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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, 2004

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 22, 2005 was $0. The total number of shares of common stock issued and outstanding as of March 22, 2005 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 2003, 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

ITEM 1. BUSINESS

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 an out-of-home media company that owns and operates radio stations and outdoor advertising properties throughout the United States. We operate 66 radio stations in 16 small, mid-size and suburban markets. Our outdoor advertising business consists of traditional outdoor properties, including more than 5,100 outdoor advertising displays and alternative advertising displays located in more than 2,400 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 66 AM and FM radio stations in 16 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 74th ranked MSA and the 81st ranked radio market in the United States based on estimated 2003 radio advertising revenue of $26.1 million, of which we had a 23.0% share. According to BIA’s Financial Network, Inc.’s Radio Market Report 2003, radio advertising revenue in Wilmington grew at a compound rate of 2.4% during the five-year period ended December 31, 2003.

The Wilmington market has a population of approximately 670,600. 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 124th ranked MSA and the 85th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $24.6 million, of which we had an 18.6% share. Radio advertising revenue in Reno grew at a compound rate of 7.5% during the five-year period ended December 31, 2003.

The Reno market has a population of approximately 418,400, 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.

Greenville-New Bern-Jacksonville, North Carolina. Greenville-New Bern-Jacksonville is the 88th ranked MSA and the 89th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $23.3 million, of which we had a 37.8% share. Radio advertising revenue in Greenville grew at a compound rate of 2.8% during the five-year period ended December 31, 2003.

The Greenville-New Bern-Jacksonville market is the largest market that Arbitron covers in terms of geographic area and has a population of approximately 592,900. We operate ten stations in the market, including WRNS-FM, the leading regional country music station in the market. Combined with our radio operations in Wilmington, North Carolina and our radio and outdoor operations in Myrtle Beach, South Carolina, our contiguous radio presence and outdoor advertising assets make us the leading out-of-home media provider in the Coastal Carolina region. We expect our position will help us continue to capitalize on the significant growth opportunities in Greenville-New Bern-Jacksonville.

Saginaw-Bay City-Midland, Michigan. Saginaw-Bay-Midland is the 130th ranked MSA and the 97th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $22.1 million, of which we had a 32.5% share. Radio advertising in Saginaw grew at a compound rate of 4.8% during the five-year period ended December 31, 2003.

The Saginaw-Bay City-Midland market has a population of approximately 403,600 and is a located within the primary automotive manufacturing area of the country. 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.

Wilmington, North Carolina. Wilmington is the 176th ranked MSA and the 154th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $12.9 million, of which we had a 39.7% share. Radio advertising revenue in Wilmington grew at a compound rate of 5.0% during the five-year period ended December 31, 2003.

The Wilmington market has a population of approximately 247,700 which we expect to grow at a pace faster than the national average. We plan to capitalize on this growth and Wilmington’s popularity as a vacation destination. Combined with our radio operations in Greenville-New Bern-Jacksonville, North Carolina and our radio and outdoor operations in Myrtle Beach, South Carolina, our contiguous radio presence and outdoor advertising assets 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 Wilmington, North Carolina.

Lubbock, Texas. Lubbock is the 182nd ranked MSA and the 159th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $12.2 million, of which we had a 25.4% share. Radio advertising revenue in Lubbock grew at a compound rate of 1.3% during the five-year period ended December 31, 2003.

The Lubbock market has a population of approximately 249,800. 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 is now tied for the number one position with sister station KLLL-FM among persons aged 25-54.

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Canton, Ohio. Canton is the 128th ranked MSA and the 159th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $12.2 million, of which we had a 62.9% share. Radio advertising revenue in Canton grew at a compound rate of 4.1% during the five-year period ended December 31, 2003.

The Canton market has a population of approximately 407,200. 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. Canton is home to the Pro Football Hall of Fame for which our two stations are the official stations. Our stations are Canton’s leading radio group in terms of revenue and ratings.

Myrtle Beach, South Carolina. Myrtle Beach is the 164th ranked MSA and the 167th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $11.8 million, of which we had a 30.5% share. Radio advertising revenue in Myrtle Beach grew at a compound rate of 5.0% during the five-year period ended December 31, 2003.

The Myrtle Beach market has a population of approximately 269,400. 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. Combined with our radio operations in Wilmington, North Carolina and Greenville-New Bern-Jacksonville, North Carolina and our outdoor operations in Myrtle Beach, South Carolina, our contiguous radio presence and outdoor advertising assets make us the leading out-of-home media provider in the Coastal Carolina region. We expect our position to help us to continue to capitalize on the significant growth opportunities in Myrtle Beach.

Erie, Pennsylvania. Erie is the 165th ranked MSA and the 172nd ranked radio market in the United States based on estimated 2003 radio advertising revenue of $10.9 million, of which we had a 59.8% share. Radio advertising revenue in Erie grew at a compound rate of 4.4% during the five-year period ended December 31, 2003.

The Erie market has a population of approximately 278,900. 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 consolidated three sites into one facility to streamline our operations and reduce costs. WRTS-FM “The Star” is one of the highest ranked contemporary hit radio stations in the country.

Decatur, Illinois. Decatur is the 277th ranked MSA and the 262nd ranked radio market in the United States based on estimated 2003 radio advertising revenue of $5.1 million, of which we had a 55.8% share. Radio advertising revenue in Decatur grew at a compound rate of 3.9% during the five-year period ended December 31, 2003.

The Decatur market has a population of approximately 113,700. WSOY-AM, which commenced broadcasting in 1946, is one of the leading news/talk and agricultural information stations in the state of Illinois. 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.

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

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Suburban Chicago. Chicago is the third ranked MSA and the third ranked radio market in the United States based on estimated 2003 radio advertising revenue of $602.8 million. Radio advertising revenue in Chicago grew at a compound rate of 6.5% during the five-year period ended December 31, 2003. The markets that comprise suburban Chicago are currently non-rated; however, six of our twelve stations have achieved Arbitron 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 five adjacent areas within this area and extending to Milwaukee: (i) Waukegan-Kenosha, (ii) Crystal Lake, (iii) Joliet and (iv) Aurora-Naperville and (v) Milwaukee. Moreover, our signals in this cluster reach approximately 4.1 million people in the Chicago metropolitan area (representing 45% of Chicago’s 9.2 million total population). For purposes of comparison, a standalone market having a population of 4.1 million would constitute the 12th largest metropolitan area in the United States, ranking immediately below Atlanta, Georgia (4.5 million) and above Miami-Ft. Lauderdale-Hollywood, Florida (4.1 million). The demographic characteristics of the population within our Greater Chicago cluster are also particularly attractive. For example, the median household income of $58,633 represents 138% of the national average. Our station WEXT-FM moved its antenna location during 2004 to substantially increase our coverage of the Milwaukee area, enhancing the cluster’s overall advertising base.

Suburban Dallas (Sherman-Denison-Ardmore). Dallas is the 5th ranked MSA and the 5th ranked radio market in the United States based on estimated 2003 radio advertising revenue of $401.6 million. Radio advertising revenue in Dallas grew at a compound rate of 7.0% during the five-year period ended December 31, 2003. Dallas is one of the fastest growing metropolitan centers in the United States and is expanding northward to the suburban markets that we serve. Sherman-Denison-Ardmore, an outlying suburb of northern Dallas and Fort Worth, is currently a non-rated market.

Suburban Dallas is defined as three adjacent counties: (i) Denton, (ii) Collin, and (iii) Grayson. This region includes 1.2 million people (representing 22% of Dallas’ 5.5 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 Jacksonville, Florida (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.

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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 2004, 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. M-F. 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.

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 2,700 bulletins and wall displays and 2,400 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 2,400 alternative display sites.

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

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

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

Advertising Sales

Local advertising currently comprises approximately 80% 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, San Francisco 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.

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As of December 31, 2004, the average occupancy rate of our bulletins across all of our traditional outdoor markets was approximately 76%. 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 2004, no single advertising customer accounted for more than 10% of our consolidated outdoor advertising or total revenues.

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.

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 the copy for their advertisements. We use two or three printers in each market to produce vinyl and posters for our local customers. We have an in-house art department based in Minneapolis that produces copy for alternative displays for local advertisers. We obtain frames produced specifically for our displays from third party vendors and then assemble the displays in Minneapolis and ship them to the alternative display sites for installation.

We generally employ third party contractors to paint and/or 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 poster and at our alternative display sites 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, 2005, we had a staff of 626 full-time employees and 355 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 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.

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Competition

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

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, 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 over the air 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 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 our strong emphasis on developing local relationships and expertise will enable us to secure attractive real estate sites at competitive rates and to develop long-term advertising relationships in each of our markets.

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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. Penalties can include 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.

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, the application must be placed on public notice for not less than 30 days. (In the FCC’s view, a “substantial change in ownership” occurs when one or more parties previously unapproved by the FCC with the respect to the licenses in question propose to acquire, in the aggregate, 50% or more of a licensee’s ownership.) During that 30-day period, 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 or review 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.

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Multiple Ownership Rules. The Communications Act and FCC rules and policies impose specific limits on the number of commercial radio stations in a single market in which an entity may hold a “cognizable” or “attributable” interest. For purposes of these rules and policies, persons and entities said to hold “attributable” or “cognizable” interests include officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the company’s voting ownership interests. In addition, certain passive investors are attributable if they hold 20.0% or more of the corporate licensee’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 in the same way as limited partnerships for purposes of attribution.

In June, 2003, the FCC adopted new multiple ownership rules and policies governing the commercial radio and television industries. On review by the U.S. Court of Appeals for the Third Circuit (“Court of Appeals”), those rules and policies were affirmed in part and remanded in part. While the FCC has not sought further review of the decision of the Court of Appeals, a number of private parties have asked the United States Supreme Court to review it. Pending a decision by the Supreme Court and/or further action by the FCC in response to the remand from the Court of Appeals, the Court of Appeals has permitted the FCC to implement some of the rules which the FCC adopted in June, 2003, although the Court of Appeals has also stayed the effectiveness of other aspects of the FCC’s June, 2003 decision.

The FCC’s multiple ownership 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 limits currently in effect for Arbitron-designated “Metro” markets are as follows:

In markets not designated as “Metro” markets by Arbitron, the FCC utilizes a contour-overlap methodology for identifying markets for purpose of applying the numerical limits set out above. This contour-overlap methodology is interim and will likely be in effect at least until the FCC completes a rulemaking proceeding (in MB Docket No. 03-130) which it initiated in 2003 in connection with its review of the ownership rules.

Prior to June, 2003, the FCC utilized a “50/70” revenue test to identify those applications which proposed radio transactions raising concerns about excessive marketplace dominance. Under that test, if an application (a) proposed a radio station combination having 50% or more of the revenue in an Arbitron metropolitan market or (b) would have resulted in two station owners controlling stations having 70% or more of the revenue in an Arbitron metropolitan market, then that application would be placed on public notice with a special notation inviting public comment on the application’s impact on competition and diversity in the market. Action on applications so identified tended to be delayed significantly. As a result of the Third Circuit decision, the stay imposed by the Third Circuit, and the partial lifting of that stay, the current status of the “50/70” revenue test is unclear.

The television ownership rules presently in effect permit common ownership of up to two television stations in the same Designated Market Area (“DMA”) as that term is defined by Nielsen Media Research or any successor entity, provided that:

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The radio/television cross-ownership rule presently in effect 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:

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 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 media 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 asset value (i.e., all debt plus all equity). A major programming supplier includes any programming supplier that provides more than 15.0% of the commonly-owned station’s weekly programming hours. A same-market media 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.

For more than a decade, the FCC has permitted radio station licensees to enter into agreements pursuant to which those licensees make their stations’ facilities available to other licensees for the broadcast of programming and advertising. Such arrangements are familiarly known by various names, including local marketing agreements (“LMAs”) or time brokerage agreements (“TBAs”). While these agreements may take varying forms, under a typical LMA or TBA, separate and distinct radio licensees enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with FCC’s rules and policies. One typical form of LMA or TBA is a programming agreement between two separately-owned radio stations serving a common service area, pursuant to which the licensee of one station (a) provides substantial portions of the programming to be broadcast on the other licensee’s station (subject to ultimate editorial and other controls which remain with the latter licensee) and (b) sells advertising time during those program segments.

The FCC’s rules provide that a radio licensee 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 an LMA or TBA 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 an LMA or TBA where the brokered and brokering stations which it owns or programs serve substantially the same area.

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Joint sales agreements (“JSAs”) permit broadcasters to sell advertising time on stations owned by others. Under the multiple ownership rules presently in effect, a JSA constitutes an attributable media interest in a station (Station A) if, pursuant to the JSA, an entity with a cognizable interest in a second station in Station A’s market sells more than 15.0% of the weekly advertising time on Station A.

As noted above, the FCC’s multiple ownership rules are in a state of flux. While some aspects of the FCC’s June, 2003 decision modifying those rules have been upheld on appeal, other aspects have been remanded to the FCC by the Third Circuit for further explanation. Pending the completion of remand proceedings before the FCC, the Third Circuit has stayed the effectiveness of some aspects of the June, 2003 rules, but has allowed other aspects to take effect. Further, a number of parties have sought review of the Third Circuit decision by the Supreme Court.

While it is impossible to predict how the FCC, the Third Circuit, or the Supreme Court might eventually resolve the outstanding questions concerning the multiple ownership rules, the new radio market definitions which have been implemented and are currently in effect 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 of broadcast licenses to, or the 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 limitations on alien ownership have been held by the FCC to apply to non-corporate business structures (e.g., partnerships, LLCs) as well. 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 maintain records demonstrating each station’s most significant treatment of community issues in the station’s programming. In August, 2003, the FCC commenced an inquiry into the extent to which the broadcasting industry in general addresses “local” matters.

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, the broadcast of obscene, indecent or profane materials, and technical operations, including limits on human exposure to radio frequency radiation.

In November 2002, the FCC adopted rules prohibiting employment discrimination by broadcast stations on the basis of race, religion, color, national origin and gender; and requiring broadcasters to 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 and to maintain detailed records of their recruitment efforts. 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:

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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 are believed by some to 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 are not permitted to own more than one station nationwide during the initial two-year period. After the initial two-year period, entities are allowed to own up to five stations nationwide, and after three years, the limit is 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 are not 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. While the LPFM service has thus far been required to protect full-service FM stations operating on third adjacent frequencies to LPFM stations, legislation has been introduced which would, if enacted, eliminate such third-adjacent protection requirements. We cannot predict the likelihood that such legislation will be enacted.

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.

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.

The FCC has also authorized the initiation of satellite-based digital audio radio service pursuant to which audio programming is transmitted, on a regional or nationwide basis, from earth-orbiting satellites to subscribers’ receivers. Two companies are presently providing such service. The FCC is considering the extent to which such operators may utilize terrestrial repeater stations in support of their satellite operations. We cannot predict the impact of the satellite service on our business.

The foregoing is intended to provide only a summary of certain regulatory issues arising under the Communications Act and the rules and policies of the FCC. This does not purport to be comprehensive. Proposals to add or modify rules, regulations and/or policies are pending and under consideration before Congress and the FCC from time to time. Moreover, the matters addressed above are or may become the subject of litigation before the courts. We cannot predict the outcome of any such legislative, regulatory or judicial proceedings or their likely impact on our business.

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

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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.

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. Recent filings with the Securities and Exchange Commission may be found at their website: www.sec.gov.

ITEM 2. PROPERTIES

Our principal executive offices are located at 6312 S. Fiddlers Green Circle, Suite 360E, Greenwood Village, 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.

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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.

ITEM 3. LEGAL PROCEEDINGS

In January 2003, we withheld approximately $1.5 million from PNE Media (which represented 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 $3.3 million. The arbitration award has been fully implemented.

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.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2004.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

All outstanding shares of our common stock are held by our parent, NextMedia Group, Inc. As of March 22, 2005, 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.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth, for the periods and at the dates indicated, our selected historical consolidated financial data, in thousands of dollars. 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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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with “Item 6. Selected Financial Data” and “Item 8. Consolidated Financial Statements” in Parts II and IV of this Annual Report on Form 10-K.

Introduction

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 small, 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 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 SFAS 141. 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, including intangible assets acquired is recorded as goodwill. Determining the fair

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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, customer turnover, 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, and non-compete agreements, 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 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.

Income Taxes. We account for income taxes in accordance with SFAS 109. 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 provide a full valuation allowance against our net deferred tax asset, excluding the deferred tax liability for amortization of indefinite-lived intangibles including goodwill, because we believe the realization of those tax benefits is not more likely than not. We record additional deferred tax expense throughout each period to establish a valuation allowance against net operating loss carry-forwards generated by amortization of indefinite-lived intangibles including goodwill that is deductible for tax purposes, but is no longer amortized in the financial statements. The resulting deferred tax liability on our balance sheet therefore relates primarily to the difference between the book and tax basis of indefinite-lived intangibles including goodwill, which will not reverse over time unless impairment charges are recognized on indefinite-lived intangibles including goodwill, or the indefinite-lived intangible assets or assets supporting the goodwill are sold.

Factors Affecting Comparability

We commenced operations in late-1999. 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 thousands of 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.