##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



(Mark
One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number: 333-84416



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NextMedia Operating, Inc.

(Exact name of registrant as specified in its charter)



|Delaware                                                            |  | 84-154397                        
|------------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization)      |  | (IRS Employer Identification No.)
|                                                                    | 
|6312 S. Fiddlers Green Circle,Suite 360EGreenwood Village, Colorado |  | 80111                            
|(Address of principal executive offices)                            |  | (Zip Code)                       



(303) 694-9118

(Registrants telephone number, including area code)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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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 November 13, 2003 was 3,000. The Registrant has no other class of common stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|PART I  |  |         |  |                                                                                                       |  |   
|------- |  | ------- |  | ----------------------------------------------------------------------------------------------------- |  | --
|        |  |         | 
|        |  | Item 1. |  | Unaudited Financial Statements                                                                        |  |   
|        |  |         | 
|        |  |         |  | Consolidated Balance Sheets as of December 31, 2002 and September 30, 2003                            |  | 3 
|        |  |         | 
|        |  |         |  | Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2003 |  | 4 
|        |  |         | 
|        |  |         |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2003           |  | 5 
|        |  |         | 
|        |  |         |  | Notes to Consolidated Financial Statements                                                            |  | 6 
|        |  |         | 
|        |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 17
|        |  |         | 
|        |  | Item 3. |  | Quantitative and Qualitative Disclosure About Market Risk                                             |  | 22
|        |  |         | 
|        |  | Item 4. |  | Controls and Procedures                                                                               |  | 22
|        |  |         | 
|PART II |  |         |  |                                                                                                       |  |   
|        |  |         | 
|        |  | Item 1. |  | Legal Proceedings                                                                                     |  | 23
|        |  |         | 
|        |  | Item 2. |  | Changes in Securities                                                                                 |  | 23
|        |  |         | 
|        |  | Item 3. |  | Defaults Upon Senior Securities                                                                       |  | 23
|        |  |         | 
|        |  | Item 4. |  | Submission of Matters of a Vote of Security Holders                                                   |  | 23
|        |  |         | 
|        |  | Item 5. |  | Other Information                                                                                     |  | 23
|        |  |         | 
|        |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                      |  | 23



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                       |  | December 31,2002 |         |   | September 30,2003 |  
|------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ----------------- | -
|                                                                                                       |  |                  |         |   | (Unaudited)       |  
|Assets                                                                                                 |  |                  |         |   |                   |  
|Current assets:                                                                                        |  |                  |         |   |                   |  
|Cash and cash equivalents                                                                              |  | $                | 14,446  |   |                   | $
|Accounts receivable, net of allowance for doubtful accounts of $1,248 and $1,268, respectively         |  |                  | 14,407  |   |                   |  
|Prepaid expenses and other current assets                                                              |  |                  | 2,225   |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total current assets                                                                                   |  |                  | 31,078  |   |                   |  
|Property and equipment, net                                                                            |  |                  | 53,103  |   |                   |  
|Other assets                                                                                           |  |                  | 13,674  |   |                   |  
|Goodwill, net                                                                                          |  |                  | 119,259 |   |                   |  
|FCC licenses, net                                                                                      |  |                  | 256,410 |   |                   |  
|Other intangibles, net                                                                                 |  |                  | 960     |   |                   |  
|Assets held for sale                                                                                   |  |                  | 5,411   |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total assets                                                                                           |  | $                | 479,895 |   |                   | $
|                                                                                                       |  |                  |         |   |                   |  
|Liabilities and Stockholders Equity                                                                   |  |                  |         |   |                   |  
|Current liabilities:                                                                                   |  |                  |         |   |                   |  
|Accounts payable                                                                                       |  | $                | 2,481   |   |                   | $
|Accrued expenses                                                                                       |  |                  | 15,740  |   |                   |  
|Deferred revenue                                                                                       |  |                  | 622     |   |                   |  
|Other                                                                                                  |  |                  | 9       |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total current liabilities                                                                              |  |                  | 18,852  |   |                   |  
|Long-term debt                                                                                         |  |                  | 197,276 |   |                   |  
|Deferred tax liability                                                                                 |  |                  | 4,311   |   |                   |  
|Other long-term liabilities                                                                            |  |                  | 2,088   |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total liabilities                                                                                      |  |                  | 222,527 |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Commitments and contingencies (Note 8)                                                                 |  |                  |         |   |                   |  
|Stockholders equity:                                                                                  |  |                  |         |   |                   |  
|Common stock, par value $0.01 per share, 3,000 shares authorized, issued and outstanding, respectively |  |                  | 1       |   |                   |  
|Additional paid-in capital                                                                             |  |                  | 325,436 |   |                   |  
|Accumulated deficit                                                                                    |  |                  | (68,069 | ) |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total stockholders equity                                                                             |  |                  | 257,368 |   |                   |  
|                                                                                                       |  |                  |         |   |                   |  
|Total liabilities and stockholders equity                                                             |  | $                | 479,895 |   |                   | $
|                                                                                                       |  |                  |         |   |                   |  



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



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)



|                                                                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                             |  | 2002                            |        |   | 2003                           |  
|Gross revenue                                                                                |  | $                               | 25,903 |   |                                | $
|Less: agency commissions                                                                     |  |                                 | 2,037  |   |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Net revenue                                                                                  |  |                                 | 23,866 |   |                                |  
|Market level expenses, exclusive of depreciation and amortization shown separately below     |  |                                 | 15,095 |   |                                |  
|Corporate expenses                                                                           |  |                                 | 2,087  |   |                                |  
|Depreciation and amortization                                                                |  |                                 | 1,373  |   |                                |  
|LMA fees                                                                                     |  |                                 |       |   |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Total operating expenses                                                                     |  |                                 | 18,555 |   |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Operating income                                                                             |  |                                 | 5,311  |   |                                |  
|Interest expense, net                                                                        |  |                                 | 5,638  |   |                                |  
|Other income                                                                                 |  |                                 | (884   | ) |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Income (loss) from continuing operations before income taxes                                 |  |                                 | 557    |   |                                |  
|Provision for income taxes                                                                   |  |                                 | 1,783  |   |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Income (loss) from continuing operations                                                     |  |                                 | (1,226 | ) |                                |  
|Discontinued operations:                                                                     |  |                                 |        |   |                                |  
|(Income) loss from discontinued operations (including loss on disposition of $3,272 in 2002) |  |                                 |       |   |                                |  
|                                                                                             |  |                                 |        |   |                                |  
|Net income (loss)                                                                            |  | $                               | (1,226 | ) |                                | $
|                                                                                             |  |                                 |        |   |                                |  



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



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                     |  | Nine Months endedSeptember 30, |        
|------------------------------------------------------------------------------------ |  | ------------------------------ | -------
|                                                                                     |  | 2002                           |        
|Cash Flows From Operating Activities                                                 |  |                                |        
|Net income (loss)                                                                    |  | $                              | (26,397
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                                |        
|Depreciation and amortization                                                        |  |                                | 3,975  
|Non-cash interest expense                                                            |  |                                | 924    
|Provision for bad debt expense                                                       |  |                                | 779    
|Non-cash compensation expense                                                        |  |                                | 59     
|Other gains                                                                          |  |                                | (1,636 
|Provision for deferred taxes                                                         |  |                                | 19,652 
|Gain on sale of assets                                                               |  |                                |       
|Loss on pending sale and other asset dispositions                                    |  |                                | 3,517  
|Changes in assets and liabilities, net of effect of acquisitions:                    |  |                                |        
|Accounts receivable                                                                  |  |                                | (1,508 
|Prepaid expenses and other assets                                                    |  |                                | (679   
|Accounts payable and accrued expenses                                                |  |                                | (6,540 
|Deferred revenue                                                                     |  |                                | 114    
|Other current liabilities                                                            |  |                                |       
|                                                                                     |  |                                |        
|Net cash used in operating activities                                                |  |                                | (7,740 
|                                                                                     |  |                                |        
|Cash Flows From Investing Activities                                                 |  |                                |        
|Purchase of fixed assets                                                             |  |                                | (4,221 
|Payments for acquisitions, net of cash acquired                                      |  |                                | (36,826
|Purchase of short-term investments                                                   |  |                                | (9,478 
|Sale of short-term investments                                                       |  |                                | 9,478  
|Proceeds from sale of properties                                                     |  |                                | 1,201  
|                                                                                     |  |                                |        
|Net cash used in investing activities                                                |  |                                | (39,846
|                                                                                     |  |                                |        
|Cash Flows From Financing Activities                                                 |  |                                |        
|Proceeds from revolving credit facilities                                            |  |                                |       
|Repayment of revolving credit facilities                                             |  |                                |       
|Equity capital contributions from Parent, net                                        |  |                                | 25,044 
|Other                                                                                |  |                                | (288   
|                                                                                     |  |                                |        
|Net cash provided by financing activities                                            |  |                                | 24,756 
|                                                                                     |  |                                |        
|Decrease in cash and cash equivalents                                                |  |                                | (22,830
|Cash and cash equivalents at beginning of period                                     |  |                                | 30,501 
|                                                                                     |  |                                |        
|Cash and cash equivalents at end of period                                           |  | $                              | 7,671  
|                                                                                     |  |                                |        
|Supplemental Cash Flow Information                                                   |  |                                |        
|Cash payments during the period for:                                                 |  |                                |        
|Interest                                                                             |  | $                              | 21,956 
|                                                                                     |  |                                |        



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



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##### 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, 2003, due to seasonality and other factors. You should read the consolidated financial statements in conjunction with the
consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 27, 2003. In this quarterly report on Form 10-Q,
references to the Company, we, our and us refer to NextMedia Operating, Inc. and its subsidiaries, and the term NextMedia refers only to NextMedia Operating, Inc.



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



|2. | Recent Accounting Pronouncements
|-- | --------------------------------



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities,
which is effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first
interim or annual period beginning after December 15, 2003. During the three month period ended September 30, 2003, the Company entered into an LMA agreement to operate a station in the Lubbock, Texas market. The Company considered the applicability
of FIN 46 to this LMA agreement and determined that, in this case, the LMA agreement did not meet the criteria established by FIN 46 for consolidation.



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



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



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



|3. | Acquisitions and Dispositions
|-- | -----------------------------



Part of the Companys operating strategy is to expand through prudent acquisition of broadcasting and outdoor advertising properties. The Company
acquired each of the assets identified below to help achieve this objective. In seeking acquisition opportunities, the Company generally seeks: (i) assets in markets with a demographic propensity for growth (i.e., population growth above average,
above average growth in retail sales, etc.), (ii) markets where the Company believes it can assemble a group of assets generating over $1,000 in annual cash flow from operations, and (iii) assets in markets where the Company believes it can become a



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



leader in terms of ratings, revenue share, or number of advertising faces. Each of the acquisitions below meets at least one of these criteria.



In September 2003, the Company completed the sale of certain of the assets
of WJTW-FM licensed to Joliet, Illinois to Hispanic Broadcasting Corporation for $21,000 in cash. We recognized an $18,900 gain related to the disposition.



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



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



|                  |  | Nine months endedSeptember 30,
|----------------- |  | ------------------------------
|                  |  | 2002                          
|Net revenues      |  | $                             
|Total expenses    |  |                               
|                  |  |                               
|Net income (loss) |  | $                             
|                  |  |                               



In April 2003, the
Company entered into agreements to sell the assets of WAIT-AM in its Chicago suburban market to Newsweb Corporation for $8,250 and acquire the assets of KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4,250. In October 2003, the
Company completed the sale of WAIT-FM and, accordingly, we expect to record a gain related to this disposition in the fourth quarter of 2003. In order to purchase KNHK-FM in compliance with the FCCs station ownership regulation, the Company
will be required to divest a station in the Reno market. Consequently, in July 2003, the Company entered into an agreement to sell the assets of KSRN-FM in Reno, Nevada to Lazer Broadcasting Corp. for $2,500 in cash. The Company expects to complete
the purchase of KNHK-FM and the sale of KSRN-FM in the fourth quarter of 2003. Additionally, in October 2003, the Company entered into an agreement to acquire radio station WCCQ-FM licensed to Crest Hill, Illinois for $14,000. The Company expects
the acquisition of WCCQ-FM to be completed in the first quarter of 2004.



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



|4. | Property and Equipment
|-- | ----------------------



Property and equipment consist of the following:



|                              |  | DepreciableLife |  | As ofDecember 31,2002 |        |   | As ofSeptember 30,2003 |  
|----------------------------- |  | --------------- |  | --------------------- | ------ | - | ---------------------- | -
|Land and improvements         |  |                |  | $                     | 5,385  |   |                        | $
|Construction in progress      |  |                |  |                       | 935    |   |                        |  
|Buildings and improvements    |  | 20              |  |                       | 8,308  |   |                        |  
|Leasehold improvements        |  | 10              |  |                       | 1,971  |   |                        |  
|Broadcast equipment           |  | 5  20          |  |                       | 7,042  |   |                        |  
|Office equipment              |  | 7               |  |                       | 1,691  |   |                        |  
|Computer software and systems |  | 3  5           |  |                       | 1,638  |   |                        |  
|Tower and antennae            |  | 5  20          |  |                       | 3,250  |   |                        |  
|Vehicles                      |  | 3               |  |                       | 1,376  |   |                        |  
|Furniture and fixtures        |  | 7               |  |                       | 1,176  |   |                        |  
|Advertising displays          |  | 3  15          |  |                       | 29,461 |   |                        |  
|                              |  |                 |  |                       |        |   |                        |  
|                              |  |                 |  |                       | 62,233 |   |                        |  
|Less accumulated depreciation |  |                 |  |                       | (9,130 | ) |                        |  
|                              |  |                 |  |                       |        |   |                        |  
|                              |  |                 |  | $                     | 53,103 |   |                        | $
|                              |  |                 |  |                       |        |   |                        |  



|5. | Intangible Assets
|-- | -----------------



Intangible assets consist of the following:



|                                   |  | EstimatedUseful Life |  | As ofDecember 31,2002 |         |   | As ofSeptember 30,2003 |  
|---------------------------------- |  | -------------------- |  | --------------------- | ------- | - | ---------------------- | -
|Gross:                             |  |                      |  |                       |         |   |                        |  
|FCC licenses                       |  |                     |  | $                     | 265,471 |   |                        | $
|Goodwill                           |  |                     |  |                       | 117,718 |   |                        |  
|Other indefinite lived intangibles |  |                     |  |                       | 2,467   |   |                        |  
|Definite lived intangibles         |  |                     |  |                       | 2,356   |   |                        |  
|                                   |  |                      |  |                       |         |   |                        |  
|                                   |  |                      |  | $                     | 388,012 |   |                        | $
|                                   |  |                      |  |                       |         |   |                        |  
|Less accumulated amortization:     |  |                      |  |                       |         |   |                        |  
|FCC licenses                       |  |                     |  | $                     | (9,061  | ) |                        | $
|Goodwill                           |  |                     |  |                       | (926    | ) |                        |  
|Other indefinite lived intangibles |  |                     |  |                       |        |   |                        |  
|Definite lived intangibles         |  | 1  15               |  |                       | (1,396  | ) |                        |  
|                                   |  |                      |  |                       |         |   |                        |  
|                                   |  |                      |  |                       | (11,383 | ) |                        |  
|                                   |  |                      |  |                       |         |   |                        |  
|                                   |  |                      |  | $                     | 376,629 |   |                        | $
|                                   |  |                      |  |                       |         |   |                        |  



The aggregate change in goodwill and
FCC licenses in the period from December 31, 2002 to September 30, 2003 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. Other indefinite lined intangibles consist primarily of easements related to certain of our outdoor advertising locations.



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



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



Definite lived Intangible Assets



The Company has definite-lived intangible assets recorded that continue to be amortized in accordance with SFAS 142. These
assets consist primarily of non-compete agreements and customer lists which are amortized over the respective estimated lives of the assets. Total amortization expense from definite-lived intangible assets for the nine months ended September 30,
2003 was approximately $3,118. The following table presents managements estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of the dates indicated. The most significant definite-lived
intangible assets acquired by the Company are existing customer bases which have relatively short useful lives due to customer turnover. Consequently, the Company applies an accelerated amortization methodology to these assets.



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



|6. | Accrued Expenses
|-- | ----------------



Accrued expenses consist of the following:



|                                 |  | As ofDecember 31,2002 |        | As ofSeptember 30,2003 |  
|-------------------------------- |  | --------------------- | ------ | ---------------------- | -
|Accrued compensation and bonuses |  | $                     | 1,298  |                        | $
|Accrued commissions              |  |                       | 579    |                        |  
|Accrued interest                 |  |                       | 10,253 |                        |  
|Accrued property taxes           |  |                       | 415    |                        |  
|Accrued rents                    |  |                       | 574    |                        |  
|Unfavorable leases               |  |                       | 405    |                        |  
|Accrued franchise taxes          |  |                       | 461    |                        |  
|Accrued insurance costs          |  |                       | 530    |                        |  
|Accrued music license fees       |  |                       | 61     |                        |  
|Net barter payable (receivable)  |  |                       | 233    |                        |  
|Other                            |  |                       | 931    |                        |  
|                                 |  |                       |        |                        |  
|                                 |  | $                     | 15,740 |                        | $
|                                 |  |                       |        |                        |  



|7. | Long-Term Debt
|-- | --------------



Long-term debt consists of the following:



|                          |  | As ofDecember 31,2003 |         |   | As ofSeptember 30,2003 |  
|------------------------- |  | --------------------- | ------- | - | ---------------------- | -
|Senior Credit Facility    |  | $                     |        |   |                        | $
|Senior Subordinated Notes |  |                       | 200,000 |   |                        |  
|Unamortized discount      |  |                       | (2,724  | ) |                        |  
|                          |  |                       |         |   |                        |  
|Total long-term debt      |  | $                     | 197,276 |   |                        | $
|                          |  |                       |         |   |                        |  



The Companys
senior credit facility contains customary restrictive covenants that, among other things, limit the Companys ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above
specified limits. Under the senior credit facility, the Company must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash
interest expense. If future financial results are not sufficient to meet the requirements of the Companys financial covenants, the lenders could accelerate the payment of any outstanding principal and interest amounts. Should this occur, the
Company would attempt to obtain a waiver of the covenant violation from the lenders or seek an alternate source of financing on terms acceptable to the Company, if at all. However, there can be no assurance that the Company would be able to obtain a
waiver or an alternate source of financing. As of



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



September 30, 2003, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of September 30,
2003, the Company had approximately $29.0 million of borrowing capacity under its senior credit facility.



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



|8. | Commitments and Contingencies
|-- | -----------------------------



As of November 10, 2003, the Company had $3,967 in letters of credit outstanding as deposits to secure obligations.



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



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



|9. | Segment Data
|-- | ------------



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



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



The outdoor advertising segment includes traditional outdoor
advertising displays, such as roadside bulletins, posters and transit displays that the Company owns or operates under lease arrangements, as well as advertising displays that the Company installs in public locations, including restaurants, health
clubs, retail stores and entertainment venues. At September 30, 2003, the outdoor advertising segment owned or operated over 6,200 outdoor billboard 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 27, 2003. There are no intersegment sales or transfers.



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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



|                                                      |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|----------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                      |  | 2002                            |        |   | 2003                           |  
|Net revenue:                                          |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  | $                               | 16,761 |   |                                | $
|Outdoor Advertising                                   |  |                                 | 7,105  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  |                                 | 23,866 |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Market level expenses:                                |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  |                                 | 10,336 |   |                                |  
|Outdoor Advertising                                   |  |                                 | 4,759  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  |                                 | 15,095 |   |                                |  
|Depreciation and amortization:                        |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  |                                 | 894    |   |                                |  
|Outdoor Advertising                                   |  |                                 | 479    |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  |                                 | 1,373  |   |                                |  
|LMA fees  Radio                                      |  |                                 |       |   |                                |  
|Segment profit:                                       |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  |                                 | 5,531  |   |                                |  
|Outdoor Advertising                                   |  |                                 | 1,867  |   |                                |  
|Corporate Expenses                                    |  |                                 | 2,087  |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Operating income                                      |  |                                 | 5,311  |   |                                |  
|Interest expense, net                                 |  |                                 | 5,638  |   |                                |  
|Other (income) expense                                |  |                                 | (884   | ) |                                |  
|                                                      |  |                                 |        |   |                                |  
|Income (loss) from continuing operations before taxes |  | $                               | 557    |   |                                | $
|                                                      |  |                                 |        |   |                                |  
|                                                      |  |                                 |        |  
|                                                      |  |                                 |        |   |                                |  
|Total identifiable assets:                            |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  |                                 |        |   |                                |  
|Outdoor Advertising                                   |  |                                 |        |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  |                                 |        |   |                                |  
|Goodwill, net:                                        |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  |                                 |        |   |                                |  
|Outdoor Advertising                                   |  |                                 |        |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  |                                 |        |   |                                |  
|                                                      |  |                                
|                                                      |  | Three months endedSeptember 30, |        |   | Nine months endedSeptember 30, |  
|                                                      |  | 2002                            |        |   | 2003                           |  
|Addition to long-lived assets:                        |  |                                 |        |   |                                |  
|Radio Broadcasting                                    |  | $                               | 397    |   |                                | $
|Outdoor Advertising                                   |  |                                 | 31,798 |   |                                |  
|                                                      |  |                                 |        |   |                                |  
|Consolidated                                          |  | $                               | 32,195 |   |                                | $
|                                                      |  |                                 |        |   |                                |  



|10. | Legal Matters
|--- | -------------



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 and omissions in connection with its July 2001 investments in NextMedia Investors, LLC, our ultimate parent. PNE Media seeks the withheld amount, together with additional unspecified damages. This matter is scheduled for an
arbitration hearing in January 2004. We believe the claims of PNE Media are without merit, and are vigorously defending them; however, we cannot be certain that there will not be an adverse result. Because we believe that PNE Media is unlikely to
prevail on its claims, we have not accrued for any potential loss.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



|11. | Supplemental Guarantor Information
|--- | ----------------------------------



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



NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

December 31, 2002



|                                           |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   
|------------------------------------------ |  | ------------------------ | ------- | --------------------- | - | ------- | ------------------ |  | - | --------
|Assets                                     |  |                          |         |                       |   |         |                    |  |   |         
|Current assets:                            |  |                          |         |                       |   |         |                    |  |   |         
|Cash and cash equivalents                  |  | $                        | 14,951  |                       | $ | (505    | )                  |  | $ |        
|Accounts receivable, net                   |  |                          | 9,974   |                       |   | 4,433   |                    |  |   |        
|Prepaid and other current assets           |  |                          | 426     |                       |   | 1,799   |                    |  |   |        
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total current assets                       |  |                          | 25,351  |                       |   | 5,727   |                    |  |   |        
|Property and equipment, net                |  |                          | 23,511  |                       |   | 29,592  |                    |  |   |        
|Goodwill and intangibles, net              |  |                          | 438     |                       |   | 376,191 |                    |  |   |        
|Other                                      |  |                          | 13,634  |                       |   | 1,252   |                    |  |   | (1,212  
|Assets held for sale                       |  |                          | 486     |                       |   | 4,925   |                    |  |   |        
|Investment in subsidiaries                 |  |                          | 410,963 |                       |   |        |                    |  |   | (410,963
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total assets                               |  | $                        | 474,383 |                       | $ | 417,687 |                    |  | $ | (412,175
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Liabilities and Stockholders Equity       |  |                          |         |                       |   |         |                    |  |   |         
|Total current liabilities                  |  | $                        | 14,936  |                       | $ | 5,128   |                    |  | $ | (1,212  
|Long-term debt                             |  |                          | 197,276 |                       |   |        |                    |  |   |        
|Other long-term liabilities                |  |                          | 4,803   |                       |   | 1,596   |                    |  |   |        
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total liabilities                          |  |                          | 217,015 |                       |   | 6,724   |                    |  |   | (1,212  
|Stockholders equity                       |  |                          | 257,368 |                       |   | 410,963 |                    |  |   | (410,963
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total liabilities and stockholders equity |  | $                        | 474,383 |                       | $ | 417,687 |                    |  | $ | (412,175
|                                           |  |                          |         |                       |   |         |                    |  |   |         



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

September 30, 2003



|                                           |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   
|------------------------------------------ |  | ------------------------ | ------- | --------------------- | - | ------- | ------------------ |  | - | --------
|Assets                                     |  |                          |         |                       |   |         |                    |  |   |         
|Current assets:                            |  |                          |         |                       |   |         |                    |  |   |         
|Cash and cash equivalents                  |  | $                        | 1,034   |                       | $ | (403    | )                  |  | $ |        
|Accounts receivable, net                   |  |                          | 11,228  |                       |   | 4,713   |                    |  |   |        
|Prepaid and other current assets           |  |                          | 853     |                       |   | 1,898   |                    |  |   |        
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total current assets                       |  |                          | 13,115  |                       |   | 6,208   |                    |  |   |        
|Property and equipment, net                |  |                          | 26,023  |                       |   | 31,320  |                    |  |   |        
|Goodwill and intangibles, net              |  |                          | 31,219  |                       |   | 408,820 |                    |  |   |        
|Other                                      |  |                          | 9,553   |                       |   | 819     |                    |  |   | 2,911   
|Investment in subsidiaries                 |  |                          | 444,082 |                       |   |        |                    |  |   | (444,082
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total assets                               |  | $                        | 523,992 |                       | $ | 447,167 |                    |  | $ | (441,171
|Liabilities and Stockholders Equity       |  |                          |         |                       |   |         |                    |  |   |         
|Current liabilities                        |  | $                        | 8,903   |                       | $ | 1,756   |                    |  | $ | 2,911   
|Long-term debt                             |  |                          | 208,554 |                       |   |        |                    |  |   |        
|Other long-term liabilities                |  |                          | 13,643  |                       |   | 1,329   |                    |  |   |        
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total liabilities                          |  |                          | 231,100 |                       |   | 3,085   |                    |  |   | 2,911   
|Stockholders equity                       |  |                          | 292,892 |                       |   | 444,082 |                    |  |   | (444,082
|                                           |  |                          |         |                       |   |         |                    |  |   |         
|Total liabilities and stockholders equity |  | $                        | 523,992 |                       | $ | 447,167 |                    |  | $ | (441,171
|                                           |  |                          |         |                       |   |         |                    |  |   |         



NextMedia Operating,
Inc.

Supplemental Combining Statement of Operations

For the Three Months Ended September 30, 2002



|                                                                                         |  | NextMediaOperating, Inc. |        |   | GuarantorSubsidiaries |   | EliminatingEntries |  |   | Total  |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | --------------------- | - | ------------------ |  | - | ------ | -
|Net revenue                                                                              |  | $                        | 16,761 |   |                       | $ | 7,105              |  | $ |       |  
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                          | 10,336 |   |                       |   | 4,759              |  |   |       |  
|Corporate expenses                                                                       |  |                          | 1,447  |   |                       |   | 640                |  |   |       |  
|Depreciation and amortization                                                            |  |                          | 894    |   |                       |   | 479                |  |   |       |  
|                                                                                         |  |                          |        |   |                       |   |                    |  |   |        |  
|Operating income (loss)                                                                  |  | $                        | 4,084  |   |                       | $ | 1,227              |  | $ |       |  
|Interest expense, net                                                                    |  |                          | 5,638  |   |                       |   |                   |  |   |       |  
|Other (income) expense                                                                   |  |                          | (887   | ) |                       |   | 3                  |  |   |       |  
|Equity in income of subsidiaries                                                         |  |                          | (1,224 | ) |                       |   |                   |  |   | 1,224  |  
|                                                                                         |  |                          |        |   |                       |   |                    |  |   |        |  
|Income (loss) before provision for income taxes                                          |  |                          | 557    |   |                       |   | 1,224              |  |   | (1,224 | )
|Provision for income taxes                                                               |  |                          | 1,783  |   |                       |   |                   |  |   |       |  
|                                                                                         |  |                          |        |   |                       |   |                    |  |   |        |  
|Net income (loss) from continuing operations                                             |  | $                        | (1,226 | ) |                       | $ | 1,224              |  | $ | (1,224 | )
|Loss on discontinued operations                                                          |  |                          |       |   |                       |   |                    |  |   |       |  
|                                                                                         |  |                          |        |   |                       |   |                    |  |   |        |  
|Net income (loss)                                                                        |  | $                        | (1,226 | ) |                       | $ | 1,224              |  | $ | (1,224 | )
|                                                                                         |  |                          |        |   |                       |   |                    |  |   |        |  



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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
September 30, 2003



|                                                                                         |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------- | ------------------ |  | - | ------- | -
|Net revenue                                                                              |  | $                        | 19,034  |   |                       | $ | 8,749   |                    |  | $ |        |  
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                          | 11,561  |   |                       |   | 5,609   |                    |  |   |        |  
|Corporate expenses                                                                       |  |                          | 1,386   |   |                       |   | 552     |                    |  |   |        |  
|Depreciation and amortization                                                            |  |                          | 1,499   |   |                       |   | 1,260   |                    |  |   |         |  
|LMA fees                                                                                 |  |                          | 12      |   |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Operating income (loss)                                                                  |  |                          | 4,576   |   |                       |   | 1,328   |                    |  |   |        |  
|Interest expense, net                                                                    |  |                          | 6,181   |   |                       |   |        |                    |  |   |        |  
|Other income                                                                             |  |                          | (813    | ) |                       |   | (19,039 | )                  |  |   |        |  
|Equity in (income) loss of subsidiaries                                                  |  |                          | (20,367 | ) |                       |   |        |                    |  |   | 20,367  |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Income (loss) before provision for income taxes                                          |  |                          | 19,575  |   |                       |   | 20,367  |                    |  |   | (20,367 | )
|Provision for income taxes                                                               |  |                          | 3,065   |   |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Net income (loss) from continuing operations                                             |  |                          | 16,510  |   |                       |   | 20,367  |                    |  |   | (20,367 | )
|Income from discontinued operations                                                      |  |                          |        |   |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Net income (loss)                                                                        |  | $                        | 16,510  |   |                       | $ | 20,367  |                    |  | $ | (20,367 | )
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  



NextMedia Operating,
Inc.

Supplemental Combining Statement of Operations

For the Nine Months Ended September 30, 2002



|                                                                                         |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |        | EliminatingEntries |  |   | Total  |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------ | ------------------ |  | - | ------ | -
|Net revenue                                                                              |  | $                        | 46,864  |   |                       | $ | 19,448 |                    |  | $ |       |  
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                          | 29,409  |   |                       |   | 14,003 |                    |  |   |       |  
|Corporate expenses                                                                       |  |                          | 4,281   |   |                       |   | 2,135  |                    |  |   |       |  
|Depreciation and amortization                                                            |  |                          | 2,636   |   |                       |   | 1,291  |                    |  |   |       |  
|                                                                                         |  |                          |         |   |                       |   |        |                    |  |   |        |  
|Operating income (loss)                                                                  |  |                          | 10,538  |   |                       |   | 2,019  |                    |  |   |       |  
|Interest (income) expense, net                                                           |  |                          | 16,788  |   |                       |   | (3     | )                  |  |   |       |  
|Other (income) loss                                                                      |  |                          | (961    | ) |                       |   | 5      |                    |  |   |       |  
|Equity in loss of subsidiaries                                                           |  |                          | 1,255   |   |                       |   |       |                    |  |   | (1,255 | )
|                                                                                         |  |                          |         |   |                       |   |        |                    |  |   |        |  
|Income (loss) before provision for income taxes                                          |  |                          | (6,544  | ) |                       |   | 2,017  |                    |  |   | 1,255  |  
|Provision for income taxes                                                               |  |                          | 19,652  |   |                       |   |       |                    |  |   |       |  
|                                                                                         |  |                          |         |   |                       |   |        |                    |  |   |        |  
|Net income (loss) from continuing operations                                             |  |                          | (26,196 | ) |                       |   | 2,017  |                    |  |   | 1,255  |  
|Loss on discontinued operations                                                          |  |                          | 201     |   |                       |   | 3,272  |                    |  |   |       |  
|                                                                                         |  |                          |         |   |                       |   |        |                    |  |   |        |  
|Net income (loss)                                                                        |  | $                        | (26,397 | ) |                       | $ | (1,255 | )                  |  | $ | 1,255  |  
|                                                                                         |  |                          |         |   |                       |   |        |                    |  |   |        |  



14



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Statement of Operations

For the Nine Months Ended
September 30, 2003



|                                                                                         |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------- | ------------------ |  | - | ------- | -
|Net revenue                                                                              |  | $                        | 54,410  |   |                       | $ | 24,624  |                    |  | $ |        |  
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                          | 33,299  |   |                       |   | 15,814  |                    |  |   |        |  
|Corporate expenses                                                                       |  |                          | 4,731   |   |                       |   | 1,588   |                    |  |   |        |  
|Depreciation and amortization                                                            |  |                          | 4,469   |   |                       |   | 3,328   |                    |  |   |        |  
|LMA fees                                                                                 |  |                          | 12      |   |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Operating income (loss)                                                                  |  |                          | 11,899  |   |                       |   | 3,894   |                    |  |   |        |  
|Interest expense, net                                                                    |  |                          | 17,662  |   |                       |   |        |                    |  |   |        |  
|Other income                                                                             |  |                          | (212    | ) |                       |   | (19,021 | )                  |  |   |        |  
|Equity in (income) loss of subsidiaries                                                  |  |                          | (22,915 | ) |                       |   |        |                    |  |   | 22,915  |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Income (loss) before provision for income taxes                                          |  |                          | 17,364  |   |                       |   | 22,915  |                    |  |   | (22,915 | )
|Provision for income taxes                                                               |  |                          | 9,000   |   |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Net income (loss) from continuing operations                                             |  |                          | 8,364   |   |                       |   | 22,915  |                    |  |   | (22,915 | )
|(Income) Loss on discontinued operations                                                 |  |                          | (1      | ) |                       |   |        |                    |  |   |        |  
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  
|Net income (loss)                                                                        |  | $                        | 8,365   |   |                       | $ | 22,915  |                    |  | $ | (22,915 | )
|                                                                                         |  |                          |         |   |                       |   |         |                    |  |   |         |  



NextMedia Operating,
Inc.

Supplemental Combining Statement of Cash Flows

For the Nine Months Ended September 30, 2002



|                                                |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |        | EliminatingEntries |  | Total |  
|----------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------ | ------------------ |  | ----- | -
|Net Cash provided by (used in) operations       |  | $                        | (10,230 | ) |                       | $ | 2,490  |                    |  | $     | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash Flows From Investing Activities            |  |                          |         |   |                       |   |        |                    |  |       |  
|Purchase of fixed assets                        |  |                          | (1,356  | ) |                       |   | (2,865 | )                  |  |       | 
|Payments for acquisitions, net of cash acquired |  |                          | (36,826 | ) |                       |   |       |                    |  |       | 
|Proceeds from sale of assets                    |  |                          | 1,201   |   |                       |   |       |                    |  |       | 
|Purchase of short term investments              |  |                          | (9,478  | ) |                       |   |       |                    |  |       | 
|Sale of short term investments                  |  |                          | 9,478   |   |                       |   |       |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net cash used in investing activities           |  |                          | (36,981 | ) |                       |   | (2,865 | )                  |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash Flows From Financing Activities            |  |                          |         |   |                       |   |        |                    |  |       |  
|Capital contributions from Parent               |  |                          | 25,044  |   |                       |   |       |                    |  |       | 
|Payments of financing related costs             |  |                          | (489    | ) |                       |   |       |                    |  |       | 
|Other                                           |  |                          | (100    | ) |                       |   | 301    |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net cash provided by financing activities       |  |                          | 24,455  |   |                       |   | 301    |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net decrease in cash                            |  |                          | (22,756 | ) |                       |   | (74    | )                  |  |       | 
|Cash at beginning of period                     |  |                          | 31,044  |   |                       |   | (543   | )                  |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash at end of period                           |  | $                        | 8,288   |   |                       | $ | (617   | )                  |  | $     | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Statement of Cash Flows

For the Nine Months Ended
September 30, 2003



|                                                |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |        | EliminatingEntries |  | Total |  
|----------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------ | ------------------ |  | ----- | -
|Net cash provided by (used in) operations       |  | $                        | (4,246  | ) |                       | $ | 2,561  |                    |  | $     | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash Flows From Investing Activities            |  |                          |         |   |                       |   |        |                    |  |       |  
|Purchase of fixed assets                        |  |                          | (1,503  | ) |                       |   | (2,458 | )                  |  |       | 
|Payments for acquisitions, net of cash acquired |  |                          | (71,888 | ) |                       |   |       |                    |  |       | 
|Deferred selling costs                          |  |                          | (433    | ) |                       |   |       |                    |  |       | 
|Proceeds from sale of assets                    |  |                          | 26,388  |   |                       |   |       |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net cash used in investing activities           |  |                          | (47,436 | ) |                       |   | (2,458 | )                  |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash Flows From Financing Activities            |  |                          |         |   |                       |   |        |                    |  |       |  
|Proceeds from revolving credit facilities       |  |                          | 44,000  |   |                       |   |       |                    |  |       | 
|Repayment of revolving credit facilities        |  |                          | (33,000 | ) |                       |   |       |                    |  |       | 
|Capital contributions from Parent               |  |                          | 27,100  |   |                       |   |       |                    |  |       | 
|Other                                           |  |                          | (336    | ) |                       |   |       |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net cash provided by financing activities       |  |                          | 37,764  |   |                       |   |       |                    |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Net decrease in cash                            |  |                          | (13,917 | ) |                       |   | 102    |                    |  |       | 
|Cash at beginning of period                     |  |                          | 14,951  |   |                       |   | (505   | )                  |  |       | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  
|Cash at end of period                           |  | $                        | 1,034   |   |                       | $ | (403   | )                  |  | $     | 
|                                                |  |                          |         |   |                       |   |        |                    |  |       |  



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##### Table of Contents

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------



Overview



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



Radio Broadcasting Division



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



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



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



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



Outdoor Advertising Division



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



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



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



Factors Affecting Comparability



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



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Results of Operations



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



|                                                                                         |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|---------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|                                                                                         |  | 2002                             |        |                                
|Consolidated Operating Data:                                                             |  |                                  |        |                                
|Net revenues                                                                             |  | $                                | 23,866 |                                
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                                  | 15,095 |                                
|Corporate expenses                                                                       |  |                                  | 2,087  |                                
|Depreciation and amortization                                                            |  |                                  | 1,373  |                                
|LMA fees                                                                                 |  |                                  |       |                                
|                                                                                         |  |                                  |        |                                
|Operating income (loss)                                                                  |  |                                  | 5,311  |                                
|Interest expense, net                                                                    |  |                                  | 5,638  |                                
|Other (income) expense, net                                                              |  |                                  | (884   | )                              
|Provision for income taxes                                                               |  |                                  | 1,783  |                                
|(Gain) loss on discontinued operations                                                   |  |                                  |       |                                
|                                                                                         |  |                                  |        |                                
|Net loss                                                                                 |  | $                                | (1,226 | )                              
|                                                                                         |  |                                  |        |                                
|Radio Broadcasting Operating Data:                                                       |  |                                  |        |                                
|Net revenues                                                                             |  | $                                | 16,761 |                                
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                                  | 10,336 |                                
|Depreciation and amortization                                                            |  |                                  | 894    |                                
|LMA fees                                                                                 |  |                                  |       |                                
|                                                                                         |  |                                  |        |                                
|Segment operating income                                                                 |  | $                                | 5,531  |                                
|                                                                                         |  |                                  |        |                                
|Outdoor Advertising Operating Data:                                                      |  |                                  |        |                                
|Net revenues                                                                             |  | $                                | 7,105  |                                
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                                  | 4,759  |                                
|Depreciation and amortization                                                            |  |                                  | 479    |                                
|                                                                                         |  |                                  |        |                                
|Segment operating income                                                                 |  | $                                | 1,867  |                                
|                                                                                         |  |                                  |        |                                



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



Net Revenues.Consolidated net revenues increased $3.9 million to $ 27.8 million in 2003 from $23.9 million in 2002. Radio net revenues increased $2.2 million to $19.0 million in 2003 from $16.8 million in 2002. Outdoor advertising
net revenues increased $1.7 million to $8.8 million in 2003 from $7.1 million in 2002. Revenues generated by assets owned and operated in both periods accounted for approximately $800,000 of the increase, while the remainder of the increase was due
primarily to our completion of acquisitions, offset somewhat by dispositions, in 2002 and 2003. While this trend appears to be continuing into the fourth quarter of 2003, management does not have significant visibility beyond that period due to the
rapidly changing nature of the advertising environment. However, due to completed acquisitions, management expects revenue in the fourth quarter of 2003 to exceed revenue of the fourth quarter of 2002.



Market Level Expenses.Consolidated market level expenses increased
$2.1 million to $17.2 million in 2003 from $15.1 million in 2002. Radio market level expenses increased $1.3 million to $11.6 million in 2003 from $10.3 million in 2002. Outdoor advertising market level expenses increased $849,000 to $5.6 million in
2003 from $4.8 million in 2002. These increases were attributable primarily to our completion of acquisitions in 2002 and 2003. As a percentage of net revenues, consolidated market level expenses decreased from 63.2% to 61.8% since fixed costs did
not increase at the same rate as revenues.



Corporate
Expenses. Corporate expenses decreased $149,000 to $1.9 million in 2003 from $2.1 million in 2002. This decrease was due primarily to the reduction of corporate staff during the three months ended September 30, 2003 as compared to the prior
period. As a percentage of net revenues, corporate expenses declined from 8.7% to 7.0% because the growth in revenue did not require a proportional increase in corporate costs.



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Depreciation and Amortization.Consolidated depreciation and amortization increased $1.4 million
to $2.8 million in 2003 from $1.4 million in 2002. Radio depreciation and amortization increased $605,000 to $1.5 million in 2003 from $894,000 in 2002. Outdoor advertising depreciation and amortization increased $781,000 to $1.3 million in 2003
from $479,000 in 2002. The increases in radio and outdoor depreciation and amortization were attributable to acquisitions during 2002 and 2003 which resulted in the addition of depreciable fixed assets and definite lived intangibles which are
amortized over their useful lives.



Interest and Other
Income, Net.Interest expense, net, increased to $6.2 million in 2003 from $5.6 million in 2002 due to indebtedness incurred in connection with our acquisitions. Other income (expense), net increased to $19.9 million of income in 2003 from
$884,000 of net income in 2002 primarily as a result of an $18.9 million gain on the sale of WJTW-FM on September 30, 2003.



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



Discontinued Operations. In the second quarter of 2002, we entered into an agreement to sell the assets of radio stations, WYOO-FM, WPCF-AM,
WQJM-FM, WILN-FM and WYYX-FM in Panama City, Florida in exchange for approximately $5.5 million. This sale was completed in January 2003. Accordingly, the results of operations of these stations have been classified as discontinued operations in all
periods prior to the consummation of the sale. The discontinued operations produced no gain or loss during the three months ended September 30, 2002.



Net Income(loss). Consolidated net income was $16.5 million in 2003 compared to a $1.2 million loss in 2002 as a result of the factors described
above.



Comparison of Nine Months Ended September 30, 2003 to Nine Months
Ended September 30, 2002



Net Revenues.Consolidated net revenues increased $12.7 million to $79.0 million in 2003 from $66.3 million in 2002. Radio net revenues increased $7.5 million to $54.4 million in 2003 from $46.9 million in 2002. Outdoor advertising net revenues increased $5.2
million to $24.6 million in 2003 from $19.4 million in 2002. Revenues generated by assets owned and operated in both periods contributed approximately $3.5 million of the increase, while the remainder of the increase was due primarily to our
completion of acquisitions, offset somewhat by dispositions, in 2002 and 2003.



Market Level Expenses.Consolidated market level expenses increased $5.7 million to $49.1 million in 2003 from $43.4 million in 2002. Radio market level expenses increased $3.9 million to $33.3 million in 2003
from $29.4 million in 2002. Outdoor advertising market level expenses increased $1.8 to $15.8 million in 2003 from $14.0 million in 2002. These increases were attributable primarily to our completion of acquisitions in 2002 and 2003. As a percentage
of net revenues, consolidated market level expenses decreased from 65.5% to 62.1% since fixed costs did not increase at the same rate as revenues.



Corporate Expenses. Corporate expenses decreased $97,000 to $6.3 million in 2003 from $6.4 million in 2002. This decrease was due primarily to
severance costs of approximately $400,000 associated with the reduction of corporate staff offset by a reduction in personnel costs during the nine months ended September 30, 2003. As a percentage of net revenues, corporate expenses declined from
9.7% to 8.0% because the growth in revenue did not require a proportional increase in corporate costs.



Depreciation and Amortization.Consolidated depreciation and amortization increased $3.9 million to $7.8 million in 2003 from $3.9 million in 2002.
Radio depreciation and amortization increased $1.9 million to $4.5 million in 2003 from $2.6 million in 2002. Outdoor advertising depreciation and amortization increased $2.0 million to $3.3 million in 2003 from $1.3 million in 2002. The increases
in radio and outdoor depreciation and amortization were attributable to acquisitions during 2002 and 2003 which resulted in the addition of depreciable fixed assets and definite lived intangibles which are amortized over their useful lives.



Interest and Other, Income Net.Interest expense, net,
increased to $17.7 million in 2003 from $16.8 million in 2002 due to indebtedness incurred in connection with our acquisitions. Other (income) expense, net increased to $19.2 million of income in 2003 from $956,000 of income in 2002 primarily as a
result of an $18.9 million gain on the sale of WJTW-FM on September 30, 2003.



Income Tax. In connection with the adoption of SFAS 142 and suspension of amortization of FCC licenses and goodwill, we determined that our deferred tax liabilities will not reverse within our net operating
loss carry-forward period. Accordingly, on January 1, 2002, we recorded a one time non-cash charge of $11,600 to deferred tax expense to establish an additional valuation allowance against our deferred tax assets. We recorded additional deferred tax
expense throughout 2002 to establish a valuation



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allowance against net operating loss carry-forwards generated by amortization of goodwill and broadcast licenses that is deductible for tax purposes, but is
no longer amortized for book purposes.



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



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



Net Income (loss). Consolidated net income was $8.4 million in 2003 compared to a $26.4 million loss in 2002 as a result of the factors described
above.



Liquidity and Capital Resources



Our cash and cash equivalents balance at September 30, 2003 was
approximately $631,000 compared to $14.4 million at December 31, 2002. The Company maintains cash balances at the end of the second and fourth quarter of its fiscal year in preparation for making semi-annual interest payments (due July 1 and January
1) of approximately $10.8 million on its 103⁄4% senior subordinated notes.



Net cash used in operating activities was $1.7 and $7.7 million for the nine months ended September 30, 2003 and 2002, respectively. The decrease in our net cash used in operating activities was due primarily to the
additional operating income resulting from acquisitions completed during 2002 and 2003.



Net cash provided by financing activities was $37.8 million for the nine months ended September 30, 2003 compared to cash provided by financing activities of $24.8 million for the nine months ended September 30, 2002.
During the nine months ended September 30, 2002 and 2003, the majority of our financing activity was related to funding for acquisitions completed during the period. Net cash used in investing activities was $49.9 million and $39.8 million for the
nine months ended September 30, 2003 and 2002, respectively. These cash flows primarily reflect expenditures for acquisitions and capital expenditures offset by proceeds from asset dispositions.



Sources and Uses of Funds



We use a significant portion of our capital resources to consummate
acquisitions. Through September 30, 2003, we funded our acquisitions from the following sources: (i) equity contributions of approximately $354.1 million from our indirect parent, NextMedia Investors, which in turn were funded by equity investments
from several private investment funds and our senior management, and (ii) net borrowings of approximately $208.6 million. We expect to obtain financing for future acquisitions through the incurrence of debt, additional equity contributions,
internally generated funds or a combination of the foregoing. There can be no assurance, however, that external financing will be available to us on terms we consider favorable, if at all, or that cash flow from operations will be sufficient to fund
our ongoing liquidity requirements.



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



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



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Our senior credit facility contains customary restrictive covenants that, among other things, limit our
ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above specified limits. Under the senior credit facility, we must satisfy specified financial covenants, such as a maximum total
leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash interest expense. If future financial results are not sufficient to meet the requirements of the Companys financial covenants,
the lenders could accelerate the payment of any outstanding principal and interest amounts. Should this occur, the Company would attempt to obtain a waiver of the covenant violation from the lenders or seek an alternate source of financing on terms
acceptable to the Company, if at all. However, there can be no assurance that we would be able to obtain a waiver or an alternate source of financing on terms acceptable to us, if at all. As of September 30, 2003, we were in compliance with all of
these covenants. After taking into account these restrictive covenants, as of September 30, 2003, we had approximately $29.0 million of borrowing capacity under our senior credit facility.



In April 2003, we entered into agreements to sell the assets of WAIT-AM in
our Chicago suburban market to Newsweb Corporation for $8.3 million and acquire the assets of KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4.3 million. In October 2003, we completed the sale of WAIT-FM and, accordingly, we expect
to record a gain related to this disposition in the fourth quarter of 2003. Prior to the purchase of KNHK-FM, in order to comply with the FCCs station ownership regulation, we will be required to divest of a station in the Reno market.
Consequently, in July 2003, we entered into an agreement to sell the assets of KSRN-FM in Reno, Nevada to Lazer Broadcasting Corp. for $2.5 million in cash. We expect to complete the purchase of KNHK-FM and the sale of KSRN-FM in the fourth quarter
of 2003.



In September 2003, we completed the sale of certain
of the assets of WJTW-FM licensed to Joliet, Illinois to Hispanic Broadcasting Corporation for $21.0 million in cash. We recognized an $18.9 million gain related to the disposition. Additionally, in October 2003, we entered into an agreement to
acquire radio stations WCCQ-FM licensed to Crest Hill, Illinois for $14.0 million. We expect the acquisition of WCCQ-FM to be completed in the first quarter of 2004.



Capital expenditures in the nine months ended September 30, 2003 decreased slightly to $4.0 million from $4.2 million for
the nine months ended September 30, 2002. The following table sets forth our capital expenditures for the nine months ended September 30, 2003. Recurring capital expenditures are related to the maintenance of our existing broadcast facilities and
outdoor structures. Non-recurring capital expenditures are related primarily to radio signal upgrades and facility consolidations. Revenue producing capital expenditures are related to the construction of new outdoor structures which management
believes will generate future revenue.



|                           |  | Nine Months EndedSeptember 30, 2003
|-------------------------- |  | -----------------------------------
|                           |  | (in thousands)                     
|Recurring                  |  | $                                  
|Non-recurring              |  |                                    
|Revenue producing          |  |                                    
|                           |  |                                    
|Total capital expenditures |  | $                                  
|                           |  |                                    



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



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



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



Recent Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which is
effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first interim
period beginning after June 15, 2003. During the three month period ended September 30, 2003, the Company entered into an LMA agreement to operate a station in the Lubbock, Texas market. We considered the applicability of FIN 46 to this LMA
agreement and determined that, in this case, the LMA agreement did not meet the criteria established by FIN 46 for consolidation.



In November 2002, the Emerging Issues Task Force reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables
(EITF No. 00-21). This issue addresses how revenue arrangements with multiple deliverables should be



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divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. EITF No.
00-21 is effective for fiscal periods beginning after June 15, 2003. Where multiple elements exist in an arrangement, the arrangement fee is allocated to the different elements based upon verifiable objective evidence of the fair value of the
elements. The adoption of EITF No. 00-21 did not have a material impact on our financial statements.



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



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



Forward-Looking Statements



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



|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- |  | ---------------------------------------------------------



In July 2003, we entered into an interest rate swap agreement with an aggregate notional amount of $100.0 million. Pursuant to the swap arrangement, we
will pay interest on the notional amount at a floating rate based on six month LIBOR and we will receive a fixed rate of 3.73% on the notional amount until the expiration of the agreements in July 2007. For every 0.5% increase in interest rates, we
would experience an increase of approximately $500,000 in annual interest expense and, to the extent that the six month LIBOR exceeds 3.73% in the future, we would be required to pay amounts in excess of the fixed payments we receive under the swap
arrangement. We recognize quarterly income or expense to record the swap arrangements at fair value.



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



|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------



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



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



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##### Table of Contents

PART II



|ITEM 1. |  | LEGAL PROCEEDINGS
|------- |  | -----------------



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 investments in NextMedia Investors, LLC, our ultimate parent. PNE Media seeks the withheld amount, together with additional unspecified damages. This matter is scheduled for an arbitration hearing in January 2004. We believe the claims of PNE
Media are without merit, and are vigorously defending them; however, we cannot be certain that there will not be an adverse result. Because we believe that PNE Media is unlikely to prevail on its claims, we have not accrued for any potential loss.



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



|ITEM 2. |  | CHANGES IN SECURITIES
|------- |  | ---------------------



None.



|ITEM 3. |  | DEFAULTS UPON SENIOR SECURITIES
|------- |  | -------------------------------



None.



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



None.



|ITEM 5. |  | OTHER INFORMATION
|------- |  | -----------------



None.



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



|(a) | Exhibits
|--- | --------



|Exhibit No. |  | Description                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|31.1*       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|31.2*       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1*       |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.2*       |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---

|* | Filed herewith
|- | --------------



|(b) | Reports on Form 8-K
|--- | -------------------



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



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



On November 13, 2003, we filed a Current Report on Form 8-K announcing earnings results for the quarter ended September 30, 2003.



23



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                        |  |  |  |     |  | NEXTMEDIA OPERATING, INC. (Registrant)
|----------------------- |  |  |  | --- |  | --------------------------------------
|                        |  |  | 
|DATE: NOVEMBER 13, 2003 |  |  |  | By: |  | /s/    STEVEN DINETZ                  
|                        |  |  |  |     | 
|                        |  |  |  |     |  |                                       
|                        |  |  | 
|DATE: NOVEMBER 13, 2003 |  |  |  | By: |  | /s/    SEAN R. STOVER                 
|                        |  |  |  |     | 
|                        |  |  |  |     |  |                                       
|                        |  |  | 
|DATE: NOVEMBER 13, 2003 |  |  |  | By: |  | /s/    SCHUYLER HANSEN                
|                        |  |  |  |     | 
|                        |  |  |  |     |  |                                       



24



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##### Table of Contents

Exhibit Index



|Exhibit No. |  | Description                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.2        |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



25