Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The total number of shares of common stock, par value $.01 per share, outstanding as of May 10, 2004 was 3,000. The Registrant has no other class of common stock outstanding.

Table of Contents

TABLE OF CONTENTS

2

Table of Contents

NEXTMEDIA OPERATING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

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

3

Table of Contents

NEXTMEDIA OPERATING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

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

4

Table of Contents

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.

5

Table of Contents

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, 2004, 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 30, 2004. 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

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first interim or annual period beginning after March 15, 2004. For variable interest entities created after February 1, 2003, FIN 46 is effective for the first interim period after December 31, 2003. The adoption of FIN 46 has not had a material impact on our financial statements.

3. Acquisitions and Dispositions

Part of the Company’s operating strategy is to expand through prudent acquisition of broadcasting, outdoor and indoor advertising properties. 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 Company’s acquisitions meet at least one of these criteria.

In January 2004, in exchange for its outdoor advertising assets in New York, New York and Baltimore, Maryland, the Company acquired outdoor advertising assets in Myrtle Beach, South Carolina valued at $43,600. As a result of the exchange, certain of the Company’s taxable temporary differences reversed resulting in a $3,800 income tax benefit during the first quarter of 2004. This benefit was offset by $3,100 of tax expense related to other activity in the quarter and the Company’s projected tax expense for the year. Because we do not expect that our deferred tax liabilities will reverse within our net operating loss carry-forward period, we record additional deferred tax expense throughout the year to establish a valuation allowance against net operating loss carry-forwards generated by amortization of goodwill and indefinite lived intangibles that is deductible for tax purposes but is not amortized for book purposes.

In February 2004, the Company completed its previously announced acquisition of WCCQ-FM licensed to Crest Hill, Illinois for $14,000 in cash. The Company funded the acquisition with borrowings under its credit facility. While the Company has not finalized its purchase accounting for the acquisition of these assets, it expects to allocate a significant portion of the acquisition cost to indefinite lived intangibles in the form of either FCC licenses or goodwill.

The following unaudited pro forma income statement information has been prepared as if the acquisitions made during the year ended December 31, 2003 and the three months ended March 31, 2004 had occurred on January 1, 2003. The pro forma income statement information is not necessarily indicative of the results that actually would have been achieved if these acquisitions had been consummated on January 1, 2003.

6

Table of Contents

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:

7

Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

5. Intangible Assets

Intangible assets consist of the following:

The aggregate change in goodwill, advertising permits and FCC licenses in the period from December 31, 2003 to March 31, 2004 resulted entirely from the Company’s acquisitions and dispositions of radio and outdoor assets. There were no impairment losses recognized during the period and no reporting units were disposed of.

Definite-lived Intangibles

The Company has definite-lived intangible assets that continue to be amortized in accordance with SFAS 142. These assets consist primarily of customer relationships and non-compete agreements which are amortized over their lives.

Total amortization expense from definite-lived intangible assets for the three months ended March 31, 2004 was approximately $1,507. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of December 31, 2003:

8

Table of Contents

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:

On April 9, 2004, the Company terminated its existing senior credit facility and entered into a new $75,000 senior credit facility maturing in five years. The Company’s new 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 new 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, 2004, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of March 31, 2004, the Company had approximately $52,000 of borrowing capacity under its senior credit facility. As a result of the termination of its existing credit facility, the Company expects to record a charge in the second quarter of 2004 to write off the associated deferred financing costs.

The Company’s 10.75% senior subordinated notes due 2011 require the Company to make semi-annual interest payments of approximately $10,800 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, 2004, the Company was in compliance with these covenants.

9

Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

8. Commitments and Contingencies

As of May 10, 2004, the Company had $354 in letters of credit outstanding as deposits to secure obligations.

In March 2004, the arbitration panel on the Company’s previously disclosed dispute with PNE Media, LLC delivered an award that was favorable to the Company and, after certain set-offs, resulted in a net recovery of approximately $3.6 million and a gain of approximately $3,000 which is recorded in other (income) expense in the first quarter of 2004. The arbitration award has been fully implemented.

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, 2004, 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, 2004, the outdoor advertising segment owned or operated over 7,000 outdoor displays and indoor advertising display faces in more than 3,000 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 30, 2004. 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.

10

Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

11

Table of Contents

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 its 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

December 31, 2003

12

Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

March 31, 2004

13

Table of Contents

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 March 31, 2003