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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number: 333-84416

NEXTMEDIA OPERATING, INC.

(Exact name of Registrant as Specified in Its Charter)

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

Securities registered pursuant to Section 12 (b) of the Act:

None

(Title of Class)

Securities registered pursuant to Section 12 (g) of the Act:

None

(Title of Class)

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 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Yes ¨ No x

The aggregate market value of the voting stock of the registrant held by non-affiliates as of March 30, 2004 was $0. The total number of shares of common stock issued and outstanding as of March 30, 2004 was 3,000.

DOCUMENTS INCORPORATED BY REFERENCE

None

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NEXTMEDIA OPERATING, INC.

FORM 10-K

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FORWARD-LOOKING STATEMENTS

Certain statements discussed in Item 1 (Business), Item 3 (Legal Proceedings), Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Item 7A (Quantitative and Qualitative Disclosures About Market Risk) and elsewhere in this Form 10-K 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.

MARKET SHARE AND INDUSTRY DATA

We have based or derived the market share and industry data we present in this report from third-party sources, primarily from the Outdoor Advertising Association of America, or OAAA, the Radio Advertising Bureau, or RAB, BIA Financial Network, Inc.’s Radio Market Report 2002 and Inside Radio, Incorporated’s “Who Owns What?”, and audience measurement information from the Arbitron Company. While we believe that these sources are reliable, we can give no assurance that these market share and industry data are accurate in all material respects.

PART I

Unless the context indicates otherwise, any reference to “we,” “our” and “us” refers to NextMedia Operating, Inc., and its consolidated subsidiaries, and “NextMedia” refers only to NextMedia Operating, Inc., which was incorporated under the laws of the State of Delaware in 2000.

Overview

We are a rapidly growing out-of-home media company that owns and operates radio stations and outdoor advertising properties throughout the United States. We operate 60 radio stations in 14 small to mid-size markets. Our outdoor advertising business consists of traditional outdoor properties, including more than 7,000 outdoor advertising displays and alternative advertising displays located in more than 3,000 retail locations across the United States, primarily in 18 of the 20 largest metropolitan statistical areas, or MSAs. For financial information with respect to our radio broadcasting and outdoor advertising divisions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this annual report.

Radio Broadcasting Division

Radio Station Portfolio

We operate 60 AM and FM radio stations in 14 markets throughout the United States. The following chart sets forth certain information about the radio stations we own and operate in rated markets.

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Wilmington, Delaware. Wilmington is the 77th ranked MSA and the 81st ranked radio market in the United States based on estimated 2002 radio advertising revenue of $26.1 million, of which we had a 25.6% share. According to BIA’s Financial Network, Inc.’s Radio Market Report 2002, radio advertising revenue in Wilmington grew at a compound rate of 4.8% during the five-year period ended December 31, 2002.

The Wilmington market has a population of approximately 663,100. Our signal in Wilmington also reaches Philadelphia, including many of its affluent suburban communities. WJBR-FM has been the number one or two rated station in the Wilmington market for the last five years. In addition, WJBR’s citygrade signal over the metropolitan Philadelphia area enables us to attract advertisers seeking to reach residents in Philadelphia’s affluent suburbs.

Reno, Nevada. Reno is the 127th ranked MSA and the 88th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $23.6 million, of which we had a 16.9% share. Radio advertising revenue in Reno grew at a compound rate of 8.7% during the five-year period ended December 31, 2002.

The Reno market has a population of approximately 410,800, which has historically grown faster than the national average. We have capitalized on Reno’s rapid population growth and popularity as a vacation destination, and believe that our high quality adult programming will enable us to increase our market share and revenue. Reno continues to present an attractive opportunity due to higher than average population growth.

Saginaw-Bay City-Midland, Michigan is the 130th ranked MSA and the 91st ranked radio market in the United States based on estimated 2002 radio advertising revenue of $22.5 million, of which we had a 40.4% share. Radio advertising in Saginaw grew at a compound rate of 6.9% during the five-year period ended December 31, 2002.

The Saginaw-Bay City-Midland market has a population of approximately 402,400 and is a local vacation destination for Michigan and the surrounding states. While we have achieved a leading position in the market in terms of ratings and revenue, we believe the market presents the opportunity for further development and growth.

Greenville-New Bern-Jacksonville, North Carolina. Greenville-New Bern-Jacksonville is the 84th ranked MSA and the 98th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $21.4 million, of which we had a 38.3% share. Radio advertising revenue in Greenville grew at a compound rate of 4.4% during the five-year period ended December 31, 2002.

The Greenville-New Bern-Jacksonville market is the largest market that Arbitron covers in terms of geographic area and has a population of approximately 587,400. We operate ten stations in the market, including WRNS-FM, the leading regional country music station in the market. Combined with our radio and outdoor operations in Myrtle Beach, South Carolina, our stations in this market make us the leading out-of-home media provider in the Coastal Carolina region. We expect our position to help us continue to capitalize on the significant growth opportunities in Greenville-New Bern-Jacksonville.

Lubbock, Texas. Lubbock is the 181st ranked MSA and the 159th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $12.2 million, of which we had a 26.8% share. Radio advertising revenue in Lubbock grew at a compound rate of 3.2% during the five-year period ended December 31, 2002.

The Lubbock market has a population of approximately 246,700. One of our stations, KLLL-FM, is the leading country station in the market, and has featured the top-rated morning show in the market for the last several years. In 2003 we entered into a long term LMA to operate station KBTE-FM. In its first six months of operation, KBTE-FM became the number two rated station in the market and has positioned our cluster to experience above-average growth.

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Myrtle Beach, South Carolina. Myrtle Beach is the 167th ranked MSA and the 163rd ranked radio market in the United States based on estimated 2002 radio advertising revenue of $11.8 million, of which we had a 29.2% share. Radio advertising revenue in Myrtle Beach grew at a compound rate of 5.2% during the five-year period ended December 31, 2002.

The Myrtle Beach market has a population of approximately 264,000. Myrtle Beach is one of the fastest growing cities on the east coast of the United States and is a major vacation destination. Subsequent to entering the market in July 2000, we changed some of the formats and signals in our Myrtle Beach stations and in the fall of 2002 became the market leader in ratings and revenue. We expect our strong ratings position and our strong performance in the Coastal Carolina region to drive future growth.

Canton, Ohio. Canton is the 129th ranked MSA and the 167th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $11.7 million, of which we had a 60.6% share. Radio advertising revenue in Canton grew at a compound rate of 4.0% during the five-year period ended December 31, 2002.

The Canton market has a population of approximately 406,500. We believe that Canton represents a significant growth opportunity for our business because the market is not home to any major television broadcasting station. As a result, the competition for local advertising spending in on-air broadcast space is limited. Our two stations are Canton’s leading radio group in terms of revenue and ratings.

Erie, Pennsylvania. Erie is the 166th ranked MSA and the 171st ranked radio market in the United States based on estimated 2002 radio advertising revenue of $11.1 million, of which we had a 61.0% share. Radio advertising revenue in Erie grew at a compound rate of 1.6% during the five-year period ended December 31, 2002.

The Erie market has a population of approximately 279,000. We have established our six stations as the leading radio cluster in the market in terms of ratings and revenue. Since entering the market in 2000, we have acquired an additional FM station, secured an additional AM frequency and consolidated three sites into one facility to streamline our operations and reduce costs.

Decatur, Illinois. Decatur is the 267th ranked MSA and the 260th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $4.9 million, of which we had a 55.1% share. Radio advertising revenue in Decatur grew at a compound rate of 4.6% during the five-year period ended December 31, 2002.

The Decatur market has a population of approximately 113,300. WSOY-AM, which commenced broadcasting in 1946, is one of the leading news/talk and agricultural information stations in the market. Since acquiring our stations in 2000, we changed the format of WDZ-AM from agricultural to urban, and WCZQ-FM from country to rhythmic contemporary, targeting African-American and younger audiences, which we believe were previously underserved by Decatur’s existing radio stations.

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The following chart sets forth certain information about the radio stations we own and operate in unrated suburban markets.

Suburban Chicago. Chicago is the third ranked MSA and the third ranked radio market in the United States based on estimated 2002 radio advertising revenue of $560.6 million. Radio advertising revenue in Chicago grew at a compound rate of 7.6% during the five-year period ended December 31, 2002. The markets that comprise suburban Chicago are currently non-rated; however, six of our eleven stations have achieved ratings in metropolitan Chicago.

The greater Chicago metropolitan area is comprised of 11 counties from Southeast Wisconsin to Northwest Indiana. Our Greater Chicago cluster consists of four adjacent areas within this area: (i) Waukegan-Kenosha, (ii) Crystal Lake, (iii) Joliet and (iv) Aurora-Naperville. Moreover, our signals in this cluster reach approximately 4.1 million people (representing 45% of Chicago’s 9.1 million total population). For purposes of comparison, a standalone market having a population of 3.2 million would constitute the 16th largest metropolitan area in the United States, ranking immediately below Phoenix, Arizona (3.3 million) and above Minneapolis-St. Paul, Minnesota (3.0 million). The demographic characteristics of the population within our Greater Chicago cluster are also particularly attractive. For example, the median household income of $58,355 represents 138% of the national average.

Suburban Dallas (Sherman-Denison-Ardmore). Dallas is the 5th ranked MSA and the 5th ranked radio market in the United States based on estimated 2002 radio advertising revenue of $383.8 million. Radio advertising revenue in Dallas grew at a compound rate of 9.0% during the five-year period ended December 31, 2002. Sherman-Denison-Ardmore, an outlying suburb of northern Dallas and Fort Worth, is currently a non-rated market.

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Dallas is one of the fastest growing metropolitan centers in the United States and is expanding northward to the suburban markets that we serve.

Suburban Dallas is defined as three adjacent counties: (i) Denton, (ii) Collin, and (iii) Grayson. This region includes 1.2 million people (representing 23% of Dallas’ 5.4 million total population). Each of the individual counties is estimated to grow at a double-digit rate over the five-year period ended December 31, 2005. For purposes of comparison, a standalone market having a population of 1.2 million would constitute the 49th largest metropolitan area in the U.S., ranking immediately below Memphis, Tennessee (1.2 million) and above Hartford-New Britain-Middletown, Connecticut (1.2 million).

Our assets within Suburban Dallas cover Grayson County, which includes (i) Lake Texoma, a popular vacation and recreation area in northern Texas, (ii) Sherman-Denison, a fast-growing metropolitan area north of Dallas and (iii) Ardmore, Oklahoma, immediately north of the Lake Texoma area in southern Oklahoma. The Sherman-Denison-Ardmore market has as an aggregate population of approximately 295,000.

Advertising Sales

In each of the radio markets we serve, we invest heavily in recruiting and training a large local sales organization to effectively serve our existing and prospective advertising clients. Our market sales force solicits local and regional advertising for each of our markets. We employ Interep and Katz Media Group as our national advertising representatives to solicit and service our national advertising clients.

Upon the acquisition of a radio station or a cluster of radio stations in a new market, our salespeople and sales trainees are initially compensated by salary and commissions. As our salespeople and sales trainees gain experience in their markets and become familiar with our standards and accountability systems, we compensate them exclusively with commissions. The sales organization in each of our markets is configured to complement the formats of our stations, the number of our stations, our air-time inventory, and the relative size of that market.

Our revenue mix between local and national advertising varies significantly by market. Currently, across all of our markets, approximately 90% of our advertising revenue is local and approximately 10% is national. We believe local advertising represents a more stable revenue source than national advertising. However, we consider national advertising important because it generally commands a higher dollar rate for each advertising spot than local advertising.

In 2003, no single advertising customer accounted for more than 10% of our consolidated radio broadcasting or total revenues.

Programming

Within each of our network clusters, we target diverse demographic groups with a broad range of programming formats, including rock, adult contemporary, oldies, news/talk, country and alternative. We believe that this diversity of programming formats enables advertisers to target their audiences more accurately by selecting one or more stations on which to broadcast their commercials.

We generally broadcast live local programming daily during the peak listening hours of 6 a.m. to 8 p.m. We design the overall mix of each station’s programming to fit the station’s specific format, to target specific demographic audiences and to serve its local community. In determining the format for each of our stations, our station managers, together with our vice president of programming, consider local demographics and programming history to identify programming gaps within the specific market. In addition, we evaluate whether filling a programming gap would generate sufficient listenership to achieve desired revenue levels.

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Outdoor Advertising Division

Products

We seek to offer advertisers a range of outdoor advertising products and we continually assess opportunities to complement our existing portfolio with new products. Our inventory of outdoor advertising products consists of both traditional outdoor displays and alternative displays, including:

We have more than 2,000 bulletins and wall displays and 3,500 posters. In addition, we have exclusive arrangements with national and local retailers, including restaurant and bar chains and retail stores, to operate indoor advertising displays in more than 3,200 alternative display sites.

Although our outdoor advertising business focuses primarily on bulletins, 8-sheet posters, wall displays and indoor displays, we also offer a limited number of additional products, including 30-sheet posters and bus shelter displays.

The following table sets forth selected information about traditional outdoor advertising markets among the top fifty ranked markets in which we operate.

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The following table sets forth selected information about our alternative outdoor advertising markets.

Advertising Sales

Local advertising currently comprises approximately 70% of our total outdoor advertising sales.

Our traditional outdoor salespeople have strong ties with the advertising community and have local market experience, which we believe will enable us to quickly identify and take advantage of new opportunities for building display sites.

We have alternative advertising sales offices in New York, Seattle, San Francisco, Hartford and Minneapolis. Although we generally employ at least one sales representative in each office who is dedicated exclusively to national sales, we encourage our sales representatives to develop national, regional and local accounts to maximize occupancy rates and advertising revenues.

Our customer contracts with local advertisers typically range from four to twelve months for bulletins and from one to twelve months for poster and alternative displays. National advertisers for our outdoor advertising products generally enter into contracts for one to three months. In addition, advertisers occasionally purchase advertising to promote particular events.

As of December 31, 2003, the average occupancy rate of our bulletins across all of our traditional outdoor markets was approximately 74%. Although we seek to improve both pricing and occupancy across our markets, we emphasize different goals according to the particular characteristics of each market. We typically enter into contracts with our advertisers to place advertisements in numerous displays at a particular site and we price our displays according to the product type, location and number of displays covered by a contract.

In 2003, no single advertising customer accounted for more than 10% of our consolidated outdoor advertising or total revenues.

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Site Leases

We believe that obtaining attractive sites for our displays is critical to generating advertising sales and building our business. Currently, most of our traditional outdoor displays are located on leased properties; in some instances, however, we purchase the premises on which our display is located or we rely on an easement to use the property. Most of our leases have terms of 5 to 20 years. We also are developing new sites in our existing markets. However, we generally do not begin construction on a new site until we have pre-sold a certain amount of advertising for that site and expect the new site to achieve our targeted rate of return.

We lease indoor display sites under exclusive agreements with either corporate customers, individual franchisees or local proprietors. Most of our alternative display sites are subject to revenue sharing provisions, under which we typically retain 80% to 90% of the revenue. Our leases typically have terms of three to five years.

In each of our outdoor advertising markets, we have real estate teams focused on developing new sites. Our director of real estate oversees real estate and lease development, including regulatory issues, across our markets. Our local real estate managers are focused on achieving competitive lease rates on attractive sites in each of our markets.

In early 2003, we entered into an agreement with Loews Theatres to place indoor advertising in their theatres in the top 20 MSAs. We believe the addition of this inventory and the distribution outlet it provides will create a significant opportunity to expand our alternative advertising business.

Installation and Maintenance

Each of our advertisers pays the production cost of its displays. While our national customers generally provide their own advertisements, we often assist our local customers in creating or procuring their advertisements. We use two or three printers in each market to create alternative displays and we have an in-house art department based in Minneapolis that produces alternative displays for our local advertisers. We obtain frames produced specifically for our displays from third party vendors and then assemble the displays in Minneapolis before we ship them to the installation sites.

We generally employ third party contractors to paint and post our traditional outdoor advertisements. Our sales force inspects the displays weekly to ensure that the advertisements are both clean and well lit. Depending on the market, we have or employ third party maintenance crews to regularly monitor and maintain the displays. In most of our markets, we are able to guarantee our advertisers a maximum 48-hour period in which we can replace damaged displays. Our crews also change displays in our 8-sheet posters and alternative displays at regular intervals in accordance with some of our customer contracts.

During 2002, we restructured our operations in the alternative advertising business to eliminate full-time installation and maintenance offices in certain markets. We have outsourced the installation and maintenance in these markets to a strategic partner. Since we no longer incur installation and maintenance costs in the related markets unless we sell advertising into those markets, our profitability is less affected by declines in advertising revenue.

Employees

As of January 31, 2004, we had a staff of 613 full-time employees and 359 part-time employees. We believe that our relations with our employees are good.

Seasonality

Our business 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

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quarter. In addition, the operating results of certain of our radio stations in any period may be affected by advertising and promotional expenditures that do not necessarily produce revenues in the period in which the expenditures are made.

Geographic Information

Since our inception, all of our assets have been located in the United States and all of our revenues have been generated from transactions originating in the United States.

Competition

The out-of-home media industry is highly competitive. Our out-of-home media properties compete for advertising revenues within their respective markets with other out-of-home media properties, as well as with other forms of local media such as newspapers, magazines, network and cable television, the Internet and direct mail.

Radio Broadcasting Division. The success of each of our radio stations depends largely upon audience ratings and our share of the overall advertising revenue within a market. Our stations compete for listeners and advertising revenue directly 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. In addition, each radio station competes on the basis of management experience, the station’s local audience share in its market, transmitter power, assigned frequency, local program acceptance and the number of other radio stations and other advertising media in the market area.

The radio broadcasting industry is subject to competition from new or developing media technologies. For example:

The Federal Communications Commission, or FCC, has adopted licensing and operating rules for satellite delivered audio and awarded two licenses for this service in April 1997. Satellite delivered audio may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and/or national audiences. Digital technology also may be used by terrestrial radio broadcast stations on broadcasting frequencies, and the FCC has changed its rules to permit AM and FM radio stations to offer digital sound. We cannot predict what other matters might be considered in the future by the FCC, nor can we assess in advance what impact, if any, the implementation of any of these changes might have on our business.

Outdoor Advertising Division. In each of our outdoor advertising markets, we face competition from a wide variety of in-home media, including broadcast and cable broadcasting, print media and direct mail marketers, as well as other out-of-home media. We compete primarily on the basis of the location of our displays and, to a lesser extent, on the cost-per-thousand impressions. According to the OAAA and

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industry reports, the traditional outdoor advertising industry is highly fragmented, with over 1,000 companies operating approximately 200,000 advertising displays. Similarly, the alternative advertising industry is highly fragmented and characterized by a large number of local operators, many of whom focus on particular products, including products that we currently offer or intend to offer.

On a national level, we compete with a small number of major outdoor advertising companies such as Clear Channel Communications, Viacom Outdoor and Lamar Advertising Co., as well as with other small and mid-sized operators. In each of our markets, we compete primarily on the basis of advertising rates, the locations in which we have displays, and the quality of our customer service. Many of our competitors have greater experience and more established customer relationships than we have in the markets in which we currently operate or in which we seek to operate. We believe we will be able to compete effectively upon entering new markets on the strength of our existing national advertising accounts. Moreover, we believe our strong emphasis on developing local relationships and expertise will enable us to secure attractive sites at competitive rates and to develop long-term advertising relationships in each of our markets.

Government Regulation

Radio Licensing and Regulation

The radio broadcasting industry is subject to extensive and changing regulation of, among other things, program content, advertising content, technical operations and business and employment practices. The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC. Among other things, the FCC:

The FCC is authorized to impose penalties for violations of its rules or the Communications Act, including the imposition of monetary forfeitures, the issuance of short-term licenses, the imposition of a condition on the renewal of a license, nonrenewal of licenses and the revocation of operating authority.

FCC Licenses. Radio stations operate pursuant to renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. During the periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. The FCC is required to hold hearings on a station’s renewal application if a substantial or material question of fact exists as to whether the station has served the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet certain requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Only after a license renewal application is denied will the FCC accept and consider competing applications for the vacant frequency. Historically, the FCC has generally renewed licenses. We have no reason to believe that our licenses will not be renewed in the ordinary course, although we cannot assure you that any or all of our licenses will be renewed. The non-renewal of one or more of our licenses could have a material adverse effect on our business.

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Transfer or Assignment of Licenses. The Communications Act prohibits the assignment of broadcast licenses or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee and the proposed licensee, including:

To obtain FCC consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a substantial change in ownership or control, for example, the transfer or acquisition of 50.0% or more of the voting stock, the application must be placed on public notice for not less than 30 days during which time petitions to deny or other objections against the application may be filed by interested parties, including members of the public. These types of petitions are filed from time to time with respect to proposed acquisitions. If the FCC grants an assignment or transfer application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. The FCC usually has an additional ten days to set aside the grant on its own motion. An application that does not involve a substantial change in ownership or control (a “pro forma application”) is not subject to the public notice and 30-day petition to deny procedure. The pro forma application is nevertheless subject to informal objections that may be filed against it at any time until the FCC acts on the application. When ruling on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of control of the broadcast license to any party other than the assignee or transferee specified in the application.

Multiple Ownership Rules. The Communications Act and FCC rules and policies impose specific limits on the number of commercial radio stations an entity can own in a single market. These rules and policies may preclude us from acquiring certain stations we might otherwise seek to acquire. The rules and policies also effectively prevent us from selling stations in a market to a buyer that has reached its ownership limit in the market unless that buyer divests other stations. The local radio ownership rules are as follows:

The FCC has adopted policies providing for special review of a proposed transaction that raises competitive concerns. The FCC uses a “50/70” revenue test to identify these applications. Specifically, an application proposing a radio station combination having 50% or more of the revenue in an Arbitron metropolitan market or an application that will result in two station owners controlling stations having 70% or more of the revenue in an Arbitron metropolitan market is placed on public notice with a special legend inviting public comment on the application’s impact on competition and diversity in the market. In the past, the FCC has delayed or withheld approval of these applications. The FCC has introduced a policy of preparing

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draft actions on these applications within six months after filing. Applications determined to be ungrantable due to competition or diversity concerns will be designated for hearing or, at the applicant’s option, deferred until after finalization of the rule changes.

The FCC’s revised radio/television cross-ownership rule permits a single owner to own up to two television stations, consistent with the FCC’s rules on common ownership of television stations, together with one radio station in all markets. In addition, an owner is permitted to own additional radio stations, not to exceed the local ownership limits for the market, as follows:

A “media voice” includes each independently owned, full-power television and radio station and each daily newspaper that has a circulation exceeding 5.0% of the households in the market, plus one voice for all cable television systems operating in the market.

In addition to the limits on the number of radio stations and radio/television combinations that a single owner may own, the FCC’s broadcast/newspaper cross-ownership rule prohibits the same owner from owning a broadcast station and a daily newspaper in the same geographic market.

The FCC generally applies its ownership limitations to attributable interests held by an individual, corporation, partnership or other association. In the case of corporations controlling broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s voting stock are generally attributable. In addition, certain passive investors are attributable if they hold 20.0% or more of the corporation’s voting stock. The FCC treats all partnership interests as attributable, except for those limited partnership interests that under FCC policies are considered “insulated” from “material involvement” in the management or operation of the media related activities of the partnership. The FCC currently treats limited liability companies like limited partnerships for purposes of attribution.

The FCC has a rule known as the equity-debt-plus rule that causes certain otherwise unattributable creditors or investors to be attributable owners of a station. Under this rule, a major programming supplier or a same-market owner will be an attributable owner of a station if the supplier or owner holds debt or equity, or both, in the station that is greater than 33.0% of the value of the station’s total debt plus equity. A major programming supplier includes any programming supplier that provides more than 15.0% of the station’s weekly programming hours. A same-market owner includes any attributable owner of a media company, including broadcast stations, cable television and newspapers, located in the same market as the station, but only if the owner’s interest in the media company is attributable under an FCC attribution rule other than the equity-debt-plus rule.

Over the past few years, a number of radio stations have entered into what have commonly been referred to as local marketing agreements (“LMAs”). While these agreements may take varying forms, under a typical local marketing agreement, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with FCC’s rules and policies. Under these arrangements, separately owned stations could agree to function cooperatively in programming, advertising sales and similar matters, subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station. One typical type of local marketing agreement is a programming agreement between two separately-owned radio stations serving a common service area, whereby the licensee of one station provides substantial portions of the broadcast programming for airing on the other licensee’s station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments.

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The FCC’s rules provide that a radio station that brokers more than 15.0% of the weekly broadcast time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC’s local radio ownership limits. As a result, in a market where we own a radio station, we would not be permitted to enter into a local marketing agreement with another radio station in the same market if we could not own the brokered station under the multiple ownership rules, unless our programming on the brokered station constituted 15% or less of the brokered station’s programming time on a weekly basis. FCC rules also prohibit a broadcast station from duplicating more than 25.0% of its programming on another station in the same broadcast service, that is AM-AM or FM-FM, through a local marketing agreement where the brokered and brokering stations which it owns or programs serve substantially the same area.

Joint sales agreements (“JSAs”) permit broadcasters to sell advertising time on stations owned by others. In the past, the FCC has declined to consider JSAs as attributable media interests because they do not generally affect programming.

New Multiple Ownership Rules. The FCC adopted revisions to its Multiple Ownership Rules in June 2003. Among other things, these new rules would have the effect of (a) changing the definition of local radio market in Arbitron rated markets, (b) changing the methodology for counting commonly owned radio stations in non-Arbitron radio markets, (c) relaxing newspaper/broadcasting cross-ownership limitations, and (d) counting JSAs as attributable interests the same way local marketing agreements are counted. These new rules were appealed in an action before the United States Court of Appeals for the Third Circuit. The Court of Appeals issued an order staying the effective date of the new rules and keeping the prior rules in effect until resolution of the appeal.

While it is impossible to predict how the Court of Appeals might rule on the multiple ownership appeal, the new radio market definitions, if implemented, could limit or prevent expansion of our radio holdings in some Arbitron radio markets. Similarly, the attribution of JSAs could require us to terminate such agreements in at least one market.

Alien Ownership Rules. The Communications Act prohibits the issuance or holding of broadcast licenses by persons who are not U.S. citizens, whom the Communications Act refers to as “aliens,” including any corporation if more than 20.0% of its capital stock is owned or voted by aliens. In addition, the FCC may prohibit any corporation from holding a broadcast license if the corporation is controlled by any other corporation of which more than 25.0% of the capital stock is owned of record or voted by aliens, if the FCC finds that the prohibition is in the public interest. The limited liability company agreement of our indirect parent, NextMedia Investors, LLC, prohibits the ownership, voting and transfer of our capital stock in violation of these FCC restrictions, and limits the issuance of capital stock or the voting rights such capital stock represents to or for the account of aliens or corporations otherwise subject to domination or control by aliens in excess of the FCC limits. The certificate of incorporation authorizes our board of directors to enforce these provisions.

Programming and Operations. The Communications Act requires broadcasters to serve the public interest. The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. A licensee continues to be required, however, to present programming that is responsive to community problems, needs and interests and to maintain records demonstrating this responsiveness. Complaints from listeners concerning a station’s programming often will be considered by the FCC when it evaluates renewal applications of a licensee, but listener complaints may be filed at any time. Complaints are required to be maintained in the station’s public file and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act. Those rules regulate, among other things, political

advertising, sponsorship identifications, the advertisement of contests and lotteries, obscene and indecent broadcasts and technical operations, including limits on human exposure to radio frequency radiation.

In November 2002, the FCC adopted new rules prohibiting employment discrimination by broadcast stations on the basis of race, religion, color, national origin and gender; and requiring broadcasters to

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implement programs to promote equal employment opportunities at their stations. Under these new equal opportunity rules, radio stations are expected to recruit community-wide for most full time job vacancies. They must undertake certain long term recruitment and training initiatives and file reports with the FCC on their efforts.

Proposed and Recent Changes. Congress and the FCC may in the future consider and adopt new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of our radio stations, including the loss of audience share and advertising revenues for our radio stations, and an inability to acquire additional radio stations or to finance those acquisitions. These matters may include:

The FCC has adopted standards for authorizing and implementing terrestrial digital audio broadcasting technology, using in-band on-channel technology for AM and FM radio stations. Digital audio broadcasting’s advantages over traditional analog broadcasting technology include improved sound quality and the ability to offer a greater variety of auxiliary services. In-band on-channel technology permits an AM or FM station to transmit radio programming in both analog and digital formats, or in digital only formats, using the bandwidth that the radio station is currently licensed to use. It is unclear what effect digital audio broadcasting regulations will have on our business or the operations of our radio stations.

The FCC has created a new low-power FM (“LPFM”) radio service, which operates at a maximum power of between 10 and 100 watts in the existing FM commercial and noncommercial band. LPFM stations are used by governmental and nonprofit organizations to provide noncommercial educational programming or public safety and transportation radio services. No existing broadcaster or other media entity, including us, is permitted to have an ownership interest or enter into any program or operating agreement with any LPFM station. During the first two years of the new service, applicants must be based in the area that they propose to serve. Applicants will not be permitted to own more than one station nationwide during the initial two-year period. After the initial two-year period, entities will be allowed to own up to five stations nationwide, and after three years, the limit will be raised to ten stations nationwide. A single person or entity may not own two LPFM stations whose transmitters are less than seven miles from each other. The authorizations for the new stations will not be transferable.

At this time, it is difficult to assess the competitive impact of the LPFM stations. The LPFM stations must comply with certain technical requirements aimed at protecting existing FM radio stations from interference, although we cannot be certain of the level of interference that LPFM stations will cause after they begin operating. Moreover, if LPFM stations are licensed in the markets in which we operate our stations, the low-power stations may compete for listeners. The LPFM stations may also limit our ability to obtain new licenses or to modify our existing facilities, although FCC engineers have conducted interference testing and have concluded that the new 10-watt power LPFM stations will not produce unacceptable levels of interference to existing FM stations, such as those owned by us.

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Finally, the FCC has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed for new or major change applications which are mutually exclusive. Such procedures may limit our efforts to modify or expand the broadcast signals of our stations.

Federal Antitrust Laws. The agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission and the Department of Justice, may investigate certain acquisitions. We cannot predict the outcome of any specific FTC or Department of Justice investigation. Any decision by the FTC or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate an acquisition or to consummate it on terms acceptable to us.

For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Act requires the parties to file Notification and Report Forms concerning antitrust issues with the FTC and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition. If the investigating agency raises substantive issues in connection with a proposed transaction, then the parties frequently engage in lengthy discussions or negotiations with the investigating agency concerning possible means of addressing those issues, including restructuring the proposed acquisition or divesting assets. In addition, the investigating agency could file suit in federal court to enjoin the acquisition or to require the divestiture of assets, among other remedies. Acquisitions that are not required to be reported under the Hart-Scott-Rodino Act may be investigated by the FTC or the Department of Justice under the antitrust laws before or after consummation. In addition, private parties may under certain circumstances bring legal actions to challenge an acquisition under the antitrust laws.

As part of its increased scrutiny of radio station acquisitions, the Department of Justice has stated publicly that it believes that local marketing agreements, joint sales agreements and other similar agreements customarily entered into in connection with radio station transfers could violate the Hart-Scott-Rodino Act if such agreements take effect prior to the expiration of the waiting period under the Hart-Scott-Rodino Act. Furthermore, the Department of Justice has noted that joint sales agreements may raise antitrust concerns under Section 1 of the Sherman Act and has challenged joint sales agreements in certain locations. The Department of Justice also has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to radio station acquisitions, above which a transaction may receive additional antitrust scrutiny. However, to date, the Department of Justice has also investigated transactions that do not meet or exceed these benchmarks and has cleared transactions that do exceed these benchmarks.

Regulation of Outdoor Advertising

The outdoor advertising industry is subject to governmental regulation at the federal, state and local levels. Federal law, principally the Highway Beautification Act of 1965, established incentives for states to implement legislation to restrict billboards located within 660 feet of, or visible from, interstate and primary highways, except in commercial or industrial areas. Every state has adopted regulations at least as stringent as the provisions of the Highway Beautification Act, including prohibitions on the construction of new billboards adjacent to federally-aided highways and the removal at the owner’s expense and without any compensation of any illegal signs on such highways. The Highway Beautification Act, and the various state statutes implementing it, require the payment of just compensation whenever government authorities require the removal from federally-aided highways of billboards that have been legally erected and maintained.

Numerous state and local jurisdictions have, in some cases, passed additional and more restrictive regulations on the construction, repair, upgrading, height, size and location of, and, in some instances, content of advertising copy being displayed on outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. These regulations, often in the form of municipal building, sign or zoning ordinances, specify minimum standards for the height, size and location of billboards. In some cases, the construction of new billboards or relocation of existing billboards is prohibited. Some jurisdictions also have restricted the ability to enlarge or upgrade existing billboards, such as converting from wood to steel or from non-illuminated to illuminated structures. From time to time governmental authorities order the removal of billboards by the exercise of eminent domain. We may be unable to obtain satisfactory compensation for the government-ordered removal of any of our structures.

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Amortization of billboards has also been adopted in varying forms in certain jurisdictions. Amortization permits the billboard owner to operate its billboard as a non-conforming use for a specified period of time until it has recouped its investment, after which it must remove or otherwise conform its billboard to the applicable regulations at its own cost without any compensation. Amortization and other regulations requiring the removal of billboards without compensation have been subject to vigorous litigation in state and federal courts and cases have reached differing conclusions as to the constitutionality of these regulations. To date, regulations in our markets have not materially affected our operations.

As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.

Available Information

Information about us, including recent filings with the Securities and Exchange Commission, may be found at our internet website: www.nextmediagroup.net.

Our principal executive offices are located at 6312 S. Fiddlers Green Circle, Suite 360E, Englewood, Colorado 80111. In each of our radio markets, we typically lease offices, studios and transmitter and antenna sites. In each of our outdoor advertising markets, we typically lease or have easements on the property on which our billboard and poster displays are located.

No single facility is material to us. We believe that our facilities are generally in good condition and suitable for our operations. However, we continually look for opportunities to upgrade our facilities and may do so in the future.

In January 2003, we withheld approximately $1.5 million from PNE Media (which represents a net working capital payment otherwise payable to PNE Media) as an offset to indemnification claims in accordance with the contribution and purchase and sale agreement related to our 2001 acquisition of certain outdoor advertising assets of PNE Media. In May 2003, PNE Media filed a demand for arbitration for misrepresentations or omissions in connection with its July 2001 investment in NextMedia Investors, LLC, our ultimate parent. PNE Media sought the withheld amount, together with additional unspecified damages. A panel of three arbitrators heard the dispute during a week-long evidentiary hearing in January 2004. In March 2004, the arbitration panel delivered an award that was favorable to us and, after certain set-offs, resulted in a net recovery of approximately $3.6 million. At this time, PNE Media and we are in the process of implementing the arbitration award.

We are involved in various legal and other proceedings which are incidental to the conduct of our business. We do not believe that any of these proceedings, if adversely determined, would have a material adverse effect on our financial condition or results of operations.

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

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PART II

All outstanding shares of our common stock are held by our parent, NextMedia Group, Inc. As of March 30, 2004, there were 3,000 shares of our common stock outstanding.

We have not paid any cash dividends in respect of our common stock since our inception and we have no present intention to pay any dividends in the foreseeable future. Instead, we intend to retain earnings for working capital and to finance the expansion of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend upon our earnings, financial condition, capital requirements, level of indebtedness and contractual restrictions, including the provisions of our amended senior credit facility and provisions applicable to our 10.75% Senior Subordinated Notes due 2011, and any other factors deemed relevant by our board of directors in its sole discretion.

Since our inception, we have not made any sales of equity securities that were not registered under the Securities Act of 1933, as amended. We have no compensation plans under which our equity securities are authorized for issuance.

The following table sets forth, for the periods and at the dates indicated, our selected historical and consolidated financial data, in thousands of dollars, except per share data. You should read this financial data in conjunction with the information contained in or referenced under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Consolidated Financial Statements” in Parts II and IV of this Annual Report on Form 10-K.

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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 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 by 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 the 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, in relation 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

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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.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles, which requires us to make certain estimates and assumptions. A summary of our significant accounting policies is provided in Note 1 to our consolidated financial statements. The following section is a summary of certain aspects of those accounting policies that both require our most difficult, subjective or complex judgments and are most important to the portrayal of our financial condition and results of operations.

Acquisitions. We account for our business acquisitions under the purchase method of accounting as required by Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. These estimates and assumptions affect future amortization expense and gains or losses recorded on the sale of properties.

Intangible Assets. We record identified intangible assets, including but not limited to FCC licenses, advertising permits, customer relationships, non-compete agreements, and favorable/unfavorable lease obligations, at their fair value using our estimates and assumptions. These estimates and assumptions affect future amortization expense and gains or losses recorded on the sale of properties. Goodwill represents the excess of cost over the fair value of tangible assets and identified intangible assets acquired in a business combination. For indefinite lived intangibles related to acquisitions prior to July 1, 2001, amortization was provided on the straight-line method over the estimated useful lives of the related assets, primarily 40 years, through December 31, 2001. No amortization has been recorded for indefinite lived intangible assets acquired subsequent to July 1, 2001. From January 1, 2002 through present, in accordance with SFAS 142, no amortization has been recorded on any indefinite lived intangible assets.

Impairment. In January 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), which changes the accounting for goodwill and intangible assets with indefinite lives, such as FCC licenses and advertising permits, from an amortization method to an impairment-only approach, and introduces a new model for determining impairment charges. The new model requires us to evaluate our indefinite lived intangible assets and goodwill for impairment at least annually. In applying the new model, we first evaluate our indefinite lived intangible assets. To the extent that the estimated fair value of the indefinite lived intangible assets is less than the net book value, we record an impairment charge to reduce the net book value to estimated fair value. Subsequent to the impairment analysis of our indefinite lived intangible assets, we evaluate each of our reporting units (principally our markets) for impairment. If the estimated fair value of our reporting units is less than the net book value, we perform a second step to quantify the amount of the impairment. In this process, the fair value of each of the assets, including goodwill, is estimated and compared to the related net book value. The shortfall of the fair value below net book value of all of the assets represents the amount of impairment. Determining the fair value of our indefinite lived intangible assets and reporting units requires judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to, among other items, future cash inflows and outflows, discount rates and terminal valuation multiples.

Bad debt allowance. We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce receivables to what we believe will be collected. For all other customers, we recognize reserves based on historical experience of bad debts as a percent of revenues for each business unit, adjusted for relative improvements or deteriorations in collectibility and changes in current economic conditions.

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Income Taxes. We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Judgment is required in determining our provision for income taxes. Our income tax provision is based on calculations and assumptions that are subject to examination by many different tax authorities. We adjust our income tax provision in the period it is probable that actual results will differ from our estimates. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

We record a valuation allowance to reduce our deferred tax assets to the amount that is likely to be realized. While we consider future taxable income, if any, in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

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.

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Results of Operations

The following tables present certain summary historical financial data in dollars 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.