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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
OR
o | 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) |
(Former name, former address and former fiscal year,
if changed since last report)
(Not Applicable)
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.
YESþ NOo
YESþ NOo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YESo NOþ
YESo NOþ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YESo NOþ
YESo NOþ
As of November 11, 2005, 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.
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, 2005 | December 31, 2004 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Accounts receivable, less allowance for doubtful accounts of $2,152 in 2005 and $1,822 in 2004 | $ | 51,421 | $ | 50,332 | ||||
Other current assets | 6,142 | 7,278 | ||||||
Total Current Assets | 57,563 | 57,610 | ||||||
Property, Plant and Equipment, at cost | ||||||||
Land | 6,430 | 6,233 | ||||||
Buildings and improvements | 27,030 | 26,722 | ||||||
Equipment | 349,360 | 334,471 | ||||||
Construction-in-progress | 11,949 | 14,872 | ||||||
394,769 | 382,298 | |||||||
Accumulated depreciation and amortization | 199,417 | 182,549 | ||||||
Property, Plant and Equipment, net | 195,352 | 199,749 | ||||||
Intangible Assets and Goodwill, net | 509,610 | 514,299 | ||||||
Investments and Other Assets | 28,381 | 19,323 | ||||||
$ | 790,906 | $ | 790,981 | |||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities | ||||||||
Cash overdrafts | $ | 3,325 | $ | 1,428 | ||||
Current portion of long-term debt | 12,467 | 3,368 | ||||||
Accounts payable | 8,573 | 13,181 | ||||||
Accrued employee-related costs | 17,926 | 12,812 | ||||||
Accrued income taxes | 6,465 | 11,781 | ||||||
Deferred income taxes | 5,573 | 5,114 | ||||||
Accrued interest | 10,412 | 7,564 | ||||||
Accrued franchise and licensing fees | 4,406 | 2,864 | ||||||
Deferred income | 3,958 | 3,943 | ||||||
Judgment payable | 10,134 | 10,105 | ||||||
Other current liabilities | 6,424 | 8,206 | ||||||
Total Current Liabilities | 89,663 | 80,366 | ||||||
Long-term Debt | 548,076 | 573,864 | ||||||
Other Liabilities | 14,896 | 13,964 | ||||||
Deferred Income Taxes | 79,941 | 74,894 | ||||||
Minority Interests | 62,059 | 68,499 | ||||||
Stockholders’ Deficit | ||||||||
Preferred stock — Voting, 7% cumulative, $100 par value, authorized 110,000 shares | 7,050 | 7,050 | ||||||
Common stock — Voting, $1 par value, authorized 1,100,000 shares | 1,100 | 1,100 | ||||||
Retained earnings | 97,844 | 76,212 | ||||||
Receivable from Parent | (109,723 | ) | (104,968 | ) | ||||
Total Stockholders’ Deficit | (3,729 | ) | (20,606 | ) | ||||
$ | 790,906 | $ | 790,981 | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
For the Three Months | For the Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Revenues | ||||||||||||||||
Radio | $ | 62,063 | $ | 61,243 | $ | 172,728 | $ | 172,155 | ||||||||
Cable | 48,919 | 46,250 | 145,458 | 131,951 | ||||||||||||
Other | 189 | 940 | 2,077 | 2,507 | ||||||||||||
Total revenues | 111,171 | 108,433 | 320,263 | 306,613 | ||||||||||||
Operating Expenses | ||||||||||||||||
Operating and programming | 45,895 | 43,746 | 132,829 | 121,199 | ||||||||||||
Selling | 11,798 | 11,461 | 34,351 | 32,416 | ||||||||||||
General and administrative | 20,832 | 20,022 | 63,339 | 61,285 | ||||||||||||
Impairment loss | — | — | 2,131 | — | ||||||||||||
Depreciation and amortization | 11,031 | 12,074 | 33,703 | 32,260 | ||||||||||||
Total operating expenses | 89,556 | 87,303 | 266,353 | 247,160 | ||||||||||||
Operating Income | 21,615 | 21,130 | 53,910 | 59,453 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest expense | (8,521 | ) | (7,368 | ) | (24,513 | ) | (24,201 | ) | ||||||||
Loss on extinguishment of debt | — | — | — | (9,065 | ) | |||||||||||
Interest income on receivable from Parent | 1,602 | 1,674 | 4,755 | 4,986 | ||||||||||||
Gain on Sale of WABZ-FM | — | — | 300 | — | ||||||||||||
Other | 75 | 96 | (185 | ) | 392 | |||||||||||
Income Before Income Taxes | 14,771 | 15,532 | 34,267 | 31,565 | ||||||||||||
Provision for Income Taxes | 5,820 | 6,440 | 13,507 | 12,500 | ||||||||||||
Income Before Minority Interests | 8,951 | 9,092 | 20,760 | 19,065 | ||||||||||||
Minority Interests | (955 | ) | (814 | ) | 1,242 | (7,743 | ) | |||||||||
Net Income and Comprehensive Income | 7,996 | 8,278 | 22,002 | 11,322 | ||||||||||||
Preferred Dividends Declared | (123 | ) | (123 | ) | (370 | ) | (370 | ) | ||||||||
Net Income Available for Common Shares | $ | 7,873 | $ | 8,155 | $ | 21,632 | $ | 10,952 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For The Nine Months Ended | ||||||||
September 30, | ||||||||
2005 | 2004 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 22,002 | $ | 11,322 | ||||
Adjustments to reconcile net income to net cash: | ||||||||
Depreciation and amortization | 33,703 | 32,260 | ||||||
Impairment loss | 2,131 | — | ||||||
Deferred income taxes | 5,506 | 8,888 | ||||||
Minority interests | (1,242 | ) | 7,743 | |||||
Write-down of SusQtech accounts receivable | 629 | — | ||||||
Loss on extinguishment of debt | — | 2,690 | ||||||
Equity in (earnings) or loss of investees | 299 | (107 | ) | |||||
Gain on sale of WABZ-FM | (300 | ) | — | |||||
Deferred financing amortization | 571 | 1,280 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in accounts receivable, net | (1,718 | ) | (1,691 | ) | ||||
Decrease (increase) in other current assets | 1,136 | (275 | ) | |||||
Increase in receivable from Parent | (4,755 | ) | (5,004 | ) | ||||
Decrease in accounts payable | (4,608 | ) | (590 | ) | ||||
Increase in accrued interest | 2,848 | 2,356 | ||||||
Decrease in accrued income taxes | (5,316 | ) | (787 | ) | ||||
Increase in other current liabilities | 4,918 | 14,313 | ||||||
Increase in other liabilities | 932 | 1,029 | ||||||
Net cash provided by operating activities | 56,736 | 73,427 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property, plant and equipment, net | (26,748 | ) | (28,745 | ) | ||||
Acquisitions | — | (125,404 | ) | |||||
Proceeds from sale of WABZ-FM | 300 | — | ||||||
Increase in investments, other assets and intangible assets | (9,956 | ) | (4,484 | ) | ||||
Net cash used by investing activities | (36,404 | ) | (158,633 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Increase (decrease) in revolving credit borrowings | (15,900 | ) | 12,400 | |||||
New term loan borrowings | — | 400,000 | ||||||
Repayment of debt | (2,706 | ) | (174,250 | ) | ||||
Redemption of Senior Subordinated Notes | — | (150,000 | ) | |||||
Increase in cash overdrafts | 1,897 | 1,635 | ||||||
Payment of preferred dividends | (370 | ) | (370 | ) | ||||
Non-voting subsidiary common stock transactions | (3,253 | ) | (4,734 | ) | ||||
Net cash provided (used) by financing activities | (20,332 | ) | 84,681 | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | — | (525 | ) | |||||
CASH AND CASH EQUIVALENTS, beginning | — | 525 | ||||||
CASH AND CASH EQUIVALENTS, ending | $ | — | $ | — | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated interim financial statements included herein have been prepared, without audit, by Susquehanna Media Co. (the “Company” or “Media”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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, 2004 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, 2005, its results of operations for the three and nine months ended September 30, 2005 and 2004, and its cash flows for the nine months ended September 30, 2005 and 2004.
The preparation of financial statements in conformity with GAAP 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
Sale of Businesses
On October 31, 2005, Media agreed to sell substantially all the assets of its Cable business to Comcast Corporation (“Comcast”) for $775 million cash. Lenfest York, Inc. (“Lenfest”), a Comcast affiliate, currently owns 30% of the Cable business. Susquehanna Pfaltzgraff Co. (Media’s corporate parent), Media, Lenfest and Susquehanna Cable Co. (“Cable”) also agreed to redeem Media’s ownership interest in Cable immediately after consummation of the sale of assets to Comcast. A first half 2006 closing is expected, subject to regulatory approvals and other closing conditions.
On October 31, 2005, Susquehanna Pfaltzgraff Co. entered into a definitive agreement to sell Media’s radio business (“Radio”) to Cumulus Media Partners, LLC for approximately $1.2 billion cash. A first half 2006 closing is expected, subject to regulatory approvals and other closing conditions.
Media will continue to operate its Radio and Cable businesses in normal course until the pending sale transactions are completed.
On October 1, 2005, Media sold its general partnership interest in Susquehanna Adelphia Business Solutions to the other general partner for approximately $2.3 million cash. Media’s carrying value for its ownership interest as of September 30, 2005 was $1.8 million. Coincident with the closing of this transaction, Cable leased 80% of the fiber optic network formerly leased by the partnership to the other general partner for $4.0 million cash. The lease has a twenty-year term.
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Based on indications that the fair value of certain long-lived assets might be impaired, Media evaluated the goodwill and property, plant and equipment of SusQtech for impairment as of June 30, 2005. SusQtech was included in Media’s Other segment. Based on the results of that impairment review, a goodwill impairment of approximately $1.9 million was recognized at June 30, 2005. Also recognized was a $0.2 million impairment of SusQtech’s property, plant and equipment. Fair value was based on an estimated selling price for these assets. The value of SusQtech’s accounts receivable and other current assets was also reduced by $0.7 million, their estimated realizable value as of June 30, 2005. As of September 30, 2005, the disposition of all SusQtech assets was completed without further loss.
Litigation
On July 29, 2004, Bridge Capital Investors II (“BCI”) sued Media for $10.0 million alleging breach of contract and unjust enrichment in connection with Media’s acquisition of Radio Station WHMA-FM, now WWWQ-FM. On January 26, 2005, the United States District Court for the Northern District of Georgia granted summary judgment in favor of BCI against Media. The summary judgment granted BCI $10.0 million plus interest at 9% per annum from January 22, 2001 and recovery of attorney’s costs. On February 22, 2005, Media appealed the judgment. Oral arguments are scheduled for the week of December 5, 2005. The statement of operations for the nine months ended September 30, 2005 included $0.7 million interest related to this judgment. Indefinite-lived intangible assets (FCC licenses) were increased by $10.0 million as of December 31, 2004. The related $10.1 million liability (license and legal fees) was recognized as a judgment payable as of September 30, 2005.
Radio Employee Stock Plan and Cable Performance Share Plan
Media redeemed approximately $5.2 million of Radio Employee Stock Plan (“Plan”) shares during the nine months ended September 30, 2005. Approximately $1.9 million of shares were exchanged for a note payable over two years. Existing credit facilities were utilized to fund the redemptions. Changes in share value are recognized on April 1st of each year. Based on the results of the December 31, 2004 valuation, a $4.0 million decrease in minority interests related to the Plan was recognized on April 1, 2005. Compensation expense for the increase in value of Cable Performance Shares of $1.2 million was recognized on April 1, 2005.
The recently signed agreements to sell the Radio and Cable businesses have expected closing dates in the first half of 2006. These transactions will require redemption of Plan shares and payment of amounts due under the Cable Performance Share Plan totaling approximately $47.7 million as of September 30, 2005.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R “Share-Based Payment” (“SFAS 123R”) replacing SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and superseding APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Under SFAS 123R, Media is a non-public company. SFAS 123R requires Media to recognize the cost of employee service received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of those equity instruments. Grant date fair value may not be measured using minimum value, but must include the effect of expected volatility based on an appropriate historical industry sector index. SFAS 123R is effective for Media as of January 1, 2006. Since Media previously adopted SFAS 123, and all outstanding options are fully vested, no transition provisions apply unless those options are modified, repurchased or cancelled after SFAS 123R’s effective date. Media has not yet determined the effect of adopting SFAS 123R.
FASB issued FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations—an Interpretation of FASB Statement No. 143” (“FIN 47”) in March 2005. FIN 47 requires recognition of liabilities related to the future retirement of long-lived assets when the timing and / or method of settlement of such obligations are conditional of a future event. Media must adopt FIN 47 by December 31, 2005. The impact on Media’s financial position or results of operations is being determined.
In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). This Statement changes the disclosure for a change in accounting principle. SFAS 154 is applicable to all voluntary changes in an accounting principle. Unless a future pronouncement specifies transition treatment, SFAS 154 will apply. SFAS 154 will be effective for accounting changes and error corrections in fiscal years beginning after December 15, 2005.
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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. The 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): | Radio | Cable | Other | Total | ||||||||||||
For the Three Months Ended September 30, 2005 | ||||||||||||||||
Operating income (loss) | $ | 15,962 | $ | 6,426 | $ | (773 | ) | $ | 21,615 | |||||||
Interest expense, net | 1,081 | 4,264 | 3,176 | 8,521 | ||||||||||||
Depreciation and amortization | 1,500 | 9,426 | 105 | 11,031 | ||||||||||||
Income (loss) before income taxes | 14,938 | 2,162 | (2,329 | ) | 14,771 | |||||||||||
Identifiable assets | 455,700 | 331,047 | 4,159 | 790,906 | ||||||||||||
Capital expenditures | 4,759 | 7,477 | 74 | 12,310 | ||||||||||||
For the Three Months Ended September 30, 2004 | ||||||||||||||||
Operating income (loss) | $ | 17,290 | $ | 4,469 | $ | (629 | ) | $ | 21,130 | |||||||
Interest expense, net | 970 | 2,970 | 3,428 | 7,368 | ||||||||||||
Depreciation and amortization | 1,603 | 10,370 | 101 | 12,074 | ||||||||||||
Income (loss) before income taxes | 16,430 | 1,498 | (2,396 | ) | 15,532 | |||||||||||
Identifiable assets (1) | 433,762 | 343,328 | 128,916 | 906,006 | ||||||||||||
Capital expenditures | 1,493 | 10,459 | 54 | 12,006 |
Radio | Cable | Other | Total | |||||||||||||
For the Nine Months Ended September 30, 2005 | ||||||||||||||||
Operating income (loss) | $ | 42,144 | $ | 17,919 | $ | (6,153 | ) | $ | 53,910 | |||||||
Interest expense, net | 3,272 | 12,028 | 9,213 | 24,513 | ||||||||||||
Depreciation and amortization | 4,707 | 28,558 | 438 | 33,703 | ||||||||||||
Income (loss) before income taxes | 39,286 | 5,891 | (10,910 | ) | 34,267 | |||||||||||
Identifiable assets | 455,700 | 331,047 | 4,159 | 790,906 | ||||||||||||
Capital expenditures | 6,004 | 20,641 | 103 | 26,748 | ||||||||||||
For the Nine Months Ended September 30, 2004 | ||||||||||||||||
Operating income (loss) | $ | 45,072 | $ | 17,247 | $ | (2,866 | ) | $ | 59,453 | |||||||
Interest expense, net | 4,071 | 10,080 | 10,050 | 24,201 | ||||||||||||
Depreciation and amortization | 5,013 | 26,955 | 292 | 32,260 | ||||||||||||
Income (loss) before income taxes | 39,205 | 1,483 | (9,123 | ) | 31,565 | |||||||||||
Identifiable assets (1) | 433,762 | 343,328 | 128,916 | 906,006 | ||||||||||||
Capital expenditures | 3,258 | 25,232 | 255 | 28,745 |
(1) | Receivable from Parent of $109.6 million was reported as an asset as of September 30, 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:
• | Completion of the sale of the Radio and Cable businesses, regulatory approvals and other closing conditions; | |
• | business conditions, both nationally and in our markets; | |
• | interest rate movements; | |
• | terrorists’ acts or adverse reactions to United States anti-terrorism activities; | |
• | expectations and estimates concerning future financial performance; | |
• | the amount and timing of compensation charges, changes in minority interests and any payments required under the Radio Employee Stock Plan and the Cable Performance Share Plan; | |
• | acquisition opportunities and our ability to successfully integrate acquired businesses, properties or other assets and realize anticipated benefits of such acquisitions; | |
• | financing plans and access to adequate capital on favorable terms; | |
• | our ability to service our outstanding indebtedness and the impact such indebtedness may have on the way we operate our businesses; | |
• | the impact of competition from other radio stations, media forms, communication service providers and telephony service providers; | |
• | changes in accounting principles generally accepted in the United States and SEC rules and regulations; | |
• | the impact of existing and future regulations affecting our businesses, including radio licensing and ownership rules and cable television regulations; | |
• | the possible non-renewal of cable franchises; | |
• | increases in programming costs; | |
• | the accuracy of anticipated trends in our businesses, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein; | |
• | advances in technology and our ability to adapt to and capitalize on such advances; | |
• | decreases in our customers’ advertising and entertainment expenditures; and | |
• | other factors over which we may have little or no control. |
All forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Any forward-looking statement speaks only as of the date it was made, and except for our ongoing obligations to disclose material information as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this 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, 2004.
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Overview
Media is a diversified communications company with operations in radio broadcasting and cable television. Media is the largest privately-owned radio broadcaster and the 11th largest radio broadcaster overall in the United States of America based on estimated 2005 revenues by Kagan Research LLC. Media is also the 16th largest cable television multiple system operator in the United States of America based on subscribers as of December 31, 2004.
All Media’s outstanding common stock is owned by its corporate parent, Susquehanna Pfaltzgraff Co.
On October 31, 2005, Media agreed to sell its Cable business and Susquehanna Pfaltzgraff Co. agreed to sell Media’s Radio business (See Notes to Condensed Consolidated Financial Statements).
For the nine months ended September 30, 2005, 54% of Media’s revenues were from Radio and 45% were from Cable.
Media’s Radio business focuses on acquiring, operating and developing radio stations in the United States’ 40 largest markets. Radio’s stations offer programming over a broad range of formats. Revenues are generated by broadcasting local advertising, national advertising and client-sponsored events on our stations.
Media’s 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’s 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.
Media’s operations for the nine months ended September 30, 2005 included the following notable items:
– | Cable revenues increased $13.5 million or 10% over 2004 with approximately half of the increase attributable to a full nine months impact of the March 2004 Carmel acquisition. | ||
– | Cable’s Carmel operation ceased using third-party transition services, including telephone-based customer service, network monitoring, billing (voice, video and data), telephony switching and Internet backbone. Carmel’s operating loss narrowed in the third quarter by $1.2 million or 48% compared to the same period in 2004. | ||
– | The Rankin County cable plant rebuild was substantially finished as of June 30, 2005. Final clean-up and customer connections were completed during August 2005. | ||
– | Hurricane Katrina caused plant damage totaling approximately $1.1 million to the Rankin County system. All repairs were completed and insurance claims are being prepared for submission. | ||
– | On January 26, 2005, the United States District Court for the Northern District of Georgia granted a summary judgment against Media. The summary judgment granted BCI, the plaintiff, the sum of $10.0 million with interest at the rate of 9% per annum from January 22, 2001 and allowed recovery of BCI’s attorneys’ fees and costs. | ||
– | Media disposed of the assets of Susquehanna Technologies (“SusQtech”) during third quarter without further loss over the impairment loss of $2.1 million recognized in the second quarter. | ||
– | Cable launched digital video recorder (DVR) customer premise equipment during second quarter to customers in York and Williamsport, Pennsylvania and Brunswick, Maine. The service was launched in the remaining systems during third quarter 2005. | ||
– | Based on the results of the independent valuation performed for Susquehanna Pfaltzgraff Co.’s ESOP as of December 31, 2004 (“Valuation”), a $1.2 million compensation expense was recognized related to the Cable Performance Share Plan on April 1, 2005. Based on the results of the Valuation, a $4.0 million decrease in minority interests related to the Radio Employee Stock Plan was recognized as of April 1, 2005. |
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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, 2005 and 2004:
Three months ended September 30, 2005 | ||||||||||||||||||||||||||||||||
(in millions) | Radio | Cable | Other | Total | ||||||||||||||||||||||||||||
Revenues | $ | 62.0 | 100.0 | % | $ | 49.0 | 100.0 | % | $ | 0.2 | 100.0 | % | $ | 111.2 | 100.0 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Operating and programming | 22.1 | 35.6 | % | 23.5 | 48.0 | % | 0.3 | * | 45.9 | 41.3 | % | |||||||||||||||||||||
Selling | 9.5 | 15.3 | % | 2.2 | 4.5 | % | 0.1 | * | 11.8 | 10.6 | % | |||||||||||||||||||||
General and administrative | 13.0 | 21.0 | % | 7.4 | 15.1 | % | 0.5 | * | 20.9 | 18.8 | % | |||||||||||||||||||||
Depreciation and amortization | 1.5 | 2.4 | % | 9.5 | 19.4 | % | — | * | 11.0 | 9.9 | % | |||||||||||||||||||||
Total operating expenses | 46.1 | 74.4 | % | 42.6 | 86.9 | % | 0.9 | * | 89.6 | 80.6 | % | |||||||||||||||||||||
Operating income (loss) | $ | 15.9 | 25.6 | % | $ | 6.4 | 13.1 | % | $ | (0.7 | ) | * | 21.6 | 19.4 | % | |||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest expense | (8.5 | ) | (7.6 | )% | ||||||||||||||||||||||||||||
Interest income from loan to parent | 1.6 | 1.4 | % | |||||||||||||||||||||||||||||
Other expense | 0.1 | 0.1 | % | |||||||||||||||||||||||||||||
Provision for income taxes | (5.8 | ) | (5.2 | )% | ||||||||||||||||||||||||||||
Minority interests | (1.0 | ) | (0.9 | )% | ||||||||||||||||||||||||||||
Net income | $ | 8.0 | 7.2 | % | ||||||||||||||||||||||||||||
* Not meaningful.
Three months ended September 30, 2004 | ||||||||||||||||||||||||||||||||
(in millions) | Radio | Cable | Other | Total | ||||||||||||||||||||||||||||
Revenues | $ | 61.3 | 100.0 | % | $ | 46.2 | 100.0 | % | $ | 0.9 | 100.0 | % | $ | 108.4 | 100.0 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Operating and programming | 20.3 | 33.1 | % | 22.7 | 49.1 | % | 0.8 | 89.0 | % | 43.8 | 40.4 | % | ||||||||||||||||||||
Selling | 9.5 | 15.5 | % | 1.7 | 3.7 | % | 0.2 | 22.2 | % | 11.4 | 10.5 | % | ||||||||||||||||||||
General and administrative | 12.6 | 20.6 | % | 7.1 | 15.4 | % | 0.3 | 33.3 | % | 20.0 | 18.5 | % | ||||||||||||||||||||
Depreciation and amortization | 1.6 | 2.6 | % | 10.4 | 22.5 | % | 0.1 | 11.1 | % | 12.1 | 11.1 | % | ||||||||||||||||||||
Total operating expenses | 44.0 | 71.8 | % | 41.9 | 90.7 | % | 1.4 | 155.6 | % | 87.3 | 80.5 | % | ||||||||||||||||||||
Operating income | $ | 17.3 | 28.2 | % | $ | 4.3 | 9.3 | % | $ | (0.5 | ) | (55.6 | )% | 21.1 | 19.5 | % | ||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest expense | (7.4 | ) | (6.8 | )% | ||||||||||||||||||||||||||||
Interest income from loan to parent | 1.7 | 1.5 | % | |||||||||||||||||||||||||||||
Other expense | 0.1 | 0.1 | % | |||||||||||||||||||||||||||||
Provision for income taxes | (6.4 | ) | (5.9 | )% | ||||||||||||||||||||||||||||
Minority interests | (0.8 | ) | (0.7 | )% | ||||||||||||||||||||||||||||
Net income | $ | 8.3 | 7.7 | % | ||||||||||||||||||||||||||||
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Nine months ended September 30, 2005 | ||||||||||||||||||||||||||||||||
(in millions) | Radio | Cable | Other | Total | ||||||||||||||||||||||||||||
Revenues | $ | 172.7 | 100.0 | % | $ | 145.5 | 100.0 | % | $ | 2.1 | 100.0 | % | $ | 320.3 | 100.0 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Operating and programming | 59.6 | 34.5 | % | 71.0 | 48.8 | % | 2.2 | * | 132.8 | 41.5 | % | |||||||||||||||||||||
Selling | 27.6 | 16.0 | % | 6.2 | 4.3 | % | 0.6 | * | 34.4 | 10.7 | % | |||||||||||||||||||||
General and administrative | 38.7 | 22.4 | % | 21.8 | 15.0 | % | 2.9 | * | 63.4 | 19.8 | % | |||||||||||||||||||||
Impairment loss | — | 0.0 | % | — | 0.0 | % | 2.1 | * | 2.1 | 0.7 | % | |||||||||||||||||||||
Depreciation and amortization | 4.7 | 2.7 | % | 28.6 | 19.6 | % | 0.4 | * | 33.7 | 10.5 | % | |||||||||||||||||||||
Total operating expenses | 130.6 | 75.6 | % | 127.6 | 87.7 | % | 8.2 | * | 266.4 | 83.2 | % | |||||||||||||||||||||
Operating income (loss) | $ | 42.1 | 24.4 | % | $ | 17.9 | 12.3 | % | $ | (6.1 | ) | * | 53.9 | 16.8 | % | |||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest expense | (24.5 | ) | (7.6 | )% | ||||||||||||||||||||||||||||
Interest income from loan to Parent | 4.8 | 1.5 | % | |||||||||||||||||||||||||||||
Other expense | 0.1 | 0.0 | % | |||||||||||||||||||||||||||||
Provision for income taxes | (13.5 | ) | (4.2 | )% | ||||||||||||||||||||||||||||
Minority interests | 1.2 | 0.4 | % | |||||||||||||||||||||||||||||
Net income | $ | 22.0 | 6.9 | % | ||||||||||||||||||||||||||||
* Not meaningful.
Nine months ended September 30, 2004 | ||||||||||||||||||||||||||||||||
(in millions) | Radio | Cable | Other | Total | ||||||||||||||||||||||||||||
Revenues | $ | 172.2 | 100.0 | % | $ | 132.0 | 100.0 | % | $ | 2.4 | 100.0 | % | $ | 306.6 | 100.0 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Operating and programming | 56.4 | 32.8 | % | 62.5 | 47.3 | % | 2.3 | 95.8 | % | 121.2 | 39.5 | % | ||||||||||||||||||||
Selling | 27.4 | 15.9 | % | 4.4 | 3.3 | % | 0.6 | 25.0 | % | 32.4 | 10.6 | % | ||||||||||||||||||||
General and administrative | 38.3 | 22.2 | % | 20.9 | 15.8 | % | 2.1 | 87.5 | % | 61.3 | 20.0 | % | ||||||||||||||||||||
Depreciation and amortization | 5.0 | 2.9 | % | 27.0 | 20.6 | % | 0.3 | 12.5 | % | 32.3 | 10.5 | % | ||||||||||||||||||||
Total operating expenses | 127.1 | 73.8 | % | 114.8 | 87.0 | % | 5.3 | 220.8 | % | 247.2 | 80.6 | % | ||||||||||||||||||||
Operating income (loss) | $ | 45.1 | 26.2 | % | $ | 17.2 | 13.0 | % | $ | (2.9 | ) | (120.8 | )% | 59.4 | 19.4 | % | ||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest expense | (24.2 | ) | (7.9 | )% | ||||||||||||||||||||||||||||
Interest income from loan to Parent | 5.0 | 1.6 | % | |||||||||||||||||||||||||||||
Loss on extinguishment of debt and other expense | �� | (8.6 | ) | (2.8 | )% | |||||||||||||||||||||||||||
Provision for income taxes | (12.5 | ) | (4.1 | )% | ||||||||||||||||||||||||||||
Minority interests | (7.8 | ) | (2.5 | )% | ||||||||||||||||||||||||||||
Net income | $ | 11.3 | 3.7 | % | ||||||||||||||||||||||||||||
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Three Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004
Consolidated
Revenues. Consolidated revenues increased $2.8 million or 3% from 2004 to 2005. Radio and Cable revenues were 56% and 44% of 2005 consolidated revenues compared to 56% and 43% of 2004 consolidated revenues, respectively.
Operating and programming expenses.Operating and programming expenses increased $2.1 million or 5% from 2004 to 2005. Approximately 86% of the increase in operating and programming expenses occurred in the Radio segment and was primarily related to increased cost of sports broadcasting rights.
Selling expenses.Selling expenses increased $0.4 million or 4% from 2004 to 2005. The entire increase was incurred in the Cable segment and was related to marketing of new product line enhancements and greater direct selling efforts necessitated by an increasingly competitive environment.
General and administrative expenses.General and administrative expenses increased $0.9 million or 5% from 2004 to 2005 due to general cost increases.
Depreciation and amortization.Depreciation and amortization decreased $1.1 million or 9% from 2004 to 2005. Most of the decrease in depreciation and amortization occurred in the Cable segment.
Operating income.Operating income increased $0.5 million or 2% from 2004 to 2005. The majority of the improvement in operating income occurred in the Cable segment and resulted from increased sales and decreased depreciation and amortization expenses that more than offset higher selling costs.
Interest expense. Although long-term debt is lower than at December 31, 2004, interest expense increased $1.1 million or 15% from 2004 to 2005 due to increased variable interest rates and interest on the BCI judgment.
Net income.Net income decreased $0.3 million. The effective rate for income taxes did not differ significantly between 2004 and 2005.
Radio Segment
Revenues. Radio revenues increased $0.7 million or 1% from 2004 to 2005.
Operating and programming expenses.Operating and programming expenses increased $1.8 million or 9% due primarily to sports broadcast rights increases, a major non-air event and contract increases for on-air talent.
Operating income.Operating income decreased $1.4 million or 8% from 2004 to 2005 primarily due to the increase in operating and programming expenses.
Cable Segment
Revenues. Cable revenues increased $2.8 million or 6% from 2004 to 2005. Increasing penetration of high-speed Internet access, basic/expanded basic rate increases and increased penetration of digital video products combined to yield the improvement in revenues. The digital product line benefited from the launch of DVR technology, now available in all cable systems.
Operating and programming expenses.Cable’s operating and programming expenses increased $0.8 million or 4% from 2004 to 2005. The third quarter 2004 recognition of lost programming discounts partially offset third quarter 2005 increases in plant maintenance and engineering expenses compared to the prior year.
Selling expenses.Cable’s selling expenses increased $0.5 million or 29% from 2004 to 2005. The increase in selling expense comes from marketing new products and greater direct selling efforts mounted in response to an increasingly competitive environment.
General and administrative expenses.Cable general and administrative expenses increased $0.3 million or 4% from 2004 to 2005.
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Depreciation and amortization.Depreciation and amortization decreased $0.9 million or 9% from 2004 to 2005. Amortization charges related to Carmel’s subscriber list intangible asset decrease over time.
Operating income.Cable’s operating income increased $2.1 million or 49% from 2004 to 2005. Operating income increased due to the growth of high-speed Internet access revenues and the programming costs charge in third quarter 2004.
Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004
Consolidated
Revenues. Consolidated revenues increased $13.7 million or 4% from 2004 to 2005. Radio and Cable revenues were 54% and 45% of 2005 consolidated revenues compared to 56% and 43% of 2004 consolidated revenues, respectively.
Operating and programming expenses.Operating and programming expenses increased $11.6 million or 10% from 2004 to 2005. Most of the increase in operating and programming expense was attributable to the Cable segment, which had a full nine months operations of its Cable’s Carmel, New York system (acquired in March 2004), increases in plant maintenance costs, deployment of in-house network monitoring and increases in the costs of acquired programming.
Selling expenses. Selling expenses increased $2.0 million or 6% from 2004 to 2005. The increase in selling expense was incurred primarily in the Cable segment that launched enhanced services and new products. Increased direct selling techniques were initiated in response to an increasingly competitive environment.
General and administrative expenses.General and administrative expenses were $2.1 million or 3% higher than 2004. The Cable segment incurred the majority of the increase, half of which related to a full nine months operations of the Carmel system.
Impairment loss.A $2.1 million impairment loss was recognized in second quarter 2005 related to SusQtech’s long-lived assets (See Notes to Condensed Consolidated Financial Statements).
Depreciation and amortization.Depreciation and amortization increased $1.4 million or 4% from 2004 to 2005. A full nine months depreciation for Cable’s Carmel system and new charges related to the recently completed Rankin County rebuild combined to increase depreciation and amortization expenses.
Operating income.Operating income decreased $5.5 million or 9% from 2004 to 2005, due to the SusQtech impairment loss and increased operating, programming and selling expenses in Cable and Radio.
Interest expense. Interest expense decreased $0.3 million or 1% from 2004 to 2005. Interest expense related to variable rate debt was lower than interest expense related to the 8.5% fixed rate debt that was redeemed in second quarter 2004. Interest expense for 2005 also included $0.7 million related to the BCI litigation (See Notes to Condensed Consolidated Financial Statements).
Net income.Net income increased $10.7 million or 95% from 2004 to 2005 due primarily to a $9.1 million pretax expense for the loss on extinguishment of debt in 2004. Minority interests for 2005 reflected a $4.0 million reduction due to a decrease in the fair value of non-voting Radio common shares. The effective rate for income taxes did not change significantly between 2004 and 2005.
Radio Segment
Revenues. Radio revenues were largely unchanged from 2004.
Operating and programming expenses.Operating and programming expenses increased $3.2 million or 6% due primarily to scheduled sports broadcast rights increases, a major non-air event and talent cost increases.
Operating income.Operating income decreased $3.0 million or 7% from 2004 to 2005. Operating income decreased due to revenues not covering the increases in operating and programming expenses.
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Cable Segment
Revenues. Cable revenues increased $13.5 million or 10% from 2004 to 2005. On a same systems basis (excluding Carmel, New York), revenues increased $5.6 million or 5% from 2004 to 2005. Increasing penetration of high-speed Internet access, basic/expanded basic rate increases and digital video penetration increases were responsible for the improvement in revenues on a same systems basis.
Operating and programming expenses.Cable’s operating and programming expenses increased $8.5 million or 14% from 2004 to 2005, primarily due to a full nine months of Carmel system operations. On a same systems basis, operating and programming expense increased $3.2 million or 6%. Approximately 67% of the increase in operating and programming costs on a same systems basis related to the increased cost of technical and engineering functions needed to maintain the cable plant, support new product lines and support the deployment of in-house network monitoring on a 24 hours a day /7 days a week basis.
Selling expenses.Cable’s selling expenses increased $1.8 million or 41% from 2004 to 2005. The increase in selling expenses was caused by the same factors cited for the third quarter change.
Depreciation and amortization.Depreciation and amortization increased $1.6 million or 6% from 2004 to 2005 due primarily to a full nine months impact of the Carmel system and the recently completed Rankin County plant rebuild.
Operating income.Cable operating income increased $0.7 million or 4% from 2004 to 2005. On a same systems basis, Cable operating income increased $0.2 million or 1% from 2004 to 2005.
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 repurchases of common stock, and interest payable on outstanding indebtedness.
Net cash provided by operating activities was $56.7 million for the nine months ended September 30, 2005. The Company’s net cash provided by operating activities was generated by normal operations. Cash provided by operating activities decreased $16.7 million from 2004. During the nine months ended September 30, 2005, Media paid $7.9 million accrued ESOP costs to its Parent. In prior years, accrued ESOP costs were paid in the fourth quarter. In addition to the accelerated ESOP payments, Media also paid $4.5 million more income taxes during the first nine months of 2005 than in the comparable period of 2004.
Net cash used by investing activities was $36.4 million for the nine months ended September 30, 2005. Capital expenditures, excluding acquisitions, were $26.7 million and $28.7 million for the nine months ended September 30, 2005 and 2004, 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 $8.3 million during the remainder of 2005, primarily for cable system upgrades. We expect to utilize our existing credit facilities and cash flow generated from operations to fund cable systems upgrades. Other cash used for investing activities was utilized to invest in a venture to acquire and program Hispanic talk radio stations. The investee has acquired an AM radio station in Phoenix, Arizona that commenced operations in September 2005 and an AM radio station in Denver, Colorado.
Net cash used by financing activities was $20.3 million for the nine months ended September 30, 2005. The senior credit facilities had $191.7 million available at September 30, 2005. Media redeemed approximately $5.2 million of Radio Employee Stock Plan shares in 2005 from employees. Approximately $1.9 million of the redeemed shares were exchanged for notes to be paid out over two years. Existing credit facilities were utilized to fund the redemptions. Overall, long-term debt as of September 30, 2005 was over $16 million lower than as of December 31, 2004.
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The following table reflects our contractual cash obligations as of September 30, 2005 in the respective periods in which they are due (in thousands):
Total | ||||||||||||||||||||||||||||
Contractual Cash | Amounts | |||||||||||||||||||||||||||
Obligations | Committed | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | |||||||||||||||||||||
Long-term debt | $ | 560,543 | $ | 634 | $ | 16,218 | $ | 24,141 | $ | 30,625 | $ | 38,125 | $ | 450,800 | ||||||||||||||
Broadcast rights | 38,892 | 2,792 | 11,200 | 8,000 | 8,250 | 8,650 | — | |||||||||||||||||||||
Operating leases | 42,914 | 4,963 | 4,977 | 4,848 | 4,741 | 4,348 | 19,037 | |||||||||||||||||||||
Total | $ | 642,349 | $ | 8,389 | $ | 32,395 | $ | 36,989 | $ | 43,616 | $ | 51,123 | $ | 469,837 | ||||||||||||||
Media was in compliance with its loan covenants, as each is defined under the senior credit agreements (“Facilities”), as of September 30, 2005. A summary of the most restrictive covenants, the required covenant value and the corresponding actual value follows:
Covenant Test | Actual Value | |||
Fixed charge coverage ratio must be at least 1.10 | 1.54 | |||
Maximum consolidated leverage ratio may not exceed 6.25 | 4.06 | |||
Interest coverage ratio must be at least 2.25 | 4.69 |
Our Facilities include a provision that allows our lender to refuse additional borrowings if our financial condition suffers a material adverse change. Violation of covenants under the 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 cross-default under our 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 Facilities will be sufficient to finance its current operations, its debt service obligations, and its planned capital expenditures. Media has no current commitments or agreements with respect to any material acquisitions.
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 through September 30, 2005, there have been no material developments affecting market risk since the filing of Media’s December 31, 2004 Annual Report on Form 10-K filed with the SEC.
As of September 30, 2005, we had $407.1 million in variable rate debt and $150 million in fixed rate debt. During third quarter 2005, Media repaid approximately $16.4 million of variable rate debt. The fair value of the variable rate debt approximates its carrying value. Variable rate debt matures as follows (in thousands):
2005 | $ | 625 | ||
2006 | 13,750 | |||
2007 | 23,125 | |||
2008 | 30,625 | |||
2009 | 38,125 | |||
2010 | 45,625 | |||
2011 | 196,425 | |||
2012 | 58,750 |
The maturities shown above reflect debt in place at September 30, 2005. Our interest rate exposure is primarily impacted by changes in LIBOR rates. At September 30, 2005, the weighted average interest rate for the variable rate debt was 5.4%. 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, 2005 would increase by approximately $4.1 million.
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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 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2005 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.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 29, 2004, Bridge Capital Investors II (“BCI”) 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, now WWWQ-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 to serve the Atlanta, Georgia metropolitan area. On January 26, 2005, the United States District Court for the Northern District of Georgia granted summary judgment in favor of BCI against Media. The summary judgment grants BCI the sum of $10.0 million with interest at the rate of 9% per annum from January 22, 2001 and also allows BCI’s recovery of attorneys’ fees and costs. On February 22, 2005, Media appealed the judgment. Oral arguments are scheduled for the week of December 5, 2005.
ITEM 6. EXHIBITS
Exhibits Filed Herewith:
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by David E. Kennedy. | |
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 David E. Kennedy. | |
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.
November 11, 2005 | SUSQUEHANNA MEDIA CO. | |||
By: | /s/ John L. Finlayson | |||
John L. Finlayson | ||||
Vice President and Principal Financial and Accounting Officer | ||||
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