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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 March 31, 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:                               

NextMedia Operating, Inc.

(Exact name of registrant as specified in its charter)

(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 May 10, 2003 was 3,000. The Registrant has no other class of common stock outstanding.

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

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

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

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

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

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

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

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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.

2.

Recent Accounting Pronouncements

On December 31, 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (SFAS 148). SFAS 148 amends Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), to provide alternative methods of transition to SFAS 123 fair value method of account for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require disclosures in the summary of significant account policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method. The interim disclosure provisions are effective for the first interim period beginning after December 15, 2002. Because the Company has no stock-based employee compensation, SFAS 148 has no impact on its financial position, results of operations or related disclosures.

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 does not have any interest in any variable interest entities as of January 31, 2003. The Company will apply the provisions of FIN 46 in future periods should a variable interest entity be acquired.

3.

Acquisitions and Dispositions

Part of the Company’s operating strategy is to expand through prudent acquisition of broadcasting, outdoor and indoor 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 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.

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

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 months ended March 31, 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 months ended March 31, 2003 have been excluded 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 three months ended March 31, 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.

In April 2003, the Company entered into an agreement to sell the assets of WAIT-AM in its Chicago suburban market to Newsweb Corporation for $8,250. Also in April 2003, the Company entered into an agreement to acquire KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4,250. The Company expects each of these transactions to close in the second or third quarter of 2003.

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 this transaction to close during the second or third quarter of 2003.

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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:

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

5.

Intangible Assets

Intangible assets consist of the following:

Definite-lived Intangibles

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 three months ended March 31, 2003 was approximately $815,000. 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:

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

6.

Accrued Expenses

Accrued expenses consist of the following:

7.

Long-Term Debt

Long-term debt consists of the following:

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. As of March 31, 2003, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of March 31, 2003, the Company had approximately $15.0 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 March 31, 2003, the Company was in compliance with these covenants.

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

8.

Commitments and Contingencies

As of May 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 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 March 31, 2003, the radio broadcasting segment included 60 radio stations owned and operated by the Company. All of these stations operate in domestic markets. The radio broadcasting segment also operates various radio networks.

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 March 31, 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 of the Company for the periods presented.

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

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

10.

Supplemental Guarantor Information

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

NextMedia Operating, Inc.
Supplemental Combining Balance Sheet
March 31, 2003