Item 1. Business
Overview of Susquehanna Media
Susquehanna Media was incorporated in 1993 as an intermediate cable and radio broadcasting holding company subsidiary of Susquehanna Pfaltzgraff. Susquehanna Pfaltzgraff was founded in 1941 by Louis J. Appell, Sr. to own and operate WSBA-AM, our flagship radio station in York, Pennsylvania. In 1954, The Pfaltzgraff Co., a leading manufacturer of ceramic dinnerware, was merged into Susquehanna Pfaltzgraff. The Pfaltzgraff Co. had been owned by the family of Mrs. Louis J. Appell, Sr. We entered the cable television business in 1965 when we were awarded a franchise to operate in York, Pennsylvania.
We are a diversified communications company with operations in radio broadcasting and cable television. We are the largest privately owned radio broadcaster and the 9th largest radio broadcaster overall in the United States based on 1999 revenues. As of December 31, 2000, we own and operate 17 FM and 9 AM stations that serve four of the nation's ten largest radio markets (San Francisco, Dallas, Houston and Atlanta), as well as four other significant markets (Cincinnati, Indianapolis, Kansas City and York, Pennsylvania). We were also the 19th largest cable multiple system operator in the United States with seven cable systems serving approximately 192,000 subscribers as of December 31, 2000.
We also provide Internet access and enhanced services to residential and business customers under the tradename "BlazeNet." Our services include (i) Internet access via telephone dial-up service or cable modem, (ii) website creation, hosting and maintenance, and (iii) local and wide area network design, construction and operation.
Radio Broadcasting
Our radio broadcasting business focuses on acquiring, developing and operating radio stations in the 40 largest markets in the United States. We have over 50 years of experience operating radio properties and currently own stations serving the demographically attractive and fast-growing San Francisco, Dallas, Houston and Atlanta markets, four of the top ten radio markets in the United States. Our radio stations offer a broad range of programming formats, such as country, top 40, adult contemporary, oldies, rock, and sports and talk radio, each targeted to a specific demographic audience within a market. We believe that our large market radio presence and variety of programming formats makes us attractive to a diverse base of local and national advertisers and enables us to capitalize on our ratings to generate higher market revenue share.
Our business strategy for radio includes the following key elements intended to establish leadership positions in the markets we serve and to enhance our operating and financial performance:
o Focus on large markets. We generate approximately 76% of our radio revenues from the ten largest markets in the United States and more than 94% from top 40 markets. We intend to continue focusing on large markets.
o Employ targeted programming and market research. We seek to maximize station operating performance through extensive market research, innovative programming, and distinctive marketing campaigns.
o Emphasize sales and marketing. We place great emphasis on being familiar with our listening audience and their lifestyle characteristics in order to match effectively our audience's demographics with the specific target audiences of our advertisers.
o Decentralize management. We decentralize much of our operations to regional and local levels. Each of our regional and local station groups is managed by a team of experienced broadcasters who understand the musical tastes, demographics and competitive opportunities of their particular market.
o Selectively pursue strategic acquisitions. In addition to seeking continued internal growth, we intend to pursue acquisition opportunities that would allow us to continue to compete more effectively for advertising revenues and to increase our growth rate of revenues and cash flow.
The Radio Broadcasting Industry
The radio broadcasting industry is characterized by the following key factors:
Significant growth. The sale of advertising time to local and national spot advertisers and to national network advertisers is the primary source of revenues for radio stations. Local and national spot advertising is generally used to target the market where a station is located or to cover regions larger than the markets where a station is located. National network advertising is included in national syndicated programming aired on radio stations. The growth in total radio advertising revenue tends to be fairly stable, growing over the last 25 years at an 9.9% compound annual rate, compared to a gross domestic product growth rate of 7.5%.
Broad market coverage. According to the Radio Advertising Bureau's Radio Marketing Guide and Fact Book for Advertisers 1999, each week radio reaches approximately 96% of all Americans over 12 years of age. More than one-half of all radio listening occurs outside the home, and three out of four adults are reached by car radio each week. The average listener spends approximately three hours and 11 minutes per day listening to radio. The highest portion of radio listening occurs during the morning, particularly between the time a listener wakes up and the time he reaches work. This "morning drive time" period reaches more than 80% of people over 12 years of age, and as a result, radio advertising sold during this period achieves premium advertising rates.
Low-cost advertising. The cost to reach a thousand listeners, or impressions, is the benchmark for comparing different media with different reach and frequency aspects. Radio is recognized by the advertising community for its ability to generate a high frequency of commercial impressions cost efficiently. This is caused by its low cost per minute, or low cost per rating point. Stations are generally classified by their on-air format, such as country, adult contemporary, oldies and news/talk. A station's format and style of presentation enables it to efficiently target certain demographics. By capturing a specific share of a market's radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to enable advertisers to maximize their reach for each dollar of advertising expenditures.
Radio Properties
Our radio subsidiary, Susquehanna Radio Corp., operates radio stations in San Francisco, Dallas, Houston and Atlanta, all of which are top ten markets, as well as radio stations in Cincinnati, Indianapolis, Kansas City, York, Pennsylvania and Anniston, Alabama. The following table sets forth certain information regarding our radio stations and their respective markets. The table excludes WABZ-FM in Albemarle, North Carolina and KIKT-FM and KGVL-AM in Greenville, Texas, which are owned by us, but operated by third parties under a time brokerage agreement. Market rank by revenue is based upon market revenue size of the primary radio market served by the station among all radio markets in the United States, as reported in Duncan's Radio Market Guide. Station rank and audience share are based upon a station's share of its primary demographic target for the period Monday through Sunday, 6 a.m. to 12 midnight by market, as reported by Arbitron in Fall 2000. Combined market revenue share represents our share of the total radio advertising revenue from the market, as reported in Duncan's 2000 Radio Market Guide for the year 1999. Combined market revenue rank represents our rank in the market as measured by the amount of its radio advertising revenue from the market, as reported in Duncan's 2000 Radio Market Guide.
- ---------------------- (1) These stations are simulcast and have been combined for market rank and ratings.
(2) WHMA-AM is located in Anniston, Alabama and does not broadcast in the Atlanta market. In November 2000, the Federal Communication Commission granted our petition to move WHMA-FM from Anniston, Alabama to College Park, Georgia. Station call letters were changed to WWWQ-FM when it debuted in the Atlanta market on January 22, 2001.
Market Overviews
We own and operate radio stations in the following markets:
San Francisco. We have operated in the San Francisco market since 1983, and currently own three FM and two AM stations in the area. We own KNBR-AM, one of the original 50,000 watt, clear channel AM licenses, which provides clear reception throughout northern California and as far inland as eastern Nevada. The station is currently programmed with a sports talk format and has the broadcast rights to the San Francisco Giants and the Golden State Warriors. Two of our stations, KFOG/KFFG-FM and KSAN-FM, are each ranked 2nd in their respective target demographics.
Dallas/Ft. Worth. We have been operating in the Dallas/Ft. Worth market since 1974, and currently own three FM and four AM stations in the area. Two of our stations, KTCK-AM and KTBK-AM, which are programmed with a sports talk format and are simulcast, are each ranked 1st in the market among males 18 to 44 and have the broadcast rights to the Dallas Mavericks. KPLX, which is programmed with a "Texas" country format, is rated 3rd in the market among adults 25 to 54.
Houston. We entered the Houston market in 1986 when we acquired KRBE-FM, which serves the Houston market with a top 40 radio format. KRBE-FM has been a dominant radio station in Houston since the 1970s and is ranked 2nd among women 18 to 34. This station attracts over 700,000 listeners each week.
Atlanta. Atlanta represents one of the most desirable radio broadcast markets in the country, with only 17 FM and 24 total radio stations serving the market. We entered the Atlanta market in 1974 with the acquisition of WNNX-FM, which is programmed with modern rock and ranked 4th among men 18 to 34. In November 2000, the FCC granted a petition to move WHMA-FM in Anniston, Alabama to
the Atlanta market. Station call letters were changed to WWWQ-FM when it debuted in the Atlanta market on January 22, 2001 with a Top 40 format.
Cincinnati. We have operated in Cincinnati since 1972, and currently own two FM stations in the market. WRRM-FM, which is programmed with adult contemporary, is the sole adult contemporary station in the market and is ranked 1st among women 25 to 54. WMOJ-FM, which is programmed as a rhythmic oldies station, is a strong contender, placing 3rd among women 25 to 54.
Indianapolis. We have operated in Indianapolis since 1972, and currently own three FM stations in the market. WFMS-FM, which is programmed with contemporary country, is the top ranked station among women 25 to 54 and has ranked either 1st or 2nd in the market since 1992. Oldies WGLD, with its 50 kilowatt transmitting power, effectively targets adults 35-54, ranking third in the market.
Kansas City. In July 2000, we acquired three radio stations serving the Kansas City market. Oldies KCMO-FM dominates the market as the number one radio station in its target adult 35-54 demographic. KCFX-FM ranks 2nd among adults 25 to 54 and is the flagship station for the Kansas City Chiefs. KCMO-AM is one of the oldest continuously operated radio stations in the United States, being on the air since 1936.
York. We have operated in York since 1942, and currently own two stations in the market. WARM-FM, which is programmed with an adult contemporary format, is the dominant station among women 25 to 54. WSBA-AM, which is programmed with news and sports, is the AM ratings leader in York.
Advertising
Most of our radio revenues are generated from the sale of local, regional and national advertising for broadcast on our radio stations. In 2000, approximately 78% of our radio revenues were generated from the sale of local and regional advertising, compared to 71% in 1999 and 82% in 1998. We generate additional radio revenues by marketing our proprietary database of listeners, selling print advertising and sponsoring local events. These important and growing sources of revenue supplement our traditional advertising revenues without increasing on-air commercial time.
Each radio station's local sales staff solicits advertising either directly from local advertisers or indirectly through advertising agencies. We employ personnel in each of our markets to produce commercials for advertisers. Regional advertising sales, which we define as sales in regions surrounding our markets to companies that advertise in our markets, are generally made by our local sales staff. National advertising sales are made by a firm specializing in such sales in exchange for a commission from us based on our gross revenue, net of agency commission from the advertising sold. Regional advertising sales, which we define as sales in regions surrounding our markets to companies that advertise in our markets, are generally made by our local sales staff.
We estimate the optimum number of advertisements available for sale by a station for a particular time period. The number of advertisements that can be broadcast without jeopardizing listening levels (and resulting ratings) is limited in part by the programming format of a particular station. We seek to maximize revenue by managing on-air inventory of advertising time and adjusting prices to local market conditions and to our ability, through our marketing efforts, to provide advertisers with an effective means of reaching a targeted demographic group. Each of our stations has a general target level of on-air inventory that it makes available for advertising. This target level may vary at different times of the day but tends to remain stable over time. Much of our selling activity is based on demand for our on-air
inventory, and in general, we respond to this demand by varying prices rather than varying our target inventory level for a particular station. As a result, most changes in revenue are explained by demand-driven pricing changes rather than changes in available inventory.
We believe that radio is one of the most efficient and cost-effective means for advertisers to reach specific demographic groups. Advertising rates charged by radio stations are based primarily on:
o a station's share of audiences in the demographic groups targeted by advertisers;
o the number of stations in the market competing for the same demographic groups;
o the supply of and demand for radio advertising time; and
o certain qualitative factors.
Rates are generally highest during morning and afternoon commuting hours. A station's listenership is reflected in ratings surveys that estimate the number of listeners tuned to the station and the time they spend listening. Each station's ratings are used by its advertisers and advertising representatives in connection with advertising sales and are used by us to chart audience growth, set advertising rates and adjust programming. The radio broadcast industry's and our principal rating agency is Arbitron, which publishes periodic ratings surveys for significant domestic radio markets.
Competition
The radio broadcasting industry is very competitive. The success of each of our stations depends largely upon its audience ratings and its share of the overall advertising revenues within its market. Our audience ratings and advertising revenue are subject to change, and any adverse change in a particular market affecting advertising expenditures or an adverse change in the relative market positions of the stations located in a particular market could have a material adverse effect on the revenues of our radio stations located in that market. There can be no assurance that any one or all of our radio stations will be able to maintain or increase current audience ratings or advertising revenue market share.
Our stations compete directly for listeners and advertising revenues with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base comprised of specific demographic groups in each of its markets, we are able to attract advertisers seeking to reach those listeners. Radio stations periodically change their formats to compete directly with other stations for listeners and advertisers. Another station's decision to convert to a format similar to that of one of our radio stations in the same geographic area or launch an aggressive promotional campaign may result in lower ratings and advertising revenue, increased promotion and other expenses and, accordingly, lower our broadcast cash flow.
Factors that are material to a radio station's competitive position include management experience, the station's local audience rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other radio stations in the market area. We attempt to improve our competitive position in each of our markets by extensively researching our stations' programming, by implementing advertising campaigns aimed at the demographic groups for which our stations program and by managing our sales efforts to attract a larger
share of advertising dollars for each individual station. In selling advertising, however, we compete with many organizations that have substantially greater financial and other resources.
Recent changes in the Communications Act and the FCC's rules and policies permit increased ownership and operation of multiple local radio stations. As a result, organizations are acquiring and operating larger blocks of radio stations. We compete with these organizations, as well as other radio station groups, to purchase additional stations. Some of these groups are owned or operated by companies that have substantially greater financial and other resources.
Although the radio broadcasting industry is highly competitive, and competition is enhanced to some extent by changes in existing radio station formats and upgrades of power, certain regulatory limitations on market entry continue to exist. The operation of a radio broadcast station requires a license from the FCC, and the number of radio stations that an entity can operate in a given market is limited by the availability of FM and AM radio frequencies allotted or assigned by the FCC to communities in that market, as well as by the FCC's multiple ownership rules regulating the number of stations that may be owned and controlled by a single entity. See "Federal Regulation of Radio Broadcasting."
In addition to other radio stations, we compete for advertising revenues with other media, including newspapers, broadcast television, cable television, magazines, direct mail, coupons and outdoor advertising. The radio broadcasting industry also competes with new media technologies, such as the delivery of audio programming by cable television systems, over the Internet, and by satellite digital audio radio services. Digital audio radio services may deliver by satellite to nationwide and regional audiences, multi-channel, multi-format, digital radio services with sound quality equivalent to compact discs. The delivery of information through the presently unregulated Internet also could create a new form of competition. Despite the introduction of new technologies for the delivery of entertainment and information, including television broadcasting, cable television, audio tapes and compact discs, the radio broadcasting industry historically has grown. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the introduction of new media technology will not have an adverse effect on the radio broadcasting industry.
Cable Television
We entered the cable television industry in 1965, when we were awarded the franchise to operate in York, Pennsylvania. Our cable systems currently serve approximately 192,000 subscribers as of December 31, 2000 through 13 signal receiving and transmitting facilities (head-ends) in Pennsylvania, Mississippi, Maine, Illinois and Indiana. We own, develop and operate geographically clustered cable television systems in small and medium-sized communities. We believe that these systems are less susceptible to competition and subscriber turnover than urban cable television systems and result in more predictable revenue and cash flow.
Our business strategy for cable television includes the following key elements intended to enhance our operating and financial performance:
o Build strategic clusters. To maximize operating efficiencies, we have pursued the development and acquisition of cable television systems in communities that are within close proximity to our existing systems.
o Focus on customer satisfaction. To maximize customer satisfaction, we strive to provide reliable, high-quality service offerings, superior customer service and attractive programming choices at reasonable rates.
o Continue upgrade of technical facilities. We seek to provide reliable, high-quality cable television services to our customers. To achieve this goal we are continually expanding and upgrading our cable systems to increase channel capacity, enhance signal quality, improve technical reliability and reduce the number of head-ends in existing systems.
o Develop new sources of revenues. We believe that the investment we have made in our cable systems has enabled us to generate additional revenue by providing expanded tiers of basic programming, digital cable services, premium services, and additional pay-per-view services. In addition, we are expanding new services, such as Internet access, high-speed data, video-on-demand and other interactive services.
The Cable Television Industry
A cable customer generally pays an initial installation charge and fixed monthly fees for cable television services and for other services (such as the rental of converters and remote control devices). Such monthly service fees constitute the primary source of revenue for cable television operators. In addition to these services, cable television operators generate revenue from additional fees paid by customers for pay-per-view programming of movies and special events and from the sale of available advertising spots on advertiser-supported programming. Cable television operators frequently also offer to their customers home shopping services, from which the systems receive a share of revenue from sales of products in the systems' service areas. Cable television operators are also generating increasing revenues from the sale of enhanced data services. Cable television revenues tend to be stable, growing over the last 15 years at an 11.7% compound annual rate, compared to a gross domestic product growth rate of 6.0%. Cable television did not experience a single down year in revenue during this period of time. Cable television systems offer customers various levels (or "tiers") of cable television services consisting of:
o a limited basic service, comprised of off-air broadcast television signals, local origination programming produced by the cable system and/or public access groups, and a limited number of satellite services such as home shopping channels and C-Span; and
o an expanded basic service, comprised of satellite delivered, non-broadcast channels such as: Cable News Network (CNN), Entertainment and Sports Programming Network (ESPN) and Turner Network Television (TNT).
For an extra monthly charge, cable television systems also offer premium television services. These services (such as Home Box Office, Cinemax and Showtime) are satellite delivered channels offering feature films, live sporting events, concerts and other special entertainment features presented without commercial interruption.
Digital cable, a new subscription service, offers enhanced television viewing with interactive guides, compact disc quality music channels, theater sound quality, and multiple services of premium and pay-per-view channels. These additional product offerings are made possible by use of bandwidth-saving digital compression.
A cable television system receives television, radio and data signals that are transmitted to the system's head-end by means of off-air antennae, microwave relay systems and satellite earth stations. These signals are then modulated, amplified and distributed, primarily through coaxial cable, and in some instances fiber optic cable, to customers who pay a fee for this service. Cable television systems may also originate their own television programming and other information services for distribution through the system. Cable television systems generally are constructed and operated pursuant to non-exclusive franchises or similar licenses granted by local governmental authorities for a specified term of years, generally for extended periods of up to 15 years.
Cable Properties
The following table sets forth certain information regarding our cable systems as of December 31, 2000. Homes passed represents the maximum number of homes that could become subscribers in the particular cable system. Basic penetration represents basic subscribers as a percentage of homes passed. Digital penetration represents digital terminals as a percentage of basic subscribers. Premium penetration represents premium units as a percentage of basic subscribers. Premium units represents the aggregate number of individual premium services (e.g., HBO, Cinemax, Showtime) for which customers have subscribed. Cable modem penetration represents cable modem subscribers as a percentage of homes passed. Average monthly revenue per basic subscriber represents revenues divided by 12 divided by the weighted average number of subscribers for the year.
Cable Systems
The following table sets forth certain selected technical, operating and financial data for each of our cable systems as of and for the year ended December 31, 2000. Density represents homes passed divided by miles of plant. Plant bandwidth represents percentage of plant mileage within a system served by the indicated plant bandwidth. Basic penetration represents basic subscribers as a percentage of homes passed. Digital terminals represents the number of active terminals for which customers have subscribed to digital services. Digital penetration represents digital terminals as a percentage of basic subscribers. Premium units represents the aggregate number of individual premium services (e.g., HBO, Cinemax, Showtime) for which customers have subscribed. Premium penetration represents premium
units as a percentage of basic subscribers. Average monthly revenue per basic subscriber represents revenues divided by 12 divided by the weighted average number of subscribers for the year.
SELECTED TECHNICAL, OPERATING AND FINANCIAL DATA BY CABLE SYSTEM AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2000
York. The York, Pennsylvania cable system is our largest, serving subscribers in 34 municipalities and accounting for 47% of our total subscribers. A hybrid fiber/coaxial rebuild of the York system began in 1995, and approximately 83% of the system has cable plant with bandwidth capacity of 750 MHz. The rebuild is expected to be completed by the end of 2001. The York system is two-way capable, which allows cable modem service and other services. Cable modem service has been provided to customers since 1997. Digital services were launched in October 1999, with penetration exceeding 10% of basic customers as of December 31, 2000.
Williamsport. The Williamsport system accounts for 20% of our total subscribers. Approximately 80% of the system has been rebuilt to 750 MHz, and the rebuild is expected to be completed by the second quarter of 2001. The system is two-way capable. Cable modem services are presently offered to consumers and commercial customers. Digital services were launched in June ,with penetration exceeding 8% of basic customers as of December 31, 2000. On September 1, 2000, we acquired the adjacent cable systems from AT&T, which served 2,200 total basic subscribers. The systems will be technically merged into the main Williamsport system when the rebuild is completed in 2001.
Rankin. The Rankin County, Mississippi cable system encompasses three small towns, many upscale suburban developments and the southeastern shore of an attractive reservoir recreation area just east of the state capital of Jackson. The area continues to experience housing growth. Over the past five years, the average annual compound internal growth rate of new subscribers to the Rankin system has been 4.5%, and the system accounts for 12% of our total subscribers. Approximately 95% of the Rankin system currently has a bandwidth of 450 MHz or greater. The system launched digital technology in February 2000, and digital penetration exceeds 17% of basic customers.
Brunswick. The Brunswick cable system serves the communities of Brunswick, Freeport, Bath, Harpswell and Woolwich, Maine and accounts for 10% of our total subscribers. Approximately 70% of the Brunswick system has been rebuilt to a minimum of 550 MHz. The primary head-end in Brunswick serves approximately 91% of the subscribers. The remaining small head-end acquired in December 1998 will be eliminated over the next 12 months and linked to the Brunswick head-end. The Brunswick system is two-way capable. The system has been providing cable modem service since 1996 to commercial customers and since 1998 to residential customers. Digital services were launched in August 2000, and achieved 7% penetration to basic customers at December 31, 2000.
Midwest. The Midwest cable group serves Shelbyville, Indiana and Olney and DuQuoin, Illinois. Shelbyville offers attractive demographics and growth opportunities as a result of its proximity to the growing Indianapolis market. The Midwest group accounts for 11% of our total subscribers. The systems currently have bandwidth ranging from 330 MHz to 550 MHz, with 71% at 550MHz. Digital services were launched in 2000, in both Indiana and Illinois with penetration exceeding 8% of basic customers.
Programming
We have various contracts to obtain basic, satellite and premium programming for our cable systems from program suppliers, including, in limited circumstances, some broadcast stations, with compensation generally based on a fixed fee per customer or a percentage of the gross receipts for the particular service. Some program suppliers provide volume discount pricing structures and some offer marketing support.
In January 2000, Comcast Corporation acquired Lenfest Communications, Inc. and consequently, Lenfest's interest in Susquehanna Cable and certain of its subsidiaries. Programming costs for 2000 were approximately $1.9 million higher due to the loss of previous programming discounts received due to Lenfest's ownership. We anticipate that the cost of cable programming will increase in the future as cable programming rates increase and additional sources of cable programming become available.
Programming costs are expected to increase in the ordinary course of our business as a result of increases in the number of basic subscribers, increased costs to purchase cable programming, expansion of the number of channels provided to customers and contractual rate increases from programming suppliers. In the event that we acquire Comcast's ownership interests in Susquehanna Cable, our programming costs will increase faster than they would otherwise. See Part III, Item 13 of this annual report for additional details regarding our relationship with Comcast.
Marketing, Customer Service And Community Relations
Our cable marketing strategy is designed to increase total revenues and revenues per subscriber by:
o aggressively promoting and marketing our current services;
o expanding our product offerings; and
o providing superior customer service.
We believe that this strategy will enable us to acquire new customers and maintain a positive relationship with existing customers to retain their business and sell them additional products. Implementation strategies include:
o targeted marketing campaigns using door-to-door sales, direct mail and telemarketing;
o price promotions, such as installation specials, to attract new subscribers and discounts for premium packages for multi-pay customers;
o introduction of multiplexed premium channels to improve their price/value perception; and
o advertisement and sponsorship of community-based events to enhance our local presence.
We believe that providing superior customer service is a key element of our long-term success because the quality of customer service affects our ability to retain customers. We believe that it also contributes to subscriber growth and positions us to sell additional products and services. To enhance customer service, we have initiated programs to improve the skills of our employees. In 1998, we introduced an initiative for customer service employees entitled Sales Training for Excellence in Leadership, Learning and Retention (STELLAR) which includes extensive training, performance follow-up and standardized skills for all customer service representatives. An enhanced program piloted in 2000, called STELLAR +, is geared specifically toward improvement of sales performance through measurement, coaching and compensation incentives.
Recognizing that positive franchise and public relations are crucial to our overall success, we emphasize maintaining good working relationships with municipal officials in our franchise areas and with the communities that we serve. Our local management meets regularly with municipal officials to keep them informed of both our activities and trends in the industry. As a result of these working relationships, we receive valuable feedback on our standing with the municipalities and the satisfaction of our customers. Local management is also responsible for maintaining a high level of visibility for us, which is accomplished through active involvement in various community and nonprofit organizations.
Technology
As part of our commitment to customer service, we seek to provide reliable, high-quality cable television service. As such, our primary objective with respect to Susquehanna Cable's capital expenditures is to maintain, expand and upgrade its cable plant to improve and expand its cable television services. Through a capital investment program, we are expanding channel capacity, enhancing signal quality, improving technical reliability and providing a platform to deliver high-speed data services, including Internet access. We believe that such technical improvements and upgrades create additional revenue opportunities, enhance operating efficiencies, improve franchising relations and increase customer satisfaction. We expect capital spending in 2001 for rebuild activities to total $12.7 million.
The following table summarizes, as of December 31, 2000, our existing bandwidth profile and our bandwidth profile upon completion of work-in-progress projects (which are generally expected to be completed by the end of 2001).
(1) Plus 200 MHz of additional bandwidth for digital programming and other enhanced services.
Our use of fiber optic technology as an enhancement to coaxial is enabling us to consolidate head-ends and reduce amplifier cascades, thereby improving picture quality and system reliability and reducing head-end and maintenance expenditures. Fiber optic strands are capable of carrying hundreds of video, data and voice channels over extended distances without the extensive signal amplification typically required for coaxial cable. We anticipate that the installation of fiber optic cable will allow us to consolidate from 13 head-ends as of December 31, 2000 to 9 head-ends by the end of 2001. In our larger systems, fiber optic technology is deployed in a "ring" design providing a redundant path for video and data signals being delivered to large subscriber groups. This approach provides an extra degree of reliability in the event that fiber optic cable is damaged on the primary path.
Digital compression is a technology that enables cable operators to increase channel capacity of cable television systems by permitting a significantly increased number of digitalized video signals to fit within a cable television system's existing bandwidth. At December 31, 2000, digitally compressed services were available to 88% of our customer base, and we expect that availability will be 99% by December 31, 2001.
The provision of high-speed cable modems to residential and business customers has recently become a source of additional revenue to the cable industry. Cable modems provide Internet access at higher speeds and lower costs than the technologies offered by other communication providers. For example, a 10 megabit-capable cable modem provides Internet access at download speeds approximately 10 times faster than typical 56.0 kilobit dial-up telephone modem connections. Cable modem service is now available in York and Williamsport, Pennsylvania and Brunswick, Maine and on a more limited basis in Shelbyville, Indiana.
Other Services
Susquehanna Data Services. Susquehanna Data Services, Inc., a wholly-owned subsidiary of ours, was formed in 1996 to provide Internet and data networking services to residential and business customers. Marketing its products and services under the tradename "BlazeNet," Susquehanna Data Services offers Internet access over both telephone and cable modems, website creation, hosting and maintenance, local and wide area network design, construction and operation, and telecommunications products from Susquehanna Adelphia Telecommunications and other local telephone companies. As a
website host, we provide a central computer that is connected to the Internet 24 hours a day. We store all of our customers' website files on our computer so that each website and all of its content are available to users worldwide at all times. Our local and wide area network services enable us to provide network services in both a limited area, such as a building or campus, or a larger area extending beyond a single building or campus. As of December 31, 2000, BlazeNet provided access service to approximately 12,400 business and consumer accounts. Approximately 27% of these accounts access the Internet using cable modems. Our Internet access business continues to grow rapidly, with an increase in accounts of over 39% in 2000.
During 2000, BlazeNet acquired the assets of two web development companies for $8.2 million. BlazeNet has merged the operations of the two companies under common management to enhance our ability to pursue, develop, deploy and maintain custom web sites. Our customers include entertainers, publishers, associations, governmental and commercial entities.
In addition to benefits created with Susquehanna Cable, BlazeNet is actively working with both Susquehanna Radio and The Pfaltzgraff Co. to host their websites. BlazeNet has also made progress developing an electronic commerce product. Offering consulting, design, development, implementation and hosting services for companies wanting to sell products on the Internet, BlazeNet utilizes its programming and design staff to implement custom solutions using custom-developed programs.
Adelphia Partnership. In 1997, Susquehanna Media, through its wholly-owned subsidiary Susquehanna Fiber Systems, Inc., entered into a 50/50 partnership with Hyperion Telecommunications of Pennsylvania, Inc., now Adelphia Business Solutions, Inc., a subsidiary of Adelphia Communications Corp., to enter the competitive local exchange carrier business in the York, Pennsylvania market. The partnership provides long distance access circuits to businesses bypassing the local telephone company, point-to-point data circuits and switched business access services. Susquehanna Cable has constructed and maintains a 180 mile fiber optic SONET ring network that is leased to the partnership under a long-term contract. As of December 31, 2000, the partnership provided service to 88 buildings in the York area and had over 8,000 access lines installed.
In 2000, we entered into an agreement with Adelphia Business Solutions Inc. to construct a fiber optic network in the Williamsport market totaling approximately 120 miles. Completion of this project is expected in second quarter 2001, at a cost of approximately $2.0 million.
Franchises
Cable television systems are constructed and operated under fixed-term non-exclusive franchises or other types of operating permits that are granted by local governmental authorities. These franchises contain many conditions, such as:
o time limitations on commencement and completion of construction;
o conditions of service, including mix of programming required to meet the needs and interests of the community;
o the provision of free service to schools and certain other public institutions;
o the maintenance of insurance and indemnity bonds; and
o the payment of fees to communities.
Certain of these franchises may require the imposition of penalties if the franchise agreements are violated. Certain provisions of these local franchises are subject to limits imposed by federal law.
As of December 31, 2000, we held a total of 129 franchises. Many of these franchises require the payment of fees to the issuing authorities ranging from 1% to 5% of gross revenues (as defined by each franchise agreement) from the related cable system. The Cable Communications Policy Act of 1984 (1984 Cable Act) prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross annual revenues and permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances that render performance commercially impracticable.
Our cable franchises expire at various times through 2015. The following table sets forth certain information relating to our franchises:
The 1984 Cable Act and the Cable Television Consumer Protection and Competition Act of 1992 (1992 Cable Act) provide, among other things, for an orderly franchise renewal process, which limits a franchising authority's ability to deny a franchise renewal if the incumbent operator follows prescribed renewal procedures. In addition, the 1984 and 1992 Cable Acts establish comprehensive renewal procedures, which require, when properly elected by an operator, that an incumbent franchisee's renewal application be assessed on its own merits and not as part of a comparative process with competing applications. Upon a franchise renewal request, however, a franchise authority may seek to add new and more onerous requirements upon the cable operator, such as significant upgrades in facilities and services or increased franchise fees, as a condition or renewal. We believe that our relationship with local franchise authorities is good. Although we cannot provide guarantees, we anticipate our franchises will be renewed upon expiration.
Competition
Cable television systems face competition from alternative methods of distributing video programming and from other sources of news, information and entertainment. These sources include direct broadcast satellite, off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive online computer services and home video products, including videotape cassette recorders. The extent to which a cable television system is competitive depends, in part, upon that system's ability to provide, at a reasonable price to customers, a greater variety of programming and other communications services than those available off-air or through alternative delivery sources and upon superior technical performance and customer service.
Competing Franchises. Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. Franchising authorities may not unreasonably deny requests for
additional franchises and may operate cable television systems themselves. Well-financed businesses from outside the cable television industry (such as the public utilities that own the poles to which cable is attached) may become competitors for franchises or providers of competing services. We are aware of direct competition from other franchised cable television operators (called "overbuilding") in systems that service less than 1% of its total basic subscribers. Additional cable television systems may be constructed in our other franchise areas.
Digital Broadcast Satellites. The fastest growing method of satellite distribution is by high-powered direct broadcast satellites utilizing video compression technology, which provides more than 100 channels of programming over a single high-powered digital broadcast satellite. Digital broadcast satellite service can be received virtually anywhere in the United States through small rooftop or side-mounted antennae and is not subject to certain local restrictions on the location and use of digital broadcast satellite and other satellite receiver dishes. Digital broadcast satellite service is presently being heavily marketed on a nationwide basis by two service providers. Digital broadcast satellite systems offer more programming and with digital quality, but may have higher up-front costs or require long-term agreements and may lack local programming and service. Both digital broadcast satellite providers offer some local signals in a limited number of markets. Digital broadcast satellite providers in a portion of our Midwest market offer some local programming.
Satellite Master Antenna Television Systems. Cable television operators also face competition from private satellite master antenna television systems that serve condominiums, apartment and office complexes and private residential developments. Like cable television systems, satellite master antenna television systems offer both improved reception of local television stations and many of the same satellite-delivered program services. Satellite master antenna television operators often enter into exclusive agreements with building owners or homeowners associations, although some states have enacted laws that authorize franchised cable television operators access to such private complexes. Packages of data and video services are also being offered to private residential and commercial developments. As long as they do not use public rights-of-way, satellite master antenna television systems can interconnect non-commonly owned buildings without having to comply with many of the local, state and federal regulations that are imposed on cable television systems. Our ability to compete for customers in residential and commercial developments served by satellite master antenna television operators is uncertain.
Local Multipoint Distribution Service. Local multipoint distribution service, a new wireless service, can deliver over 100 channels of programming directly to consumers' homes. A large amount of this spectrum was auctioned in March 1998, and cable television operators and local telephone companies were restricted in their participation in this auction. It is uncertain whether this spectrum will be used to deliver multichannel video programming and other services to subscribers and thereby compete with franchised cable television systems.
Multichannel Multipoint Distribution Systems. Multichannel multipoint distribution systems use low power microwave frequencies to transmit video programming over the air to customers. Wireless distribution services provide many of the same programming services as cable television systems, and digital compression technology is likely to increase significantly the channel capacity of their systems. Multichannel multipoint distribution systems service requires unobstructed "line of sight" transmission paths. In the majority of our franchise service areas, prohibitive topography and "line of sight" access have limited, and are likely to continue to limit, competition from multichannel multipoint distribution systems. Moreover, in the majority of our franchise areas, multichannel multipoint distribution systems operators face significant barriers to growth because lower population densities make these areas less attractive. We are not aware of any significant multichannel multipoint distribution systems operation
currently within our cable television franchise service areas, other than Wireless One, Inc., which competes with us in Rankin County, Mississippi.
Local Exchange Carriers. The Telecommunications Act of 1996 (1996 Telecom Act) allows local exchange carriers and others to compete with cable television systems and other video services in their telephone service territory, subject to certain regulatory requirements. Local exchange carriers use a variety of distribution methods, including both broadband wire facilities and wireless transmission facilities within and outside of their telephone service areas. Local exchange carriers and other telephone companies have an existing relationship with the households in their service areas, have substantial financial resources, and may have an existing infrastructure capable of delivering cable television service. Unlike cable television systems, local exchange carriers are not required, under certain circumstances, to obtain local franchises to deliver video services and are not subject to certain obligations imposed under such franchises. We believe that our rural markets are unlikely to support competition in the provision of video and telecommunications broadband services given the lower population densities and higher capital costs per household of installing plant.
Public Utilities. Registered utility holding companies and their subsidiaries may provide telecommunications services (including cable television). Electric utilities must establish separate subsidiaries known as "exempt telecommunications companies" and must apply to the FCC for operating authority. Due to their resources, electric utilities could be formidable competitors to traditional cable television systems. Electric utilities also have the potential to become significant competitors in the video marketplace, as many of them already possess fiber optic transmission lines in certain of the areas they serve. In the last year, several utilities have announced, commenced, or moved forward with ventures involving multichannel video programming distribution.
Other New Technologies. Other new technologies, including Internet-based services, may compete with cable television systems. Incumbent television broadcast licensees may obtain licenses for digital television, which can deliver high definition television pictures, multiple digital-quality program streams, as well as CD-quality audio programming and advanced digital services, such as data transfer or subscription video. Television broadcast stations are authorized to transmit textual and graphic information. Commercial and noncommercial FM stations may use their subcarrier frequencies to provide nonbroadcast services, including data transmissions. In addition, over-the-air interactive video and data service permits two-way interaction with commercial and educational programming, along with informational and data services. Local exchange carriers and other common carriers provide facilities for the transmission and distribution of video services, including interactive computer-based services like the Internet, data and other nonvideo services.
Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environments, are constantly occurring. We are not, therefore, able to predict the effect that current or future developments might have on the cable industry or on our operations. See "Cautionary Note Regarding Forward-Looking Statements."
Employees
We have approximately 1,530 employees as of December 31, 2000. No employees are covered by collective bargaining agreements, and we consider relations with our employees to be good.
Cable Performance Share Plan
On July 1, 2000, the first of a three-step change in the valuation of Susquehanna Cable's performance share plan occurred. Performance shares were previously valued using a formula. On July 1, 2000, performance shares were revalued based 2/3 on the former formula and 1/3 on fair value as determined by Susquehanna Pfaltzgraff Co.'s independent valuation for ESOP purposes performed as of December 31, 1999. On April 1, 2001, performance shares will be valued based 1/3 on the former formula and 2/3 on fair value as of December 31, 2000. On April 1, 2002, performance shares values will be entirely based on fair value as of December 31, 2001. In the first step of the valuation change, the Cable and Other segments recognized charges against operating income and Adjusted EBITDA of $1.9 million and $1.1 million, respectively. We expect that charges against operating income and Adjusted EBITDA for the second step in the valuation change, will be $2.7 million in the Cable segment and $1.5 million in the Other segment in second quarter 2001. We cannot predict the impact on Net Income and Adjusted EBITDA from the April 1, 2002 valuation change.
Radio Employee Stock Plan
On July 1, 2000, the Radio Employee Stock Plan's non-voting Class B common stock, was revalued in a similar manner to the performance share plan. Radio Class B common stock, which was previously valued using a formula, will also transition to fair value by April 1, 2002, like the Cable performance share plan. While there was no expense recognized for the Radio plan's July 2000 change in valuation, minority interests increased approximately $19 million. We expect Radio minority interests to increase an additional $23.7 million in April 2001 due to the next step in the valuation change. We cannot predict the impact on net income and Adjusted EBITDA from the April 1, 2002 valuation change.
Federal Regulation of Radio Broadcasting
Introduction
The ownership, operation and sale of broadcast stations, including those licensed to us, are subject to the jurisdiction of the FCC, which acts under authority derived from the Communications Act of 1934 (the Communications Act). The Communications Act was amended in 1996 by the 1996 Telecom Act to make changes in several broadcast laws. Among other things, the FCC grants permits and licenses to construct and operate radio stations; assigns frequency bands for broadcasting; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations and the operating power and other technical parameters of stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; regulates some forms of radio broadcasting programming; and has the power to impose penalties for violations of its rules under the Communications Act.
License Grant and Renewal
Radio broadcast licenses are granted and renewed for maximum terms of eight years. Licenses must be renewed through an application to the FCC. The Communications Act requires that the FCC grant the renewal of a station's license if the FCC finds that, during the preceding term of the license, the station has served the public interest, convenience and necessity, that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC, and that there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute a pattern of abuse.
Petitions to deny license renewal applications can be filed by interested parties, including members of the public. Such petitions may raise various issues before the FCC. The FCC is required to hold hearings on renewal applications if it is unable to determine that renewal of a license would serve the public interest, convenience and necessity, or if a petition to deny raises a "substantial and material question of fact" as to whether the grant of the renewal application would be prima facie inconsistent with the public interest, convenience and necessity. Also, during certain periods when a renewal application is pending, the transferability of the applicant's license may be restricted. Historically, we have not experienced any material problems renewing our licenses to operate our radio stations and are not currently aware of any facts that would prevent the timely renewal of our licenses. There can be no assurance, however, that our licenses will be renewed.
The following table sets forth certain regulatory information regarding each of the stations owned by us. "HAAT," which applies to FM stations only, represents height above average terrain. Height above average terrain means the actual height of the station's transmitting antenna above the ground level of the surrounding terrain and is used to measure the coverage of an FM station. The FCC class determines the maximum power and maximum height above average terrain for the particular station.
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Regulatory Approvals
Broadcast licenses may not be assigned nor may the control of broadcast licenses be transferred without the prior approval of the FCC. In determining whether to assign, transfer, grant or renew a
broadcast license, the FCC considers a number of factors pertaining to the proposed licensee, including limits on common ownership of media properties, financial qualifications of the proposed licensee, the "character" of the proposed licensee (including that no party to the application (i.e. officer, director, or 10% or greater owner) is subject to the denial of federal benefits that include FCC benefits pursuant to Section 5301 of the Anti-Drug Abuse Act of 1988, 21 U.S.C. sec.862), limitations on alien ownership, and compliance with programming, public file and anti-discrimination requirements.
Assigning a license or transferring control requires the filing of an application with the FCC. The FCC staff reviews the application and determines whether to grant the application. This process generally takes about four months. During the application process, interested parties and the public may file petitions, during specific periods of time, to deny or raise objections to the application. A full FCC review of staff action can be requested, and final FCC approval or disapproval is subject to judicial review.
Absent a timely request for reconsideration, administrative review or judicial review, the FCC staff's grant of an application becomes final by operation of law and generally is no longer subject to administrative or judicial review.
The pendency of a license renewal application may alter the aforementioned timetables, because the FCC might not issue an unconditional assignment grant if the station's license renewal is pending.
Ownership Matters
The 1996 Telecom Act and the FCC's broadcast multiple ownership rules do not restrict the number of radio stations one person or entity may own (including having an attributable interest in), operate or control on a national level, but do impose restrictions on a local level.
These restrictions are:
(i) in a market with 45 or more commercial radio signals, an entity may own up to eight commercial radio stations, not more than five of which are in the same service (FM or AM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio signals, an entity may own up to seven commercial radio stations, not more than four of which are in the same service;
(iii) in a market with between 15 and 29 (inclusive) commercial radio signals, an entity may own up to six commercial radio stations, not more than four of which are in the same service; and
(iv) in a market with 14 or fewer commercial radio signals, an entity may own up to five commercial radio stations, not more than three of which are in the same service, except that an entity may not own more than 50% of the stations in such market.
The foregoing summarizes the material radio broadcast industry regulations with which we must comply. However, it does not purport to describe all present and proposed regulations and legislation relating to the radio broadcasting industry, some of which may be subject to judicial and legislative review and change, and their impact on the radio broadcasting industry or us cannot be predicted at this time.
Regulation of Cable Television
The cable television industry is regulated by the FCC, some state governments and substantially all local governments. In addition, various legislative and regulatory proposals under consideration from time to time by the Congress and various federal agencies have in the past, and may in the future, materially affect us and the cable television industry. The following is a summary of federal laws and regulations materially affecting the growth and operation of the cable television industry and a description of certain state and local laws. We believe that the regulation of the cable television industry remains a matter of interest to Congress, the FCC and other regulatory authorities. There can be no assurance as to what, if any, future actions such legislative and regulatory authorities may take or the effect thereof on us.
Federal Legislation
The principal federal statute governing the cable television industry is the Communications Act of 1934, as amended. As it affects the cable television industry, the Communications Act has been significantly amended on three occasions, by the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act. The 1996 Telecom Act altered the regulatory structure governing the nation's telecommunications providers. It removed barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduced the scope of cable rate regulation.
Federal Regulation
The FCC is the principal federal regulatory agency with jurisdiction over cable television. It has adopted regulations covering such areas as cross-ownership between cable television systems and other communications businesses, carriage of television broadcast programming, cable rates, consumer protection and customer service, leased access, indecent programming, programmer access to cable television systems, programming agreements, technical standards, consumer electronics equipment compatibility, ownership of home wiring, program exclusivity, equal employment opportunity, consumer education and lockbox enforcement, origination cablecasting and sponsorship identification, political programming and advertising, advertising during children's programming, signal leakage and frequency use, maintenance of various records, and antenna structure notification, marking and lighting. The FCC has the authority to enforce these regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations. A brief summary of certain of these federal regulations as adopted to date follows.
Rate Regulation
Where a cable television system is not subject to effective competition, the rates for the basic service tier (the lowest level of cable programming service which must include local broadcast channels and public access channels) may be regulated by the local franchising authority at its option. Rates for cable programming service tiers, which generally include programming other than the channels carried on the basic service tier, and for programming offered on a per-channel or per-program basis are not subject to governmental regulations. If local franchising authorities choose to regulate basic service rates, they may order reductions and, in certain circumstances, refunds of existing monthly rates and charges for associated equipment. In carrying out their rate regulatory authority, however, local officials are subject to certain FCC standards such as the obligation to evaluate rates in accordance with FCC approval
benchmark formulas or cost-of-service showings. Future rates of regulated cable systems may not exceed an inflation-indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs. Cost-based adjustments to these capped rates also can be made in the event a cable televisions operator adds or deletes channels. There is also a streamlined cost-of-service metrology available to justify a rate increase for "significant" system rebuilds or upgrades. We currently are being regulated for basic services, installation and equipment rates in five of our franchise areas, three in Maine and two in Mississippi.
Existing regulations require cable television systems to permit customers to purchase video programming on a per channel or a per program basis without the necessity of subscribing to any tier of service, other than the basic service tier, unless the cable television system is technically incapable of doing so. Generally, this exemption from compliance with the statute for cable television systems that do not have such technical capability is available until a cable television system obtains the capability, but not later than December 2002.
Carriage of Broadcast Television Signals
The 1992 Cable Act contains signal carriage requirements which allow commercial television broadcast stations that are "local" to a cable television system (i.e., the system is located in the station's designated market area) to elect every three years whether to require the cable television system to carry the station, subject to certain exceptions, or whether the cable television system will have to negotiate for "retransmission consent" to carry the station. The next election between must-carry and retransmission consent will be October 1, 2002. A cable television system is generally required to devote up to one-third of its activated channel capacity for the carriage of local commercial television stations whether pursuant to the mandatory carriage requirements or retransmission consent requirements of the 1992 Cable Act. Local non-commercial television stations are also given mandatory carriage rights, subject to certain exceptions, on cable systems with the principal head-end located within the larger of: (i) a 50-mile radius from the station's city of license; or (ii) the station's Grade B contour (a measure of signal strength). Unlike commercial stations, noncommercial stations are not given the option to negotiate retransmission consent for the carriage of their signal. In addition, cable television systems have to obtain retransmission consent for the carriage of all "distant" commercial broadcast stations, except for certain "superstations" (i.e., commercial satellite-delivered independent stations such as WGN). To date, compliance with the "retransmission consent" and "must carry" provisions of the 1992 Cable Act has not had a material effect on us, although this result may change in the future depending on such factors as market conditions, channel capacity and similar matters when such arrangements are renegotiated. The FCC has initiated a rulemaking proceeding on the carriage of television signals in high definition and digital formats. The outcome of this proceeding could have a material effect on the number of services that a cable operator will be required to carry.
Renewal of Franchises and Franchise Fees
The 1984 Cable Act established renewal procedures and criteria designed to protect incumbent franchisees against arbitrary denials of renewal. While these formal procedures are not mandatory unless timely invoked by either the cable television operator or the franchising authority, they can provide substantial protection to incumbent franchisees. Even after the formal renewal procedures are invoked, franchising authorities and cable television operators remain free to negotiate a renewal outside the formal process. Nevertheless, renewal is by no means assured, as the franchisee must meet certain statutory standards. Even if a franchise is renewed, a franchising authority may impose new and more onerous requirements such as upgrading cable-related facilities and equipment and complying with voluntary commitments, although the municipality must take into account the cost of meeting such
requirements. In the case of franchises in effect prior to the effective date of the 1984 Cable Act, franchising authorities may enforce requirements contained in the franchise relating to facilities, equipment and services, whether or not cable-related. The 1984 Cable Act, under certain limited circumstances, permits a cable operator to obtain modifications of franchise obligations. Franchises have generally been renewed for cable television operators that have provided satisfactory services and have complied with the terms of their franchises. Historically, we have not experienced any material problems renewing our franchises for our cable television systems. We are not aware of any current or past material failure on our part to comply with our franchise agreements. We believe that we have generally complied with the terms of our franchises and have provided quality levels of service.
The 1992 Cable Act makes several changes to the process under which a cable television operator seeks to enforce his renewal rights which could make it easier in some cases for a franchising authority to deny renewal. Franchising authorities may consider the "level" of programming service provided by a cable television operator in deciding whether to renew. For alleged franchise violations occurring after December 29, 1984, franchising authorities have the right to deny renewal because of an operator's failure to substantially comply with the material terms of the franchise even if the franchising authority has "effectively acquiesced" to such past violations. The franchising authority is, however, precluded from denying renewal if, after giving the cable television operator notice and opportunity to cure, it fails to respond to a written notice from the cable television operator of its failure or inability to cure. Courts may not reverse a denial of renewal based on procedural violations found to be "harmless error."
Franchising authorities may generally impose franchise fees of up to 5% of a cable television system's annual gross revenues, excluding revenues derived from telecommunications services. However, they may be able to exact some compensation for the use of public rights-of-way.
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require cable television operators to set aside certain television channels for public, educational and governmental access programming. The 1984 Cable Act further requires cable television systems with thirty-six or more activated channels to designate a portion of their channel capacity for commercial leased access by unaffiliated third parties to provide programming that may compete with services offered by the cable television operator. The 1992 Cable Act requires leased access rates to be set according to a formula determined by the FCC.
Copyright Matters
Cable systems must obtain copyright licenses for programming and television signals they carry. Copyright authority for programming on non-broadcast networks typically is obtained from the networks in question, and copyright authority for programming originated locally by the cable system must be obtained directly from copyright holders. The Copyright Act provides a blanket license for copyrighted material on television stations whose signals a cable system retransmits. Cable operators can obtain this license by filing semi-annual reports and paying a percentage of their revenues as a royalty fee to the U.S. Copyright Office, which then distributes the royalty pool to copyright holders. For larger cable systems, these payments vary with the numbers and type of distant television stations the system carries. From time to time, Congress considers proposals to alter the blanket copyright license, some of which could make the license more costly.
State and Local Regulation
Cable television systems generally are operated pursuant to nonexclusive franchises, permits or licenses granted by a municipality or other state or local government entity. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Franchises generally contain provisions governing fees to be paid to the franchising authority, length of the franchise term, renewal, sale or transfer of the franchise, territory of the franchise, design and technical performance of the system, use and occupancy of public streets and number and types of cable television services provided. The 1992 Cable Act prohibits exclusive franchises and allows franchising authorities to regulate customer service and rates. Franchising authorities may operate their own multichannel video distribution system without a franchise. States and local franchising authorities may adopt certain restrictions on cable television systems ownership.
The foregoing summarizes the material cable television industry regulations with which we must comply. However, it does not purport to describe all present and proposed federal, state and local regulations and legislation relating to the cable television industry, some of which are subject to judicial and legislative review and change, and their impact on the cable television industry or us cannot be predicted at this time.
Item 2.
Item 2. Properties
The headquarters of our cable television operations are located in York, Pennsylvania in office space leased from a related party. We do not have a separate headquarters for our radio broadcast operations.
We lease nine studio facilities for our radio operations. We own broadcast towers for 12 of our radio stations and lease 14 other broadcast towers. We own the real property under seven of our broadcast towers and lease the land under our other 19 towers. We own five, and lease five, head-end facilities for our cable television operations. In connection with our cable operations, we own eight tower locations and lease eight others. See also "Business--Radio Properties" in Item 1 of this annual report.
Our principal physical assets with respect to our cable operations consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, head-ends and distribution systems and customer house drop equipment for each of our cable television systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Head-ends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. Our distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. See also "Business--Cable Properties" and "--Cable Systems" in Item 1 of this annual report.
We believe that our properties are suitable for our operations and are in good condition.
Item 3.
Item 3. Legal Proceedings
We currently and from time to time are involved in litigation incidental to the conduct of our business, but we are not currently a party to any lawsuit or proceeding which, in our opinion, is likely to have a material adverse effect on us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the fourth quarter of 2000.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no market for our common stock. All of our outstanding common stock is owned by our parent, Susquehanna Pfaltzgraff Co.
Item 6.
Item 6. Selected Financial Data
The below selected financial data as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 is derived from our audited consolidated financial statements. Our audited consolidated financial statements and related notes for the years ended December 31, 2000, 1999 and 1998 are included elsewhere in this annual report. You should read this information and the accompanying notes in conjunction with the consolidated financial statements and related notes and the other financial information included elsewhere in this annual report.
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(1) The ratio of earnings to fixed charges is expressed as the ratio of income before income taxes and extraordinary items plus fixed charges (excluding capitalized interest) to fixed charges. Fixed charges consist of interest expense, capitalized interest and one-third of rental expense (the portion deemed representative of the interest factor).
(2) We define adjusted EBITDA as net income before income taxes, extraordinary items, interest expense, interest income, depreciation and amortization, employee stock ownership plan expense, pension curtailment gain, minority interest, and any gain or loss on the disposition of assets. Employee stock ownership plan expense recognized for the years ended December 31, 2000 and 1999 was $8.3 million and $6.4 million, respectively.
Although adjusted EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, we believe that adjusted EBITDA is a meaningful measure of 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. In addition, our new senior credit facility and the indenture that governs our 8.5% senior subordinated notes contain certain covenants in which compliance is measured by computations substantially similar to those used in determining adjusted EBITDA. There are no legal restrictions on the use of adjusted EBITDA, other than those contained in our new senior credit facility and indenture. Management expects that adjusted EBITDA will be used to satisfy working capital, debt service and capital expenditure requirements and other commitments and contingencies. Adjusted EBITDA should not be considered in isolation or as a substitute for or an alternative to net income, cash flow from operating activities or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA should not be considered as a measure of a company's operating performance or liquidity. Adjusted EBITDA as presented may not be comparable to other similarly titled measures used by other companies.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with "Selected Financial Data" and our financial statements and the notes thereto included elsewhere in this annual report. Much of the discussion in this section involves forward-looking statements. Our actual results may differ significantly from the results suggested by these forward-looking statements.
Overview
We are a diversified communications company with operations in radio broadcasting and cable television. We are the largest privately owned radio broadcaster and the 9th largest radio broadcaster overall in the United States based on revenues. As of December 21, 2000 we owned and operated17 FM and 9 AM stations that serve four of the nation's ten largest radio markets (San Francisco, Dallas, Houston and Atlanta), as well as four other significant markets (Cincinnati, Indianapolis, Kansas City, York, Pennsylvania and Anniston, Alabama). We were also the 19th largest cable multiple system operator in the United States with seven cable systems serving approximately 192,000 subscribers as of December 31, 2000.
For the year ended December 31, 2000, we had revenues and adjusted EBITDA of $320.6 million and $121.7 million, respectively, with approximately 69% of adjusted EBITDA generated by our radio broadcast operations and 30% by our cable television operations. For the year ended December 31, 2000, our net income was $22.5 million, our cash flows from (used in) operating, investing and financing activities were $67.1 million, ($163.5) million and $95.7 million, respectively, and our ratio of earnings to fixed charges was 2.1x.
We also provide Internet access and enhanced services to residential and business customers under the tradename "BlazeNet." The services include:
o Internet access via telephone dial-up service or cable modem;
o website creation, hosting and maintenance; and
o local and wide area network design, construction and operation.
During 2000, BlazeNet acquired the assets of two web development companies for $8.2 million. BlazeNet has merged the operations of the two companies under common management to enhance our ability to pursue, develop, deploy and maintain custom web sites. Our customers include entertainers, publishers, associations, governmental and commercial entities.
Revenues. Our principal source of radio broadcasting revenue is the sale of broadcasting time on our stations for advertising. Radio revenue is reported net of agency commissions. Sales of advertising are affected by changes in demand for advertising time by national and local advertisers and by advertising rates charged by the stations. Radio station advertising rates are based on a station's ability to attract audiences that match the demographic groups that advertisers want to reach, the number of stations competing in a marketplace and economic conditions. Radio stations attempt to maximize revenue by adjusting advertising rates based upon local market conditions, by controlling inventory, by creating demand and by increasing audience ratings. Radio stations sometimes use barter or trade
agreements to exchange merchandise or services for advertising time with advertisers, in lieu of cash. It is our policy not to pre-empt advertising paid in cash with advertising paid in trade. For the years ended December 31, 2000, 1999 and 1998, cash advertising revenue was 99%, 99% and 98% of broadcasting revenue, respectively. Seasonal revenue fluctuations are common in the radio broadcasting industry, due primarily to fluctuations in expenditure levels by local and national advertisers. Our radio revenues are lowest in the first quarter and are relatively level in the other quarters.
Most of our cable revenues are derived from monthly subscriber fees for cable television programming services and from fees incident to the provision of such services, such as installation fees and fees for converter rentals and rentals of remote control devices. Some revenues are derived from advertising. Since cable is subject to regulation at the federal, state and local levels, increases in rates charged for regulated services may be governed by the 1992 Cable Act and the 1996 Telecom Act. Cable revenues are affected by the timing of subscriber rate increases.
Operating expenses. Radio operating expenses are comprised of employee salaries and commissions, depreciation and amortization, programming expenses, advertising expenses, promotion expenses and selling, general and administrative expenses. General and administrative expenses include office administration and other support functions that are handled on a centralized basis.
Cable operating expenses include programming expenses, employee salaries and benefits, electricity, depreciation, amortization and selling, general and administrative expenses for accounting and billing services, franchise fees, office administration expenses and corporate charges.
Depreciation and amortization expense relates to the depreciation of tangible assets used in the business and the amortization of franchise costs.
Adjusted EBITDA. Adjusted EBITDA is net income before income taxes, extraordinary items, interest expense, interest income, depreciation and amortization, employee stock ownership plan expense, pension curtailment gain, minority interest and any gain or loss on the disposition of assets.
Results Of Operations
The following table summarizes our consolidated historical results of operations and consolidated historical results of operations as a percentage of revenues for the years ended December 31, 2000, 1999 and 1998 (in millions of dollars):
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Revenues increased $49.3 million, or 18%, from 1999 to 2000. Radio revenues increased $35.7 million, or 19%, from 1999 to 2000. Radio's revenue grew primarily from higher advertising rates. On July 20, 2000, three radio stations were acquired in Kansas City, Missouri. The Kansas City radio stations contributed $7.7 million to revenues, or 22% of the increased radio revenues. Cable revenues increased $10.4 million, or 13%, from 1999 to 2000. Rate increases on basic and expanded basic services were responsible for the remaining growth in cable revenues. Other revenues grew $3.2 million from 1999 to 2000, due primarily to Blazenet sales growth.
Depreciation and amortization. Depreciation and amortization increased $5.5 million, or 20%, from 1999 to 2000. Cable depreciation and amortization expenses comprised $3.4 million of the increase, and resulted from the continuation of our cable television system rebuilds and launches of digitally compressed services. Radio depreciation and amortization increased $2.0 million, or 25%, from 1999 to 2000. The acquisition of the three Kansas City radio stations was responsible for $1.7 million or 85% of increased radio depreciation and amortization.
Operating income. Operating income increased $12.6 million or 18% from 1999 to 2000. While depreciation and amortization increased faster than revenues due to cable plant rebuilds and the Kansas City radio stations acquisition, other operating expenses increased approximately 18%, or 5% faster than the increase in revenues. The two largest increases to the operating expenses were cable program costs caused by the loss of previous group discounts totaling $1.9 million and charges totaling $3.0 million related to the revaluation of the cable performance share plan. Of the total charge for the performance share revaluation, $1.9 million was recognized in the Cable segment and $1.1 million in the Other segment. There was no significant impact to operating income from the acquired Kansas City radio stations. Radio promotion and advertising costs and sales commissions grew commensurately with revenues.
Net income. Net income increased $2.9 million or 15% from 1999 to 2000, largely due to increased operating income. Loss on the replacement of cable distribution plant was $2.4 million higher than in 1999. Interest expense, net of interest income, increased $6.7 million from 1999 to 2000. A $1.0 million loss was recognized due to the decline in value of certain investments. In 1999, net income included a pension curtailment gain of $2.3 million and a $3.3 million extraordinary loss related to the early retirement of debt.
Adjusted EBITDA. Adjusted EBITDA increased $19.3 million, or 19%, from 1999 to 2000. Adjusted EBITDA as a percentage of revenues remained equal to 1999 at 38%. Higher operating income with increased depreciation and amortization caused Adjusted Radio EBITDA to increase $18.6 million, or 29%, from 1999 to 2000. Adjusted Cable EBITDA increased $1.2 million, or 3%, between 1999 and 2000. The significant cost increases experienced in 2000 were increased cable programming costs due to
the loss of discounts totaling $1.9 million and a $3.0 million charge for the valuation change of Cable's performance share plan ($1.9 million was recognized in Cable and $1.1 million in the Other segment).
Interest expense. Interest expense increased $9.0 million, or 31%, between 1999 and 2000. The increase was due to $95.0 million of additional debt incurred during 2000. Borrowings were used to acquire the assets of the three Kansas City radio stations and to finance a portion of our cable rebuild projects. Interest income of $6.7 million was recognized in 2000 from the loan to our parent. The increase in interest expense, net of interest income, was $6.7 million, or 28% from 1999 to 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased $47.9 million, or 21%, from 1998 to 1999. Radio revenues increased $34.0 million, or 23%, from 1998 to 1999. The number of stations was comparable for 1998 and 1999. Radio's revenue growth was due to higher advertising rates. Cable revenues increased $12.1 million, or 17%, from 1998 to 1999. Revenue from subscribers of Hanover Cable TV, which was acquired on January 29, 1999, contributed $5.2 million or 43% of the increased cable revenues. Rate increases on basic and expanded basic services were responsible for the remaining growth in cable revenues.
Depreciation and amortization. Depreciation and amortization increased $5.2 million, or 23%, from 1998 to 1999. Cable depreciation and amortization expenses comprised $4.4 million of the increase, with the acquisition of Hanover Cable TV being responsible for $2.4 million, or 46% of the change. Completed phases of the cable rebuilds also contributed to 1999's increased expense. Radio depreciation and amortization decreased $0.2 million, or 3%, from 1998 to 1999.
Operating income. Operating income increased $16.8 million, or 33%, from 1998 to 1999. While depreciation and amortization increased faster than revenue due to the Hanover Cable TV acquisition and cable plant rebuilds, other expenses increased approximately 17% as compared to the 21% increase in revenues. The largest single item contributing to the increase in operating expenses was ESOP benefit cost of $6.4 million, or 21% of the increase, and was a net cost for 1999. Cable service programming costs, radio promotion and advertising and sales commissions grew commensurately with revenues.
Net income. Net income increased $5.6 million or 40% from 1998 to 1999, largely due to increased operating income. The 1999 extraordinary loss related to early retirement of debt decreased net income by $3.3 million. Income before the extraordinary loss was $8.8 million, or 48% higher than 1998. Although gain (loss) on sale of assets, pension curtailment gain and other income for 1999 was $0.9 million less than the gain on sale of assets and other income in 1998, the significant increase in operating income and, to a lesser extent, the 10% decrease in the effective tax rate contributed to higher 1999 net income.
Adjusted EBITDA. Adjusted EBITDA increased $28.5 million, or 39%, from 1998 to 1999. Adjusted EBITDA as a percentage of revenues increased from 33% in 1998 to 38% in 1999. Adjusted Radio EBITDA increased $22.1 million, or 52%, from 1998 to 1999. Adjusted Cable EBITDA increased $3.8 million, or 12%, between 1998 and 1999. The improvement in adjusted EBITDA is due to the majority of the Company's revenue increase being derived from Radio advertising rate increases and revenue from the acquisition of Hanover Cable TV. The Hanover cable system has been physically merged into the existing York operation, thus avoiding added fixed costs. The most significant cost increases experienced in 1999, new ESOP benefit costs and depreciation and amortization expenses from the Hanover Cable TV acquisition and cable plant rebuilds, did not impact adjusted EBITDA.
Interest expense. Interest expense increased $8.1 million, or 39%, between 1998 and 1999. This increase was due to additional debt incurred during 1999, which was used to loan $116.9 million to our parent to fund its ESOP, to acquire the assets of Hanover Cable TV and to finance a portion of our cable rebuild projects. Interest income of $4.5 million was recognized arising from the loan to our parent. The net increase in interest was $3.6 million, or 18% from 1998 to 1999.
Liquidity and Capital Resources
Historically, our primary sources of liquidity have been cash flow from operations and borrowings under our senior credit facilities. Our future needs for liquidity arise primarily from capital expenditures, potential acquisitions of radio stations and cable systems, potential repurchases of our common stock, and interest payable on the notes and our new senior credit facility.
Net cash provided by operating activities was $67.1 million and $60.2 million for the years ended December 31, 2000 and 1999, respectively. Our net cash provided by operating activities was generated primarily by normal operations.
Net cash used by investing activities was $163.5 million for the year ended December 31, 2000. We purchased the Kansas City, Missouri radio stations for approximately $113.2 million in 2000. Capital expenditures, excluding acquisitions, were $36.9 million for the year ended December 31, 2000. Capital expenditures over this period were used primarily to upgrade and maintain our cable systems.
Net cash provided by financing activities, primarily from our credit facilities, was $95.7 million for the year ended December 31, 2000. Approximately $113.2 million cash was used to acquire the three Kansas City radio stations.
Our acquisitions of radio stations and cable systems and our capital expenditures have historically been financed with cash flow from operations and borrowings under our senior credit facility. Capital expenditures, excluding acquisitions, were $36.9 million, $33.1 million and $29.6 million for the years ended December 31, 2000, 1999 and 1998, respectively. Capital expenditures over this period were used primarily to upgrade and maintain our cable systems. We expect to make capital expenditures of $38.0 million in 2001, primarily to continue upgrading our current cable systems and complete the Williamsport project for lease to Adelphia. We may be required to pay $10.0 million to the former owners of WHMA-FM in 2001. See Note 12 to the Consolidated Financial Statements.
On May 12, 1999, we sold $150 million of 8.5% Senior Subordinated Notes due 2009 for 99.75% of their face value. Proceeds to us were $145.5 million. As of December 31, 2000, the fair value of these notes was $147.8 million. Any change in interest rates will affect the market value of these notes, however cash outflows for semi-annual interest payments are fixed.
On May 12, 1999, we also entered into a senior credit facility arranged by First Union Capital Markets Corp. The senior credit facility consists of a $250 million revolver, a $100 million term loan A, and a $100 million term loan B (which mature in 2007 and 2008, respectively), all collateralized by a pledge of all of our material assets (excluding real property) and voting common stock. The credit agreement governing the new senior credit facility requires us to maintain certain financial leverage and interest coverage ratios, which we are in compliance with as of the date of this annual report. As of December 31, 2000, we had $98.9 million of borrowing availability under our senior credit facility.
We believe that funds generated from operations and the borrowing availability under our new senior credit facility will be sufficient to finance our current operations, our debt service obligations, including our obligations under the notes, cash obligations in connection with potential repurchases of our common stock and planned capital expenditures for the forseeable future. From time to time, we evaluate potential acquisitions of radio stations, cable television systems, and Internet-related businesses. In connection with future acquisition opportunities, we may incur additional debt or issue additional equity or debt securities depending on market conditions and other factors. We have no current commitments or agreements with respect to any material acquisitions.
Recent Accounting Pronouncements
In April of 2000, the Financial Accounting Standards Board issued FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion No. 25 "Accounting for Stock Issued to Employees." FIN 44 was effective July 1, 2000. This interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination.
In December of 1999, the Securities and Exchange Commission issued SAB 101, "Revenue Recognition in Financial Statements." SAB 101, as amended, is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. This staff accounting bulletin provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues.
Based on our operations as of December 31, 2000, neither of these standards had a material effect on our financial statements.
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. In June 2000, FASB issued SFAS No. 138, which amends the accounting and reporting standards for SFAS No. 133 for certain derivative and hedging activities. Although we believe that existing derivatives (principally cash free interest rate collars) qualify for hedge accounting, we intend to value existing contracts at fair value. Due to our limited use of derivative instruments, we believe the adoption of this new pronouncement will not have a material effect on the Company's results of operations or its financial position.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
As of December 31, 2000, we had $350.6 million in variable rate debt. The fair value of this debt approximates its carrying value. Variable rate debt matures as follows (in thousands):
2002 $ 8,750 2006 $85,000 2003 17,000 2007 89,875 2004 31,600 2008 47,375 2005 71,000
Our interest rate exposure is primarily impacted by changes in LIBOR rates. At December 31, 2000, the weighted average interest rate for the variable rate debt was 8.3%. If LIBOR rates increased 1%, and sustained that increased rate for an entire year, annual interest expense on variable rate debt as of December 31, 2000 would increase by $3.5 million.
Item 8.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and report of independent accountants of Susquehanna Media Co. and Subsidiaries are set forth on the pages listed below:
Page ----
Report of Independent Accountants 39
Financial Statements
Consolidated Balance Sheets 40
Consolidated Statements of Income and Comprehensive Income 41
Consolidated Statements of Cash Flows 42
Consolidated Statements of Stockholders' Equity (Deficit) 43
Notes to Consolidated Financial Statements 44-57
Report of Independent Accountants
To the Board of Directors and Stockholders Susquehanna Media Co. and subsidiaries:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Susquehanna Media Co. and subsidiaries (Company) at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
March 27, 2001
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)
The accompanying notes are an integral part of the consolidated financial statements.
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (dollars in thousands, except per share data)
The accompanying notes are an integral part of the consolidated financial statements.
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
SUSQUEHANNA MEDIA CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
1. Significant Accounting Policies
Nature of Operations - Susquehanna Media Co. (Media) and its subsidiaries, Susquehanna Radio Corp. (Radio), Susquehanna Cable Co. (Cable), Susquehanna Data Services, Inc. (BlazeNet), Susquehanna Fiber Systems, Inc., Susquehanna ET Investment Inc., and Media PCS Ventures, Inc. (collectively, the Company), are primarily in the businesses of radio broadcasting, cable television services, Internet services and other communications-related services. Susquehanna Fiber Systems, Inc. is a 50% general partner in Susquehanna Adelphia Business Solutions, a competitive access provider.
Through its subsidiaries, the Company operates radio stations in major U.S. markets and cable television systems in Pennsylvania, Maine, Mississippi, Illinois, and Indiana. Internet services are provided in Pennsylvania and Mississippi. Radio advertising, cable television subscriptions, and Internet services account for approximately 69%, 29%, and 2% of 2000 consolidated revenues, respectively. Radio, cable and Internet services revenues were 68%, 31%, and 1% of 1999 consolidated revenues, respectively. Radio, cable and Internet services revenues were 67%, 32%, and 1% of 1998 consolidated revenues, respectively.
Principles of Consolidation - The consolidated financial statements include the accounts of Media and its subsidiaries. All significant intercompany accounts and transactions are eliminated. All Media common stock is owned by Susquehanna Pfaltzgraff Co. (the Parent).
Use of Estimates in the Preparation of Financial Statements - 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Credit Risk - The Company's accounts receivable are largely from consumers and consumer businesses whose ability to pay is subject to changes in general economic conditions. Media's revenues were concentrated in the following media markets:
2000 1999 1998 ---- ---- ---- San Francisco 25% 25% 23% York, PA 18% 19% 18% Dallas - Fort Worth 14% 13% 13%
Property, Plant and Equipment - These assets are stated at cost. Depreciation and amortization are computed on the straight-line method for financial statement purposes based on the following estimated useful lives:
Buildings and improvements - 10 to 40 years Equipment - 3 to 20 years
Depreciation expense was approximately $20.2 million, $16.5 million and $12.6 million for the years ended December 31, 2000, 1999, and 1998, respectively.
Asset additions and major renovations are capitalized and depreciated over their estimated useful lives. Costs of maintenance, repairs and minor renovations are charged against income. Gains or losses on dispositions are credited to or charged against income, and the related costs and accumulated depreciation are removed from the balance sheet.
Impairment of Long-Lived Assets - When events or changes in circumstances indicate that the carrying value of an asset or group of assets may be impaired, the estimated future undiscounted pretax cash flows from the affected asset(s) are compared with carrying value to determine if an impairment loss must be recognized. No impairment losses were recognized in 2000, 1999 or 1998.
Disclosures about Fair Value of Financial Instruments - Financial instruments include cash and cash equivalents, investments and long-term debt. The fair value of investments and cash and cash equivalents approximate their carrying values. Floating rate debt is considered fair value. The Senior Subordinated Notes' fair value is based on market quotations.
Investments and Other Assets - The Company's investments of less than 20% in other entities are reported using the cost method of accounting. Investments in other entities, which are at least 20% and not more than 50% owned, are reported using the equity method.
Net Income Per Share - Basic net income per share excludes dilution and is computed by dividing consolidated net income available for common shareholders by the weighted-average number of common shares outstanding for the period (1.1 million shares for the years ended December 31, 2000, 1999, and 1998). Diluted net income per share in 1999 and 1998 reflects the potential dilution that could occur if SRC common stock options were exercised; resulting in the issuance of additional common stock that would then share in SRC's earnings.
Revenues - Revenues are recognized in the periods that services are provided. Radio revenues have been reported net of agency commissions. Agency commissions for the fiscal years ended December 31, 2000, 1999, and 1998 were $30.8 million, $25.3 million, and $20.2 million, respectively.
Interest - Interest paid was $36.8 million, $27.3 million, and $21.8 million for the years ended December 31, 2000, 1999, and 1998, respectively. Interest relating to construction of buildings and equipment is capitalized as part of the related asset's cost. Capitalized interest was $900 thousand for 2000, and $1.0 million for 1999 and $1.2 million for 1998.
Deferred financing costs are included in Investments and Other Assets and are amortized on a straight-line basis over the repayment period of the related debt.
Income Taxes - Income taxes are based on the liability method of accounting. Deferred income taxes reflect the future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial reporting balances at each year-end. Changes in enacted tax rates are reflected in the tax provision as they occur.
New Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for derivatives and hedging activities. Upon the adoption of the 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. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 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. In June 2000, FASB issued SFAS No. 138, which amends the accounting and reporting standards of SFAS No. 133 for certain derivative and hedging activities. Although Media believes existing derivatives (principally interest rate collars) qualify for hedge accounting, it is the intention to value existing contracts at fair value. Due to the limited use of derivative instruments, the adoption of this new standard will not have a significant effect on the Company's results of operations or its financial position.
In April of 2000, the Financial Accounting Standards Board issued FIN 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion No. 25 "Accounting for Stock Issued to Employees." FIN 44 was effective July 1, 2000. This interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination.
In December of 1999, the Securities and Exchange Commission issued SAB 101, "Revenue Recognition in Financial Statements." SAB 101, as amended, is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. This staff accounting bulletin provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues.
Based on our operations as of December 31, 2000, neither of these standards had a material effect on our financial statements.
2. Acquisitions, Exchanges, Dispositions and Mergers
On July 20, 2000 Susquehanna Radio Corp., purchased the assets of Kansas City, Missouri radio stations KCMO-AM, KCMO-FM and KCFX-FM for $113.2 million. Radio broadcast rights for the Kansas City Chiefs NFL franchise through the 2002 football season were included in the purchase. The contract requires annual rights payments ranging to $2.6 million in 2002. A rights payment of $2.2 million is being expensed over the 2000 football season. The Company's existing credit facilities were used to finance the acquisition.
In Media's opinion, it was impracticable to obtain full financial statements for the Stations acquired because they were not separate business units, certain expenses were not historically allocated and separate balance sheets were not prepared for the acquired Stations. Accordingly, no proforma disclosures are included.
On October 19, 2000, Blazenet purchased the assets of Judd's Online, Inc., a web development company based in Winchester, Virginia for $8.5 million cash, including approximately $1.6 million in working capital. The Company is integrating its existing web development operations into Judd's and marketing the services through an existing subsidiary.
On September 1, 2000 a Cable subsidiary purchased the assets serving approximately 2,200 cable subscribers in the Montgomery/Collomsville, Pennsylvania area for $3.8 million cash.
On May 22, 2000, Blazenet purchased the assets of Krone Group Inc., a full service marketing communications firm located in Williamsport, Pennsylvania, for $1.3 million cash.
On October 22, 1999, Susquehanna Radio Corp. purchased the assets of KIKT-FM and KGVL-AM in Greenville, Texas for $1.2 million. The Company simultaneously entered into a time brokerage agreement with a third party permitting them to operate the stations while FCC approval is pending on facility adjustments that will enhance signal coverage of another company-owned station, KKMR-FM, Dallas/Fort Worth, Texas. The purchase price has been included in Investments and Other Assets, since the station may be ultimately sold or swapped to facilitate a separate strategic acquisition.
On January 29, 1999, a Cable subsidiary purchased assets serving approximately 17,000 cable subscribers in the Hanover, Pennsylvania area for $33.4 million cash.
On November 30, 1998, a cable subsidiary exchanged assets serving approximately 6,600 subscribers in Newcastle, Maine, Warren, Maine, and New London, New Hampshire for assets serving approximately 4,500 subscribers in Woolwich, Harpswell, and Freeport, Maine plus $3.2 million cash. A gain of $3 million was recognized on the sale of assets involved in the exchange.
On June 15, 1998, Susquehanna Radio Corp. purchased the assets of KXIL-FM and KDSX-AM in North Dallas for $3.6 million and $2.6 million, respectively.
On June 2, 1998, Susquehanna Radio Corp. purchased the assets of WABZ-FM in Albermarle, North Carolina for $1.7 million. The Company has entered into a time brokerage agreement with a third party permitting them to operate the station while awaiting FCC approval to relocate the signal closer to Charlotte, North Carolina market and ultimately sell or swap the station to facilitate a separate strategic acquisition. The purchase price has been included in Investments and Other Assets.
All acquisitions during the years ended December 31, 2000, 1999 and 1998 have been accounted for as purchases. The results of their operations have been included in the Consolidated Statements of Income since acquisition. The Company has allocated the costs of purchased assets, at their fair market values, excluding working capital, as follows (in thousands):
2000 1999 1998 ---- ---- ---- Radio Property, plant and equipment $ 3,581 $ - $ 630 Investments and other assets - 1,171 1,703 Intangible assets 109,597 - 5,637 ---------- --------- --------- Total $ 113,178 $ 1,171 $ 7,970 ========== ========= =========
Cable Property, plant and equipment $ 819 $ 9,566 $ 1,328 Intangible assets 2,964 23,834 834 ---------- --------- --------- Total $ 3,783 $ 33,400 $ 2,162 ========== ========= =========
Blazenet Property, plant and equipment $ 566 $ - $ - Intangible assets 7,633 - - ---------- --------- --------- Total $ 8,199 $ - $ - ========== ========= =========
For disclosures related to the Consolidated Statements of Cash Flows, acquired intangibles and property, plant and equipment of $2.0 million in 1998 were non-cash items.
Susquehanna Cable Co., and its subsidiaries are involved in an extensive phased rebuilding of its distribution systems. Assets replaced in the rebuilt phases were retired and related losses of $3.9 million in 2000, $1.4 million in 1999, and $1.2 million in 1998 were recognized.
3. Long-Term Debt
2000 1999 ---- ----
Long-term debt includes (in thousands): 8.5% Senior Subordinated Notes $ 150,000 $ 150,000 Term Loan "A" 100,000 100,000 Term Loan "B" 100,000 100,000 Revolving Credit Commitment 150,600 55,500 Other 62 121 ---------- ---------- 500,662 405,621
Less amounts payable within one year 62 59 ---------- ----------
$ 500,600 $ 405,562 ========== ==========
At December 31, 2000, $98.9 million was available for borrowing under the revolving credit commitment.
On May 12, 1999, the Company sold $150.0 million of 8.5% Senior Subordinated Notes due in 2009. Proceeds to the Company totaled $145.0 million. Interest is payable semi-annually. The Notes' fair value at December 31, 2000 was $147.8 million.
On May 12, 1999, the prior Term Loan and Reducing Revolver Commitment were replaced by a new $450.0 million Senior Secured Credit Facility with a group of banks. The new facility's Revolving Credit Commitment allows the Company to borrow up to $250.0 million. The revolving loans begin reducing in 2002 and mature in 2007. The Company's two $100.0 million Term Loan commitments begin amortizing in 2002 and mature in 2007 and 2008. Both the Revolving Credit Commitment and Term Loans bear interest priced at the LIBOR rate plus an applicable margin based on certain ratios. The interest rate on the Revolving Credit Commitment was 7.86% and 7.63% at December 31, 2000 and 1999, respectively. The interest rate on Term Loan "A" was 7.97% and 7.47% and the interest rate on Term Loan "B" was 9.19 % and 9.00% at December 31, 2000 and 1999, respectively. Interest is payable quarterly or on maturity of a LIBOR-based tranche.
The 8.61% Series A, 8.41% Series B and 11.15% Series C Senior Notes with insurance companies were repaid on April 16, 1999 along with a prepayment premium of $2.9 million. Coincident with the repayment of prior long-term debt, the Company incurred a $3.3 million extraordinary loss (net of related tax benefits) for payment of prepayment premiums and the write-off of unamortized deferred financing costs.
The banks have collateralized interests in certain FCC licenses and stock pledges from shareholders of the Company and its subsidiaries. The banks are further collateralized by a first lien on all assets (tangible and intangible) of the Company and its subsidiaries excluding realty and vehicles. The Company has agreed to maintain debt coverage and financial ratios at prescribed levels. The Company has further consented to restrict payment of common stock dividends, investment transactions with affiliates, ownership changes, sale of assets and issuance of additional debt.
Derivative financial instruments are used solely to limit interest rate exposure on its Revolving Credit Commitment and are not used for trading purposes. 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%, plus an applicable margin.
The non-current portion of long-term debt matures in the following years (in thousands):
2002 $8,750 2006 $85,000 2003 17,000 2007 89,875 2004 31,600 2008 47,375 2005 71,000 2009 150,000
4. Income Taxes
The provision for income taxes is summarized as follows for the years ended December 31, (in thousands):
2000 1999 1998 ---- ---- ---- Current Federal $ 14,337 $ 11,195 $ 8,637 State 822 2,726 2,946 ---------- ---------- ---------- Total current 15,159 13,921 11,583 ---------- ---------- ---------- Deferred Federal 1,503 4,393 2,671 State (1) (270) 269 ---------- ---------- ---------- Total deferred 1,502 4,123 2,940 ---------- ---------- ----------
Provision for Income Taxes $ 16,661 $ 18,044 $ 14,523 ========== ========== ==========
Cash taxes paid for the years ended December 31, 2000, 1999, and 1998 were approximately $18.4 million, $14.1 million, and $14.5 million, respectively.
The Company is included in the consolidated federal income tax return of its Parent. The Company's tax provision is computed on a separate return basis. Losses used in the consolidated return may reduce the Company's tax payments on a pro rata basis.
Reconciliations of the difference between the U.S. statutory income tax rate and the effective book income tax rate follow:
2000 1999 1998 ---- ---- ----
U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax benefit 1.2 3.5 6.4 Non-deductible amortization and expenses 1.2 1.2 1.5 Other 0.1 0.3 1.4 ---- ---- ---- Effective book income tax rate 37.5% 40.0% 44.3% ==== ==== ====
At December 31, 2000 and 1999, deferred tax assets and liabilities resulted from the following temporary differences (in thousands):
5. Intangible Assets
Intangible assets at cost are comprised of the following (in thousands):
Cable franchise values and cable subscriber lists are being amortized through 2015 and 2003, respectively. Favorable leases and covenants not-to-compete are amortized according to the life of the agreements. Federal Communications Commission (FCC) licenses, going concern values and goodwill are amortized over periods of up to 40 years. Most intangible assets are being amortized using the straight-line method. Amortization for the years ended December 31, 2000, 1999, and 1998 was approximately $13.0 million, $11.0 million and $9.7 million, respectively.
6. Investments and Other Assets
KNBR, Inc., a subsidiary, is a limited partner in San Francisco Baseball Associates L.P. In July 1998, KNBR, Inc. entered into a rights agreement that extends radio station KNBR-AM's right to broadcast Giants' baseball games through the 2004 baseball season. An $800,000 contract fee was paid at signing. The agreement requires annual rights payments ranging to $6 million in 2004. KNBR, Inc. expensed rights payment of $5.3 million, $4.8 million, and $4.0 million during the 2000, 1999, and 1998 baseball seasons, respectively.
A subsidiary is a 50% general partner in Susquehanna Adelphia Business Solutions, a competitive access provider. Capital contributions of $1.3 million, and $2.3 million were made during the years ended December 31, 1999 and 1998, respectively.
Unamortized deferred financing costs were $6.4 million at December 31, 2000 and $7.0 million at December 31, 1999.
7. Stockholders' Equity
SRC maintains an Employee Stock Plan to compensate certain key employees who may purchase SRC Class "B" non-voting common stock at the then current value. With each share purchased, participants receive options to purchase two additional shares at the same value. Options expire ten years and one month after the grant date. Total shares and options offered may not exceed 400,000 shares. Options awarded are subject to settlement in cash. Shares are subject to repurchase by SRC, generally at values determined annually in accordance with the Plan Agreement. The Plan's transaction year is April 1 through March 31. Although SRC may modify, suspend, or terminate the Plan at any time, previously offered purchase rights or options are not subject to change.
Option activity in the SRC Employee Stock Plan was as follows:
Shares Option Price ------ ------------ Balance as January 1, 1998 94,864 $1.26 - $ 9.54 Granted 22,440 $18.82 Exercised (44,944) $1.26 - $14.24 ------ Balance at December 31, 1998 72,360 $1.26 - $18.82 ======
Balance as January 1, 1999 72,360 $1.26 - $18.82 Exercised (2,328) $1.26 - $18.82 ----- Balance at December 31, 1999 70,032 $1.26 - $18.82 ======
Balance as January 1, 2000 70,032 $1.26 - $18.82 Exercised (70,032) $1.26 - $18.82 ------ Balance at December 31, 2000 - $1.26 - $18.82 ======
2000 1999 1998 ---- ---- ---- Total compensation expense (in thousands) $ - $ 80 $203 Risk free rate N/A N/A 5.73%
No options were granted in the years ended December 31, 2000 or 1999.
Susquehanna Cable Co.'s Performance Share Plan is a non-qualified deferred compensation plan designed to compensate certain key employees. Participants are granted performance share rights, which may be purchased by deferring compensation. Share rights are valued using a formula based on stockholders' equity, earnings and SCC's fair value as determined by Susquehanna Pfaltzgraff Co.'s annual independent ESOP valuation. There were no performance share rights granted in 1999 or 2000. There were no unexercised SCC Performance Share rights at December 31, 2000.
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 Corp.'s (SRC's) Employee Stock Plan and Susquehanna Cable Co.'s (SCC's) Performance Share Plan.
Over a period ending April 1, 2002, repurchase values for both plans will transition to values based upon Susquehanna Pfaltzgraff Co.'s annual independent ESOP valuation (fair value). On July 1, 2000, repurchase values became based one-third on fair value and two-thirds on the previous formula value. The revaluation of SRC non-voting common shares increased minority interests by $18.9 million.
The revaluation of SCC performance shares resulted in recognition of a $3.0 million compensation expense.
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 Susquehanna Pfaltzgraff Co.'s annual independent ESOP valuation.
Certain minority interests are valued using a contractual formula, which differs from a pro rata valuation. Accordingly, the contractual value is used to determine the liability and any adjustment to the pro rata amount is charged or credited to stockholders' equity. Other minority interest expense recognized in the income statement is also adjusted for subsidiaries with a stockholders' deficit.
On August 1, 1999, two Cable subsidiaries merged with two other Cable subsidiaries. These mergers had no impact on the Company's results of operations. The mergers of a subsidiary with stockholders' deficit into a subsidiary with stockholders' equity resulted in a $2.2 million decrease in minority interests and a corresponding increase in consolidated stockholders' equity.
On October 21, 1998, the Company repurchased and retired $2.7 million of preferred stock at par.
8. Basic and Diluted Net Income Per Share
The following table provides a reconciliation of the computation from basic to diluted net income per share (in thousands, except for per share data):
9. Employee Benefits
On March 19, 1999, the Parent's Board of Directors approved creation of an Employee Stock Ownership Plan (ESOP) for Susquehanna Pfaltzgraff Co. Full-time employees participate in the ESOP. ESOP expense of $8.3 million and $6.4 million was recorded for the years ended December 31, 2000 and 1999, respectively.
On May 12, 1999, the Company made a $116.9 million twenty-year loan to its Parent at a 6% interest rate. Loan proceeds were used to fund the Parent's ESOP. Principal and interest payments totaling $10.0 million are receivable annually in December. On December 30, 2000 and 1999, the Parent made principal payments of $3.3 million and $5.5 million, respectively. Due to the Parent subsidiary relationship, it is impracticable to determine the note's fair value.
Full-time employees of the Company and its subsidiaries are covered by the Susquehanna Pfaltzgraff Co. Pension Plan (the Plan), a noncontributory qualified defined benefit pension plan. Benefits under the Plan are based on employees' years of service and earnings over part or all of their careers through April 1999. On March 19, 1999, the Parent's Board of Directors approved a cessation of benefit accruals under the Plan effective April 30, 1999. Based on an independent actuary's calculations, the Company was allocated a $2.3 million curtailment gain related to the Plan.
The funded status of the Plan at December 31, was as follows (in thousands):
The Plan's net pension costs for the years ended December 31, included the following components (in thousands):
Negative pension cost recognized for the years ended December 31, 2000 and 1999 was $376 thousand and $219 thousand, respectively. Pension expense allocated to the Company for the year ended December 31, 1998 was $1 million. Included in the Company's other assets are prepaid pension costs of $3.9 million and $3.1 million at December 31, 2000 and 1999.
The Company's funding policy is to make contributions, as required by various regulations, not to exceed the maximum amounts deductible for federal income tax purposes (none in 2000 or 1999 and $740 thousand in 1998). Plan assets, primarily listed bonds and stocks, are held by independent trustees. The weighted average discount rate used in determining the actuarial present value of projected benefit obligations was 7.25% for both 2000 and 1999. The expected long-term rate of return on Plan assets was 9% for both 2000 and 1999.
The Parent also sponsors a defined contribution (401k) plan, which covers all full-time employees. The plan matches 75% of the first 2% of salary contributed by a participant. The Company contributed approximately $714 thousand, $590 thousand and $446 thousand to the plan for the years ended December 31, 2000, 1999 and 1998, respectively.
10. Lease Commitments
Rental expense for operating leases was $5.2 million, $4.6 million, and $4.5 million for the years ended December 31, 2000, 1999, and 1998, respectively.
Annual aggregate minimum rental commitments under non-cancelable operating leases are as follows (in thousands of dollars):
2001 $4,511 2004 $3,764 2002 3,984 2005 3,824 2003 3,711 2006 and beyond 15,454
11. Related Parties
The Company purchases management services, office space and administrative services from related parties, primarily its Parent. Included in general and administrative expenses for the years ended December 31, are charges for (in thousands):
Expenses are allocated based on the Parent's best estimates of proportional or incremental costs, whichever is more representative of costs on a stand-alone basis. In management's opinion, expenses shown in the financial statements approximate expenses on a stand-alone basis.
12. Contingencies and Commitments
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, Georgia, which would permit WHMA-FM to relocate and serve the Atlanta Metro Area. A Petition for Reconsideration dated June 16, 2000, was filed by a mutually exclusive applicant. That Petition was dismissed by a Memorandum Opinion and Order issued by the Mass Media Bureau of the FCC on February 7, 2001. The Order of the FCC staff will become a final order unless an Application for Review is filed to the full Commission. The Company also had submitted an application for a construction permit on July 14, 2000, which was granted on November 15, 2000. Six months after the construction permit becomes a final order or on the FCC's grant of program
test authority, whichever first occurs, the Company must pay the former owners of WHMA-FM $10,000,000 per the original purchase agreement.
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 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.
During the period November 12, 2000 through November 12, 2003, 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.
The Company is involved in litigation and administrative proceedings primarily arising in the normal course of its business. In the opinion of management, the Company's recovery, if any, or the Company's liability, if any, under any pending litigation or administrative proceeding would not materially affect its financial condition or operations.
13. Segments
The Company's four 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. Other includes Internet revenues.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating income of the respective business units.
Segment information for the years ended December 31, 2000, 1999, and 1998 was as follows (in thousands):
14. Subsequent Events
On January 31, 2001, Susquehanna Radio Corp. agreed to purchase all of the stock of Sunnyside Communications, Inc. for $3.3 million. Sunnyside Communications, Inc. owns and operates WQKC-FM and WZZB-AM serving Seymour, Indiana and WAVG-AM serving Jeffersonville, Indiana and Louisville, Kentucky. Existing credit facilities will be used to finance the acquisition. A second quarter closing is anticipated.
On February 15, 2001, Susquehanna Radio Corp. (SRC) purchased a forty-percent interest in 1051FM, LLC from Jesscom, Inc. for $10 million cash. 1051FM, LLC owns a construction permit to build a Class C-1 radio station with call letters KGAR-FM licensed to Garden City, Missouri and serving the Kansas City market. Under the terms of a joint sales agreement, SRC will sell all commercial airtime on the station and Jesscom will program and operate the station. SRC is required to pay 1051FM, LLC's monthly operating expenses and additional fees. SRC has the option to purchase the remaining sixty-percent interest in 1051FM, LLC for a year beginning February 14, 2004, at fair market value as determined by an independent appraiser (for not less than $15.0 million and not more than $27.0 million). Existing credit facilities were used to finance the acquisition. The station is expected to commence broadcasting by mid-year.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Our by-laws provide that the number of directors shall not be less than three nor more than seven and may be fixed from time to time by resolution of our board of directors. Our board is currently comprised of six directors. All members of our board of directors are elected annually by our parent, Susquehanna Pfaltzgraff.
The following table sets forth certain information with respect to our directors and executive officers and other key employees:
Name Age Position(s) ---- --- ----------- Louis J. Appell, Jr. 76 Chairman of the Board of Directors Peter P. Brubaker 54 Director, Chief Executive Officer and President Craig W. Bremer 52 Director, Secretary and General Counsel William H. Simpson 59 Director John L. Finlayson 59 Director and Vice President Alan L. Brayman 49 Treasurer David E. Kennedy 48 Director and Vice President James D. Munchel 46 President and Chief Operating Officer of Susquehanna Cable
Louis J. Appell, Jr. is the Chairman of the Board of Directors of Susquehanna Media, a position he has held since 1993. He is also Director, President and Chief Executive Officer of Susquehanna Pfaltzgraff. He has over fifty years of experience in the communications industry. Mr. Appell holds a BA degree from Harvard College.
Peter P. Brubaker is a Director, the Chief Executive Officer and President of Susquehanna Media. He has been a director and officer of Susquehanna Media since 1993. Prior to 1995, Mr. Brubaker was Vice President/Finance of Susquehanna Pfaltzgraff. He joined Susquehanna Pfaltzgraff in 1977 and assumed responsibility for the cable operations in 1979. He holds a BA degree from Wesleyan University and an MBA degree from the Harvard Business School. Mr. Brubaker serves as a director of the National Cable Television Association.
Craig W. Bremer is a Director and the Secretary and General Counsel of Susquehanna Media, positions he has held since 1993. He is also the Secretary of Susquehanna Pfaltzgraff. Mr. Bremer has been employed by Susquehanna Pfaltzgraff since 1978. Prior to joining Susquehanna Pfaltzgraff, Mr. Bremer was an associate with the law firm of Beckley & Madden, Harrisburg, Pennsylvania. He holds a JD degree from Dickinson School of Law and is a member of the Pennsylvania Bar. He earned a BS degree in History from Washington & Lee University.
William H. Simpson is a Director of Susquehanna Media and has served as such since 1993. He has been employed by Susquehanna Pfaltzgraff or an affiliated corporation since 1971 and was promoted to his current position as President of The Pfaltzgraff Co. in 1988. He was formerly Vice President and General Counsel of Susquehanna Pfaltzgraff from 1971 to 1981. Mr. Simpson is a graduate of the United States Air Force Academy and Harvard Law School.
John L. Finlayson is a Director and Vice President of Susquehanna Media and the Chief Financial Officer of Susquehanna Pfaltzgraff, where he has been employed since 1978. He has been a Vice President of Susquehanna Media since 1993. Prior to 1978, Mr. Finlayson was an audit manager with Arthur Andersen & Co. He is a CPA and a graduate of Franklin and Marshall College.
Alan L. Brayman is the Treasurer of Susquehanna Media. He is also Vice President, Treasury Operations, of Susquehanna Pfaltzgraff. Mr. Brayman joined Susquehanna Media in February 1998. Prior to that, he was a principal of Global Treasury Solutions from 1996 through January 1998. Mr. Brayman was also Assistant Treasurer and an officer of VF Corporation, an apparel manufacturer, from January 1993 to December 1995. Prior to that, Mr. Brayman was employed by Armstrong World Industries Inc., a diversified manufacturer, from 1973 to 1992, where he was Assistant Treasurer. Mr. Brayman is a graduate of the University of Delaware and has an MBA from Shippensburg University.
David E. Kennedy is a Director and a Vice President of Susquehanna Media. He has also been President of Susquehanna Radio since 1993. Mr. Kennedy joined the radio group in 1973 as an on-air personality of its former Toledo, Ohio station. He has held positions in programming, planning and research during his career. Mr. Kennedy is a graduate of the University of Toledo and holds masters and doctoral degrees from Bowling Green State University. He serves as a director of the Radio Advertising Bureau and as a director of the National Association of Broadcasters.
James D. Munchel is the President and Chief Operating Officer of Susquehanna Cable. Mr. Munchel oversees the operations of all Susquehanna Cable systems. He joined a predecessor of Susquehanna Media in 1981 and was promoted to General Manager of the York cable system in 1986. Mr. Munchel was promoted to his current position in 1999. He is a graduate of Shippensburg University.
Item 11.
Item 11. Executive Compensation
We do not compensate its directors for services provided in that capacity.
We have no employees. All of our executive officers are also executive officers of Susquehanna Pfaltzgraff, (our parent company). Susquehanna Pfaltzgraff paid all compensation of our executive officers under a management agreement between Susquehanna Pfaltzgraff and us. Under that agreement, we pay a fee to Susquehanna Pfaltzgraff for executive office space, services of the legal department and management services, including compensation for the services rendered to us by the executive officers of Susquehanna Pfaltzgraff. Under the agreement, we paid a management fee in the amount of $4.1 million in 2000. As executive officers of Susquehanna Pfaltzgraff, our executive officers will continue to render services to Susquehanna Pfaltzgraff and its other subsidiaries in addition to us.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Susquehanna Media Co.
We have the authority under our charter to issue 1,100,000 shares of common stock, par value $1.00 per share, and 110,000 shares of 7% cumulative preferred voting stock, par value $100.00 per share. We currently have outstanding 1,100,000 shares of common stock and 70,499.22 shares of preferred stock. The holders of our preferred stock are entitled to an annual cumulative preferential dividend of $7.00 per share. After payment of the preferred stock dividend, holders of our preferred stock do not participate in dividends on our common stock. In the event of a liquidation of our company, our preferred stockholders are entitled to a $100.00 liquidation preference and any accrued and unpaid preferred stock dividends. Thereafter, only common stockholders are entitled to distributions. Our preferred stock is not convertible into our common stock. The holders of our preferred stock and common stock vote together as one class on all matters voted upon by our stockholders. Both classes receive one vote per share.
All of the outstanding common stock of Susquehanna Media is owned by our parent, Susquehanna Pfaltzgraff. The following table sets forth certain information regarding the beneficial ownership of our preferred stock as of December 31, 2000 by:
o each of our directors and executive officers; o all of our directors and executive officers as a group; and o each person (or group of affiliated persons) known by us to beneficially own more than 5% of our outstanding preferred stock.
Unless otherwise indicated, each person has sole voting and investment power with respect to the preferred shares shown as beneficially owned by such person.
Shares Beneficially Owned Name Of Beneficial Owner Number Percent ------------------------ ------- ------- Directors and Executive Officers Louis J. Appell, Jr. (1) 5,095.98 7.2% Peter P. Brubaker 793.77 1.1% Craig W. Bremer -- -- William H. Simpson -- -- John L. Finlayson -- -- Alan L. Brayman -- -- David E. Kennedy -- -- All directors and executive officers as a group (7 persons) 5,889.75 8.3% Other 5% Holders Louis J. Appell, III (2) 7,513.71 10.7% Helen F. Appell, II (3) 7,513.71 10.7% Barbara F. Appell (4) 7,513.71 10.7% Walter M. Norton (5) 32,085.41 45.5% - -------------------- (1) Shares held by Louis J. Appell, Jr. and Josephine S. Appell, as trustees of the Louis J. Appell, Jr. revocable trust. Address is 140 East Market Street, York, PA 17401.
(2) Address is 1331 Via Colonna Terrace, Davis, CA 95616.
(3) Address is 1700 Powder Mill Road, York, PA 17403.
(4) Address is 306 West Princess Street, York, PA 17404.
(5) Of these shares, (a) 8,324.26 are held jointly with Helen A. Norton; (b) 5,109.81 are held individually; (c) 277.48 are held by Helen A. and Walter M. Norton as trustees of the Helen A. Norton revocable trust; and (d) 18,373.86 are held in trust by Walter M. Norton. Address is 126 Skassen Lane, Harpswell, ME 04079.
Susquehanna Pfaltzgraff
Susquehanna Pfaltzgraff Co. (Susquehanna Pfaltzgraff) has the authority under its charter to issue 40,000,000 shares of common stock, par value $.01 per share, 50,000,000 shares of ESOP common stock, par value $.01 per share, and 10,000,000 shares of Class A nonvoting common stock, par value $.01 per share. We currently have outstanding 18,618,355 shares of common stock, 6,701,396 shares of ESOP common stock and 2,301,955 shares of Class A nonvoting common stock. The holders of the ESOP common stock are entitled to an annual cumulative preferential dividend of approximately $1.05 per share. After payment of the ESOP common stock dividend, the ESOP common stock, the common stock and the Class A nonvoting common stock share equally and ratably on a share for share basis in dividends. In the event of a liquidation of Susquehanna Pfaltzgraff, the holders of ESOP common stock are entitled to the payment of all accrued and unpaid dividends before any distributions to holders of common stock or Class A common stock. Thereafter, all three classes of stock share in distributions on a pro rata basis. Except as required by law, the holders of Class A nonvoting common stock have no voting rights. Each share of common stock and ESOP common stock is entitled to one vote on all matters submitted to a vote of stockholders.
The following table sets forth certain information regarding the beneficial ownership of Susquehanna Pfaltzgraff's common stock, ESOP common stock and Class A nonvoting common stock as of December 31, 2000 by:
o each of our directors and executive officers;
o all of our directors and executive officers as a group; and
o each person (or group of affiliated persons) known by us to beneficially own more than 5% of our outstanding common stock.
Unless otherwise indicated, each person has sole voting and investment power with respect to the shares shown as beneficially owned by such person.
- -------------------- (1) All addresses are 140 East Market Street, York, PA 17401.
(2) Includes common shares held by Nathan Appell Trust for the benefit of Louis J. Appell, Jr.
(3) Includes shares held as follows: (a) Louis J. Appell residuary trust for the benefit of Louis J. Appell, Jr. (5,861,800 shares); (b) Louis J. Appell residuary trust for the benefit of Helen A. Norton (5,968,900 shares); and (c) Louis J. Appell residuary trust for the benefit of George N. Appell and his descendants (4,993,600 shares). Addresses for each trust are 140 East Market Street, York, PA 17401.
(4) Held of record by State Street Bank and Trust Co., as trustee of the Susquehanna Pfaltzgraff Co. Employee Stock Ownership Plan. Address is P.O. Box 1521, Boston, MA 02104-9818.
Item 13.
Item 13. Certain Relationships and Related Transactions
Related Party Transactions
Susquehanna Pfaltzgraff, our parent company, provides us with management services, executive office space and services of the legal department. Under an agreement between Susquehanna Pfaltzgraff and us, we paid a management fee for such services in 2000 in the amount of $4.1 million. Susquehanna Pfaltzgraff also provides us, at cost, accounting and tax services, human resources services, treasury services and administrative services. For such services in 1999, we paid Susquehanna Pfaltzgraff an aggregate of $2.9 million. Expenses are allocated based on the parent's best estimates of proportional or incremental cost, whichever is deemed more representative of cost on a stand-alone basis.
Certain of our direct and indirect subsidiaries leased three office properties and one broadcast
tower under lease agreements with L.A.B. Realty Company (LAB). The aggregate amount paid to LAB under such agreements in 2000 was approximately $353,000. LAB was owned directly and indirectly by Louis J. Appell, Jr., Chairman of Susquehanna Media, his siblings, certain members of their families and trusts of which such persons or members of their families are trustees or beneficiaries. Mr. Appell and John L. Finlayson are officers and directors of both LAB and Susquehanna Media. Craig W. Bremer is an officer of LAB and an officer and director of Susquehanna Media. On December 31, 2000, LAB merged with Susquehanna Pfaltzgraff Co. Existing leases will be continued or the properties sold to present lessees at a price determined by independent valuation.
An indirect subsidiary of Susquehanna Media leases vehicles and equipment from Queen Street Leasing. Susquehanna Radio leases a studio property from G-III Partners. We paid Queen Street Leasing and G-III Partners approximately $73,000 and $178,000, respectively, in 2000 under such leases. Queen Street Leasing and G-III Partners are limited partnerships owned directly and indirectly by Mr. Appell, his siblings, certain members of their families and trusts of which such persons or members of their families are trustees or beneficiaries.
Susquehanna Media and certain of its subsidiaries have entered into a Tax Sharing Agreement with Susquehanna Pfaltzgraff, The Pfaltzgraff Co. and certain subsidiaries of The Pfaltzgraff Co. for the payment of federal income taxes on a consolidated basis. The Tax Sharing Agreement establishes a method for the computation, collection and payment of taxes by Susquehanna Pfaltzgraff and the contribution to such payment by Susquehanna Media and The Pfaltzgraff Co.
Upon completion of the 1999 offering of senior subordinated notes, we loaned $116.9 million to Susquehanna Pfaltzgraff, which it then loaned to its newly formed employee stock ownership plan. The employee stock ownership plan used the proceeds of the loan to purchase approximately $116.9 million of Susquehanna Pfaltzgraff Co.'s common stock from trusts for the benefit of Mr. Appell, his siblings and certain members of their families. Our employees participate in the employee stock ownership plan. The loan to Susquehanna Pfaltzgraff Co. matures on December 30, 2018 and bears interest at a per annum rate of 6.0%. We expect the loan to be repaid in annual installments of principal and interest. Related interest income was $6.7 million in 2000.
Susquehanna Media has outstanding 70,499.22 shares of voting preferred stock, $100 par value per share. The holders of the preferred stock are entitled to a cumulative annual dividend of 7.0%. The total amount of dividends paid on the preferred stock in 1999 was $493,000. The preferred stock is held by certain members of Mr. Appell's family, trusts of which such persons are trustees or beneficiaries and Peter P. Brubaker. The holders of the preferred stock have no right to require Susquehanna Media to redeem their preferred stock.
Each of these transactions was on terms and conditions no less favorable to us than we would be able to obtain from unaffiliated third parties.
The Lenfest Agreement
Pursuant to an agreement among Lenfest Communications, Inc. (Lenfest), Susquehanna Cable and certain of its subsidiaries (as amended, the "Lenfest Agreement"), Lenfest holds minority ownership interests equal to 14.9% of Susquehanna Cable and 17.75% of each of its principal operating subsidiaries. Lenfest's ownership interests were acquired in exchange for capital
contributions of $11.0 million in cash in May 1993 and cable television systems in December 1993 valued at $14.0 million. The cable systems are located in Red Lion and Mount Wolf, Pennsylvania and are now part of the York system. In January 2000, Comcast Corporation acquired Lenfest Communications, Inc. and consequently, Lenfest's interest in Susquehanna Cable and certain of its subsidiaries. Comcast has succeeded to Lenfest's rights and obligations under the Lenfest Agreement. Programming costs for 2000 were approximately $1.9 million higher than expected due to the loss of programming discounts due to the change in ownership. We anticipate that the cost of cable programming will increase in the future as cable programming rates increase and additional sources of cable programming become available.
The Lenfest Agreement provides for a right of first refusal whereby neither Lenfest nor Susquehanna Cable may sell its ownership interests without offering them first to the other party. In addition, Susquehanna Cable may not sell any cable television systems without offering them first to Lenfest. If Susquehanna Cable decides to sell the assets of a cable system and Lenfest does not exercise its right of first refusal, Susquehanna Cable must offer to repurchase Lenfest's shares in the subsidiary that is selling assets.
The Lenfest Agreement contains a buy-sell provision granting Susquehanna Media, Susquehanna Cable or Lenfest the right to make an offer to purchase the other party's ownership interests in Susquehanna Cable and its subsidiaries. If such an offer is made and rejected, the party to whom the offer was made is then obligated to purchase the offering party's ownership interests in Susquehanna Cable and its subsidiaries on the same terms and conditions. If we purchase Lenfest's interests pursuant to the buy-sell agreement, Lenfest is entitled to receive a fee equal to 3.0% of Lenfest's original $25.0 million investment compounded annually. This fee is not payable if Lenfest buys Susquehanna Cable's interests.
The Lenfest Agreement grants Lenfest the right to resell to us (the "Put Right") all of its ownership interests in Susquehanna Cable and its subsidiaries for a three-year period beginning 18 months after the closing on the new senior credit facility. Accordingly, the Put Right will expire on November 12, 2003. The Put Right may not be exercised during any period when a default exists under our new senior credit facility or if consummation of the Put Right would create a default under our new senior credit facility or under the senior subordinated notes. The value of Lenfest's ownership interests in Susquehanna Cable and its subsidiaries upon exercise of the Put Right would be the average of the values determined by two independent appraisers with expertise in the cable industry. In exchange for its ownership interests upon exercise of the Put Right, Lenfest would receive cash up to the amount of borrowing availability under our new senior credit facility and would receive a note for the balance, so long as the issuance of such note would comply with the terms of the new senior credit facility and the covenant described above. Upon Lenfest's exercise of the Put Right, we would have the right, in our sole discretion and in lieu of acquiring Lenfest's ownership interests, to sell Susquehanna Cable and its subsidiaries to a third party and Lenfest would receive a pro rata share of the proceeds of such sale.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) The following documents are filed as part of this report:
1. Consolidated Financial Statements Filed: Please refer to Item 8 - Consolidated Financial Statement and Supplementary Data.
2. Consolidated Financial Statement Scheduled Filed: Please refer to Item 8 - Consolidated Financial Statement and Supplementary Data.
3. Exhibits Filed:
Exhibit Number Description - --------- ----------- 2 Asset Purchase Agreement, dated May 11, 2000, among Susquehanna Radio Corp. and Entercom Communications Corp., Entercom Kansas City, LLC and Entercom Kansas City License, LLC (incorporated herein by reference from Exhibit 2 to the Company's Current Report on Form 8-K filed August 2, 2000, file No. 333-80523)
3.1 Certificate of Incorporation of Susquehanna Media Co., as amended (incorporated herein by reference from Exhibit 3.1 to the Company's Registration Statement on Form S-4, file No. 333-80523)
3.2 By-laws of Susquehanna Media Co. (incorporated herein by reference from Exhibit 3.2 to the Company's Registration Statement on Form S-4, file No. 333-80523)
4.1 Indenture for the 8 1/2% Senior Subordinated Notes due 2009, dated as of May 12, 1999, between Susquehanna Media Co. and Chase Manhattan Trust Company, National Association, as Trustee (incorporated herein by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-4, file No. 333-80523)
4.2 Form of Exchange Global Note for 8 1/2% Senior Subordinated Note due 2009 (incorporated herein by reference from Exhibit 4.2 to the Company's Registration Statement on Form S-4, file No. 333-80523)
4.3 Form of Exchange Certificated note for 8 1/2% Senior Subordinated Note due 2009 (incorporated herein by reference from Exhibit 4.3 to the Company's Registration Statement on Form S-4, file No. 333-80523)
10.1 $450 million syndicated credit facility arranged by First Union Capital Markets Corp. (incorporated herein by reference from Exhibit 10.1 to the Company's Registration Statement on Form S-4, file No. 333-80523)
10.2 Agreement dated November 6, 1992, by and among Lenfest Communications, Inc., Susquehanna Cable Co. and certain subsidiaries of Susquehanna Cable Co., as amended (incorporated herein by reference from Exhibit 10.2 to the Company's Registration Statement on Form S-4, file No. 333-80523)
10.3 Management Agreement dated May 24, 1993 by and between Susquehanna Pfaltzgraff Co. and Susquehanna Media Co. (incorporated herein by reference from Exhibit 10.3 to the Company's Registration Statement on Form S-4, file No. 333-80523)
12 Computation of ratios of earnings to fixed charges
21 Subsidiaries of Susquehanna Media Co. (incorporated herein by reference from Exhibit 21 to the Company's Registration Statement on Form S-4, file No. 333-80523)
Supplementary Information to be Furnished With Reports filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report or proxy materials have been sent to security holders during the fiscal year ended December 31, 2000. No annual report or proxy materials will be sent to security holders subsequent to the filing of this annual report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUSQUEHANNA MEDIA CO.
/s/ Peter P. Brubaker ------------------------------------------- By: Peter P. Brubaker, Chief Executive Officer and President Date: March 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.