased $7.4 million or 55% from 2003 to 2004. On a same systems basis, general and administrative expenses increased $3.4 million or 25% from 2003. Increased general and administrative expenses were primarily from the efforts to centralize Cable’s customer care operations in York, Pennsylvania and deferred compensation expense related to the current year change in the price of Cable Performance Shares. Carmel transition expenses incurred from March 9, 2004 through September 30, 2004 were approximately $3.4 million. Media has started assuming functions previously provided by RCN and will continue the transition through February 2005. The Contractual Cash Obligations table in the Liquidity and Capital Resources section of this report includes the costs for this transition.

     Depreciation and amortization. Depreciation and amortization increased $9.3 million or 53% from 2003 to 2004 due to depreciation on tangible assets and amortization of customer lists for the Lawrenceburgand Carmel acquisitions.

     Operating income. Cable operating income decreased $4.0 million or 17% from 2003 to 2004. On a same systems basis, Cable operating income increased $1.4 million or 6% from 2003 to 2004. Decreased operating income is attributable to the acquisition of the Carmel cable systems (which sustained a $5.4 million operating loss from March 9, 2004 through September 30, 2004).

Liquidity and Capital Resources

     The Company’s primary sources of liquidity are cash flow from operations, borrowings under its senior credit facilities and other borrowings. The Company’s future needs for liquidity arise primarily from ongoing operations, capital expenditures, potential acquisitions of radio stations and cable systems, potential repurchases of common stock, and interest payable on outstanding indebtedness and its senior credit facilities. From time to time, as market conditions permit, we may also access the capital markets with debt or equity financing.

     Net cash provided by operating activities was $73.4 million for the nine months ended September 30, 2004. The Company’s net cash provided by operating activities was generated by normal operations. Although net income decreased $12.7 million for the nine months compared to 2003, cash provided by operating activities increased $4.1 million over 2003.

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     Net cash used by investing activities was $158.6 million for the nine months ended September 30, 2004. On March 9, 2004, Media acquired the assets of cable systems serving Carmel, New York for $120.6 million cash. On April 1, 2004, Media purchased the remaining sixty percent interest in 1051FM, LLC from Jesscom, Inc. for $14.8 million cash. In conjunction with renewal of radio’s broadcast rights for the San Francisco Giants’ baseball games, Radio invested an additional $1.5 million in the partnership that owns the team. On a cost basis, Radio’s investment in the Giants was $4.0 million as of September 30, 2004. Capital expenditures, excluding acquisitions, were $28.7 million and $23.5 million for the nine months ended September 30, 2004 and 2003, respectively. Capital expenditures were primarily used to upgrade and maintain our cable systems and centralize customer care operations. Media expects to make capital expenditures of $15.3 million during the remainder of 2004, primarily for cable systems upgrades. We expect to utilize our New Facilities and cash flow generated from operations to fund cable systems upgrades.

     The sale of WABZ-FM for approximately $11.5 million cash is expected to close in November 2004.

     Net cash provided by financing activities was $84.7 million for the nine months ended September 30, 2004. Coincident with the acquisition of the Carmel, New York cable systems on March 9, 2004, Media replaced its senior secured credit facility with the New Facilities. The New Facilities’ Revolving Credit Loan had $146.3 million available at September 30, 2004.

     Media redeemed approximately $7.6 million of Radio Employee Stock Plan shares in May 2004 from retirees and employees. Approximately $2.9 million of the redeemed shares were exchanged for a note to be paid out over two years. Existing credit facilities were utilized to fund the redemptions.

     The following tables reflect our contractual cash obligations as of September 30, 2004 in the respective periods in which they are due (in thousands):

     Media was in compliance with its loan covenants, as each is defined under the New Facilities, as of September 30, 2004. A summary of the most restrictive covenants, the required covenant value and the corresponding actual value follows:

     Our New Facilities include a provision that allows our lenders to refuse additional borrowings if our financial condition suffers a material adverse change. Violation of covenants under the New Facilities could result in a cross-default of our 7.375% Senior Subordinated Notes (“7.375% Notes”). A default under the 7.375% Notes could result in a default under our New Facilities. Any such defaults would permit our lenders and noteholders to accelerate payment of the debt, which would likely have a material adverse impact on our financial condition and results of operations.

     Media believes funds generated from operations and funds available from our New Facilities will be sufficient to finance its current operations, its debt service obligations, and its planned capital expenditures. From time to time, Media evaluates potential acquisitions of radio stations and cable television systems. In connection with future acquisition opportunities, Media may incur additional debt or issue additional equity or debt securities depending on market conditions and other factors. Except as disclosed in this Form 10-Q, Media has no current commitments or agreements with respect to any material acquisitions.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Media monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that the redemption of the Notes has affected market risk since $150 million of formerly fixed interest rate debt is now subject to changes in variable interest rates.

     As of September 30, 2004, Media had $453.7 million in variable rate debt and $150 million in fixed rate debt. The fair value of the variable rate debt approximates its carrying value. Variable rate debt matures as follows:

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

ITEM 4. CONTROLS AND PROCEDURES

     Pursuant to the Securities Exchange Act of 1934, we carried out an evaluation, with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures under the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management acknowledges that any system of internal control over financial reporting, however well constructed and monitored, can only provide a reasonable assurance that the objectives of that control system are met and that the maintenance and monitoring of such control system is an ongoing process. Accordingly, the Company’s internal control over financial reporting may change in the future.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On July 29, 2004, Bridge Capital Investors II sued Susquehanna Radio Corp., a Media subsidiary, for $10.0 million alleging breach of contract and unjust enrichment in connection with Media’s acquisition of Radio Station WHMA-FM. The suit was filed in Federal District Court for the Northern District of Georgia. The station was originally licensed to Anniston, Alabama then subsequently moved into the Atlanta, Georgia metropolitan area. Although Management cannot predict the outcome of this matter, it believes that the action is without merit because all conditions precedent to the $10.0 million payment were not met.

ITEM 6. EXHIBITS

(a) Exhibits Filed Herewith:

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Peter P. Brubaker.
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by John L. Finlayson.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Peter P. Brubaker.
32.2		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by John L. Finlayson.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.