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, 2000
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 X NO
---------- ---------
As of November 13, 2000, there were 1,100,000 total shares of common stock,
$1.00 par value outstanding.
<PAGE>
SUSQUEHANNA MEDIA CO.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION...............................................3
ITEM 1. FINANCIAL STATEMENTS................................................3
CONDENSED CONSOLIDATED BALANCE SHEETS.....................................3
CONDENSED CONSOLIDATED INCOME STATEMENTS..................................4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS...........................5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS......................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................9
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
SIGNATURE.....................................................................15
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<PAGE>
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,
2000 1999
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,719 $ 639
Accounts receivable, net 43,862 43,017
Other current assets 5,033 4,400
Interest receivable from Parent 5,291 -
-------- -------
Total Current Assets 55,905 48,056
Property, Plant and Equipment, net 137,563 124,088
Intangible Assets, net 320,890 215,125
Note Receivable from Parent 111,329 111,329
Investments and Other Assets 29,939 27,544
-------- -------
$ 655,626 $ 526,142
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 13,189 $ 15,350
Current portion of long-term debt 66 59
Accrued interest 6,880 3,108
Accrued income taxes 2,623 227
Deferred income taxes 210 815
Accrued ESOP benefits costs 5,898 1,370
Other accrued expenses 19,423 11,919
-------- -------
Total Current Liabilities 48,289 32,848
-------- -------
Long-term Debt 496,412 405,562
-------- -------
Other Liabilities 1,356 832
-------- -------
Deferred Income Taxes 38,603 37,166
-------- -------
Minority Interests 24,159 18,453
-------- -------
Stockholders' Equity
Preferred stock - voting, 7% cumulative with par value of $100,
authorized 110,000 shares, 70,499.21 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 38,657 23,131
-------- -------
Total Stockholders' Equity 46,807 31,281
-------- -------
$ 655,626 $ 526,142
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues
Radio $ 57,364 $ 49,294 $ 159,778 $ 131,524
Cable 23,544 21,287 68,796 60,807
Other 1,592 828 4,319 2,228
------- -------- --------- ---------
Total revenues 82,500 71,409 232,893 194,559
------- -------- --------- ---------
Operating Expenses
Operating and programming 29,934 25,280 82,931 70,116
Selling 9,036 8,428 26,704 22,929
General and administrative 16,408 11,585 42,856 34,475
Depreciation and amortization 8,443 7,016 23,402 20,779
------- -------- --------- ---------
Total operating expenses 63,821 52,309 175,893 148,299
------- -------- --------- ---------
Operating Income 18,679 19,100 57,000 46,260
Other Income (Expense)
Interest expense (10,547) (8,280) (26,707) (20,286)
Interest income from loan to Parent 1,684 1,767 5,014 2,708
Replacement of cable distribution system - (472) (1,261) (472)
Pension curtailment gain - - - 2,299
Other 125 34 122 (42)
------- -------- --------- ---------
Income Before Income Taxes, Extraordinary
Loss and Minority Interests 9,941 12,149 34,168 30,467
Income Taxes 4,052 5,065 13,928 12,681
------- -------- --------- ---------
Income Before Extraordinary
Loss and Minority Interests 5,889 7,084 20,240 17,786
Extraordinary Loss (related to early retirement
of debt, net of tax benefit) - - - (3,316)
------- -------- --------- ---------
Income Before Minority Interest 5,889 7,084 20,240 14,470
Minority Interests (708) (1,167) (3,286) (2,529)
-------- -------- ---------- ---------
Net Income and Comprehensive Income 5,181 5,917 16,954 11,941
Preferred Dividends Declared (123) (123) (370) (370)
------- -------- --------- ---------
Net Income Available for Common Shares $ 5,058 $ 5,794 $ 16,584 $ 11,571
======= ======== ========= =========
Basic Net Income Per Common Share
Income Before Extraordinary Loss $ 4.60 $ 5.27 $ 15.08 $ 13.53
Extraordinary Loss - - - (3.01)
------- -------- --------- ---------
$ 4.60 $ 5.27 $ 15.08 $ 10.52
======= ======== ========= =========
Diluted Net Income Per Common Share
Income Before Extraordinary Loss $ 4.60 $ 5.20 $ 15.08 $ 13.33
Extraordinary Loss - - - (2.96)
------- -------- --------- ---------
$ 4.60 $ 5.20 $ 15.08 $ 10.37
======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Income before minority interests $ 20,240 $ 14,470
Adjustments to reconcile net income to net cash:
Depreciation and amortization 23,402 20,779
Deferred income taxes 833 3,404
Equity in earnings of investees (516) (112)
Loss on replacement of cable distribution system 1,261 472
Deferred financing amortization 828 642
Imputed deferred compensation - 76
Deferred financing expense write-off - 2,556
Curtailment gain - (2,299)
Changes in assets and liabilities:
Increase in accounts receivable, net (845) (7,673)
Increase in other current assets (910) (493)
Increase in interest receivable from parent (5,013) (2,708)
Decrease in accounts payable (2,134) (810)
Increase in accrued interest 3,772 4,069
Increase in accrued income taxes 2,397 1,714
Increase in accrued ESOP benefits cost 5,558 3,791
Increase in other accrued expenses 6,473 4,704
Increase in other liabilities 1,356 -
--------- -------
Net cash provided by operating activities 56,702 42,582
--------- -------
Cash Flows from Investing Activities
Purchase of property, plant and equipment, net (25,758) (21,737)
Purchase of radio assets (113,155) -
Purchase of other assets (1,251) -
Increase in investments, other assets and intangible assets (2,707) (164)
Purchase of cable assets (3,783) (32,400)
Loan to Susquehanna Pfaltzgraff Co. - (116,850)
Partnership capital contribution - (1,400)
--------- ---------
Net cash used by investing activities (146,654) (172,551)
--------- ---------
Cash Flows from Financing Activities
Increase in revolving credit borrowing 90,900 60,000
Payments of preferred dividends (370) (370)
Non-voting subsidiary common stock transactions 502 13
Proceeds from long-term debt - 350,000
Repayment of refinanced debt - (272,600)
Payment of deferred financing costs - (7,805)
--------- ---------
Net cash provided by financing activities 91,032 129,238
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 1,080 (731)
Cash and Cash Equivalents, beginning 639 1,943
--------- ---------
Cash and Cash Equivalents, ending $ 1,719 $ 1,212
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE>
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 consolidated
financial statements included herein should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's December 31, 1999 Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
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 at September 30, 2000 and the results of its
operations for the three and nine months ended September 30, 2000 and 1999 and
its cash flows for the nine months ended September 30, 2000 and 1999.
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 July 20, 2000, pursuant to an Asset Purchase Agreement among
Susquehanna Radio Corp., a majority owned subsidiary of the Company, as
Purchaser, and Entercom Communications Corp., Entercom Kansas City, LLC and
Entercom Kansas City License, LLC, as Sellers, the Company acquired, in
consideration of the payment of $113.2 million, the assets of Kansas City radio
stations KCMO-AM, KCMO-FM and KCFX-FM. Radio broadcast rights for the Kansas
City Chiefs NFL franchise through the 2002 football season were included in the
purchase. The Company's existing credit facilities were used to finance the
acquisition. The acquisition was accounted for as a purchase and the results of
operations were included in Media's operations since July 20, 2000. The
allocation of the purchase price was $3.6 million to property, plant and
equipment and $109.6 to intangibles.
On April 28, 2000, the Federal Communications Commission (FCC) issued a
Report and Order which approved the Company's Petition for Rule Making to create
a new FM signal, in College Park, GA that would permit WHMA-FM to relocate and
serve the Atlanta Metro Area. The Company submitted an application for a
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<PAGE>
construction permit on July 14, 2000. As described in the original purchase
agreement, the Company must pay WHMA-FM's former owners $10 million within six
months after the construction permit becomes a final order or on the FCC's
granting of program test authority, whichever first occurs. On June 16, 2000, a
Petition for Reconsideration was filed with the FCC by another applicant. The
outcome of, or any delay or impact resulting from, such Petition for
Reconsideration cannot be determined at this time. As a result, the additional
payment has not been accrued as of September 30, 2000. The Company expects to
use its existing senior credit facilities to fund this payment.
On April 10, 2000, Susquehanna Pfaltzgraff Co.'s (the Company's parent)
Board of Directors changed the method of determining the repurchase value for
Susquehanna Radio Co.'s Employee Stock Plan and Susquehanna Cable Co.'s (SCC's)
Performance Share Plan. Over a period beginning July 1, 2000 through April 1,
2002, repurchase values for both plans will transition to fair values based upon
Susquehanna Pfaltzgraff Co.'s annual independent ESOP valuation. SCC's
Performance Share Plan is a non-qualified deferred compensation plan. Based on
values used in the December 31, 1999 ESOP valuation, compensation expense of
$3.0 million was recognized in July 2000 for the increase in performance share
value. On July 1, 2000, repurchase values became based one-third on fair value
and two-thirds on the previous formula value. On April 1, 2001, repurchase
values will be based two-thirds on fair value and one-third on the previous
formula value. On April 1, 2002 and thereafter, repurchase values will be based
on fair values for Radio and Cable as determined by the Parent's annual
independent ESOP valuation.
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. The Cable segment recognized $1.9 million and
the Other segment recognized $1.1 million compensation expense related to the
change in repurchase value of performance shares.
Segment information (in thousands of dollars) follows:
<TABLE>
<CAPTION>
Radio Cable Other Consolidated
----- ----- ----- ------------
<S> <C> <C> <C> <C>
For the Three Months Ended September 30, 2000
Operating income (loss) $ 17,211 $ 2,713 $ (1,245) $ 18,679
Interest expense, net 2,918 3,861 3,768 10,547
Depreciation and amortization 2,795 5,449 199 8,443
Income (loss) before income taxes 13,902 (1,149) (2,812) 9,941
Provision (benefit) for income taxes 5,464 (395) (1,017) 4,052
Identifiable assets 334,895 188,008 132,723 655,626
Capital expenditures 1,106 7,298 234 8,638
For the Three Months Ended September 30, 1999
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 13,198 342 (1,391) 12,149
Provision (benefit) for 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>
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Nine Months Ended September 30, 2000
Operating income (loss) $ 48,263 $ 8,779 $ (42) $ 57,000
Interest expense, net 5,248 10,614 10,845 26,707
Depreciation and amortization 6,678 16,266 458 23,402
Income (loss) before income taxes 42,621 (3,096) (5,357) 34,168
Provision (benefit) for income taxes 16,751 (1,065) (1,758) 13,928
Identifiable assets 334,895 188,008 132,723 655,626
Capital expenditures 2,806 22,515 437 25,758
For the Nine Months Ended September 30, 1999
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 31,305 2,359 (3,197) 30,467
Provision (benefit) for 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>
4. Note Receivable From Parent
In connection with the formation of Susquehanna Pfaltzgraff Co.'s (the
Parent's) ESOP, the Company made a $116.9 million twenty-year loan to its Parent
at a 6% interest rate on May 12, 1999. The loan is repayable in twenty annual
installments of $9,977,000 principal and interest due beginning on December 30,
1999. The Parent made its first payment of $9,977,000 on December 30, 1999.
5. Contingencies and Commitments
An unrelated cable television Multiple System Operator (MSO) purchased
a 14.9% interest in Susquehanna Cable Co. and a 17.75% interest in each of
Susquehanna Cable Co.'s cable television operating subsidiaries in 1993. On
January 18, 2000, the MSO was acquired by an unrelated company. Cable
programming formerly acquired through the MSO will cost approximately $1.9
million more in 2000 due to the ownership change.
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 million investment, compounded annually from 1993.
If the MSO does not offer to purchase the Company's cable television
operations by December 1, 2000, the Company may elect to pay the MSO a fee equal
to 1.5% of the MSO's $25 million investment compounded annually from 1993 and
avoid any further fee obligation. No liability has been recorded due to the
uncertainty of future events.
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 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.
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<PAGE>
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 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," "approximately," or "anticipates" or the
negative thereof or other variations thereof or comparable terminology, or by
discussion of strategies, each of which involves risks and uncertainties. All
statements other than of historical facts included herein or therein, including
those regarding market trends, the Company's 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 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, the possibly material impact and timing of compensation expenses
related to changes in performance share values and the change in value of
minority interests subject to required repurchase, the Company's ability to
successfully integrate acquired businesses or properties and realize anticipated
benefits of such acquisitions, financing plans and access to adequate capital on
favorable terms, 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, advances in technology and
the ability of the Company to adapt to such advances, decreases in the Company's
customers advertising and entertainment expenditures and other factors over
which the Company may have little or no control.
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, 2000
and 1999.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Radio $ 57.4 69.7% $ 49.3 69.0% $ 159.8 68.6% $131.5 67.6%
Cable 23.5 28.5% 21.3 29.8% 68.8 29.6% 60.8 31.2%
Other 1.6 1.8% 0.8 1.2% 4.3 1.8% 2.3 1.2%
------ ------ ------ ------ ------ ------ ------ ------
Total revenues 82.5 100.0% 71.4 100.0% 232.9 100.0% 194.6 100.0%
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses
Operating and programming 29.9 36.3% 25.3 35.4% 82.9 35.6% 70.1 36.0%
Selling, general and
administrative 25.5 30.8% 20.0 28.0% 69.6 29.9% 57.4 29.5%
Depreciation and amortization 8.4 10.2% 7.0 9.8% 23.4 10.1% 20.8 10.7%
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 63.8 77.3% 52.3 73.2% 175.9 75.6% 148.3 76.2%
------ ------ ------ ------ ------ ------ ------ ------
Operating income $ 18.7 22.7% $ 19.1 26.8% $ 57.0 24.4% $46.3 23.8%
====== ====== ====== ====== ====== ====== ====== =====
Net income $ 5.2 6.3% $ 5.9 8.3% $ 17.0 7.3% $11.9 6.1%
====== ====== ====== ====== ====== ====== ====== =====
Adjusted EBITDA $ 29.3 35.6% $ 27.5 38.5% $ 86.4 37.1% $70.8 36.4%
====== ====== ====== ====== ====== ====== ====== =====
</TABLE>
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<PAGE>
Three Months Ended September 30, 2000 Compared to the Three Months Ended
September 30, 1999
Revenues. Revenues increased $11.1 million or 16% from 1999 to 2000.
Radio revenues increased $8.1 million or 16% from 1999 to 2000. Radio's revenue
growth was primarily due to higher advertising rates. Revenues from the Kansas
City acquisition were $2.9 million. Cable revenues increased $2.2 million or 10%
from 1999 to 2000. Cable's revenue growth was due to basic service rate
increases.
Operating income. Operating income decreased $0.4 million or 2% from
1999 to 2000, including the $3.0 million charge for revaluation of the Cable
performance shares (See Note 2 to Condensed Consolidated Financial Statements).
Radio operating income for the third quarter was $17.2 million, a $2.4 million
or 16% increase over third quarter 1999. Improved Radio operating income was
driven by increased revenues. The newly acquired Kansas City radio stations
incurred a $0.3 million operating loss during the quarter. Cable operating
income for the third quarter was $2.7 million, a $1.3 million or 33% decrease
from the third quarter 1999. Cable's $1.9 million charge for the revaluation of
performance shares, increased programming costs and higher Cable depreciation
more than offset revenue gains. The Other segment recognized a $1.1 million
compensation charge related to performance share revaluation during the period.
Net income. Net income decreased $0.7 million or 12% from 1999 to 2000.
Increases in revenue were more than offset by the $3.0 million charge for the
revaluation of the Cable performance shares and higher interest expense.
Depreciation and amortization. Depreciation and amortization increased
$1.4 million or 20% from 1999 to 2000. Approximately $0.8 million of the
increase was due to the $113.2 million Kansas City radio stations acquisition.
Completed phases of cable system rebuilds and equipment to provide digital
services and cable modem access were responsible for the balance of the
increase.
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 $1.9
million or 7% from 1999 to 2000. Radio's Adjusted EBITDA was $21.3 million, a
$3.5 million or 20% improvement over third quarter 1999. The increase in Radio's
Adjusted EBITDA was the result of higher advertising rates, which were not
accompanied by relatively higher expenses. The Kansas City radio station's
Adjusted EBITDA was $0.1 million. Cable's Adjusted EBITDA was $8.6 million, a
decrease of $0.5 million or 5% from 1999. The $1.9 million compensation charge
for the revaluation of the Cable performance shares and higher programming costs
caused the decrease.
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 $2.2 million or 27% from
1999 to 2000, due to additional debt incurred for the Kansas City acquisition
and increased interest rates. The Kansas City radio stations acquisition
increased interest expense by approximately $2.0 million during the current
period. The average interest rate on the Company's credit facility was 8.8% and
8.3% for the three month periods ended September 30, 2000 and 1999,
respectively.
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<PAGE>
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended
September 30, 1999
Revenues. Revenues increased $38.3 million or 20% from 1999 to 2000.
Radio revenues increased $28.3 million or 22% from 1999 to 2000. Radio's revenue
growth was primarily due to higher advertising rates. The Kansas City radio
station acquisition increased revenues by $2.9 million. Cable revenues increased
$8.0 million or 13% from 1999 to 2000. Basic service rate increases provided the
Cable revenue growth for the nine months.
Operating income. Operating income increased $10.7 million or 23% from
1999 to 2000 despite a $3.0 million compensation expense related to revaluation
of Cable performance shares (See Note 2 to the Condensed Consolidated Financial
Statements). Radio operating income for the nine months was $48.3 million, a
$13.8 million or 40% increase over same period 1999. Improved Radio operating
income was driven by higher revenues. Cable operating income for the nine months
was $8.8 million, a $2.3 million or a 21% decrease from the same period in 1999.
Cable's $1.9 million charge for revaluation of performance shares, higher
depreciation and higher programming costs caused the decrease. The Other segment
recognized a $1.1 million compensation charge related to revaluation of Cable
performance shares.
Net income. Net income for the nine months 1999 included a $3.3 million
extraordinary loss and a $2.3 million pretax curtailment gain. Net income,
excluding these items, increased approximately $4.1 million or 32% from 1999 to
2000, despite the $3.0 million compensation charge for performance shares
revaluation, higher Cable programming costs, a $0.8 million greater loss on
replacement of cable distribution system and higher interest expense. Improved
results were achieved from operating income gains.
Depreciation and amortization. Depreciation and amortization increased
$2.6 million or 13% from 1999 to 2000. Approximately $0.8 million of the
increase was due to the $113.2 million Kansas City radio stations acquisition.
Completed phases of cable system rebuilds and equipment to provide digital
services and cable modem access were responsible for the balance of the
increase.
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 $15.6
million or 22% from 1999 to 2000. Radio's Adjusted EBITDA was $59.3 million, a
$15.9 million or 37% improvement over 1999. The increase in Radio's Adjusted
EBITDA was the result of higher advertising rates, which were not accompanied by
relatively higher expenses. Cable's Adjusted EBITDA was $26.2 million, an
increase of $0.1 million over 1999. Basic service rate increases drove Cable's
improved Adjusted EBITDA overcoming the $1.9 million compensation charge for the
revaluation of the Cable performance Shares and higher programming costs.
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 $6.4 million or 32% from
1999 to 2000. In May 1999, the Company borrowed $116.9 million under its
existing credit facilities and loaned the proceeds to its Parent. The nine
months
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ended September 30, 2000 includes interest on this borrowing over the entire
period. Interest expense related to the Kansas City radio station acquisition
was $2.0 million for the current period. The average interest rate on the
Company's senior credit facility was 8.6% and 7.6% for the nine month periods
ended September 30, 2000 and 1999, respectively.
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, and interest payable on outstanding indebtedness and its senior
credit facilities.
Net cash provided by operating activities was $56.7 million for the
nine months ended September 30, 2000. The Company's net cash provided by
operating activities was generated by normal operations.
Net cash used by investing activities was $146.7 million for the nine
months ended September 30, 2000. Cash used by the Kansas City radio acquisition
was $113.2 million. Cable acquired subscribers adjacent to existing systems for
$3.8 million. Capital expenditures were $25.8 million and $21.7 million for the
nine months ended September 30, 2000 and 1999, respectively. Capital
expenditures were made to upgrade and maintain cable systems and to purchase
equipment necessary to launch new Cable product lines. The Company expects to
make capital expenditures of $35.0 million in 2000, of which $25.8 million has
been spent through September 30, 2000, primarily for cable systems upgrades. We
expect to use existing credit facilities to fund the cable systems upgrades.
Net cash provided by financing activities was $91.0 million for the
nine months ended September 30, 2000, including an increase in the revolving
credit facility of $90.9 million. At September 30, 2000, the Company had $103.5
million borrowing availability under its senior credit facility.
The Company believes that funds generated from operations and the
borrowing availability under its 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. Unless otherwise noted in this Form 10-Q, the Company has no current
commitments or agreements with respect to any material acquisitions.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement established accounting and reporting standards for derivatives
and hedging activities. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB
Statement No. 133" deferring the effective date for implementation of SFAS No.
133 to fiscal years beginning after June 15, 2000. The Company has two zero-cost
interest rate collar agreements expiring in 2001 with an aggregate notional
amount of $50 million. The effect of these agreements limits the interest rate
exposure on the notional amount to between 7.5% and 8.0%, plus an applicable
margin. The Company is finalizing its implementation plan for January 1, 2001.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin, SAB 101, Revenue Recognition in Financial
Statements, as amended, with an effective date of October 1, 2000, which
summarizes the SEC's views on applying generally accepted accounting principles
to revenue recognition. Management believes this SEC Staff Accounting Bulletin
will not have a material impact on these condensed consolidated financial
statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We monitor and evaluate 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 the
Company's December 31, 1999 Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
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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 filed a Form 8-K on August 2, 2000, as amended on October 3,
2000, concerning the acquisition of three Kansas City radio stations.
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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.
November 13, 2000 SUSQUEHANNA MEDIA CO.
By: /s/ John L. Finlayson
-----------------------------------
John L. Finlayson
Vice President and Principal Financial
and Accounting Officer
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EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule (for SEC use only)
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