SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the quarterly period ended June 30, 2003

OR

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the transition period from ____________ to ____________

Commission file number: 333-84416



NextMedia Operating, Inc.
(Exact name of registrant as specified in its charter)

Delaware		84-154397
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

6312 S. Fiddlers Green Circle, Suite 360E Greenwood Village, Colorado		80111
(Address of principal executive offices)		(Zip Code)

(303) 694-9118
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x

No o

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

Yes o

No x

The total number of shares of common stock, par value $.01 per share, outstanding as of August 13, 2003 was 3,000. The Registrant has no other class of common stock outstanding.

TABLE OF CONTENTS

PART I

	Item 1.	Unaudited Financial Statements

		Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003	3

		Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2003	4

		Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2003	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	24

	Item 4.	Controls and Procedures	24

PART II

	Item 1.	Legal Proceedings	25

	Item 2.	Changes in Securities	25

	Item 3.	Defaults Upon Senior Securities	25

	Item 4.	Submission of Matters of a Vote of Security Holders	25

	Item 5.	Other Information	25

	Item 6.	Exhibits and Reports on Form 8-K	25

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	December 31, 2002			June 30, 2003

Assets
Current assets:
Cash and cash equivalents	$	14,446		$	11,100
Accounts receivable, net of allowance for doubtful accounts of $1,248 and $1,128, respectively		14,407			16,441
Prepaid expenses and other current assets		2,225			2,889

Total current assets		31,078			30,430
Property and equipment, net		53,103			57,954
Other assets		13,674			12,697
Goodwill, net		119,259			148,963
FCC licenses, net		256,410			282,159
Other intangibles, net		960			8,126
Assets held for sale		5,411			—

Total assets	$	479,895		$	540,329

Liabilities and Stockholder’s Equity
Current liabilities:
Accounts payable	$	2,481		$	1,265
Accrued expenses		15,740			15,412
Deferred revenue		622			795
Other		9			169

Total current liabilities		18,852			17,641
Long-term debt		197,276			233,974
Deferred tax liability		4,311			10,245
Other long-term liabilities		2,088			2,104

Total liabilities		222,527			263,964

Commitments and contingencies (Note 8)
Stockholder’s equity:
Common stock, par value $0.01 per share, 3,000 shares authorized, issued and outstanding, respectively		1			1
Additional paid-in capital		325,436			352,577
Accumulated deficit		(68,069	)		(76,213	)

Total stockholder’s equity		257,368			276,365

Total liabilities and stockholder’s equity	$	479,895		$	540,329

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

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,

	2002			2003			2002			2003

Gross revenue	$	25,635		$	29,992		$	46,018		$	55,430
Less: agency commissions		2,007			2,297			3,572			4,179

Net revenue		23,628			27,695			42,446			51,251
Market level expenses		15,125			16,608			28,318			31,943
Corporate expenses		2,237			2,443			4,328			4,381
Depreciation and amortization		1,312			2,688			2,553			5,037

Total operating expenses		18,674			21,739			35,199			41,361

Operating income		4,954			5,956			7,247			9,890
Interest expense, net		5,567			5,756			11,149			11,481
Other (income) expense		(1,041	)		131			(73	)		619

Income (loss) from continuing operations before income taxes		428			69			(3,829	)		(2,210	)
Provision for income taxes		2,329			3,054			17,869			5,935

Loss from continuing operations		(1,901	)		(2,985	)		(21,698	)		(8,145	)
Discontinued operations:
(Gain) loss from discontinued operations (including loss on disposition of $3,272 in 2002)		3,317			—			3,473			(1	)

Net loss	$	(5,218	)	$	(2,985	)	$	(25,171	)	$	(8,144	)

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

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Six Months ended June 30,

	2002			2003

Cash Flows From Operating Activities
Net loss	$	(25,171	)	$	(8,144	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,602			5,037
Non-cash interest expense		604			607
Provision for bad debt expense		669			371
Non-cash compensation expense		39			39
Unrealized (gain)/loss on interest rate swap		(921	)		335
Provision for deferred taxes		17,869			5,935
Loss on pending sale and other dispositions		3,501			24
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable		(1,716	)		(2,405	)
Prepaid expenses and other assets		(501	)		(687	)
Accounts payable and accrued expenses		(759	)		(1,560	)
Deferred revenue		146			172
Other current liabilities		—			(60	)

Net cash used in operating activities		(3,638	)		(336	)

Cash Flows From Investing Activities
Purchase of fixed assets		(3,145	)		(2,963	)
Payments for acquisitions, net of cash acquired		(7,554	)		(68,767	)
Purchase of short-term investments		(9,478	)		—
Deferred selling costs		—			(239	)
Proceeds from sale of properties		1,213			5,463

Net cash used in investing activities		(18,964	)		(66,506	)

Cash Flows From Financing Activities
Proceeds from revolving credit facilities		—			44,000
Repayment of revolving credit facilities		—			(7,500	)
Equity capital contributions from Parent, net		185			27,100
Payments of financing related costs		(463	)		(32	)
Other		45			(72	)

Net cash provided by (used in) financing activities		(233	)		63,496

Decrease in cash and cash equivalents		(22,835	)		(3,346	)
Cash and cash equivalents at beginning of period		30,501			14,446

Cash and cash equivalents at end of period	$	7,666		$	11,100

Supplemental Cash Flow Information
Cash payments during the period for:
Interest	$	10,684		$	11,502

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

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

1. INTERIM FINANCIAL DATA AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Management believes that the Company has made all adjustments necessary for a fair presentation of results of the interim periods and that these adjustments were of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The interim results of operations and cash flows are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2003, due to seasonality and other factors. You should read the consolidated financial statements in conjunction with the consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 27, 2003. In this quarterly report on Form 10-Q, references to “the Company,” “we,” “our” and “us” refer to NextMedia Operating, Inc. and its subsidiaries, and the term “NextMedia” refers only to NextMedia Operating, Inc.

The balances of certain prior periods have been reclassified to conform to the current period’s presentation.

2. Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which is effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first interim period beginning after June 15, 2003. The Company has not had any interest in a variable interest entity during the period to which FIN 46 applies. The Company will apply the provisions of FIN 46 in future periods should a variable interest entity be acquired.

In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, “Revenue Arrangement with Multiple Deliverables” (“EITF No. 00-21”). This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. Where multiple elements exist in an arrangement, the arrangement fee is allocated to the different elements based upon verifiable objective evidence of the fair value of the elements. The Company does not expect that the adoption of EITF No. 00-21 will have a material impact on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 provides for certain changes in the accounting treatment of derivative contracts. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except for certain provisions that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. The guidance should be applied prospectively. Management anticipates that the adoption of SFAS No. 149 will not have a material impact on the Company’s financial statements.

Also in May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This new statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. It requires that those instruments be classified as liabilities in the balance sheets. Most of the guidance in SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the Company’s first interim period beginning after June 15, 2003. Management anticipates that the adoption of SFAS No. 150 will not have a material impact on the Company’s financial statements.

3. Acquisitions and Dispositions

Part of the Company’s operating strategy is to expand through prudent acquisition of broadcasting and outdoor advertising properties. The Company acquired each of the advertising assets identified below to help achieve this objective. In seeking acquisition opportunities, the Company generally seeks: (i) assets in markets with a demographic propensity for growth (i.e., population growth above average, above average growth in retail sales, etc.), (ii) markets where the Company

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

believes it can assemble a group of assets generating over $1,000 in annual cash flow from operations, and (iii) assets in markets where the Company believes it can become a leader in terms of ratings, revenue share, or number of advertising faces. Each of the acquisitions below meet at least one of these criteria.

On January 6, 2003, the Company completed the previously announced acquisition of four FM radio stations and one AM radio station operating in the Saginaw/Bay City/Midland, Michigan markets from Wilks Broadcasting, LLC for approximately $55,500. The Company funded the acquisition with borrowings of $26,000 under its Senior Credit Facility, proceeds from a private equity commitment of $27,100, and cash on hand.

On January 31, 2003, the Company completed the previously announced acquisition of three FM stations and one AM station operating in the Sherman/Denison, Texas and Ardmore, Oklahoma markets for approximately $5,500. Simultaneously, the Company disposed of five radio stations in the Panama City, Florida market for approximately $5,500.

In February 2003, the Company completed the acquisition of certain outdoor advertising assets in New Jersey for approximately $4,700, $600 of which was funded with a cash deposit made during 2002. The Company funded the remaining $4,100 in February 2003 with $4,000 of borrowings under the Senior Credit Facility and cash on hand.

The results of operations of the assets acquired during the three and six months ended June 30, 2003 have been included in the Company’s income statement from the completion date of the applicable acquisition. The results of operations of assets sold during the three and six months ended June 30, 2003 have been excluded from the Company’s income statement from the completion date of the applicable sale.

The following unaudited pro forma income statement information has been prepared as if the acquisitions made during the year ended December 31, 2002 and the six months ended June 30, 2003 had occurred on January 1, 2002. The pro forma income statement information is not necessarily indicative of the results, which actually would have occurred if these acquisitions had been consummated on January 1, 2002.

	Six months ended June 30,

	2002			2003

Net revenues	$	49,674		$	51,432
Total expenses		74,348			59,510

Net loss	$	(24,674	)	$	(8,078	)

In April 2003, the Company entered into agreements to sell the assets of WAIT-AM in its Chicago suburban market to Newsweb Corporation for $8,250 and acquire the assets of KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4,250. In order to the purchase KNHK-FM in compliance with the FCC’s station ownership regulation, the Company will be required to divest a station in the Reno market. Consequently, in July 2003, the Company entered into an agreement to sell the assets of KSRN-FM in Reno, Nevada to Lazer Broadcasting Corp. for $2.5 million in cash. In May 2003, the Company entered into an agreement to sell certain of the assets of WJTW-FM in its Chicago suburban market to Hispanic Broadcasting Corporation for $21,000 in cash. The Company expects each of the foregoing transactions to close as soon as practicable after the FCC terminates its “hold” on license transfer applications and begins to review and approve the applications.

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

4. Property and Equipment

Property and equipment consist of the following:

	Depreciable Life		As of December 31, 2002			As of June 30, 2003

Land and improvements		—	$	5,385		$	5,916
Construction in progress		—		935			1,028
Buildings and improvements		20		8,308			9,413
Leasehold improvements		10		1,971			2,195
Broadcast equipment		5 – 20		7,042			8,194
Office equipment		7		1,691			1,738
Computer software and systems		3 – 5		1,638			1,780
Tower and antennae		5 – 20		3,250			4,518
Vehicles		3		1,376			1,694
Furniture and fixtures		7		1,176			1,313
Advertising displays		3 – 15		29,461			32,377

				62,233			70,166
Less accumulated depreciation				(9,130	)		(12,212	)

			$	53,103		$	57,954

5. Intangible Assets

Intangible assets consist of the following:

	Estimated Useful Life		As of December 31, 2002			As of June 30, 2003

Gross:
FCC licenses		—	$	265,471		$	291,220
Goodwill		—		120,185			149,889
Definite lived intangibles		—		2,356			11,441

			$	388,012		$	452,550

Less accumulated amortization:
FCC licenses		—	$	(9,061	)	$	(9,061	)
Goodwill		—		(926	)		(926	)
Definite lived intangibles		1 – 15		(1,396	)		(3,315	)

				(11,383	)		(13,302	)

			$	376,629		$	439,248

The aggregate change in goodwill and FCC licenses in the period from December 31, 2002 resulted entirely from the Company’s acquisitions of radio and outdoor assets during the period. There were no impairment losses recognized during the period and no reporting units were disposed of.

While FCC licenses are renewed annually, under current regulations, the renewal is conditioned only on continued compliance with the terms of the license and payment of the annual license fee. As a result, as long as the Company continues to comply with the license terms and pays the annual fee (both of which are within the Company’s control) the license will not expire or be revoked. Additionally, the Company believes that there are no current competitive forces which threaten the viability of FCC licenses as a useful asset in the long-term. Consequently, we believe that the license has an indefinite life as defined by SFAS 142.

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

Definite lived Intangible Assets

The Company has definite-lived intangible assets recorded that continue to be amortized in accordance with SFAS 142. These assets consist primarily of non-compete agreements and customer lists which are amortized over the respective estimated lives of the assets. Total amortization expense from definite-lived intangible assets for the six months ended June 30, 2003 was approximately $1,919. The following table presents management’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of the dates indicated. The most significant definite-lived intangible assets acquired by the Company are existing customer bases which have relatively short useful lives due to customer turnover. Consequently, the Company applies an accelerated amortization methodology to these assets.

2004	$	2,145
2005		1,242
2006		748
2007		492
2008		340

6. Accrued Expenses

Accrued expenses consist of the following:

	As of December 31, 2002		As of June 30, 2003

Accrued compensation and bonuses	$	1,298	$	876
Accrued commissions		579		719
Accrued interest		10,253		10,073
Accrued property taxes		415		470
Accrued rents		574		426
Unfavorable leases		405		277
Accrued franchise taxes		461		307
Accrued insurance costs		530		739
Accrued music license fees		61		536
Net barter payable		233		285
Other		931		704

	$	15,740	$	15,412

7. Long-Term Debt

Long-term debt consists of the following:

	As of December 31, 2003			As of June 30, 2003

Revolving Credit Facility	$	—		$	36,500
Senior Subordinated Notes		200,000			200,000
Unamortized discount		(2,724	)		(2,526	)

Total long-term debt	$	197,276		$	233,974

The Company’s senior credit facility contains customary restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above specified limits. Under the senior credit facility, the Company must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash interest expense. If future financial results are not sufficient to meet the requirements of the Company’s financial covenants, the lenders could accelerate the payment of any outstanding principal and interest amounts. Should this occur, the Company would attempt to obtain a waiver of the covenant violation from the lenders or seek an

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

alternate source of financing. However, there can be no assurance that the Company would be able to obtain a waiver or an alternate source of financing. As of June 30, 2003, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of June 30, 2003, the Company had approximately $12.5 million of borrowing capacity under its senior credit facility.

The Company’s 10.75% senior subordinated notes due 2011 require the Company to make semi-annual interest payments of approximately $10.8 million on January 1 and July 1 of each year. The indenture governing the notes contains certain restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness and pay dividends. As of June 30, 2003, the Company was in compliance with these covenants.

8. Commitments and Contingencies

As of July 10, 2003, the Company had $1,428 in letters of credit outstanding as deposits to secure obligations.

From time to time, the Company is subject to routine litigation incident to its business. Management does not expect any of these matters to have a material adverse effect upon the Company’s liquidity, results of operations or financial position.

The Company has no direct or indirect guarantees of indebtedness of others.

9. Segment Data

The Company has determined that two reportable operating segments—radio broadcasting and outdoor advertising—best reflect the Company’s current management and operations.

The radio broadcasting segment is comprised of radio stations and networks for which the Company is the licensee or for which the Company programs and sells on-air advertising time under local marketing agreements. At June 30, 2003, the radio broadcasting segment included 60 radio stations owned and operated by the Company. No stations or networks were operated pursuant to local marketing agreements during the periods presented. All of these stations operate in domestic markets.

The outdoor advertising segment includes traditional outdoor advertising displays, such as roadside bulletins, posters and transit displays that the Company owns or operates under lease arrangements, as well as advertising displays that the Company installs in public locations, including restaurants, health clubs, retail stores and entertainment venues. At June 30, 2003, the outdoor advertising segment owned or operated over 5,800 outdoor billboard displays and indoor advertising display faces in more than 2,900 retail locations across the United States. All of these displays are located in domestic markets.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Company’s audited consolidated financial statements contained in the Company’s annual report on Form 10-K as filed with the SEC on March 27, 2003. There are no intersegment sales or transfers.

There are no customers that comprise greater than 10% of the consolidated revenues or receivables of the Company for the periods presented.

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

	Three months ended June 30,					Six months ended June 30,

	2002			2003		2002			2003


Net revenue:
Radio Broadcasting	$	16,817		$	19,472	$	30,103		$	35,377
Outdoor Advertising		6,811			8,223		12,343			15,874

Consolidated		23,628			27,695		42,446			51,251

Market level expenses:
Radio Broadcasting		10,121			11,515		19,074			21,738
Outdoor Advertising		5,004			5,093		9,244			10,205

Consolidated		15,125			16,608		28,318			31,943
Depreciation and amortization:
Radio Broadcasting		879			1,422		1,742			2,970
Outdoor Advertising		433			1,266		811			2,067

Consolidated		1,312			2,688		2,553			5,037

Segment profit:
Radio Broadcasting		5,817			6,535		9,287			10,669
Outdoor Advertising		1,374			1,864		2,288			3,602
Corporate Expenses		2,237			2,443		4,328			4,381

Operating income		4,954			5,956		7,247			9,890
Interest expense, net		5,567			5,756		11,149			11,481
Other (income) expense		(1,041	)		131		(73	)		619

Income (loss) from continuing operations before taxes	$	428		$	69	$	(3,829	)	$	(2,210	)

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

	As of December 31,		As of June 30,
	2002		2003

Total identifiable assets:
Radio Broadcasting	$	323,543	$	376,245
Outdoor Advertising		156,352		164,084

Consolidated	$	479,895	$	540,329
Goodwill, net:
Radio Broadcasting	$	—	$	26,624
Outdoor Advertising		119,259		122,339

Consolidated	$	119,259	$	148,963

	Three months ended June 30,				Six months ended June 30,

	2002		2003		2002		2003

Addition to long-lived assets:
Radio Broadcasting	$	1,155	$	967	$	2,341	$	62,962
Outdoor Advertising		13,149		2,919		17,489		9,277

Consolidated	$	14,304	$	3,886	$	19,830	$	72,239

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

10. Supplemental Guarantor Information

NextMedia’s senior subordinated notes are guaranteed on a senior subordinated basis, jointly and severally, by all of NextMedia’s subsidiaries (the “Guarantor Subsidiaries”). NextMedia has collateralized its revolving credit facility by granting a first priority-perfected pledge of its assets including, without limitation, the capital stock of NextMedia and its subsidiaries.

NextMedia Operating, Inc.
Supplemental Combining Balance Sheet
December 31, 2002

	NextMedia Operating, Inc.		Guarantor Subsidiaries			Eliminating Entries			Total

Assets
Current assets:
Cash and cash equivalents	$	14,951	$	(505	)	$	—		$	14,446
Accounts receivable, net		9,974		4,433			—			14,407
Prepaid and other current assets		426		1,799			—			2,225

Total current assets		25,351		5,727			—			31,078
Property and equipment, net		23,511		29,592			—			53,103
Goodwill and intangibles, net		438		376,191			—			376,629
Other		13,634		1,252			(1,212	)		13,674
Assets held for sale		486		4,925			—			5,411
Investment in subsidiaries		410,963		—			(410,963	)		—

Total assets	$	474,383	$	417,687		$	(412,175	)	$	479,895

Liabilities and Stockholder’s Equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	14,936	$	5,128		$	(1,212	)	$	18,852
Total current liabilities		14,936		5,128			(1,212	)		18,852
Long-term debt		197,276		—			—			197,276
Other long-term liabilities		4,803		1,596			—			6,399

Total liabilities		217,015		6,724			(1,212	)		222,527
Stockholder’s equity		257,368		410,963			(410,963	)		257,368

Total liabilities and stockholder’s equity	$	474,383	$	417,687		$	(412,175	)	$	479,895

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

NextMedia Operating, Inc.
Supplemental Combining Balance Sheet
June 30, 2003

	NextMedia Operating, Inc.		Guarantor Subsidiaries			Eliminating Entries			Total

Assets
Current assets:
Cash and cash equivalents	$	11,504	$	(404	)	$	—		$	11,100
Accounts receivable, net		11,900		4,541			—			16,441
Prepaid and other current assets		782		2,107			—			2,889

Total current assets		24,186		6,244			—			30,430
Property and equipment, net		26,315		31,639			—			57,954
Goodwill and intangibles, net		31,852		407,396			—			439,248
Other		10,772		963			962			12,697
Investment in subsidiaries		441,412		—			(441,412	)		—

Total assets	$	534,537	$	446,242		$	(440,450	)	$	540,329
Liabilities and Stockholder’s Equity
Current liabilities	$	13,444	$	3,235		$	962		$	17,641
Long-term debt		233,974		—			—			233,974
Other long-term liabilities		10,754		1,595			—			12,349

Total liabilities		258,172		4,830			—			263,964
Stockholder’s equity		276,365		441,412			(441,412	)		276,365

Total liabilities and stockholder’s equity	$	534,537	$	446,242		$	(440,450	)	$	540,329

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Three Months Ended June 30, 2002

	NextMedia Operating, Inc.			Guarantor Subsidiaries			Eliminating Entries			Total

Net revenue	$	16,817		$	6,811		$	—		$	23,628
Total operating expenses		10,121			5,004			—			15,125
Corporate expenses		1,465			772			—			2,237
Depreciation and amortization		879			433			—			1,312

Operating income (loss)	$	4,352		$	602		$	—		$	4,954
Interest expense, net		5,567			—			—			5,567
Other (income) expense		(1,043	)		2			—			(1,041	)
Equity in loss of subsidiaries		2,671			—			(2,671	)		—

Income (loss) before provision for income taxes		(2,843	)		600			2,671			428
Provision for income taxes		2,329			—			—			2,329

Net income (loss) from continuing operations	$	(5,172	)	$	600		$	2,671		$	(1,901	)
Loss on discontinued operations		46			3,271			—			3,317

Net loss after taxes	$	(5,218	)	$	(2,671	)	$	2,671		$	(5,218	)

NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Three Months Ended June 30, 2003

	NextMedia Operating, Inc.			Guarantor Subsidiaries		Eliminating Entries			Total

Net revenue	$	19,472		$	8,223	$	—		$	27,695
Operating expenses		11,515			5,093		—			16,608
Corporate expenses		1,885			558		—			2,443
Depreciation and amortization		1,422			1,266		—			2,688

Operating income (loss)		4,650			1,306		—			5,956
Interest expense, net		5,756			—		—			5,756

Other (income) expense		121			10		—			131
Equity in earnings of subsidiaries		(1,296	)		—		1,296			—

Income (loss) before provision for income taxes		69			1,296		(1,296	)		69
Provision for income taxes		3,054			—		—			3,054

Net income (loss) from continuing operations		(2,985	)		1,296		(1,296	)		(2,985	)
Income from discontinued operations		—			—		—			—

Net income (loss)	$	(2,985	)	$	1,296	$	(1,296	)	$	(2,985	)

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Six Months Ended June 30, 2002

	NextMedia Operating, Inc.			Guarantor Subsidiaries			Eliminating Entries			Total

Net revenue	$	30,103		$	12,343		$	—		$	42,446
Total operating expenses		19,073			9,245			—			28,318
Corporate expenses		2,834			1,494			—			4,328
Depreciation and amortization		1,742			811			—			2,553

Operating income (loss)	$	6,454		$	793		$	—		$	7,247
Interest income expense, net		11,152			(3	)		—			11,149
Other (income) loss		(75	)		2			—			(73	)
Equity in loss of subsidiaries		2,478			—			(2,478	)		—

Income (loss) before provision for income taxes		(7,101	)		794			2,478			(3,829	)
Provision for income taxes		17,869			—			—			17,869

Net income (loss) from continuing operations	$	(24,970	)	$	794		$	2,478		$	(21,698	)
Loss on discontinued operations		201			3,272			—			3,473

Net income (loss) after taxes	$	(25,171	)	$	(2,478	)	$	2,478		$	(25,171	)

NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Six Months Ended June 30, 2003

	NextMedia Operating, Inc.			Guarantor Subsidiaries		Eliminating Entries			Total

Net revenue	$	35,377		$	15,874	$	—		$	51,251
Total operating expenses		21,738			10,205		—			31,943
Corporate expenses		3,345			1,036		—			4,381
Depreciation and amortization		2,970			2,067		—			5,037

Operating income (loss)	$	7,324		$	2,566	$	—		$	9,890
Interest expense, net		11,481			—		—			11,481
Other income		601			18		—			619
Equity in earnings of subsidiaries		(2,548	)		—		2,548			—

Income (loss) before provision for income taxes		(2,210	)		2,548		(2,548	)		(2,210	)
Provision for income taxes		5,935			—		—			5,935
Net income (loss) from continuing operations	$	(8,145	)	$	2,548	$	(2,548	)	$	(8,145	)
(Income) Loss on discontinued operations		(1	)		—		—			(1	)

Net income (loss) after taxes	$	(8,144	)	$	2,548	$	(2,548	)	$	(8,144	)

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)

NextMedia Operating, Inc.
Supplemental Combining Statement of Cash Flows
For the Six Months Ended June 30, 2002

	NextMedia Operating, Inc.			Guarantor Subsidiaries			Eliminating Entries		Total

Net Cash provided by (used in) operations	$	(5,390	)	$	1,752		$	—	$	(3,638	)

Cash Flows From Investing Activities
Purchase of fixed assets		(1,086	)		(2,059	)		—		(3,145	)
Payments for acquisitions, net of cash acquired		(7,554	)		—			—		(7,554	)
Proceeds from sale of assets		1,213			—			—		1,213
Purchase of short term investments		(9,478	)		—			—		(9,478	)

Net cash used in investing activities		(16,905	)		(2,059	)		—		(18,964	)

Cash Flows From Financing Activities
Capital contributions from Parent		185			—			—		185
Payments of financing related costs		(463	)		—			—		(463	)
Other		(75	)		120			—		(45	)

Net cash used in financing activities		(353	)		120			—		(233	)

Net decrease in cash		(22,648	)		(187	)		—		(22,835	)
Cash at beginning of period		31,044			(543	)		—		30,501

Cash at end of period	$	8,396		$	(730	)	$	—	$	7,666

NextMedia Operating, Inc.
Supplemental Combining Statement of Cash Flows
For the Six Months Ended June 30, 2003

	NextMedia Operating, Inc.			Guarantor Subsidiaries			Eliminating Entries		Total

Net cash provided by (used in) operations	$	(2,438	)	$	2,102		$	—	$	(336	)

Cash Flows From Investing Activities
Purchase of fixed assets		(962	)		(2,001	)		—		(2,963	)
Payments for acquisitions, net of cash acquired		(68,767	)		—			—		(68,767	)
Deferred sellings costs		(239	)		—			—		(239	)
Proceeds from sale of assets		5,463			—			—		5,463

Net cash used in investing activities		(64,505	)		(2,001	)		—		(66,506	)

Cash Flows From Financing Activities								—
Proceeds from revolving credit facilities		44,000			—			—		44,000
Repayment of revolving credit facilities		(7,500	)		—			—		(7,500	)
Capital contributions from Parent		27,100			—			—		27,100
Payments of financing related costs		(32	)		—			—		(32	)
Other		(72	)		—			—		(72	)

Net cash provided by financing activities		63,496			—			—		63,496

Net decrease in cash		(3,447	)		101			—		(3,346	)
Cash at beginning of period		14,951			(505	)		—		14,446

Cash at end of period	$	11,504		$	(404	)	$	—	$	11,100

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

Overview

Our business consists of two out-of-home media divisions: radio broadcasting and outdoor advertising. Our radio broadcasting business consists of radio stations for which we provide programming and sell on-air advertising time. Our outdoor advertising business includes traditional outdoor advertising displays, such as bulletins and posters, as well as alternative advertising displays that we install in public locations, including restaurants, health clubs, retail stores and entertainment venues.

Radio Broadcasting Division

We derive our radio broadcast revenues primarily from the sale of advertising time to local and national advertisers. Our radio division operating expenses consist primarily of employee salaries and commissions, programming expenses, advertising and promotional expenses, rental for studio premises, rental of transmission tower space and music license royalty fees. We seek to control these expenses by centralizing certain functions, such as finance, accounting, legal, human resources and management information systems and the overall programming management function and by requiring adherence to strict cost controls at the station level.

Our radio advertising revenues generally reflect the advertising rates that our radio stations can charge and the number of advertisements that we can broadcast without jeopardizing listener levels and resulting ratings. We typically base our advertising rates upon demand for a station’s advertising inventory and its ability to attract audiences in targeted demographic groups, as well as upon the number of stations competing in the market.

Most of our markets are mid-sized or suburban markets, which typically attract a larger percentage of advertising revenues from local, rather than national, advertising.

The radio broadcast industry typically experiences seasonal revenue fluctuations due primarily to fluctuations in advertising expenditures by local and national advertisers, with revenues typically being the lowest in the first calendar quarter of each year. A radio station’s operating results in any period also may be affected by advertising and promotional expenditures that do not necessarily produce revenues in the period in which the expenditures are made.

Outdoor Advertising Division

We derive our outdoor advertising revenues primarily through contracts with local and national advertisers. Our outdoor division operating expenses consist primarily of employee salaries and commissions, rental of sites for advertising displays, costs for installation of advertising frames, maintenance and shipping costs, printing of advertisements and production costs.

Our outdoor advertising revenues reflect advertising rates prevailing in the relevant market, the location of our displays and our available inventory. We generally base our advertising rates on a particular display’s exposure, or number of “impressions” delivered, relative to the demographics of the particular market and its location within that market. Our outdoor advertising display contracts typically have terms ranging from one month to one year.

We estimate the number of impressions delivered by an outdoor display, for example, by estimating the number of individuals viewing the site during a defined period. We apply a similar formula for determining advertising rates for our other display products. Because roadside bulletin displays are large and generate a higher number of impressions than other outdoor products, advertising rates for bulletins are significantly higher than those for our other outdoor and alternative display products.

Factors Affecting Comparability

We commenced operations in late-1999 when our predecessor by merger completed its first acquisition. Our results of operations from period to period are not comparable because of the impact of the various acquisitions and dispositions that we have completed, as well as our rapid build-up in personnel in anticipation of additional acquisitions. Moreover, our expected growth through acquisitions is likely to continue to limit the comparability of our results of operations.

Results of Operations

The following table presents certain summary historical financial data in dollars (in thousands) and as a percentage of net revenues for the periods indicated on a consolidated basis and for each of our out-of-home media divisions.

	Three Months Ended June 30,										Six Months Ended June 30,

	2002			%		2003			%		2002			%		2003			%

Consolidated Operating Data:
Net revenues	$	23,628			100.0	$	27,695			100.0	$	42,446			100.0	$	51,251			100.0
Market level expenses		15,125			64.0		16,608			60.0		28,318			66.7		31,943			62.3
Corporate expenses		2,237			9.5		2,443			8.8		4,328			10.2		4,381			8.5
Depreciation and amortization		1,312			5.6		2,688			9.7		2,553			6.0		5,037			9.8

Operating income (loss)		4,954			21.0		5,956			21.5		7,247			17.1		9,890			19.3
Interest expense, net		5,567					5,756					11,149					11,481
Other (income) expense, net		(1,041	)				131					(73	)				619
Provision for income taxes		2,329					3,054					17,869					5,935
(Gain) loss on discontinued operations		3,317					—					3,473					(1	)

Net loss	$	(5,218	)			$	(2,985	)			$	(25,171	)			$	(8,144	)

Radio Broadcasting Operating Data:
Net revenues	$	16,817			100.0	$	19,472			100.0	$	30,103			100.0	$	35,377			100.0
Market level expenses		10,121			60.2		11,515			59.1		19,074			63.4		21,738			61.4
Depreciation and amortization		879			5.2		1,422			7.3		1,742			5.8		2,970			8.4

Segment operating income	$	5,817			34.6	$	6,535			33.6	$	9,287			30.9	$	10,669			30.2

Outdoor Advertising Operating Data:
Net revenues	$	6,811			100.0	$	8,223			100.0	$	12,343			100.0	$	15,874			100.0
Market level expenses		5,004			73.5		5,093			61.9		9,244			74.9		10,205			64.3
Depreciation and amortization		433			6.4		1,266			15.4		811			6.6		2,067			13.0

Segment operating income	$	1,374			20.2	$	1,864			22.7	$	2,288			18.5	$	3,602			22.7

Comparison of Three Months Ended June 30, 2003 to Three Months Ended June 30, 2002

Net Revenues. Consolidated net revenues increased $4.1 million to $27.7 million in 2003 from $23.6 million in 2002. Radio net revenues increased $2.7 million to $19.5 million in 2003 from $16.8 million in 2002. Outdoor advertising net revenues increased $1.4 million to $8.2 million in 2003 from $6.8 million in 2002. Because of a relatively soft advertising environment, revenues generated by assets owned and operated in both periods was approximately flat and the increase was due primarily to our completion of acquisitions in 2002 and 2003. While this trends appears to be continuing into the third quarter of 2003, management does not have significant visibility beyond that period due to the rapidly changing nature of the advertising environment. However, due to completed acquisitions, management expects revenue in the third and fourth quarters of 2003 to exceed revenue of the third and fourth quarters of 2002.

Market Level Expenses. Consolidated market level expenses increased $1.5 million to $16.6 million in 2003 from $15.1 million in 2002. Radio market level expenses increased $1.4 million to $11.5 million in 2003 from $10.1 million in 2002. Outdoor advertising market level expenses increased $89,000 to $5.1 million in 2003 from $5.0 million in 2002. These increases were attributable primarily to our completion of acquisitions in 2002 and 2003. As a percentage of net revenues, consolidated market level expenses decreased from 64.0% to 60.0% since fixed costs did not increase at the same rate as revenues.

Corporate Expenses. Corporate expenses increased $206,000 to $2.4 million in 2003 from $2.2 million in 2002. This increase was due primarily to severance costs of approximately $400,000 associated with the reduction of corporate staff offset by a reduction in personal costs during the three months ended June 30, 2003. As a percentage of net revenues, corporate expenses declined from 9.5% to 8.8% because the growth in revenue did not require a proportional increase in corporate costs.

Depreciation and Amortization. Consolidated depreciation and amortization increased $1.4 million to $2.7 million in 2003 from $1.3 million in 2002. Radio depreciation and amortization increased $543,000 to $1.4 million in 2003 from $879,000 in 2002. Outdoor advertising depreciation and amortization increased $833,000 to $1.3 million in 2003 from $433,000 in 2002. The increases in radio and outdoor depreciation and amortization were attributable to acquisitions during 2002 and 2003 which resulted in the addition of depreciable fixed assets and definite lived intangibles which are amortized over their useful lives.

Interest and Other Income (Expense) Net. Interest expense, net, increased to $5.8 million in 2003 from $5.6 million in 2002 due to indebtedness incurred in connection with our acquisitions. Other income (expense), net decreased to a $131,000 expense in 2003 primarily as a result of a non-cash loss on our interest rate swap arrangements during the 2003 period.

Income Tax. We record deferred tax expense throughout the year to establish a valuation allowance against net operating loss carry-forwards generated by amortization of goodwill and broadcast licenses that are deductible for tax purposes, but are no longer amortized for book purposes. We record this valuation allowance as we continue to expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. The Company does not have any current income taxes.

Discontinued Operations. In the second quarter of 2002, we entered into an agreement to sell the assets of radio stations, WYOO-FM, WPCF-AM, WQJM-FM, WILN-FM and WYYX-FM in Panama City, Florida in exchange for approximately $5.5 million. This sale was completed in January 2003. Accordingly, the results of operations of these stations have been classified as discontinued operations in all periods prior to the consummation of the sale. The discontinued operations include a loss on disposition of approximately $3.2 million during the three months ended June 30, 2002.

Net Loss. Consolidated net loss decreased $2.2 million to $3.0 million in 2003 from $5.2 million in 2002 as a result of the factors described above.

Comparison of Six Months Ended June 30, 2003 to Six Months Ended June 30, 2002

Net Revenues. Consolidated net revenues increased $8.9 million to $51.3 million in 2003 from $42.4 million in 2002. Radio net revenues increased $5.3 million to $35.4 million in 2003 from $30.1 million in 2002. Outdoor advertising net revenues increased $3.6 million to $15.9 million in 2003 from $12.3 million in 2002. Revenues generated by assets owned and operated in both periods contributed approximately $1.7 million of the increase, while the remainder of the increase was due primarily to our completion of acquisitions in 2002 and 2003.

Market Level Expenses. Consolidated market level expenses increased $3.6 million to $31.9 million in 2003 from $28.3 million in 2002. Radio market level expenses increased $2.6 million to $21.7 million in 2003 from $19.1 million in 2002. Outdoor advertising market level expenses increased $1.0 to $10.2 million in 2003 from $9.2 million in 2002. These increases were attributable primarily to our completion of acquisitions in 2002 and 2003. As a percentage of net revenues, consolidated market level expenses decreased from 66.7% to 62.3% since fixed costs did not increase at the same rate as revenues.

Corporate Expenses. Corporate expenses increased $53,000 to $4.4 million in 2003 from $4.3 million in 2002. This increase was due primarily to severance costs of approximately $400,000 associated with the reduction of corporate staff offset by a reduction in personal costs during the six months ended June 30, 2003. As a percentage of net revenues, corporate expenses declined from 10.2% to 8.5% because the growth in revenue did not require a proportional increase in corporate costs.

Depreciation and Amortization. Consolidated depreciation and amortization increased $2.4 million to $5.0 million in 2003 from $2.6 million in 2002. Radio depreciation and amortization increased $1.3 million to $3.0 million in 2003 from $1.7 million in 2002. Outdoor advertising depreciation and amortization increased $1.3 million to $2.1 million in 2003 from $811,000 in 2002. The increases in radio and outdoor depreciation and amortization were attributable to acquisitions during 2002 and 2003 which resulted in the addition of depreciable fixed assets and definite lived intangibles which are amortized over their useful lives.

Interest and Other Income (Expense) Net. Interest expense, net, increased to $11.5 million in 2003 from $11.1 million in 2002 due to indebtedness incurred in connection with our acquisitions. Other income (expense), net decreased to a $619,000 expense in 2003 primarily as a result of a non-cash loss on our interest rate swap arrangements during the 2003 period.

Income Tax. In connection with the adoption of SFAS 142 and suspension of amortization of FCC licenses and goodwill, we determined that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. Accordingly, on January 1, 2002, we recorded a one time non-cash charge of $11,600 to deferred tax expense to establish an additional valuation allowance against our deferred tax assets. We recorded additional deferred tax expense throughout 2002 to establish a valuation allowance against net operating loss carry-forwards generated by amortization of goodwill and broadcast licenses that is deductible for tax purposes, but is no longer amortized for book purposes.

In the current year, we continue to record deferred tax expense to establish a valuation allowance for deferred tax assets created as we continue to expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. The Company does not have any current income taxes.

Net Loss. Consolidated net loss decreased $17.1 million to $8.1 million in 2003 from $25.2 million in 2002 as a result of the factors described above.

Liquidity and Capital Resources

Our cash and cash equivalents balance at June 30, 2003 was approximately $11.1 compared to $14.4 million at December 31, 2002. The Company maintains these cash balances at the end of the second and fourth quarter of its fiscal year in preparation for making semi-annual interest payments (due July 1 and January 1) of approximately $10.8 million on its 10¾% senior subordinated notes.

Net cash used in operating activities was $336,000 and $3.6 million for the six months ended June 30, 2003 and 2002, respectively. The decrease in our net cash used in operating activities was due primarily to the additional operating income resulting from acquisitions completed during 2002 and 2003.

Net cash provided by financing activities was $63.5 million for the six months ended June 30, 2003 compared to cash used in financing activities of $233,000 for the six months ended June 30, 2002. During the six months ended June 30, 2002, there were no significant acquisitions; consequently, there was no significant financing activity. Net cash used in investing activities was $66.5 million and $19.0 million for the six months ended June 30, 2003 and 2002, respectively. These cash flows primarily reflect expenditures for acquisitions and capital expenditures.

Sources and Uses of Funds

We use a significant portion of our capital resources to consummate acquisitions. Through June 30, 2003, we funded our acquisitions from the following sources: equity contributions of approximately $354.1 million from our indirect parent, NextMedia Investors, which in turn were funded by equity investments from several private investment funds and our senior management, and net borrowings of approximately $234.0 million. We expect to obtain financing for future acquisitions through the incurrence of debt, additional equity contributions, internally generated funds or a combination of the foregoing. There can be no assurance, however, that external financing will be available to us on terms we consider favorable or that cash flow from operations will be sufficient to fund our ongoing liquidity requirements.

In July 2001, GS Capital Partners 2000, L.P. and related funds committed to contribute $75.0 million to NextMedia Investors in exchange for Class A membership interests in NextMedia Investors. In January 2003, we received the final $27.1 million of the original commitment.

On July 31, 2000, we entered into a $125.0 million revolving senior credit facility. Amounts available under the senior credit facility begin decreasing quarterly, commencing in October 2003. The senior credit facility bears interest at floating rates and matures on July 31, 2007. In connection with the offering of our 10.75% Senior Subordinated Notes due 2011, the total loan commitments under the senior credit facility were reduced to $100.0 million. Pursuant to the sixth amendment to the senior credit facility, the total loan commitments under the senior credit facility were reduced to $75.0 million, the interest rates payable thereunder were adjusted to provide for an increased interest rate based on the aggregate principal amount of debt outstanding from time to time under the facility, and certain financial covenants related to senior leverage, total leverage and interest coverage were relaxed. Amounts available for borrowing under the senior credit facility are determined based on certain leverage requirements.

The credit facility amendments discussed above became effective on January 6, 2003 in connection with our acquisition of four FM radio stations and one AM radio station operating in the Saginaw/Bay City/Midland, Michigan market from Wilks Broadcasting, LLC for $55.5 million. We financed $26.0 million of the purchase price with borrowings under the senior credit facility, and funded the balance with the remainder of the previously committed equity contributions and cash on hand.

On January 31, 2003, we acquired three additional FM stations and one additional AM station as an add-on to our existing stations in the Sherman/Dennison, Texas and Ardmore, Oklahoma market for $5.5 million. Simultaneously, we disposed of five radio stations in the Panama City, Florida market for approximately $5.5 million.

In February 2003, we acquired certain outdoor advertising assets in New Jersey for approximately $4.7 million, $600,000 of which we funded in 2002 and the balance of which we funded at the time of acquisition with additional borrowings under the senior credit facility and cash on hand.

Our senior credit facility contains customary restrictive covenants that, among other things, limit our ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above specified limits. Under the senior credit facility, we must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash interest expense. If

future financial results are not sufficient to meet the requirements of the Company’s financial covenants, the lenders could accelerate the payment of any outstanding principal and interest amounts. Should this occur, the Company would attempt to obtain a waiver of the covenant violation from the lenders or seek an alternate source of financing. However, there can be no assurance that the Company would be able to obtain a waiver or an alternate source of financing. As of June 30, 2003, we were in compliance with all of these covenants. After taking into account these restrictive covenants, as of June 30, 2003, we had approximately $12.5 million of borrowing capacity under our senior credit facility.

In April 2003, we entered into agreements to sell the assets of WAIT-AM in our Chicago suburban market to Newsweb Corporation for $8,250 and acquire the assets of KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4,250. Subsequent to the purchase of KNHK-FM, in order to comply with the FCC’s station ownership regulation, we will be required to divest of a station in the Reno market. Consequently, in July 2003, we entered into an agreement to sell the assets of KSRN-FM in Reno, Nevada to Lazer Broadcasting Corp. for $2.5 million in cash. In May 2003, we entered into an agreement to sell certain of the assets of WJTW-FM in our Chicago suburban market to Hispanic Broadcasting Corporation for $21,000 in cash. We expect each of the foregoing transactions to close as soon as practicable after the FCC terminates its “hold” on license transfer applications and begins to review and approve the applications.

Capital expenditures in the six months ended June 30, 2003 decreased slightly to $3.0 million from $3.1 million for the six months ended June 30, 2002. The following table sets forth our capital expenditures for the six months ended June 30, 2003. Recurring capital expenditures are related to the maintenance of our existing broadcast facilities and outdoor structures. Non-recurring capital expenditures are related primarily to radio signal upgrades and facility consolidations. Revenue producing capital expenditures are related to the construction of new outdoor structures which management believes will generate future revenue.

	Six Months Ended June 30, 2003

	(in thousands)
Recurring	$	1,159
Non-recurring		183
Revenue producing		1,621

Total capital expenditures	$	2,963

Our 10.75% senior subordinated notes due 2011 require us to make semi-annual interest payments of approximately $10.8 million on January 1 and July 1 of each year. The indenture governing the notes contains certain restrictive covenants that, among other things, limit our ability to incur additional indebtedness and pay dividends. As of June 30, 2003, we were in compliance with these covenants.

We believe that cash from operations, together with available borrowings under our senior credit facility and proceeds from the pending asset sales discussed above, will be sufficient to permit us to meet our financial obligations and to fund our existing operations for the foreseeable future.

Standard & Poor’s Ratings Services has maintained our B+ corporate credit rating on credit watch with negative implications. If we were downgraded by Standard & Poor’s, our ability to raise capital on acceptable terms, or at all‚ could be impaired.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which is effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first interim period beginning after June 15, 2003. We do not have any interest in any variable interest entities as of January 31, 2003. We will apply the provisions of FIN 46 in future periods should a variable interest entity be acquired.

In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF No. 00-21”). This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. Where multiple elements exist in an arrangement, the arrangement fee is allocated to the different elements based upon

verifiable objective evidence of the fair value of the elements. We do not expect that the adoption of EITF No. 00-21 will have a material impact on our financial statements.

Also in May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This new statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. It requires that those instruments be classified as liabilities in the balance sheets. Most of the guidance in SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of our first interim period beginning after June 15, 2003. Management anticipates that the adoption of SFAS No. 150 will not have a material impact on our financial statements.

Forward-Looking Statements

Certain statements discussed in Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 3 (Quantitative and Qualitative Disclosures About Market Risk) and elsewhere in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to management’s expectations, strategic objectives, business prospects, trends, anticipated economic performance and financial condition and other similar matters and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, trends, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. These risks, uncertainties and other important factors include, among others: general economic and business conditions, the cyclical nature of our business, the volume of advertising spending, competition, regulatory initiatives, customer preferences and various other matters, many of which are beyond our control. Forward-looking statements speak only as of the date of the document in which they are made, and we disclaim any obligation to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

In January 2002, we entered into two interest rate swap agreements with an aggregate notional amount of $75.0 million. Pursuant to the swap arrangements, we will pay interest on the notional amount at a floating rate based on LIBOR and we will receive a fixed rate of 10.75% on the notional amount until the expiration of the agreements in January 2004. For every 0.5% increase in interest rates, we would experience an increase of approximately $375,000 in annual interest expense and, to the extent that the three month LIBOR plus 7.3% exceeds 10.75% in the future, we would be required to pay amounts in excess of the fixed payments we receive under the swap arrangements. We recognize quarterly income or expense to record the swap arrangements at fair value.

Our remaining long-term debt has a fixed interest rate. Consequently, we do not believe we are currently exposed to any material interest rate or market risk in connection with our remaining long-term debt.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2003.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended June 30, 2003, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

We currently are not a party to any material lawsuit or proceeding.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

Exhibit No.		Description

31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

(b) Reports on Form 8-K

On May 14, 2003, we filed a Current Report on Form 8-K announcing earnings results for the quarter ended March 31, 2003.

On August 7, 2003, we filed a Current Report on Form 8-K announcing earnings results for the quarter ended June 30, 2003.

On August 11, 2003, we filed a Current Report on Form 8-K filing required certifications.

SIGNATURES

Pursuant to the requirements 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.

		NEXTMEDIA OPERATING, INC.
		(Registrant)

DATE: AUGUST 13, 2003	By:	/s/ STEVEN DINETZ

		Steven Dinetz, Chief Executive Officer and President (Principal Executive Officer)

DATE: AUGUST 13, 2003	By:	/s/ SEAN R. STOVER

		Sean R. Stover, Chief Financial Officer (Principal Financial Officer)

DATE: AUGUST 13, 2003	By:	/s/ SCHUYLER HANSEN

		Schuyler Hansen, Chief Accounting Officer and Treasurer (Principal Accounting Officer)

Exhibit Index

Exhibit No.		Description

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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NEXTMEDIA OPERATING INC 10-Q