<PAGE> 1
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, 1999
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)
DELAWARE 23-2722964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
140 EAST MARKET STREET
YORK, PENNSYLVANIA 17401
(717) 848-5500
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
(NOT APPLICABLE)
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ] NO [X]
As of November 10, 1999, there were 1,100,000 total shares of common stock,
$1.00 par value, outstanding.
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SUSQUEHANNA MEDIA CO.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C>
PART I - FINANCIAL INFORMATION......................................................1
ITEM 1. FINANCIAL STATEMENTS......................................................1
CONDENSED CONSOLIDATED BALANCE SHEETS...........................................1
CONDENSED CONSOLIDATED INCOME STATEMENTS........................................2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS.................................3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............13
PART II - OTHER INFORMATION.........................................................14
ITEM 1. LEGAL PROCEEDINGS........................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................................14
</TABLE>
ii
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,212 $ 1,942
Accounts receivable, net 39,996 32,324
Deferred income taxes -- 262
Other current assets 4,167 4,223
Interest receivable from Parent 2,709 --
-------- --------
Total Current Assets 48,084 38,751
Property, Plant and Equipment, net 116,730 99,544
Intangible Assets, net 218,489 201,643
Note Receivable from Parent 116,850 --
Investments and Other Assets 23,146 15,203
-------- --------
$523,299 $355,141
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,304 $ 10,115
Current portion of long-term debt 57 12,054
Accrued interest 5,760 1,691
Accrued income taxes 2,605 890
Deferred income taxes 396 --
Other accrued expenses 16,845 8,350
-------- --------
Total Current Liabilities 34,967 33,100
-------- --------
Long-term Debt 410,078 260,722
-------- --------
Deferred Compensation Liability 830 776
-------- --------
Deferred Income Taxes 36,865 34,119
-------- --------
Minority Interests 17,252 17,223
-------- --------
Stockholders' Equity
Preferred stock - voting, 7% cumulative with par value of $100,
authorized 110,000 shares, 70,449.21 issued and outstanding 7,050 7,050
Common stock - voting, $1 par value, authorized 1,100,000
shares, 1,100,000 shares issued and outstanding 1,100 1,100
Retained earnings 15,157 1,051
-------- --------
Total Stockholders' Equity 23,307 9,201
-------- --------
$523,299 $355,141
======== ========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
1
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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Radio $ 49,294 $ 40,576 $ 131,524 $ 111,277
Cable 21,287 17,869 60,807 52,354
Other 828 423 2,228 1,104
-------- -------- --------- ---------
Total revenues 71,409 58,868 194,559 164,735
-------- -------- --------- ---------
OPERATING EXPENSES
Operating and programming 25,280 23,382 70,116 62,651
Selling 8,428 6,928 22,929 19,992
General and administrative 11,585 9,699 34,475 28,756
Depreciation and amortization 7,016 5,588 20,779 16,520
-------- -------- --------- ---------
Total operating expenses 52,309 45,597 148,299 127,919
-------- -------- --------- ---------
OPERATING INCOME 19,100 13,271 46,260 36,816
OTHER INCOME (EXPENSE)
Interest expense (8,280) (5,203) (20,286) (15,602)
Interest income from loan to Parent 1,767 -- 2,708 --
Replacement of cable distribution system (472) -- (472) --
Pension curtailment gain -- -- 2,299 --
Other 34 (137) (42) (586)
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
LOSS AND MINORITY INTERESTS 12,149 7,931 30,467 20,628
INCOME TAXES 5,065 3,364 12,681 8,751
-------- -------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS
AND MINORITY INTERESTS 7,084 4,567 17,786 11,877
Extraordinary loss related to early retirement
of debt, net of $2,165 tax benefit -- -- (3,316) --
-------- -------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 7,084 4,567 14,470 11,877
Minority Interests (1,167) (1,053) (2,529) (2,758)
-------- -------- --------- ---------
NET INCOME 5,917 3,514 11,941 9,119
Preferred Dividends Declared (123) (170) (370) (511)
-------- -------- --------- ---------
NET INCOME AVAILABLE FOR COMMON SHARES $ 5,794 $ 3,344 $ 11,571 $ 8,608
======== ======== ========= =========
BASIC NET INCOME PER SHARE
Before extraordinary loss $ 5.27 $ 3.04 $ 13.53 $ 7.83
Extraordinary loss -- -- (3.01) --
-------- -------- --------- ---------
$ 5.27 $ 3.04 $ 10.52 $ 7.83
======== ======== ========= =========
DILUTED NET INCOME PER SHARE
Before extraordinary loss $ 5.20 $ 3.02 $ 13.33 $ 7.72
Extraordinary loss -- -- (2.96) --
-------- -------- --------- ---------
$ 5.20 $ 3.02 $ 10.37 $ 7.72
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before minority interests $ 14,470 $ 11,877
Adjustments to reconcile net income to net cash:
Depreciation and amortization 20,779 16,520
Replacement of cable distribution system 472 --
Deferred financing expense write-off 2,556 --
Deferred income taxes 3,404 1,508
Curtailment gain (2,299) --
Equity in earnings of investees (112) 534
Imputed deferred compensation 76 145
Deferred financing amortization 642 596
Changes in assets and liabilities:
Increase in accounts receivable, net (7,673) (2,846)
Increase in other current assets (493) (159)
Increase in interest receivable from parent (2,708) --
Decrease in accounts payable (810) (3,192)
Increase in accrued interest 4,069 524
Increase (decrease) in accrued income taxes 1,714 (1,559)
Increase in other accrued expenses 8,495 2,286
--------- --------
Net cash provided by operating activities 42,582 26,234
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan to Susquehanna Pfaltzgraff Co. (parent) (116,850) --
Purchase of property, plant and equipment, net (21,737) (19,864)
Purchase of cable assets (32,400) (2,161)
Partnership capital contribution (1,400) (1,800)
Increase in investments, other assets and intangible assets (164) (60)
Purchase of radio assets -- (7,970)
Other -- (800)
--------- --------
Net cash used by investing activities (172,551) (32,655)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 350,000 --
Repayment of refinanced debt (272,600) --
Increase in revolving credit facility 60,000 --
Payment of deferred financing costs (7,805) --
Payments of preferred dividends (370) (511)
Non-voting subsidiary common stock transactions 13 398
Increase in prior revolving credit borrowing -- 10,500
Repayments of long-term debt -- (1,100)
Decrease in cash overdrafts -- (279)
--------- --------
Net cash provided by financing activities 129,238 9,008
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (731) 2,587
Cash and Cash Equivalents, January 1, 1,943 --
--------- --------
Cash and Cash Equivalents, September 30, $ 1,212 $ 2,587
========= ========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
<PAGE> 6
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"). The financial statements have been prepared in accordance with
generally accepted accounting principles 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 generally accepted accounting principles have been
condensed or omitted; however, the Company 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 the
Company's prospectus filed pursuant to Rule 424 on September 29, 1999.
The condensed consolidated financial statements (the "financial
statements") include the accounts of Susquehanna Media Co. 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 the consolidated
financial position of the Company's at September 30, 1999 and the results of its
operations for the three and nine months ended September 30, 1999 and 1998 and
its cash flows for the nine months ended September 30, 1999 and 1998.
Interim results are not necessarily indicative of results for the full
year or future periods.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
2. RECENT DEVELOPMENTS
On August 1, 1999, two of the Company's cable subsidiaries merged with
two of the Company's other cable subsidiaries. These mergers had no material
impact on the Company's results of operations. Because the target subsidiaries
each had a stockholders' deficit and the acquiror subsidiaries each had a
stockholders' equity, these mergers resulted in a $2.2 million decrease in
minority interests and a corresponding increase in consolidated stockholders'
equity.
Acquisition of Hanover Cable - On January 29, 1999, a Cable subsidiary
purchased assets serving approximately 16,700 cable subscribers in the Hanover,
Pennsylvania area for $33.4 million cash. Based on an independent appraisal,
$9.6 million was allocated to property, plant and equipment and $23.8 million
was allocated to franchise values. Operating results for Hanover have been
included in the Company's results of operations since acquisition.
4
<PAGE> 7
Financing Changes - On April 16, 1999, the Company repaid its $46.5
million of insurance company notes with borrowings from its then existing senior
bank credit facility.
On May 12, 1999, the Company's Term Loan and Reducing Revolver
Commitment was replaced by a new $450 million Senior Secured Credit Facility
with a group of banks. The new facility's Revolving Credit Commitment allows the
Company to borrow up to $25 million. The revolving loans begin reducing in 2002
and mature in 2007. The Company has utilized two $100 million Term Loan
commitments that begin reducing in 2002 and mature in 2007 and 2008. Both the
Revolving Credit Commitment and Term Loans bear interest priced at the LIBOR
rate plus an applicable margin based on certain ratios or prime-based rates. The
interest rate on the Revolving Credit Commitment was 7.14% at September 30,
1999. The interest rate on Term Loan "A" was 7.06% and the interest rate on Term
Loan "B" was 7.94% at September 30, 1999. Interest is payable quarterly and/or
on maturity of a LIBOR-based tranche.
The extraordinary loss related to early retirement of debt resulted
from $2.9 million in prepayment premiums on insurance company notes and a $2.6
million write-off of unamortized deferred financing costs, net of $2.2 million
income tax benefits.
On May 12, 1999, the Company also issued $150 million of 8.5% Senior
Subordinated Notes due 2009 at 99.75% of their face amount. Proceeds to the
Company totaled $145.5 million.
Employee Stock Ownership Plan (ESOP) - On March 19, 1999, Susquehanna
Pfaltzgraff Co.'s (the Company's parent) Board of Directors approved creation of
an Employee Stock Ownership Plan (ESOP) for Susquehanna Pfaltzgraff Co. Company
employees participate in the ESOP. ESOP expense of $3.8 million was recorded for
the nine months ended September 30, 1999. On May 12, 1999, the Company made a
$116.9 million twenty-year loan to its parent at a 6% interest rate. Principal
and interest payments are receivable annually in December. Loan proceeds were
used to fund the ESOP. At September 30, 1999, interest receivable from parent
was $2.7 million.
On March 19, 1999, the parent's Board of Directors approved a cessation
of benefit accruals under the Susquehanna Pfaltzgraff Co. Pension Plan effective
April 30, 1999. Based on an independent actuarial calculation, the Company was
allocated a $2.3 million curtailment gain. Negative pension expense recognized
for the nine months ended September 30, 1999 was $0.2 million. In comparison,
pension expense recognized for the nine months ended September 30, 1998 was $0.8
million.
5
<PAGE> 8
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 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.
Segment information (in thousands of dollars) follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------
Radio Cable Other Consolidated
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Operating income $ 14,779 $ 3,955 $ 366 $ 19,100
Interest expense, net 1,616 3,082 3,582 8,280
Depreciation and amortization 1,924 4,933 159 7,016
Income (loss) before income taxes and
minority interests 13,198 342 (1,392) 12,148
Income taxes 5,256 3 (194) 5,065
Identifiable assets 217,685 177,697 127,917 523,299
Capital expenditures 788 8,067 94 8,949
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------
Radio Cable Other Consolidated
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Operating income (loss) $ 9,035 $ 4,266 $ (30) $ 13,271
Interest expense, net 2,137 2,310 756 5,203
Depreciation and amortization 1,763 3,703 122 5,588
Income (loss) before income taxes and
minority interests 6,865 1,959 (893) 7,931
Income taxes 2,783 925 (344) 3,364
Identifiable assets 213,160 133,072 8,265 354,497
Capital expenditures 2,537 3,804 91 6,432
</TABLE>
6
<PAGE> 9
Segment information - continued (in thousands of dollars):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------
Radio Cable Other Consolidated
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Operating income $ 34,489 $ 11,119 $ 652 $ 46,260
Interest expense, net 4,958 8,654 6,674 20,286
Depreciation and amortization 5,968 14,308 503 20,779
Income (loss) before income taxes and
minority interests 31,305 2,359 (3,197) 30,467
Income taxes 12,509 1,354 (1,182) 12,681
Identifiable assets 217,685 177,697 127,917 523,299
Capital expenditures 2,165 18,244 1,328 21,737
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
- --------------------------------------------
Radio Cable Other Consolidated
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Operating income (loss) $ 24,700 $ 12,194 $ (78) $ 36,816
Interest expense, net 6,293 7,219 2,090 15,602
Depreciation and amortization 5,122 11,094 304 16,520
Income (loss) before income taxes and
minority interests 18,335 5,114 (2,820) 20,629
Income taxes 7,432 2,424 (1,105) 8,751
Identifiable assets 213,160 133,072 8,265 354,497
Capital expenditures 5,472 13,348 1,044 19,864
</TABLE>
4. CONTINGENCIES AND COMMITMENTS
Susquehanna Radio Corp. purchased the assets of WHMA-AM/FM, licensed to
Anniston, Alabama for $15.3 million on May 22, 1997. If SRC is permitted to
relocate the FM transmitting facilities within six years of acquisition, the
purchase agreement provides for an additional payment to the sellers of up to
$20 million. It is not possible to determine whether relocation will be approved
or to estimate any additional cost at this time.
An unrelated cable television Multiple System Operator (MSO) owns a
14.9% interest in Susquehanna Cable Co. and a 17.75% interest in each of
Susquehanna Cable Co.'s cable television operating subsidiaries. Susquehanna
Cable Co. receives a benefit of the MSO's program rates.
The MSO may offer to purchase the Company's interest in its cable
television operations. The Company must either accept or reject an offer within
sixty days. If the Company rejects the offer, the MSO may require the Company to
repurchase the MSO's holdings at the offer price plus a fee equal to 3% of the
MSO's $25,000,000 investment, compounded annually from 1993.
If the MSO does not offer to purchase the Company's cable television
operations by May 28, 2000, the Company may elect to pay the MSO a fee equal to
1-1/2% of the MSO's $25,000,000 investment compounded annually from 1993 and
avoid any further fee obligation. No liability has been recorded due to the
uncertainty of future events.
7
<PAGE> 10
On April 22, 1999, the MSO was granted a three year "Put Right." After
an eighteen-month holding period beginning May 12, 1999, the MSO may require the
Company to repurchase its ownership interest at a price to be determined by
independent appraisers. The "Put Right" may not be exercised if exercise would
create a default under certain debt agreements. If the "Put Right" is exercised,
the Company may, at its sole discretion and in lieu of acquiring the MSO's
ownership interests, sell Cable and pay the MSO its pro rata share of net
proceeds.
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
the Company 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," 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, the
Company's financial position, business strategy, projected plans, objectives of
management for future operations and certain statements regarding the Company's
Year 2000 readiness, are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results or performance of the Company 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 the
Company's markets), acquisition opportunities, expectations and estimates
concerning future financial performance, financing plans, the Company's ability
to service its outstanding indebtedness, the impact of competition, existing and
future regulations affecting the Company's business, nonrenewal of cable
franchises, decreases in the Company's customers advertising and entertainment
expenditures, technological problems encountered with Year 2000 issues, and
other factors over which the Company may have little or no control.
8
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RESULTS OF OPERATIONS
The following table summarizes the Company'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, 1999
and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ---------- ---------------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Radio $ 49.3 69.0% $ 40.6 68.9% $ 131.5 67.6% $ 111.3 67.6%
Cable 21.3 29.8% 17.9 30.4% 60.8 31.2% 52.4 31.8%
Other 0.8 1.2% 0.4 0.7% 2.3 1.2% 1.0 0.6%
------- ------- ------- ------- -------- ------- -------- -------
Total revenues 71.4 100.0% 58.9 100.0% 194.6 100.0% 164.7 100.0%
------- ------- ------- ------- -------- ------- -------- -------
Operating expenses:
Operating and programming 25.3 35.4% 23.4 39.7% 70.1 36.0% 62.7 38.1%
Selling, general and 20.0 28.0% 16.6 28.2% 57.4 29.5% 48.7 29.6%
administrative
Depreciation and amortization 7.0 9.8% 5.6 9.5% 20.8 10.7% 16.5 10.0%
------- ------- ------- ------- -------- ------- -------- -------
Total operating expenses 52.3 73.2% 45.6 77.4% 148.3 76.2% 127.9 77.7%
------- ------- ------- ------- -------- ------- -------- -------
Operating income $ 19.1 26.8% $ 13.3 22.6% $ 46.3 23.8% $ 36.8 22.3%
======= ======= ======= ======= ======== ======= ======== =======
Net income $ 5.9 8.3% $ 3.5 5.9% $ 11.9 6.1% $ 9.1 5.5%
======= ======= ======= ======= ======== ======= ======== =======
Adjusted EBITDA $ 27.5 38.5% $ 18.7 31.7% $ 70.8 36.4% $ 52.7 32.0%
======= ======= ======= ======= ======== ======= ======== =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased $12.5 million or 21% from 1998 to 1999.
Radio revenues increased $8.7 million or 21% from 1998 to 1999. Radio revenue
growth was due to higher advertising rates. Cable revenues increased $3.4
million or 19% from 1998 to 1999. Revenues from Hanover area subscribers, which
were acquired on January 29, 1999, contributed $1.7 million or 50% of Cable's
increased revenues. Rate increases on basic and expanded services were
responsible for the balance of Cable's revenue growth.
Operating and programming expenses. Operating and programming expenses
increased $1.9 million or 8% from 1998 to 1999. Radio's total operating and
programming costs were consistent with 1998, although the cost of sports
broadcasting rights decreased $0.6 million in 1999. Total Cable programming
costs increased $1.8 million due to increased supplier costs. Cable programming
costs for Hanover area subscribers were $0.4 million.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.4 million or 20% from 1998 to 1999. Radio
sales commissions and related costs increased $1.6 million or 20% due to higher
revenues. Employee stock ownership plan expense of $1.6 million included in
selling, general and administrative expenses was $1.2 million higher than 1998
pension expense. Cable general and administrative costs were $0.7 million higher
than 1998, partially due to the Hanover area acquisition.
9
<PAGE> 12
Depreciation and amortization. Depreciation and amortization increased
$1.4 million or 25% from 1998 to 1999. Cable depreciation and amortization
related to the Hanover area acquisition was $1.1 million or 79% of the increase.
Cable system rebuilds were largely responsible for the balance of the increase.
Operating income. Operating income increased $5.8 million or 43% from
1998 to 1999. Revenue growth was responsible for the increase.
Net income. Net income increased $2.4 million or 69% from 1998 to 1999.
The increase in net income was due to increased operating income and a lowered
percentage relationship between interest expense and operating income.
Adjusted EBITDA. Adjusted EBITDA is defined as net income before income
taxes, extraordinary items, interest expense, interest income, depreciation and
amortization, employee stock ownership plan expense, minority interest and any
gain or loss on the disposition of assets. Adjusted EBITDA increased $8.8
million or 47% from 1998 to 1999. Revenue growth and proportionately lower
expenses were responsible for the increase.
The Company believes that Adjusted EBITDA provides a meaningful
comparison of operating performance because it is commonly used in the radio and
cable television industries to analyze and compare radio and cable television
companies on the basis of operating performance, leverage and liquidity.
Although the Company believes the calculation is helpful in understanding its
performance, Adjusted EBITDA should not be considered a substitute for net
income or cash flow as indicators of the Company's financial performance or its
ability to generate liquidity. Adjusted EBITDA as presented may not be
comparable to other similarly titled measures used by other companies.
Interest expense. Interest expense increased $3.1 million or 60% from
1998 to 1999. The increase was due to additional debt used to purchase Hanover
Cable TV's assets and to make a loan to the Company's parent company to fund its
employee stock ownership plan.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenues. Revenues increased $29.9 million or 18% from 1998 to 1999.
Radio revenues increased $20.2 million or 18% from 1998 to 1999. Radio revenue
growth was due to higher advertising rates. Cable revenues increased $8.4
million or 16% from 1998 to 1999. Revenues from Hanover area subscribers
contributed $4.1 million or 49% of Cable's increased revenues. Rate increases on
basic and expanded services were responsible for the balance of Cable's revenue
gains.
Operating and programming expenses. Operating and programming expenses
increased $7.4 million or 12% from 1998 to 1999. Radio's total operating and
programming costs increased $3.8 million in 1999, although the cost of sports
broadcasting rights decreased $1.1 million. Cable's total programming costs
increased $2.4 million in 1999. Cable programming costs for Hanover area
subscribers were $1.1 million for the period. Cable technical operations costs
were $1.6 million higher than 1998, partially due to the Hanover area
acquisition.
10
<PAGE> 13
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $8.6 million or 18% in 1999. Radio sales
commissions and other costs increased $2.5 million primarily due to higher
revenues. Employee stock ownership plan expense of $3.8 million included in
selling, general and administrative expenses was $3.0 million higher than 1998
pension expense. Cable general and administrative costs were $2.0 million higher
than in 1998, partially due to the Hanover area acquisition.
Depreciation and amortization. Depreciation and amortization increased
$4.3 million or 26% from 1998 to 1999. Cable depreciation and amortization
related to the Hanover area acquisition was $2.8 million, or 65% of the
increase. Cable system rebuilds and radio facility renovations were responsible
for the balance of the change.
Operating income. Operating income increased $9.4 million or 26% from
1998 to 1999. Revenue growth with a proportionately lower change in expenses
caused the increase.
Net income. Net income increased $2.8 million or 31% in 1999. Included
in net income for the period was a pretax pension curtailment gain of $2.3
million and a $3.3 million extraordinary charge related to the early retirement
of debt.
Adjusted EBITDA. Adjusted EBITDA increased $18.1 million or 34% from
1998 to 1999. Increased revenues and a comparably lower percentage increase in
expenses were responsible for the improvement. The curtailment gain was not
included in adjusted EBITDA. As a percentage of revenues, operating expenses
less depreciation and amortization decreased from 68% in 1998 to 66% in 1999.
The reduction in this percentage relationship added $3.2 million to 1999
adjusted EBITDA.
Interest expense. Interest expense increased $4.7 million or 30% from
1998 to 1999. The increase was due to additional debt used to purchase Hanover
area cable assets and to make a loan to the Company's parent company to fund its
employee stock ownership plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from
operations and borrowings under its senior credit facilities. The Company's
future needs for liquidity arise primarily from capital expenditures, potential
acquisitions of radio stations and cable systems, potential repurchases of its
common stock, interest payable on outstanding indebtedness and its senior credit
facilities.
Net cash provided by operating activities was $42.6 million for the
nine months ended September 30, 1999. The Company's net cash provided by
operating activities was generated primarily by normal operations.
Net cash used by investing activities was $172.5 million for the nine
months ended September 30, 1999. The loan to the Company's parent was $116.9
million. Capital expenditures, excluding acquisitions, were $23.1 million and
$21.7 million for the nine months ended September 30, 1999 and 1998,
respectively. Capital expenditures over this period were used primarily to
upgrade and maintain its cable systems. The Company expects to make capital
expenditures of $31.3 million in 1999, primarily to continue upgrading its
current cable systems.
11
<PAGE> 14
Net cash provided by financing activities was $129.2 million for the
nine months ended September 30, 1999. Approximately $116.9 million cash was
borrowed and subsequently loaned to the Company's parent. Deferred financing
costs related to new borrowings totaled $7.8 million.
The Company believes that funds generated from operations and the
borrowing availability under its new senior credit facility will be sufficient
to finance its current operations, its debt service obligations, and its planned
capital expenditures. From time to time, the Company evaluates potential
acquisitions of radio stations and cable television systems. In connection with
future acquisition opportunities, the Company may incur additional debt or issue
additional equity or debt securities depending on market conditions and other
factors. The Company has no current commitments or agreements with respect to
any material acquisitions.
IMPACT OF YEAR 2000 ISSUES
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize the year 2000 as "00." This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken. The Company recognizes the need to ensure that its
operations will not be adversely impacted by Year 2000. A Task Force has been
created to manage an overall Year 2000 assessment, remediation, testing and
contingency planning project. The Year 2000 Task Force has developed and is
implementing a Year 2000 strategic plan. The Company's goal is to minimize the
potential effects of the Year 2000 problem on customers and business processes.
The Company has completed an inventory of mission-critical and
non-critical systems and an impact assessment and has found no issues of
significant consequence. The Company has also completed the remediation or
replacement of material non-compliant system components and replaced all
non-compliant computers and other equipment with embedded date chips or
processors which may have had a material impact on operations.
The Company's estimated costs to ensure that its systems are Year 2000
compliant and to replace certain existing systems is $0.6 million of which $0.5
million has been incurred to date. These cost estimates are subject to change
based on further analysis, and any change in such costs may be material. The
Company believes that the risk of non-compliant systems is not high and that its
remediation and replacement program will adequately address Year 2000 issues
internal to it. The Company believes that the Year 2000 issue will not pose
significant operational problems for its computer systems, and, therefore, will
not have a material impact on its operations. Although the Company has finished
assessing the Year 2000 readiness of its computer systems, there can be no
assurance that all of its systems will be Year 2000 compliant or that the
Company will not be negatively affected thereby.
The ability of third parties with which the Company transacts business
to adequately address their Year 2000 issues is beyond the Company's control.
There can be no assurance, therefore, that the failure of such third parties to
adequately address their Year 2000 issues will not have a material adverse
effect on the Company's business, results of operations and financial condition.
To date, none of the Company's significant suppliers or service providers has
asserted that they will not be Year 2000 compliant by December 31, 1999.
12
<PAGE> 15
The Company has completed draft contingency plans to mitigate any
possible disruption in business that may result if certain of its systems or the
systems of third parties are not Year 2000 compliant. These draft plans are
scheduled to be finalized by November 30, 1999. Management, engineering and
information technology staff will be on-site at all business locations beginning
December 31, 1999 and will remain through the resolution of any significant
difficulties that may occur.
The Company believes that, based on its current state of Year 2000
readiness relative to its internal systems and the information received to date
from its significant suppliers and service providers, the Year 2000 issue should
not present a material adverse risk to the Company's future consolidated results
of operations, liquidity and capital resources. However, if the Company's
internal computer systems experience unanticipated malfunctions, or if the Year
2000 compliance level of significant suppliers and service providers is not
sufficient, the Company could experience a material, adverse impact to its
consolidated results of operations including, but not limited to, loss of
revenues, increased operating costs, loss of customers or other significant
disruptions. Additionally, if widespread disruptions occur in local or national
economies, such as disruptions affecting electrical and telephone utility
services, financial markets, commercial banks, and transportation systems, the
Company could be adversely affected. The likelihood and effects of such
disruptions are not determinable at this time.
Estimates and conclusions related to the Company's Year 2000 compliance
program contain forward-looking statements and are based on management's best
estimates of future events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management monitors and evaluates changes in market conditions on a
regular basis. Based upon the most recent review, management has determined that
there have been no material developments affecting market risk since the filing
of Media's prospectus pursuant to Rule 424 on September 29, 1999.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the
ordinary course of business. In the opinion of management of the Company,
however, there are no legal proceedings pending against the Company likely to
have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1999.
14
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
November 15, 1999 SUSQUEHANNA MEDIA CO.
By: /s/ John L. Finlayson
----------------------------------------
John L. Finlayson
Vice President and Principal Financial
and Accounting Officer
15
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule (for SEC use only)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q OF
SUSQUEHANNA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,212
<SECURITIES> 0
<RECEIVABLES> 41,617
<ALLOWANCES> (1,621)
<INVENTORY> 0
<CURRENT-ASSETS> 48,084
<PP&E> 211,316
<DEPRECIATION> (94,586)
<TOTAL-ASSETS> 523,299
<CURRENT-LIABILITIES> 34,967
<BONDS> 0
0
7,050
<COMMON> 1,100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 523,299
<SALES> 0
<TOTAL-REVENUES> 194,559
<CGS> 0
<TOTAL-COSTS> 148,299
<OTHER-EXPENSES> (4,493)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,286
<INCOME-PRETAX> 30,467
<INCOME-TAX> 12,681
<INCOME-CONTINUING> 17,786
<DISCONTINUED> 0
<EXTRAORDINARY> (3,316)
<CHANGES> 0
<NET-INCOME> 11,571
<EPS-BASIC> 10.52
<EPS-DILUTED> 10.37
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