##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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(Mark One)

x

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the quarterly period ended March31, 2003

OR

o

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the transition period fromto

Commission file number:

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NextMedia Operating, Inc.

(Exact name of registrant as specified in its
charter)

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| | Delaware(State or other jurisdiction ofincorporation or organization) |  | 84-154397(IRS EmployerIdentification No.) | 
| | --------------------------------------------------------------------- |  | ----------------------------------------- | 

| | 6312 S. Fiddlers Green Circle, Suite 360EGreenwood Village, Colorado(Address of principal executive offices) |  | 80111(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)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

The total number of shares of common stock, par value $.01 per share, outstanding as of May 10, 2003 was 3,000. The Registrant has no other class of
common stock outstanding.

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##### Table of Contents



TABLE OF CONTENTS



|PART I  |  |         | 
|------- |  | ------- | 
|        |  |         | 
|        |  | Item 1. | 
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|        |  | Item 2. | 
|        |  |         | 
|        |  | Item 3. | 
|        |  |         | 
|        |  | Item 4. | 
|        |  |         | 
|PART II |  |         | 
|        |  |         | 
|        |  | Item 1. | 
|        |  |         | 
|        |  | Item 2. | 
|        |  |         | 
|        |  | Item 3. | 
|        |  |         | 
|        |  | Item 4. | 
|        |  |         | 
|        |  | Item 5. | 
|        |  |         | 
|        |  | Item 6. | 

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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS(In
thousands)(Unaudited)



|                                                                                                       |  | December 31,2002 |         | March 31,2003 |  
|------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | ------------- | -
|                                                                                                       |  |                  |         |               |  
|Assets                                                                                                 |  |                  |         |               |  
|Current assets:                                                                                        |  |                  |         |               |  
|Cash and cash equivalents                                                                              |  | $                | 14,446  |               | $
|Accounts receivable, net of allowance for doubtful accounts of$1,248 and $1,110, 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                                                                                          |  |                  | 131,802 |               |  
|FCC licenses, net                                                                                      |  |                  | 243,867 |               |  
|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 endedMarch 31, |        
|-------------------------------------------- |  | --------------------------- | -------
|                                             |  |                             |        
|                                             |  | 2002                        |        
|                                             |  |                             |        
|Gross revenue                                |  | $                           | 20,383 
|Less: agency commissions                     |  |                             | 1,565  
|                                             |  |                             |        
|Net revenue                                  |  |                             | 18,818 
|Operating expenses                           |  |                             | 13,193 
|Corporate expenses                           |  |                             | 2,091  
|Depreciation and amortization                |  |                             | 1,242  
|                                             |  |                             |        
|Total operating expenses                     |  |                             | 16,526 
|                                             |  |                             |        
|Operating income                             |  |                             | 2,292  
|Other income (expense):                      |  |                             |        
|Interest expense, net                        |  |                             | (5,581 
|Other income (expense)                       |  |                             | (968   
|                                             |  |                             |        
|Loss from continuing operations before taxes |  |                             | (4,257 
|Provision for income taxes                   |  |                             | (15,540
|                                             |  |                             |        
|Loss from continuing operations              |  |                             | (19,797
|Discontinued operations:                     |  |                             |        
|Gain/(loss) from discontinued operations     |  |                             | (156   
|                                             |  |                             |        
|Net loss                                     |  | $                           | (19,953
|                                             |  |                             |        

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

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

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



|                                                                            |  | Three Months endedMarch 31, |        
|--------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                            |  |                             |        
|                                                                            |  | 2002                        |        
|                                                                            |  |                             |        
|Cash Flows From Operating Activities                                        |  |                             |        
|Net loss                                                                    |  | $                           | (19,953
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |        
|Depreciation and amortization                                               |  |                             | 1,271  
|Non-cash interest expense                                                   |  |                             | 294    
|Provision for bad debt expense                                              |  |                             | 172    
|Non-cash compensation expense                                               |  |                             | 19     
|Unrealized loss on interest rate swap                                       |  |                             | 656    
|Provision for deferred taxes                                                |  |                             | 15,540 
|Changes in assets and liabilities, net of effect of acquisitions:           |  |                             |        
|Accounts receivable                                                         |  |                             | 1,167  
|Prepaid expenses and other assets                                           |  |                             | (120   
|Accounts payable and accrued expenses                                       |  |                             | (7,217 
|Deferred revenue                                                            |  |                             | 13     
|Other current liabilities                                                   |  |                             |       
|                                                                            |  |                             |        
|Net cash by used in operating activities                                    |  |                             | (8,158 
|                                                                            |  |                             |        
|Cash Flows From Investing Activities                                        |  |                             |        
|Purchase of fixed assets                                                    |  |                             | (1,517 
|Payments for acquisitions, net of cash acquired                             |  |                             | (3,454 
|Proceeds from sale of properties                                            |  |                             | 755    
|                                                                            |  |                             |        
|Net cash used in investing activities                                       |  |                             | (4,216 
|                                                                            |  |                             |        
|Cash Flows From Financing Activities                                        |  |                             |        
|Proceeds from revolving credit facilities                                   |  |                             |       
|Repayment of revolving credit facilities                                    |  |                             |       
|Equity capital contributions from Parent, net                               |  |                             | 215    
|Payments of financing related costs                                         |  |                             | (416   
|Other                                                                       |  |                             | 169    
|                                                                            |  |                             |        
|Net cash provided by (used in) financing activities                         |  |                             | (32    
|                                                                            |  |                             |        
|Decrease in cash and cash equivalents                                       |  |                             | (12,406
|Cash and cash equivalents at beginning of period                            |  |                             | 30,501 
|                                                                            |  |                             |        
|Cash and cash equivalents at end of period                                  |  | $                           | 18,095 
|                                                                            |  |                             |        
|Supplemental Cash Flow Information                                          |  |                             |        
|Cash payments during the period for:                                        |  |                             |        
|Interest                                                                    |  | $                           | 10,750 
|                                                                            |  |                             |        
|Taxes                                                                       |  | $                           |       
|                                                                            |  |                             |        

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

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##### Table of Contents

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

1.

INTERIM FINANCIAL DATA AND SIGNIFICANT
ACCOUNTING POLICIES

The accompanying consolidated unaudited interim financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information. Management believes that the Company has made all adjustments necessary for a fair presentation of results of the interim periods and that these adjustments were of a normal
and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The interim
results of operations and cash flows are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2003, due to seasonality and other factors. You should read the consolidated financial statements in
conjunction with the consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 27, 2003. In this quarterly
report on Form 10-Q, references to the Company, we, our and us refer to NextMedia Operating, Inc. and its subsidiaries, and the term NextMedia refers only to NextMedia Operating,
Inc.

2.

Recent Accounting
Pronouncements

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

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which is effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied
to interests in variable interest entities created before February 1, 2003 beginning in the first interim period beginning after June 15, 2003. The Company does not have any interest in any variable interest entities as of January 31, 2003. The
Company will apply the provisions of FIN 46 in future periods should a variable interest entity be acquired.

3.

Acquisitions and Dispositions

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

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

On January 6, 2003, the Company completed the
previously announced acquisition of four FM radio stations and one AM radio station operating in the Saginaw/Bay City/Midland, Michigan markets from Wilks Broadcasting, LLC for approximately $55,500. The Company funded the acquisition with
borrowings of $26,000 under its Senior Credit Facility, proceeds from a private equity commitment of $27,100, and cash on hand.

On January 31, 2003, the
Company completed the previously announced acquisition of three FM stations and one AM station operating in the Sherman/Denison, Texas and Ardmore, Oklahoma markets for approximately $5,500. Simultaneously, the Company disposed of five radio
stations in the Panama City, Florida market for approximately $5,500.

In February 2003, the Company completed the acquisition of certain outdoor advertising
assets in New Jersey for approximately $4,700, $600 of which was funded with a cash deposit made during 2002. The Company funded the remaining $4,100 in February 2003 with $4,000 of borrowings under the Senior Credit Facility and cash on hand.

The results of operations of the assets acquired during the three months ended March 31, 2003 have been included in the Companys income
statement from the completion date of the applicable acquisition. The results of operations of assets sold during the three months ended March 31, 2003 have been excluded from the completion date of the applicable sale.

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



|               |  | Three months endedMarch 31, |        
|-------------- |  | --------------------------- | -------
|               |  |                             |        
|               |  | 2002                        |        
|               |  |                             |        
|Net revenues   |  | $                           | 22,042 
|Total expenses |  |                             | (41,843
|               |  |                             |        
|Net loss       |  | $                           | (19,801
|               |  |                             |        

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

In May 2003, the Company entered into an agreement to sell certain of the assets of
WJTW-FM in its Chicago suburban market to Hispanic Broadcasting Corporation for $21,000 in cash. The Company expects this transaction to close during the second or third quarter of 2003.

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIESNOTES 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 of March 31,2003 |  
|----------------------------- |  | --------------- |  | --------------------- | ------ | ------------------- | -
|                              |  |                 |  |                       |        |                     |  
|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 |                     | $
|                              |  |                 |  |                       |        |                     |  

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

5.

Intangible Assets

Intangible assets consist of
the following:



|                                |  | EstimatedUseful Life |  | As ofDecember 31,2002 |         | As ofMarch 31,2003 |  
|------------------------------- |  | -------------------- |  | --------------------- | ------- | ------------------ | -
|                                |  |                      |  |                       |         |                    |  
|Gross:                          |  |                      |  |                       |         |                    |  
|FCC licenses                    |  |                     |  | $                     | 252,439 |                    | $
|Goodwill                        |  |                     |  |                       | 133,217 |                    |  
|Definite lived intangibles      |  |                     |  |                       | 2,356   |                    |  
|                                |  |                      |  |                       |         |                    |  
|                                |  |                      |  | $                     | 388,012 |                    | $
|                                |  |                      |  |                       |         |                    |  
|Less, accumulated amortization: |  |                      |  |                       |         |                    |  
|FCC licenses                    |  |                     |  | $                     | (8,572  | )                  | $
|Goodwill                        |  |                     |  |                       | (1,415  | )                  |  
|Definite lived intangibles      |  | 1  15               |  |                       | (1,396  | )                  |  
|                                |  |                      |  |                       |         |                    |  
|                                |  |                      |  | $                     | (11,383 | )                  | $
|                                |  |                      |  |                       |         |                    |  
|                                |  |                      |  | $                     | 376,629 |                    | $
|                                |  |                      |  |                       |         |                    |  

Definite-lived Intangibles

The Company has definite-lived intangible assets recorded that continue to be amortized in accordance with SFAS 142. These assets consist primarily of non-compete agreements and customer lists which are amortized over
the respective estimated lives of the assets. Total amortization expense from definite-lived intangible assets for the three months ended March 31, 2003 was approximately $815,000. The following table presents managements estimate of
amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of the dates indicated:



|2004 |  | $ | 1,320 | 
|---- |  | - | ----- | 
|2005 |  |   | 840   | 
|2006 |  |   | 546   | 
|2007 |  |   | 368   | 
|2008 |  |   | 256   | 

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

6.

Accrued Expenses

Accrued expenses consist of
the following:



|                                 |  | As ofDecember 31,2002 |        | As ofMarch 31,2003 |  
|-------------------------------- |  | --------------------- | ------ | ------------------ | -
|                                 |  |                       |        |                    |  
|Accrued compensation and bonuses |  | $                     | 1,728  |                    | $
|Accrued commissions              |  |                       | 579    |                    |  
|Accrued interest                 |  |                       | 10,253 |                    |  
|Accrued property taxes           |  |                       | 415    |                    |  
|Accrued rents                    |  |                       | 574    |                    |  
|Unfavorable leases               |  |                       | 405    |                    |  
|Accrued franchise taxes          |  |                       | 461    |                    |  
|Other                            |  |                       | 1,325  |                    |  
|                                 |  |                       |        |                    |  
|                                 |  | $                     | 15,740 |                    | $
|                                 |  |                       |        |                    |  

7.

Long-Term Debt

Long-term debt consists of the
following:



|                          |  | As ofDecember 31,2002 |         | As ofMarch 31,2003 |  
|------------------------- |  | --------------------- | ------- | ------------------ | -
|                          |  |                       |         |                    |  
|Revolving 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. As of March 31, 2003, the Company was
in compliance with all of these covenants. After taking into account these restrictive covenants, as of March 31, 2003, the Company had approximately $15.0 million of borrowing capacity under its senior credit facility.

The Companys 10.75% senior subordinated notes due 2011 require the Company to make semi-annual interest payments of approximately $10.8 million on January 1 and
July 1 of each year. The indenture governing the notes contains certain restrictive covenants that, among other things, limit the Companys ability to incur additional indebtedness and pay dividends. As of March 31, 2003, the Company
was in compliance with these covenants.

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

8.

Commitments and Contingencies

As of May 10,
2003 the Company had $1,428 in letters of credit outstanding as deposits to secure obligations.

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

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

9.

Segment Data

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

The
radio broadcasting segment is comprised of radio stations and networks for which the Company is the licensee or for which the Company programs and sells on-air advertising time under local marketing agreements. At March 31, 2003, the radio
broadcasting segment included 60 radio stations owned and operated by the Company. All of these stations operate in domestic markets. The radio broadcasting segment also operates various radio networks.

The outdoor advertising segment includes traditional outdoor advertising displays, such as roadside bulletins, posters and transit displays that the Company owns or operates under lease arrangements,
as well as advertising displays that the Company installs in public locations, including restaurants, health clubs, retail stores and entertainment venues. At March 31, 2003, the outdoor advertising segment owned or operated over 5,800 outdoor
billboard displays and indoor advertising display faces in more than 2,900 retail locations across the United States. All of these displays are located in domestic markets.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Companys audited consolidated financial statements contained in the
Companys annual report on Form 10-K as filed with the SEC on March 27, 2003. There are no intersegment sales or transfers.

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



|                    |  | Three Months EndedMarch 31, |       
|------------------- |  | --------------------------- | ------
|                    |  |                             |       
|                    |  | 2002                        |       
|                    |  |                             |       
|Net revenue:        |  |                             |       
|Radio Broadcasting  |  | $                           | 13,286
|Outdoor Advertising |  |                             | 5,532 
|                    |  |                             |       
|                    |  |                             |       
|Consolidated        |  |                             | 18,818
|                    |  |                             |       
|                    |  |                             |       
|Operating expenses: |  |                             |       
|Radio Broadcasting  |  |                             | 8,953 
|Outdoor Advertising |  |                             | 4,240 
|                    |  |                             |       

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



|Consolidated                                 |  |   | 13,193  |   |   | 15,336  |  
|-------------------------------------------- |  | - | ------- | - | - | ------- | -
|Corporate expenses                           |  |   | 2,091   |   |   | 1,938   |  
|Depreciation and amortization                |  |   | 1,242   |   |   | 2,349   |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Operating income (loss)                      |  |   | 2,292   |   |   | 3,933   |  
|Interest expense, net                        |  |   | (5,581  | ) |   | (5,726  | )
|Other income (expense)                       |  |   | (968    | ) |   | (488    | )
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Loss from continuing operations before taxes |  | $ | (4,257  | ) | $ | (2,281  | )
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Depreciation and amortization:               |  |   |         |   |   |         |  
|Radio Broadcasting                           |  | $ | 863     |   | $ | 1,547   |  
|Outdoor Advertising                          |  |   | 379     |   |   | 802     |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Consolidated                                 |  | $ | 1,242   |   | $ | 2,349   |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Total identifiable assets:                   |  |   |         |   |   |         |  
|Radio Broadcasting                           |  | $ | 329,515 |   | $ | 364,702 |  
|Outdoor Advertising                          |  |   | 159,641 |   |   | 161,874 |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Consolidated                                 |  | $ | 489,156 |   | $ | 526,576 |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Goodwill, net:                               |  |   |         |   |   |         |  
|Radio Broadcasting                           |  | $ | 12,543  |   | $ | 38,398  |  
|Outdoor Advertising                          |  |   | 138,907 |   |   | 124,649 |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Consolidated                                 |  | $ | 151,450 |   | $ | 163,047 |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Additions to long lived assets:              |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Radio Broadcasting                           |  | $ | 1,057   |   | $ | 61,995  |  
|Outdoor Advertising                          |  |   | 4,340   |   |   | 6,359   |  
|                                             |  |   |         |   |   |         |  
|                                             |  |   |         |   |   |         |  
|Consolidated                                 |  | $ | 5,397   |   | $ | 68,354  |  
|                                             |  |   |         |   |   |         |  

12



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##### Table of Contents

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

10.

Supplemental Guarantor Information

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

NextMedia Operating, Inc.Supplemental Combining Balance SheetMarch 31, 2003



|                                                                 |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |         
|---------------------------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | --------
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Assets                                                           |  |                          |         |                       |   |                    |   |       |         
|Current assets:                                                  |  |                          |         |                       |   |                    |   |       |         
|Cash and cash equivalents                                        |  | $                        | 1,294   |                       | $ | (657               | ) | $     |        
|Accounts receivable, net                                         |  |                          | 9,932   |                       |   | 4,373              |   |       |        
|Prepaid and other current assets                                 |  |                          | 843     |                       |   | 1,937              |   |       |        
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total current assets                                             |  |                          | 12,069  |                       |   | 5,653              |   |       |        
|Property and equipment, net                                      |  |                          | 26,730  |                       |   | 30,247             |   |       |        
|Goodwill and intangibles, net                                    |  |                          | 44,005  |                       |   | 395,400            |   |       |        
|Other                                                            |  |                          | 11,870  |                       |   | 936                |   |       | (334    
|Investment in subsidiaries                                       |  |                          | 426,312 |                       |   |                   |   |       | (426,312
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total assets                                                     |  | $                        | 520,986 |                       | $ | 432,236            |   | $     | (426,646
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Liabilities and Stockholders Equity                             |  |                          |         |                       |   |                    |   |       |         
|Current liabilities:                                             |  |                          |         |                       |   |                    |   |       |         
|Accounts payable, accrued expenses and other current liabilities |  | $                        | 8,356   |                       | $ | 4,329              |   | $     | (334    
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total current liabilities                                        |  |                          | 8,356   |                       |   | 4,329              |   |       | (334    
|Long-term debt                                                   |  |                          | 225,645 |                       |   |                   |   |       |        
|Other long-term liabilities                                      |  |                          | 7,657   |                       |   | 1,595              |   |       |        
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total liabilities                                                |  |                          | 241,658 |                       |   | 5,924              |   |       | (334    
|Stockholders equity                                             |  |                          | 279,328 |                       |   | 426,312            |   |       | (426,312
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total liabilities and stockholders equity                       |  | $                        | 520,986 |                       | $ | 432,236            |   | $     | (426,312
|                                                                 |  |                          |         |                       |   |                    |   |       |         

13



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

NextMedia Operating,
Inc.Supplemental Combining Balance SheetMarch 31, 2003



|                                                                 |  | 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             |   |       |        
|Intangibles, net                                                 |  |                          | 12,982  |                       |   | 363,647            |   |       |        
|Other                                                            |  |                          | 13,634  |                       |   | 1,252              |   |       | (1,212  
|Assets held for sale                                             |  |                          | 486     |                       |   | 4,925              |   |       |        
|Investment in subsidiaries                                       |  |                          | 398,419 |                       |   |                   |   |       | (398,419
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total assets                                                     |  | $                        | 474,383 |                       | $ | 405,143            |   | $     | (399,631
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Liabilities and Stockholders Equity                             |  |                          |         |                       |   |                    |   |       |         
|Current liabilities:                                             |  |                          |         |                       |   |                    |   |       |         
|Accounts payable, accrued expenses and other current liabilities |  | $                        | 14,936  |                       | $ | 5,128              |   | $     | (1,212  
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|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 |                       |   | 398,419            |   |       | (398,419
|                                                                 |  |                          |         |                       |   |                    |   |       |         
|Total liabilities and stockholders equity                       |  | $                        | 474,383 |                       | $ | 405,143            |   | $     | (399,631
|                                                                 |  |                          |         |                       |   |                    |   |       |         

14



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

NextMedia Operating,
Inc.Supplemental Combining Statement of OperationsFor the Three Months Ended March 31, 2003



|                                                |  | NextMediaOperating, Inc. |        | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |       
|----------------------------------------------- |  | ------------------------ | ------ | --------------------- | - | ------------------ | - | ----- | ------
|                                                |  |                          |        |                       |   |                    |   |       |       
|Net revenue                                     |  | $                        | 15,905 |                       | $ | 7,651              |   | $     |      
|Operating expenses                              |  |                          | 10,223 |                       |   | 5,113              |   |       |      
|Corporate expenses                              |  |                          | 1,461  |                       |   | 477                |   |       |      
|Depreciation and amortization                   |  |                          | 1,547  |                       |   | 802                |   |       |      
|                                                |  |                          |        |                       |   |                    |   |       |       
|Operating income (loss)                         |  |                          | 2,674  |                       |   | 1,259              |   |       |      
|Interest expense, net                           |  |                          | (5,726 | )                     |   |                   |   |       |      
|Other income (loss)                             |  |                          | (480   | )                     |   | (8                 | ) |       |      
|Equity in loss of subsidiaries                  |  |                          | 1,251  |                       |   |                   |   |       | (1,251
|                                                |  |                          |        |                       |   |                    |   |       |       
|Income (loss) before provision for income taxes |  |                          | (2,281 | )                     |   | 1,251              |   |       | (1,251
|Provision for income taxes                      |  |                          | (2,880 | )                     |   |                   |   |       |      
|Net income (loss) from continuing operations    |  |                          | (5,161 | )                     |   | 1,251              |   |       | (1,251
|Income from discontinued operations             |  |                          | 1      |                       |   |                   |   |       |      
|                                                |  |                          |        |                       |   |                    |   |       |       
|Net income (loss)                               |  | $                        | (5,160 | )                     | $ | 1,251              |   | $     | (1,251
|                                                |  |                          |        |                       |   |                    |   |       |       

15



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##### Table of Contents

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

NextMedia Operating,
Inc.Supplemental Combining Statement of OperationsFor the Three Months Ended March 31, 2003



|                                                |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |  | Total |     
|----------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ |  | ----- | ----
|                                                |  |                          |         |                       |   |                    |  |       |     
|Net revenue                                     |  | $                        | 13,286  |                       | $ | 5,532              |  | $     |    
|Operating expenses                              |  |                          | 8,953   |                       |   | 4,240              |  |       |    
|Corporate expenses                              |  |                          | 1,369   |                       |   | 722                |  |       |    
|Depreciation and amortization                   |  |                          | 863     |                       |   | 379                |  |       |    
|                                                |  |                          |         |                       |   |                    |  |       |     
|Operating income (loss)                         |  |                          | 2,101   |                       |   | 191                |  |       |    
|Interest expense, net                           |  |                          | (5,584  | )                     |   | 3                  |  |       |    
|Other income                                    |  |                          | 968     |                       |   |                   |  |       |    
|Equity in loss of subsidiaries                  |  |                          | 194     |                       |   |                   |  |       | (194
|                                                |  |                          |         |                       |   |                    |  |       |     
|Income (loss) before provision for income taxes |  |                          | (4,257  | )                     |   | 194                |  |       | (194
|Provision for income taxes                      |  |                          | (15,540 | )                     |   |                   |  |       |    
|                                                |  |                          |         |                       |   |                    |  |       |     
|Net income (loss) from continuing operations    |  |                          | (19,797 | )                     |   | 194                |  |       | (194
|Loss on discontinued operations                 |  |                          | (156    | )                     |   |                   |  |       |    
|                                                |  |                          |         |                       |   |                    |  |       |     
|Net income (loss)                               |  | $                        | (19,953 | )                     | $ | 194                |  | $     | (194
|                                                |  |                          |         |                       |   |                    |  |       |     

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

NextMedia Operating,
Inc.Supplemental Combining Statement of Cash FlowsFor the Three Months Ended March 31, 2003



|                                                |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |  
|----------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | -
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash provided by (used in) operations       |  | $                        | (7,624  | )                     | $ | 985                |   | $     | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Investing Activities            |  |                          |         |                       |   |                    |   |       |  
|Purchase of equipment                           |  |                          | (478    | )                     |   | (1,137             | ) |       | 
|Payments for acquisitions, net of cash acquired |  |                          | (66,456 | )                     |   |                   |   |       | 
|Proceeds from sale of broadcasting properties   |  |                          | 5,411   |                       |   |                   |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash used in investing activities           |  |                          | (61,523 | )                     |   | (1,137             | ) |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Financing Activities            |  |                          |         |                       |   |                    |   |       |  
|Proceeds from revolving credit facilities       |  |                          | 34,000  |                       |   |                   |   |       | 
|Repayment of revolving credit facilities        |  |                          | (5,750  | )                     |   |                   |   |       | 
|Capital contributions from Parent               |  |                          | 27,100  |                       |   |                   |   |       | 
|Payments of financing related costs             |  |                          | (18     | )                     |   |                   |   |       | 
|Other                                           |  |                          | 158     |                       |   |                   |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash provided by financing activities       |  |                          | 55,490  |                       |   |                   |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net decrease in cash                            |  |                          | (13,658 | )                     |   | (152               | ) |       | 
|Cash at beginning of period                     |  |                          | 14,952  |                       |   | (505               | ) |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash at end of period                           |  | $                        | 1,294   |                       | $ | (657               | ) | $     | 
|                                                |  |                          |         |                       |   |                    |   |       |  

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

NextMedia Operating,
Inc.Supplemental Combining Statement of Cash FlowsFor the Three Months Ended March 31, 2003



|                                                |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |  
|----------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | -
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash provided by (used in) operations       |  | $                        | (8,569  | )                     | $ | 411                |   | $     | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Investing Activities            |  |                          |         |                       |   |                    |   |       |  
|Purchase of equipment                           |  |                          | (599    | )                     |   | (918               | ) |       | 
|Payments for acquisitions, net of cash acquired |  |                          | (3,454  | )                     |   |                   |   |       | 
|Proceeds from sale of broadcasting properties   |  |                          | 755     |                       |   |                   |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash used in investing activities           |  |                          | (3,298  | )                     |   | (918               | ) |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Financing Activities            |  |                          |         |                       |   |                    |   |       |  
|Capital contributions from Parent               |  |                          | 215     |                       |   |                   |   |       | 
|Payments of financing related costs             |  |                          | (416    | )                     |   |                   |   |       | 
|Other                                           |  |                          | (30     | )                     |   | 199                |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net cash provided by financing activities       |  |                          | (231    | )                     |   | 199                |   |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Net decrease in cash                            |  |                          | (12,098 | )                     |   | (308               | ) |       | 
|Cash at beginning of period                     |  |                          | 31,044  |                       |   | (543               | ) |       | 
|                                                |  |                          |         |                       |   |                    |   |       |  
|Cash at end of period                           |  | $                        | 18,946  |                       | $ | (851               | ) | $     | 
|                                                |  |                          |         |                       |   |                    |   |       |  

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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.

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##### Table of Contents

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.

Results of Operations

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



|                                    |  | Three Months Ended March 31 |        
|----------------------------------- |  | --------------------------- | -------
|                                    |  |                             |        
|                                    |  | 2002                        |        
|                                    |  |                             |        
|                                    |  | (dollars in thousands)      |        
|Consolidated Operating Data:        |  |                             |        
|Net revenues                        |  | $                           | 18,818 
|Operating expenses                  |  |                             | 13,193 
|Corporate expenses                  |  |                             | 2,091  
|Depreciation and amortization       |  |                             | 1,242  
|                                    |  |                             |        
|Operating income (loss)             |  |                             | 2,292  
|Interest expense, net               |  |                             | (5,581 
|Other income (expense), net         |  |                             | (968   
|Income tax expense                  |  |                             | (15,540
|Discontinued operations             |  |                             | (156   
|                                    |  |                             |        
|Net loss                            |  | $                           | (19,953
|                                    |  |                             |        
|Radio Broadcasting Operating Data:  |  |                             |        
|Net revenues                        |  | $                           | 13,286 
|Operating expenses                  |  |                             | 8,953  
|Depreciation and amortization       |  |                             | 863    
|                                    |  |                             |        
|Segment operating income            |  | $                           | 3,470  
|                                    |  |                             |        
|Outdoor Advertising Operating Data: |  |                             |        
|Net revenues                        |  | $                           | 5,532  
|Operating expenses                  |  |                             | 4,240  
|Depreciation and amortization       |  |                             | 379    
|                                    |  |                             |        
|Segment operating income (loss)     |  | $                           | 913    
|                                    |  |                             |        

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##### Table of Contents

Comparison of Three Months Ended March 31, 2003 to Three Months Ended March 31, 2002

Net Revenues.Consolidated net revenues increased $4.8 million to $23.6 million in 2003 from $18.8 million in 2002. Radio net revenues increased $2.6 million to $15.9 million in 2003 from
$13.3 million in 2002. Outdoor advertising net revenues increased $2.2 million to $7.7 million in 2003 from $5.5 million in 2002. Revenues generated by assets owned and operated in both periods contributed approximately one-third of the increase,
while the remainder of the increase was due primarily to our completion of acquisitions in 2002 and 2003.

Operating Expenses.Consolidated operating expenses increased $2.1 million to $15.3 million in 2003 from $13.2 million in 2002. Radio operating expenses increased $1.2 million to $10.2 million in 2003 from $9.0 million in 2002. Outdoor advertising operating
expenses increased $900,000 to $5.1 million in 2003 from $4.2 million in 2002. These increases were attributable primarily to our completion of acquisitions in 2002 and 2003. As a percentage of net revenues, consolidated operating expenses decreased
from 70.1% to 65.1% since fixed costs did not grow at the same rate as revenues.

Corporate Expenses. Corporate expenses decreased
$200,000 to $1.9 million in 2003 from $2.1 million in 2002. This decrease was due primarily to reductions in salaries due to organizational changes in 2002. As a percentage of net revenues, corporate expenses declined from 11.1% to 8.2% because we
reduced corporate costs despite growth through acquisitions and operations.

Depreciation and Amortization.Consolidated
depreciation and amortization increased $1.1 million to $2.3 million in 2003 from $1.2 million in 2002. Radio depreciation and amortization increased $600,000 to $1.5 million in 2003 from $900,000 in 2002. Outdoor advertising depreciation and
amortization increased $400,000 to $800,000 in 2003 from $400,000 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 (Expense) Net.Interest expense, net, increased to $5.7 million in 2003 from $5.6 million in 2002 due to indebtedness incurred in connection with our acquisitions. Other income (expense), net decreased to a $500,000 loss in 2003 primarily as a result of a
smaller non-cash loss on our interest rate swap arrangements during the 2003 period.

Income Tax. In connection with the adoption of
SFAS 142 and suspension of amortization of FCC licenses and goodwill, we expected that our deferred tax liabilities would 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 the year to establish a valuation 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 deferred tax assets created as we continue to expect that our deferred tax liabilities will not reverse within our
net operating loss carry-forward period.

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 exchange for approximately $5.5 million. This sale was completed in January 2003.

Net Loss. Consolidated net loss decreased $14.8 million to $5.2 million in 2003 from $20.0 million in 2002 as a result of the factors described above.

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Liquidity and Capital Resources

Our cash and cash
equivalents balance at March 31, 2003 was approximately $637,000 compared to $14.4 million at December 31, 2002. The decrease was due primarily to acquisitions, capital expenditures and financing costs partially offset by cash from operations and
previously committed equity capital contributions.

Net cash used in operating activities was $6.6 million and $8.2 million for the three months ended March
31, 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. First quarter cash from operations is a use
due to the timing of our semi-annual interest payments on our senior subordinated notes.

Net cash provided by financing activities was $55.5 million for the
three months ended March 31, 2003 compared to cash used in financing activities of $32,000 for the three months ended March 31, 2002. During the three months ended March 31, 2002, there were no significant acquisitions; consequently, there was
no significant financing activity. Net cash used in investing activities was $62.7 million and $4.2 million for the three months ended March 31, 2003 and 2002, respectively. These cash flows primarily reflect expenditures for acquisitions and
capital expenditures.

Sources and Uses of Funds

We use a significant portion of
our capital resources to consummate acquisitions. Through March 31, 2003, we funded our acquisitions from the following sources: equity capital contributions of approximately $354.1 million from our indirect parent, NextMedia Investors, funded by
equity investments from several private investment funds and our senior management, and aggregate borrowings of approximately $228.3 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 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.

The credit facility amendments discussed above became effective on January 6, 2003 in
connection with our acquisition of four FM radio stations and one AM radio station operating in the Saginaw/Bay City/Midland, Michigan market from Wilks Broadcasting, LLC for $55.5 million. We financed $26.0 million of the purchase price with
borrowings under the senior credit facility, and funded the balance with the remainder of the previously committed equity contributions and cash on hand.

On
January 31, 2003, we acquired three additional FM stations and one additional AM station as an add-on to our existing stations in the Sherman/Dennison, Texas and Ardmore, Oklahoma market for $5.5 million. Simultaneously, we disposed of five radio
stations in the Panama City, Florida market for approximately $5.5 million.

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In February 2003, we acquired certain outdoor advertising assets in New Jersey for approximately $4.7 million, $600,000 of which we
funded in 2002 and the balance of which we funded with additional borrowings under the senior credit facility and cash on hand.

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. As of March 31, 2003, we were in
compliance with all of these covenants. After taking into account these restrictive covenants, as of March 31, 2003, we had approximately $15.0 million of borrowing capacity under our senior credit facility.

In April 2003, we entered into an agreement to sell the assets of WAIT-AM in the Chicago suburban market to Newsweb Corporation for $8.25 million in cash. Also in April 2003, we entered into an
agreement to acquire station KNHK-FM in Reno, Nevada from Citadel Broadcasting Company for $4.25 million in cash. We expect each of these transactions to close in the third quarter of 2003.

In May 2003, we entered into an agreement to sell certain of the assets of WJTW-FM in the Chicago suburban market to Hispanic Broadcasting Corporation for $21.0 million in cash. We expect this
transaction to close during the second or third quarter of 2003.

Capital expenditures in the three months ended March 31, 2003 increased slightly to $1.6
million from $1.5 million for the three months ended March 31, 2002. The following table sets forth our capital expenditures for the three months ended March 31, 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.



|                           |  | Three Months EndedMarch 31, 2003 |      
|-------------------------- |  | -------------------------------- | -----
|                           |  |                                  |      
|                           |  | (in thousands)                   |      
|Recurring                  |  | $                                | 606  
|Non-recurring              |  |                                  | 175  
|Revenue producing          |  |                                  | 834  
|                           |  |                                  |      
|Total capital expenditures |  | $                                | 1,615
|                           |  |                                  |      

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 March 31, 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.

On November 7, 2002, Standard & Poors Ratings Services placed 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

On December 31, 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure (SFAS 148). SFAS 148 amends Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS

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

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities, which is effective immediately for all enterprises with interest in variable interest entities created after January 31, 2003. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in
the first interim period beginning after June 15, 2003. We do not have any interest in any variable interest entities as of January 31, 2003. We will apply the provisions of FIN 46 in future periods should a variable interest entity be
acquired.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

In January 2002, we entered into two interest rate swap agreements
with an aggregate notional amount of $75.0 million. Pursuant to the swap arrangements, we will pay interest on the notional amount at a floating rate based on LIBOR and we will receive a fixed rate of 10.75% on the notional amount until the
expiration of the agreements in January 2004. For every 0.5% increase in interest rates, we would experience an increase of approximately $375,000 in annual interest expense and, to the extent that the three month LIBOR plus 7.3% exceeds 10.75%
in the future, we would be required to pay amounts in excess of the fixed payments we receive under the swap arrangements. 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 conducted within 90 days of the date of
filing this report on Form 10-Q, our principal executive officer and our principal financial officer have concluded that, as of the date of their evaluation, our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended) are effective.

There have been no significant changes in our internal controls or in other
factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this quarterly report on Form 10-Q.

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##### Table of Contents

PART II

ITEM 1.

LEGAL PROCEEDINGS

We currently are not a party to any 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                                                                                                                                       
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                   
|99.1*       | 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.
|            |                                                                                                                                                   
|99.2*       | 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

None.

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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: MAY 10, 2003 |  | By: | /s/ STEVENDINETZ                                                                
|                   |  |     |                                                                                 
|                   |  |     | Steven Dinetz, Chief ExecutiveOfficer and President(Principal Executive Officer)



|                   |  |    
|------------------ |  | ---
|DATE: MAY 10, 2003 |  | By:
|                   |  |    
|                   |  |    



|                   |  |    
|------------------ |  | ---
|DATE: MAY 10, 2003 |  | By:
|                   |  |    
|                   |  |    



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CERTIFICATIONS

I, Steven Dinetz, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of
NextMedia Operating, Inc.;

2.

Based on my
knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and form the periods presented in this quarterly report;

4.

The registrants other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and

c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as
of the Evaluation Date;

5.

The
registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent
function):

a)

All significant deficiencies
in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in
internal controls; and

b)

Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.

The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:    May 10, 2003



|    |                                      |  |  | 
|--- | ------------------------------------ |  |  | 
|By: | /s/ STEVENDINETZ                     |  |  | 
|    |                                      |  |  | 
|    | Steven DinetzChief Executive Officer |  |  | 



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I, Sean R. Stover, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of NextMedia Operating, Inc.;

2.

Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
quarterly report;

3.

Based on my knowledge, the
financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and form the periods presented in
this quarterly report;

4.

The registrants
other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

Designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

c)

Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5.

The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent
function):

a)

All significant deficiencies
in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in
internal controls; and

b)

Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.

The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:    May 10, 2003



|    |                                       |  |  | 
|--- | ------------------------------------- |  |  | 
|By: | /s/ SEANR.STOVER                      |  |  | 
|    |                                       |  |  | 
|    | Sean R. StoverChief Financial Officer |  |  | 



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Exhibit Index



|Exhibit No. | Description                                                                                                                                       
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                   
|99.1        | 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.
|            |                                                                                                                                                   
|99.2        | 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.

29