<PAGE>   1


     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1999



                                                      REGISTRATION NO. 333-49711

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                    FORM S-3


                               (AMENDMENT NO. 1)


                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------

                            THE ACKERLEY GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


<TABLE>
<S>                                                     <C>
                       DELAWARE                                               91-1043807
            (STATE OR OTHER JURISDICTION OF                                (I.R.S. EMPLOYER
            INCORPORATION OR ORGANIZATION)                                IDENTIFICATION NO.)
</TABLE>


                               1301 FIFTH AVENUE
                                   SUITE 4000
                               SEATTLE, WA 98101
                                 (206) 624-2888
    (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                  OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                                DENIS M. CURLEY
                            THE ACKERLEY GROUP, INC.
                    CO-PRESIDENT AND CHIEF FINANCIAL OFFICER
                               1301 FIFTH AVENUE
                                   SUITE 4000
                               SEATTLE, WA 98101
                                 (206) 624-2888
      (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
                        AREA CODE, OF AGENT FOR SERVICE)

                                   COPIES TO:

<TABLE>
<S>                                                     <C>
                    CARMEN L. SMITH                                         ERIC S. HAUETER
                   GRAHAM & DUNN PC                                        BROWN & WOOD LLP
             1420 FIFTH AVENUE, 33RD FLOOR                               555 CALIFORNIA STREET
                   SEATTLE, WA 98101                                    SAN FRANCISCO, CA 94104
                    (206) 340-9642                                          (415) 772-1200
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.


If the only securities being registered on this form are being offered pursuant
to dividend or reinvestment plans, please check the following box.  [ ]



If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, other
than securities offered only in connection with dividend and reinvestment plans,
check the following box.  [ ]


If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]
---------------

If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]
---------------


If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]


                        CALCULATION OF REGISTRATION FEE


<TABLE>
<S>                                          <C>                  <C>                  <C>                  <C>
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
                                                                   PROPOSED MAXIMUM     PROPOSED MAXIMUM       AMOUNT OF
          TITLE OF EACH CLASS OF                AMOUNT TO BE        OFFERING PRICE          AGGREGATE         REGISTRATION
        SECURITIES TO BE REGISTERED             REGISTERED(1)         PER UNIT(2)       OFFERING PRICE(2)        FEE(3)
----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share.....   4,830,000 shares          $19.25             $92,977,500         $25,847.75
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>



(1) Includes 630,000 shares that may be purchased by the underwriters to cover
    over-allotments, if any.



(2) Estimated solely for purposes of computing the registration fee pursuant to
    Rule 457(a) under the Securities Act.



(3) $14,036.47 of the registration fee was previously paid.


    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2


The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.



                   SUBJECT TO COMPLETION, DATED JUNE 18, 1999


PROSPECTUS


                                     [LOGO]



                                4,200,000 SHARES


                            THE ACKERLEY GROUP, INC.
                                  COMMON STOCK

                              $         PER SHARE

                           -------------------------


     The Ackerley Group, Inc. is selling 3,000,000 shares of its common stock
and the selling stockholders named in this prospectus are selling 1,200,000
shares of common stock. The Ackerley Group will not receive any proceeds from
the sale of the shares by the selling stockholders. The underwriters named in
this prospectus may purchase up to 630,000 additional shares of common stock
from The Ackerley Group under certain circumstances.



     The common stock is listed on the New York Stock Exchange under the symbol
"AK." The last reported sale price of the common stock on the New York Stock
Exchange on June 17, 1999 was $18 7/8 per share.


                            ------------------------


     INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.



     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.



                           -------------------------






<TABLE>
<CAPTION>
                                                              PER SHARE    TOTAL
                                                              ---------    ------
<S>                                                           <C>          <C>
Public Offering Price                                          $           $
Underwriting Discount                                          $           $
Proceeds to The Ackerley Group (before expenses)               $           $
Proceeds to the Selling Stockholders (before expenses)         $           $
</TABLE>



     The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
             , 1999.


                           -------------------------

SALOMON SMITH BARNEY

                   FIRST UNION CAPITAL MARKETS CORP.


                                  MERRILL LYNCH & CO.


                    , 1999

<PAGE>   3


                               [ARTWORK TO COME]




                                        2
<PAGE>   4


     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.

                           -------------------------


                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Forward-Looking Statements..................................     4
Prospectus Summary..........................................     5
Risk Factors................................................    13
Use of Proceeds.............................................    29
Price Range of Common Stock.................................    29
Dividend Policy.............................................    30
Capitalization..............................................    31
Selected Consolidated Financial Data........................    32
Unaudited Pro Forma Condensed Consolidated Financial
  Information...............................................    34
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................    39
Business....................................................    53
Management..................................................    67
Principal and Selling Stockholders..........................    70
Description of Capital Stock................................    71
Underwriting................................................    75
Legal Matters...............................................    77
Experts.....................................................    77
Where You Can Find More Information.........................    77
Index to Financial Statements...............................   F-1
</TABLE>


                                        3
<PAGE>   5


                           FORWARD-LOOKING STATEMENTS



     This prospectus and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any such
forward-looking statements contained or incorporated by reference herein are
subject to a number of risks and uncertainties and should not be relied upon as
predictions of future events. Certain such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "pro forma," "approximately,"
"intends," "plans," "estimates," or "anticipates" or the negative thereof or
other variations thereof or comparable terminology, or by discussions of
strategy, plans or intentions. Such forward-looking statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise and
they may be incapable of being realized. Actual results could differ materially
from those projected in such forward-looking statements as a result of certain
of the matters set forth below and discussed elsewhere in this prospectus and
the documents incorporated by reference herein. As a result of the foregoing, no
assurance can be given as to our future results of operations or financial
condition. We undertake no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.



     Important factors that could cause actual results to differ materially from
those expressed in such forward-looking statements include the matters discussed
elsewhere herein under the caption "Risk Factors" and elsewhere in this
prospectus and in the documents incorporated by reference herein, as well as the
following:



     - adverse changes in general economic conditions, including changes in
       inflation and interest rates;



     - changes in laws and regulations affecting the outdoor advertising and
       television and radio broadcasting businesses, including changes in the
       Federal Communications Commission's ("FCC") treatment of time brokerage
       agreements and related matters, and the possible inability to obtain FCC
       consent to proposed or pending acquisitions or dispositions of
       broadcasting stations;



     - competitive factors in the outdoor advertising, television and radio
       broadcasting, and sports and entertainment businesses;



     - material changes to accounting standards;



     - expiration or non-renewal of broadcasting licenses and time brokerage
       agreements;



     - labor matters, including the effects of the National Basketball
       Association ("NBA") lockout, changes in labor costs, renegotiation of
       labor contracts, and risk of work stoppages or strikes;



     - matters relating to our level of indebtedness, including restrictions
       imposed by financial covenants;



     - the win-loss record of the Seattle SuperSonics, which has a substantial
       influence on attendance, and whether the team participates in the NBA
       playoffs; and



     - recessionary influences in the regional markets that we serve.


                                        4
<PAGE>   6


                               PROSPECTUS SUMMARY



     You should read this summary together with the more detailed information
and financial data, including the financial statements and related notes,
included and incorporated by reference in this prospectus. Unless otherwise
expressly stated or the context otherwise requires, (i) all references to "we,"
"our," "us," the "Company" and "The Ackerley Group" mean The Ackerley Group,
Inc., a Delaware corporation, and its subsidiaries on a consolidated basis, (ii)
all information in this prospectus assumes that the underwriters' over-allotment
option has not been exercised; and (iii) all information in this prospectus
reflects a two-for-one stock split which we effected on October 15, 1996. In
addition, references to the "DMA" ranking of markets refer to their Designated
Market Area rank, a measure of market size in the United States based on
population as reported by the Nielsen Rating Service and a standard market
measure used by the media industry; references to "rating points" for television
programs refer to the ratio of the total number of viewers of the program to the
total number of television viewers in the geographic market; and references to
"Share" of a radio broadcasting market refer to the percentage of those
listening to radio in a particular Metro Survey Area ("MSA") who are listening
to a particular radio station, as reported upon by The Arbitron Company.



                                  THE COMPANY



     We are a diversified media and entertainment company which engages in four
principal businesses: outdoor media, television broadcasting, radio
broadcasting, and sports & entertainment. Our outdoor media, television
broadcasting, radio broadcasting, and sports & entertainment segments accounted
for approximately 42%, 27%, 10%, and 21%, respectively, of our net revenue for
the year ended December 31, 1998.



     Outdoor Media. We engage in outdoor advertising in selected markets in
Florida, Massachusetts, and the Pacific Northwest. At March 31, 1999, we had
9,353 outdoor displays in the markets of Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida; Boston-Worcester, Massachusetts; Seattle-Tacoma,
Washington; and Portland, Oregon. We believe that we have the leading position
in outdoor advertising in each of these markets, based upon the number of
outdoor advertising displays.



     Television Broadcasting. We engage in television broadcasting in New York,
California, Oregon, and Washington, and have agreed to acquire a television
station in Fairbanks, Alaska. Assuming completion of all pending acquisitions
and dispositions, we would own eleven television stations and operate two
additional television stations under time brokerage agreements. Consistent with
our strategy of local news leadership, eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs, in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index.



     Radio Broadcasting. We own and operate four radio stations in the
Seattle-Tacoma, Washington market, including KUBE(FM), the leading FM station in
the market in terms of Share, according to the Winter 1999 Arbitron Radio Market
Report, and KJR(AM), the only sports talk station in the market. KJR(AM) is tied
for first place as the highest ranked sports talk radio station in the United
States in terms of Share of its MSA, according to the Winter 1999 Arbitron Radio
Market Report.



     Sports & Entertainment. Our sports & entertainment segment includes
ownership of the professional men's basketball franchise in Seattle, the Seattle
SuperSonics. The Seattle Supersonics have been the NBA's Pacific Division
Champions for three of the last four

                                        5
<PAGE>   7


NBA seasons. Our Full House Sports & Entertainment division provides marketing
and promotional support for the Seattle SuperSonics and coordinates related
cross-media activities within our company. We also are considering other
investments in other Seattle-area sports and entertainment activities which
would utilize our marketing and promotional infrastructure. For instance, we
have been conditionally awarded operating rights to a Women's National
Basketball Association ("WNBA") expansion team in Seattle.



     We summarize our operations by market in the following table.



<TABLE>
<CAPTION>
                                                                COMPANY SEGMENT
                                                  --------------------------------------------
                                                                                   SPORTS &
           GEOGRAPHIC GROUP              DMA(1)   OUTDOOR   TELEVISION   RADIO   ENTERTAINMENT
           ----------------              ------   -------   ----------   -----   -------------
<S>                                      <C>      <C>       <C>          <C>     <C>
New York
Syracuse, NY...........................    74                   X
Rochester, NY..........................    77                   X
Binghamton, NY.........................   154                   X
Utica, NY(2)...........................   168                   X

Central Coast
Santa Barbara-Santa Maria-San Luis        116                   X
  Obispo...............................
Monterey-Salinas, CA(3)................   119                   X
Bakersfield, CA........................   130                   X

North Coast
Eugene, OR.............................   121                   X
Eureka, CA.............................   191                   X
Santa Rosa, CA.........................    --(4)                X

Pacific Northwest
Seattle-Tacoma, WA.....................    12          X                     X           X
Portland, OR...........................    23          X
Fairbanks, AK (pending                    203                   X
  acquisition)(5)......................
Vancouver, BC..........................    --(6)                X

Massachusetts
Boston-Worcester, MA...................     6(7)       X

Florida
Miami-Fort Lauderdale, FL..............    16          X
West Palm Beach-Fort Pierce, FL........    44          X
</TABLE>


---------------

(1) DMA rankings are from the Television & Cable Factbook, 1999 Edition.



(2) We operate our Utica, New York television station under a time brokerage
    agreement.



(3) Of our two television stations in the Salinas-Monterey, California area, we
    own one station and we operate the second station under a time brokerage
    agreement. See "Business--Television Broadcasting."



(4) While our Santa Rosa, California television station, KFTY, is included in
    the San Francisco-Oakland-San Jose market, which has a DMA rank of 5, the
    station principally serves the community of Santa Rosa, which is not
    separately ranked.



(5) We have entered into an agreement to purchase KTVF(TV), licensed to
    Fairbanks, Alaska. We do not currently own or operate KTVF(TV).



(6) Our Bellingham, Washington television station, KVOS, serves primarily the
    Vancouver, British Columbia market (located in size, according to the
    Nielsen Rating Service as of February 1999, between the markets of Denver,
    Colorado and Pittsburgh, Pennsylvania, which have DMA rankings of 18 and 19,
    respectively), and a portion of the Seattle, Washington market (DMA rank of
    12) and the Whatcom County, Washington market. The station's primary
    competition consists of five Canadian stations.



(7) Reflects the DMA ranking for the Boston market.

                                        6
<PAGE>   8


     We have our principal executive offices at 1301 Fifth Avenue, Suite 4000,
Seattle, Washington 98101, and our telephone number is (206) 624-2888.



                                    STRATEGY



     Our primary strategy is to develop and acquire media assets which enable us
to offer advertisers a choice of media outlets for distributing their marketing
messages. To this end, we have assembled a diverse portfolio of media assets. We
believe our businesses are linked by a common goal of increasing the number of
advertising impressions made, regardless of whether the impression is made via
radio, television, or outdoor media display. Further, we seek to exploit the
operating synergies which we believe exist from our ownership of both
distribution (the television broadcasting, radio broadcasting, and outdoor media
businesses) and content (the sports & entertainment business) assets.



     We seek to grow by investing in the expansion of our existing operations
through additions and upgrades to our facilities and programming. We also look
to grow through opportunistic acquisitions in our existing business lines and by
exploring new synergistic business ventures. We target markets where we see an
opportunity to improve market share, take advantage of regional efficiencies,
and develop our television stations into local news franchises.



     We believe the following elements of our strategy provide us with
competitive advantages:



     Maintain and Develop Leadership Positions in Markets Served. We seek to be
a leader in each of our markets. In our outdoor segment, we believe we own the
most outdoor advertising display faces in each of the five geographic markets in
which we operate, based upon the Traffic Audit Bureau's most recent Summary of
Audited Markets issued in October 1998. Eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index. Our four radio stations include KUBE(FM), the leading FM
station in the Seattle-Tacoma market in terms of Share of its MSA, according to
the Winter 1999 Arbitron Radio Market Report, and KJR(AM), the only sports talk
station in the market. KJR(AM) is tied for first place as the highest ranked
sports talk radio station in the United States in terms of Share of its MSA,
according to the Winter 1999 Arbitron Radio Market Report. We believe this
market leadership enables us to provide advertisers a cost-effective means of
delivering a quality message to their targeted audience.



     Use Advanced Communications Technology to Create Regional Television
Groups. On April 6, 1999, we announced the launch of Digital CentralCasting, a
digital broadcast system which will allow us to operate multiple television
stations using the back-office functions of a single station. The system
contemplates that all of our television stations in a geographic area will be
linked through a fiber-optic based communications network, and that the stations
themselves will switch from analog to digital broadcasting equipment. This will
permit the stations to share digital programming and other data along the fiber-
optic network, as well as allowing a single station within the geographic area
to perform back-office functions such as operations, programming and advertising
scheduling, and accounting for all of our television stations in the area. To
implement this strategy, we have organized ten of the television stations we own
and operate into the following three regional station groups: New York (WIXT,
WIVT, WUTR, and WOKR), Central Coast (KGET, KCBA, KION, and KCOY), and North
Coast (KFTY, KVIQ, and KMTR).

                                        7
<PAGE>   9


     While the advantages of owning multiple stations in a market are evident in
radio broadcasting, current television station ownership rules prohibit the
ownership of more than one station in a designated market, with some exceptions.
We believe that the confluence of falling prices for fiber-optic based
communications services and the advancement of digital transmission technology
has created an opportunity to realize the benefits of multi-station ownership by
linking several distinct television markets into one regional group. We expect
to implement Digital CentralCasting for all of our television station groups
over the next twelve months, and believe we are among the first companies to
introduce this technology in our industry. We anticipate that Digital
CentralCasting will enhance our operational efficiency through economies of
scale and the sharing of resources and programming among our stations. However,
we cannot guarantee that the implementation of Digital CentralCasting will be
achieved in a timely or effective manner and can give no assurance as to the
timing or extent of the anticipated benefits.



     Capitalize Upon Our Ownership of the Seattle SuperSonics. We believe that
our ownership of the Seattle SuperSonics enhances the effectiveness of our media
operations by (1) providing regionally significant programming, (2) generating
listener loyalty for our radio stations, and (3) increasing the number of
individuals exposed to the advertising we provide. We seek to extract additional
value from our ownership of the Seattle SuperSonics through the sale of team
sponsorships, which includes sales of advertising on signs in Seattle's Key
Arena and on radio and television broadcasts of Seattle SuperSonics games. We
also receive revenue from our interest in activities coordinated by the NBA,
such as advertising on nationally televised games and other licensing
arrangements. As a result of our ownership of different media outlets, our
sports & entertainment segment can offer advertisers greater choice than a
single outlet entity. We believe this helps our advertisers to more effectively
reach their target audiences.



     Utilize the Regional Marketing and Promotional Expertise of Our Sports &
Entertainment Segment. Historically, our sports & entertainment segment has
provided marketing and promotional support solely for the Seattle SuperSonics.
We plan to pursue additional opportunities to provide marketing and promotional
services for other regional events and entertainment, capitalizing upon the
expertise developed from our experience with the Seattle SuperSonics. For
instance, we have been conditionally awarded operating rights to a WNBA
expansion team in Seattle.



     Experienced Management; Decentralized Management Structure. We believe that
our efficient management structure and the experience of our management team
enable us to respond effectively to competitive challenges across our markets
and our business segments. We have granted the management of our operating units
the authority and autonomy necessary to run each unit as a business and to
respond to changes in each market environment. Experienced local managers
enhance our ability to respond to local market changes rapidly and effectively.
The average experience of our 11 division managers in their respective
industries is approximately 17 years. These local managers are supported and
guided by an experienced and cohesive corporate executive team. Four of our five
executive officers have worked together for eight years. Our five executive
officers collectively have an aggregate of 103 years of experience in the
various industries in which we are involved.

                                        8
<PAGE>   10


     Barry A. Ackerley, one of our founders and our current Chairman and Chief
Executive Officer, has been actively involved with the Company since our
inception in 1975. Early in our history, Mr. Ackerley recognized the synergies
that could be achieved through ownership of outdoor advertising, television and
radio broadcasting, and sports & entertainment assets. With this vision, Mr.
Ackerley led our expansion from outdoor advertising into television and radio
broadcasting and sports and entertainment well before the current trend toward
consolidation among these industries.



RECENT DEVELOPMENTS



     Acquisition of WOKR(TV). On April 12, 1999, we purchased substantially all
of the assets, and assumed certain liabilities, of WOKR(TV), the ABC affiliate
licensed to Rochester, New York, for approximately $128.2 million. In September
1998, we paid $12.5 million of the purchase price into an escrow account, with
the balance paid at closing. We recorded net assets with estimated fair values
aggregating $9.8 million and goodwill of $118.4 million in connection with this
transaction.



     For a discussion of other events that have occurred since March 31, 1999,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Subsequent Events."


                                  THE OFFERING


Common Stock offered by The Ackerley Group.....   3,000,000 shares



Common Stock offered by the Selling
Stockholders...................................   1,200,000 shares(1)



Common Stock to be outstanding after the
offering.......................................   23,578,141 shares(2)(3)



Class B Common Stock to be outstanding after
the offering...................................   11,051,230 shares(2)(3)



Use of Proceeds................................   To repay outstanding
                                                  indebtedness under the 1999
                                                  Credit Agreement (as defined
                                                  below). We may from time to
                                                  time thereafter make further
                                                  revolving credit borrowings
                                                  under the 1999 Credit
                                                  Agreement, subject to
                                                  compliance with financial
                                                  covenants and conditions to
                                                  borrowing. See "Use of
                                                  Proceeds."



New York Stock Exchange Symbol...................   "AK"

-------------------------

(1) Includes 1,000,000 shares of our Common Stock, par value $.01 per share (the
    "Common Stock"), to be sold by Barry A. Ackerley and 200,000 shares of
    Common Stock to be sold by The Ginger and Barry Ackerley Foundation. See
    "Principal and Selling Stockholders."



(2) Based on shares outstanding at June 1, 1999. Does not include 990,250 shares
    of Common Stock reserved for issuance under our Employees Stock Option Plan;
    37,500 shares of Common Stock and 37,500 shares of our Class B Common Stock,
    par value $.01 per share (the "Class B Common Stock"), reserved for issuance
    under certain stock purchase agreements; and 90,481 shares of Common Stock
    reserved for issuance under our Nonemployee-Directors' Equity Compensation
    Plan, in each case at June 1, 1999.


(3) Each share of Class B Common Stock is convertible at any time, at the option
    of the holder, into one share of Common Stock. See "Description of Capital
    Stock."
                                        9
<PAGE>   11

                             SUMMARY FINANCIAL DATA


     The following historical consolidated statement of operations and other
data for each of the three years in the period ended December 31, 1998, and the
following historical consolidated balance sheet data at December 31, 1998 and
1997, are derived from our consolidated financial statements and notes thereto
as of December 31, 1998 and 1997 and for the three years ended December 31, 1998
included herein (the "1998 Financial Statements") that have been audited by
Ernst & Young LLP, independent auditors, and are qualified by reference to such
1998 Financial Statements. The following historical consolidated statement of
operations and other data for the years ended December 31, 1995 and 1994 and the
following historical consolidated balance sheet data at December 31, 1996, 1995,
and 1994 are derived from our audited financial statements not included in this
prospectus. The historical consolidated financial data as of and for the
three-month periods ended March 31, 1999 and 1998 are unaudited but, in the
opinion of management of the Company, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of such periods. The results of operations for the three-month period
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year. The following historical consolidated
financial data is qualified in its entirety by reference to, and should be read
in conjunction with, our consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," and other financial information included and incorporated by
reference in this prospectus.



     The following pro forma financial data reflects the sale of substantially
all of the assets of our wholly-owned subsidiary, Ackerley Airport Advertising,
Inc. ("Airport"), on June 30, 1998 for approximately $42.9 million and our
acquisition of substantially all of the assets of WOKR(TV) for approximately
$128.2 million, plus the assumption of certain liabilities, on April 12, 1999 as
if those transactions had occurred on the first day of the periods presented
below (in the case of statement of operations data and other data) and as if the
acquisition of WOKR(TV) had occurred as of March 31, 1999 (in the case of
balance sheet data). The following pro forma financial data is subject to a
number of estimates, assumptions and uncertainties and does not purport to
reflect the financial condition or results of operations that would have existed
or occurred had such transactions taken place on the dates indicated, nor does
it purport to reflect the financial condition or results of operations that will
exist or occur in the future. See "Unaudited Pro Forma Condensed Consolidated
Financial Information." The following pro forma financial data is qualified in
its entirety by reference to, and should be read in conjunction with, the
unaudited pro forma condensed consolidated financial information included herein
and the historical financial statements and notes thereto of the Company and
WOKR(TV) included and incorporated by reference herein.



                                       10
<PAGE>   12

<TABLE>
<CAPTION>
                                        PRO FORMA
                               ---------------------------
                               THREE-MONTH                   THREE-MONTH PERIOD
                               PERIOD ENDED    YEAR ENDED      ENDED MARCH 31,
                                MARCH 31,     DECEMBER 31,   -------------------
                                   1999           1998         1999       1998
                               ------------   ------------   --------   --------
                                       (UNAUDITED)               (UNAUDITED)
                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>            <C>            <C>        <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
Net revenue..................    $ 71,594       $258,738     $ 67,696   $ 81,046
Operating expenses...........      62,716        204,543       60,164     69,388
Depreciation and amortization
  expenses...................       6,923         23,530        4,723      3,843
Gain on disposition of
  assets.....................          --            127       (1,626)         0
Other non-cash expenses(1)...         244            452          244          0
Interest expense.............       9,531         32,611        7,311      6,510
                                 --------       --------     --------   --------
Income (loss) before income
  taxes and extraordinary
  item.......................    $ (7,820)      $ (2,525)    $ (3,120)  $  1,305
                                 ========       ========     ========   ========
Net income (loss) applicable
  to common shares...........    $ (6,850)      $ (6,683)    $ (3,921)  $    809
                                 ========       ========     ========   ========
Per common share--assuming
  dilution(2)(3):
  Income (loss) before
    extraordinary item.......    $  (0.17)      $  (0.07)    $  (0.08)  $   0.03
  Extraordinary item.........       (0.04)         (0.14)       (0.04)      0.00
                                 --------       --------     --------   --------
  Net income (loss)..........    $  (0.21)      $  (0.21)    $  (0.12)  $   0.03
                                 ========       ========     ========   ========
Weighted average number of
  shares--assuming
  dilution...................      31,882         31,883       31,882     31,692
Dividends per common
  share(2)...................    $   0.02       $   0.02     $   0.02   $   0.02

BALANCE SHEET DATA:
Working capital..............    $ 26,743                    $ 24,903   $ 16,341
Total assets.................     487,602                     366,798    282,898
Total debt(4)................     448,513(5)                  334,682    255,089
Stockholders' deficiency.....     (30,149)                    (30,149)   (44,661)

OTHER DATA:
Segment Operating Cash
  Flow(6)....................    $ 12,690       $ 68,686     $ 11,344   $ 14,715
Corporate overhead expense...      (3,812)       (14,491)      (3,812)    (3,057)
                                 --------       --------     --------   --------
EBITDA(7)....................    $  8,878       $ 54,195     $  7,532   $ 11,658
                                 ========       ========     ========   ========
After-Tax Cash Flow(8).......    $  1,446       $ 21,272     $  1,167   $  4,652
Capital expenditures.........                                   5,919     11,976
Cash flow from operating
  activities.................                                 (13,130)      (751)
Cash flow from investing
  activities.................                                 (46,682)   (23,169)
Cash flow from financing
  activities.................                                  57,729     24,343

<CAPTION>

                                             YEAR ENDED DECEMBER 31,
                               ----------------------------------------------------
                                 1998       1997       1996       1995       1994
                               --------   --------   --------   --------   --------

                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                            <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
Net revenue..................  $256,651   $271,175   $247,298   $207,397   $186,102
Operating expenses...........   209,030    210,752    186,954    156,343    142,812
Depreciation and amortization
  expenses...................    16,574     16,103     16,996     13,243     10,883
Gain on disposition of
  assets.....................   (33,524)         0          0          0     (2,506)
Other non-cash expenses(1)...       452      4,344          0     14,200          0
Interest expense.............    25,109     26,219     24,461     25,010     25,909
                               --------   --------   --------   --------   --------
Income (loss) before income
  taxes and extraordinary
  item.......................  $ 39,010   $ 13,757   $ 18,887   $ (1,399)  $  9,004
                               ========   ========   ========   ========   ========
Net income (loss) applicable
  to common shares...........  $ 19,177   $ 32,929   $ 15,774   $ (2,914)  $  6,832
                               ========   ========   ========   ========   ========
Per common share--assuming
  dilution(2)(3):
  Income (loss) before
    extraordinary item.......  $   0.74   $   1.04   $   0.51   $  (0.09)  $   0.28
  Extraordinary item.........     (0.14)      0.00      (0.01)      0.00      (0.06)
                               --------   --------   --------   --------   --------
  Net income (loss)..........  $   0.60   $   1.04   $   0.50   $  (0.09)  $   0.22
                               ========   ========   ========   ========   ========
Weighted average number of
  shares--assuming
  dilution...................    31,883     31,652     31,760     31,052     31,483
Dividends per common
  share(2)...................  $   0.02   $   0.02   $   0.02   $  0.015   $   0.00
BALANCE SHEET DATA:
Working capital..............  $ 15,706   $ 12,019   $ 11,154   $ 15,110   $ 16,783
Total assets.................   316,126    266,385    224,912    189,882    170,783
Total debt(4)................   270,100    229,424    235,141    220,147    228,646
Stockholders' deficiency.....   (25,841)   (44,909)   (83,839)   (99,093)   (95,958)
OTHER DATA:
Segment Operating Cash
  Flow(6)....................  $ 62,112   $ 70,436   $ 68,577   $ 58,571   $ 49,342
Corporate overhead expense...   (14,491)   (10,013)    (8,233)    (7,517)    (6,052)
                               --------   --------   --------   --------   --------
EBITDA(7)....................  $ 47,621   $ 60,423   $ 60,344   $ 51,054   $ 43,290
                               ========   ========   ========   ========   ========
After-Tax Cash Flow(8).......  $ 19,312   $ 26,397   $ 33,125   $ 19,133   $ 18,260
Capital expenditures.........    32,719     17,593     13,124     15,098      8,794
Cash flow from operating
  activities.................    14,844     28,010     16,337     36,338     11,667
Cash flow from investing
  activities.................   (46,947)   (19,801)   (32,095)   (14,620)   (19,047)
Cash flow from financing
  activities.................    33,077     (7,463)    12,247    (17,585)     2,936
</TABLE>


                                       11
<PAGE>   13

---------------

(1) Includes litigation expense (credit) and stock compensation expense.



(2) The shares of Common Stock and Class B Common Stock are entitled to share
    ratably in such dividends as may be declared by our Board of Directors from
    time to time and in assets available for distribution to stockholders in the
    event of a liquidation, dissolution, or winding up of The Ackerley Group.
    See "Description of Capital Stock." Accordingly, data set forth on a per
    common share basis is calculated by aggregating the Common Stock and Class B
    Common Stock.



(3) Historical data for 1994 have been restated to conform with Financial
    Accounting Standards Board Statement No. 128. See Note 1 to the 1998
    Financial Statements.



(4) Historical data reflects total debt, including current portion of long-term
    debt. Historical data as of December 31, 1995 and 1994 have been restated to
    conform to the current presentation.



(5) Includes the current portion of pro forma long-term debt, which was $5.0
    million at March 31, 1999. On a pro forma basis, long-term debt (net of
    current portion) at March 31, 1999 was $443.5 million.



(6) Operating Cash Flow is defined as net revenue less operating expenses before
    amortization, depreciation, interest, litigation, and stock compensation
    expenses and gain on disposition of assets. Operating Cash Flow is the same
    as EBITDA, as defined below. Segment Operating Cash Flow is defined as
    Operating Cash Flow before corporate overhead. Operating Cash Flow and
    Segment Operating Cash Flow are not to be considered as alternatives to net
    income (loss) as an indicator of our operating performance or to cash flow
    as a measure of our liquidity. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations--Results of Operations."



(7) EBITDA means, in general, the sum of consolidated net income (loss),
    consolidated depreciation and amortization expense, consolidated interest
    expense and consolidated income tax expense (benefit), consolidated non-cash
    charges, and extraordinary or non-recurring items. EBITDA has been included
    solely because we understand that it is used by certain investors and
    financial analysts as one measure of a company's historical ability to
    service its debt. EBITDA is the same as Operating Cash Flow and is not to be
    considered as an alternative to net income (loss) as an indicator of our
    operating performance or to cash flow as a measure of our liquidity.



(8) After-Tax Cash Flow means, in general, the sum of consolidated net income
    (loss), consolidated depreciation and amortization expense, and
    extraordinary or non-recurring items, including after-tax gain on
    disposition of assets. After-Tax Cash Flow has been included solely because
    we understand that it is used by certain investors and financial analysts as
    a measure of a company's historical ability to service its debt. After-Tax
    Cash Flow is not to be considered as an alternative to net income (loss) as
    an indicator of our operating performance or to cash flow as a measure of
    our liquidity. In 1997, After-Tax Cash Flow excluded a $19.5 million tax
    benefit for the change in valuation account.

                                       12
<PAGE>   14

                                  RISK FACTORS


     You should carefully consider the following factors as well as the other
matters described or incorporated by reference in this Prospectus.



ANTICIPATED ADVERSE IMPACT OF CERTAIN EVENTS ON SECOND QUARTER RESULTS



     In connection with the implementation of Digital CentralCasting, we expect
to recognize a reorganization charge of approximately $1.0 million in the second
quarter of 1999, consisting primarily of costs associated with employee staff
reductions. See "Prospectus Summary--Strategy--Use Advanced Communications
Technology to Create Regional Television Groups." In addition, we expect that
our sports & entertainment Segment Operating Cash Flow for the second quarter of
1999 will be between $1.0 million and $2.0 million lower than its Segment
Operating Cash Flow for the same period in 1998. This is due to reduced revenues
(after expenses) from the failure of the Seattle SuperSonics to participate in
the 1999 NBA playoffs (in contrast to the prior season, when they participated
in the first two rounds of the NBA playoffs) and lower than anticipated revenues
from NBA related activities due primarily to the NBA lock-out, offset, in part,
by additional revenue (after expenses) generated by the extension of the NBA's
1998-99 regular season into the second quarter of 1999 to make up for some of
the games cancelled as a result of the lock-out. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Risk
Factors--Sports & Entertainment--NBA Lockout; Labor Relations in Professional
Sports." We expect that the foregoing factors, as well as the continuing effect
of matters relating to the NBA lock-out, will adversely affect our results of
operations for the second quarter of 1999 and possibly thereafter. For more
information regarding NBA activities, see "Business--Sports & Entertainment."



VOTING CONTROL BY PRINCIPAL STOCKHOLDER



     Each share of Common Stock has one vote per share and each share of Class B
Common Stock has ten votes per share. After the sale of the Common Stock offered
hereby, Barry A. Ackerley, our Chairman of the Board and Chief Executive
Officer, will beneficially own approximately 37.7% of the outstanding shares of
Common Stock and approximately 99.1% of the outstanding shares of Class B Common
Stock, giving him approximately 88.3% of the combined voting power of our voting
securities. See "Principal and Selling Stockholders."



     As a director, the Chairman and Chief Executive Officer, and the majority
stockholder of The Ackerley Group, Mr. Ackerley has certain fiduciary duties to
minority stockholders under applicable law. However, so long as Mr. Ackerley
continues to own or control stock having a majority of the combined voting power
of our voting securities, he will have the power to elect all of our directors
and effect fundamental corporate transactions, such as mergers, asset sales, and
"going private" transactions, without the approval of any other stockholders.
Moreover, Mr. Ackerley's voting control would effectively delay or prevent any
other person or entity from acquiring or taking control of The Ackerley Group
without his approval, whether or not the transaction could provide stockholders
with a premium over the then-prevailing market price of their shares or would
otherwise be in their best interests. See "Description of Capital Stock--Common
Stock and Class B Common Stock--Voting Rights."


                                       13
<PAGE>   15


RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF COMMON STOCK



     We are a member of the NBA and are subject to its Constitution and Bylaws.
See "--Sports & Entertainment--League Membership Risks." The Constitution and
Bylaws of the NBA impose limitations on the transfer and ownership of our Common
Stock. In particular, so long as we have more than 500 stockholders, NBA
approval is required for, among other things, any transfer of any "interest" in
The Ackerley Group if (i) the interest proposed to be transferred represents a
direct or indirect interest of 5% or more in The Ackerley Group, (ii) the
transfer would result in any person or entity (or group of persons or entities
acting in concert) that has not been approved by the NBA directly or indirectly
owning a 5% or greater interest in The Ackerley Group, or (iii) the effect of
such proposed transfer is or may be to change the ownership or effective control
of The Ackerley Group. As used in these restrictions, references to an
"interest" in The Ackerley Group include Common Stock and Class B Common Stock
and, although the matter is not free from doubt, we believe that the number of
outstanding shares of Common Stock and Class B Common Stock should be aggregated
for purposes of determining whether a 5% or greater interest has been
transferred or acquired. Other similar restrictions would apply if we have less
than 500 stockholders. The foregoing limitations may adversely affect the
ability of investors to acquire, sell or otherwise transfer our Common Stock. In
that regard, we have requested, and expect to receive, NBA approval to make the
offering contemplated hereby. However, that NBA approval will not apply to
subsequent acquisitions, sales, or other transfers of Common Stock by investors.
Any violation of the foregoing restrictions could result in the termination of
our NBA franchise and other sanctions by the NBA, which could have a material
adverse effect on our business, financial condition, and results of operations.
In addition, the Communications Act and FCC rules prohibit aliens from owning of
record or voting more than one-fifth of the capital stock of a corporation
holding a radio or television station license or more than one-fourth of the
capital stock of a corporation holding the stock of a broadcast licensee. Our
Bylaws provide that none of our shares of capital stock may be issued or
transferred to any person where such issuance or transfer will result in a
violation of the Communications Act or any regulations promulgated thereunder,
and that any purported transfer in violation of those restrictions is void. The
foregoing restrictions in our Bylaws, as well as certain related provisions in
our Certificate of Incorporation, may adversely affect the ability of investors
to acquire, hold, or otherwise transfer our Common Stock. See "Description of
Capital Stock--Common Stock and Class B Common Stock--Restrictions on Transfer
of Common Stock and Class B Common Stock."



LEVERAGE; RESTRICTIONS UNDER DEBT INSTRUMENTS; COVENANT COMPLIANCE



     Financial Leverage. As of March 31, 1999, on a pro forma basis after giving
effect to (i) the issuance of the Common Stock offered hereby (assuming a public
offering price of $     per share) and the application of the estimated net
proceeds we receive therefrom to repay indebtedness and (ii) the acquisition of
WOKR(TV), as if such acquisition had occurred on March 31, 1999, we would have
had approximately $          million of outstanding indebtedness and a
consolidated stockholders' deficit of $          million. See "Capitalization."
This stockholders' deficit resulted primarily from net losses that were incurred
during the fiscal years 1982 through 1991, which were caused primarily by (i)
high levels of interest expense and depreciation and (ii) amortization of fixed
assets and acquired intangibles related to acquisitions. The stockholders'
deficit declined by approximately $38.9 million in fiscal year 1997 and $19.1
million in fiscal year 1998, primarily as a result of net earnings, although the
deficit increased by $4.3 million as a


                                       14
<PAGE>   16


result of a net loss in the first quarter of 1999. Accordingly, there can be no
assurance that the stockholders' deficit will not increase in the future. In
that regard, the recent acquisition of WOKR(TV) as described under "Prospectus
Summary--Recent Developments," substantially increased our indebtedness and, on
a pro forma basis, would have substantially increased our net loss for the first
quarter of 1999 and would have resulted in a net loss for 1998.



     In addition, we intend to continue to acquire additional outdoor media and
television and radio broadcasting businesses, subject to the availability of
required financing. We may assume the indebtedness of businesses that we
acquire. We may also make acquisitions or capital expenditures that are financed
with the proceeds from borrowings. As a result of such acquisitions, our
outstanding indebtedness and interest expense will increase, perhaps
substantially. Likewise, further acquisitions will likely increase our
depreciation and amortization expenses, perhaps substantially.



     Our degree of leverage could have important consequences to investors,
including the following:



     - our ability to obtain additional financing in the future for working
       capital, capital expenditures, acquisitions, general corporate purposes,
       or other purposes may be impaired;



     - restrictive covenants in debt instruments, as well as the need to apply
       cash to make debt service payments, may limit payment of dividends on our
       outstanding Common Stock and Class B Common Stock;



     - Operating Cash Flow (defined as net revenue less operating expenses
       before amortization, depreciation, interest, litigation, and stock
       compensation expenses and gain on disposition of assets) available for
       purposes other than payment of principal and interest on indebtedness may
       be reduced;



     - we may be exposed to the risk of increased interest rates since a portion
       of our borrowings, including borrowings under the 1999 Credit Agreement
       (as defined below), bear interest at floating rates;



     - we may be at a competitive disadvantage compared to competitors that are
       less leveraged than we are;



     - we may have limited ability to adjust to changing market conditions;



     - we may have decreased ability to withstand competitive pressures; and



     - we may have increased vulnerability to a downturn in general economic
       conditions or its business.



     Our ability to make scheduled payments on or to refinance our indebtedness
will depend on our financial and operating performance, which in turn will be
subject to economic conditions and to financial, business, and other factors
beyond our control. In order to fund our debt service and other obligations, we
may be forced to reduce or delay planned expansion and capital expenditures,
sell assets, obtain additional equity capital or debt financing (if available),
or restructure our debt. Accordingly, we cannot guarantee that our operating
results, Operating Cash Flow, and capital resources will be sufficient for
future payments of our indebtedness, to make planned capital expenditures, to
finance acquisitions or to pay our other obligations.


                                       15
<PAGE>   17


     Restrictions Imposed by Debt Instruments; Pledge of Assets. We are subject
to a number of significant operating and financial restrictions that are set
forth in (i) our $325.0 million bank credit agreement with various lending
banks, dated January 22, 1999 (the "1999 Credit Agreement") and (ii) an
indenture dated December 14, 1998 (the "Indenture") relating to $200.0 million
aggregate principal amount of our outstanding 9% Senior Subordinated Notes due
2009 (the "9% Senior Subordinated Notes"). These covenants restrict our
operations, including, among other things, our ability to:



     - incur additional indebtedness;



     - declare and pay dividends on, or redeem or repurchase, our capital stock
       or make investments;



     - issue or allow any person to own any preferred stock of restricted
       subsidiaries;



     - enter into sale and leaseback transactions;



     - incur or permit to exist certain liens;



     - sell assets;



     - in the case of our subsidiaries (other than unrestricted subsidiaries),
       guarantee indebtedness;



     - engage in transactions with affiliates;



     - enter into new lines of business; and



     - consolidate, merge, or transfer all or substantially all of our assets
       and the assets of our subsidiaries on a consolidated basis.



     In addition, we are required to maintain specified financial ratios,
including a maximum leverage ratio, minimum interest coverage ratio, and minimum
fixed charge coverage ratio. Our ability to comply with such covenants and
financial ratios may be affected by events beyond our control. See "--Covenant
Compliance" below.



     The 1999 Credit Agreement also requires, subject to certain exceptions,
that we apply 50% of the net cash proceeds (as defined in the 1999 Credit
Agreement) received by us from the sale of our capital stock, 100% of the net
cash proceeds received by us from the sale of our debt securities, 100% of the
net cash proceeds received by us from certain asset dispositions, and, under
certain circumstances, up to 50% of our excess cash flow (as defined in the 1999
Credit Agreement) to repay borrowings under the 1999 Credit Agreement. It
further provides that the amount of borrowings available under the 1999 Credit
Agreement will be permanently reduced by the amount of such repayments. As
discussed under "Use of Proceeds," we intend to use all of the net proceeds from
this offering to repay borrowings under the 1999 Credit Agreement. However, we
recently obtained a waiver of the provision in the 1999 Credit Agreement which
otherwise would require that the amount of borrowings available thereunder will
be permanently reduced by the amount of such repayments.



     The 1999 Credit Agreement also provides that it is an event of default
thereunder if The Ackerley Family (as defined in the 1999 Credit Agreement) owns
less than 51% of our outstanding voting stock. Similarly, upon a Change of
Control (as defined in the Indenture), the holders of the 9% Senior Subordinated
Notes may require us to repurchase their Notes.


                                       16
<PAGE>   18


     The breach by us of any of the covenants described above would result in a
default under either or both of the 1999 Credit Agreement or the Indenture. In
the event of any such default, the bank lenders under the 1999 Credit Agreement,
or the holders of the 9% Senior Subordinated Notes, as the case may be, could
elect to declare all amounts outstanding under the 1999 Credit Agreement or the
9% Senior Subordinated Notes, as the case may be, together with accrued
interest, to be due and payable. Likewise, because of cross-default provisions
in our debt instruments, a default under the 1999 Credit Agreement or the 9%
Senior Subordinated Notes could result in acceleration of indebtedness
outstanding under these or other debt instruments. In addition, nearly all of
our subsidiaries have guaranteed our obligations under the 1999 Credit Agreement
and the Indenture.



     We have pledged substantially all of the stock and assets of our
subsidiaries to secure our obligations under the 1999 Credit Agreement. If we
were unable to repay any amounts due under the 1999 Credit Agreement when due
(whether upon acceleration or otherwise), the bank lenders would be entitled to
take possession of and sell substantially all of our subsidiaries and their
assets. There can be no assurance that we would be able to obtain funds
necessary to repay borrowings under the 1999 Credit Agreement or the 9% Senior
Subordinated Notes upon such an acceleration or if holders of the 9% Senior
Subordinated Notes were to require repayment thereof following a Change of
Control.



     As a result, default by us under the 1999 Credit Agreement or the Indenture
could have a material adverse effect on our business, financial conditions, or
results of operations. If the indebtedness under any of these debt instruments
were accelerated, there can be no assurance that we would be able to repay such
indebtedness.



     Covenant Compliance. As a result of the matters which are expected to
adversely affect our second quarter 1999 results of operations (as discussed
above under "--Anticipated Adverse Impact of Certain Events on Second Quarter
Results"), as well as certain other factors adversely affecting our business, we
recently obtained an amendment to certain provisions of the 1999 Credit
Agreement in order to remain in compliance with the financial covenants
thereunder after June 30, 1999. There can be no assurance that we will not be
required to seek additional waivers or amendments under our debt instruments in
the future. Any failure to obtain a necessary amendment or waiver could result
in a default under the relevant debt instrument, which could have the
consequences described above.



OUTDOOR MEDIA



     Regulation of Outdoor Advertising. Outdoor advertising displays are subject
to governmental regulation at the federal, state, and local levels. These
regulations, in some cases, limit the height, size, location, and operation of
outdoor displays and, in some circumstances, regulate the content of the
advertising copy displayed on outdoor displays.



     Advertising for tobacco products has increasingly been the subject of
regulation. Manufacturers of tobacco products, principally cigarettes,
historically have been major users of outdoor advertising displays. Tobacco
advertising is currently subject to regulation and legislation has been
introduced from time to time in the U.S. Congress that would further regulate
and in certain instances prohibit advertising of tobacco products. Recently, the
major tobacco companies and the Attorneys General of 46 states entered into a
broad-based consent judgment in which, among other things, these companies
agreed to eliminate all cigarette advertising on outdoor advertising displays.
In addition, the State of Florida


                                       17
<PAGE>   19


previously entered into a settlement agreement with the tobacco industry that
eliminated tobacco advertising on billboards throughout the state. These
settlement agreements, which, in addition to Florida, include the states of
Massachusetts, Oregon, and Washington, have eliminated tobacco advertising on
outdoor displays in the markets where our outdoor media segment operates.
Although approximately 5% and 3% of our consolidated net revenue for the years
ended December 31, 1997 and 1998, respectively, came from the tobacco products
industry, as of April 23, 1999 we no longer receive advertising revenue from
tobacco companies for the advertising of tobacco products as a result of the
settlement agreements and other factors.



     In addition to tobacco, certain jurisdictions have recently proposed or
enacted regulations restricting or banning outdoor advertising of liquor and
have enacted other restrictions on the content of outdoor advertising signs.
Likewise, regulations in certain jurisdictions prohibit the construction of new
outdoor displays or the replacement, relocation, enlargement, or upgrading of
existing structures. As a result, we cannot guarantee that existing or future
laws or regulations relating to outdoor advertising will not have a material
adverse effect on our business, financial condition, or results of operations.



     Our outdoor advertising operations are significantly affected by local
zoning regulations. Some jurisdictions impose a limitation on the number of
outdoor advertising structures permitted within the city limits. In addition,
local zoning ordinances can restrict or prohibit outdoor advertising displays in
specific areas. Most of our outdoor advertising structures are located in
commercial and industrial zones subject to such regulations.



     Federal and corresponding state outdoor advertising statutes require
payment of compensation for removal of existing structures by governmental order
in some circumstances. Some jurisdictions have adopted ordinances which have
sought the removal of existing structures without compensation. Ordinances
requiring the removal of a billboard without compensation have been challenged
in various state and federal courts on both statutory and constitutional
grounds, with differing results.



     Although we have been successful in the past in challenging circumstances
in which our displays have been subject to removal, we cannot predict whether we
will be successful in the future and what effect, if any, such regulations may
have on our operations. In addition, we are unable to predict what additional
regulations may be imposed on outdoor advertising in the future. Legislation
regulating the content of billboard advertisements, including the legislation
described above, has been introduced in the U.S. Congress from time to time in
the past. Changes in laws and regulations affecting outdoor advertising at any
level of government may have a material adverse effect on our business,
financial condition, or results of operations.



     Federal law also imposes additional regulations upon our operations. Under
the Federal Highway Beautification Act of 1965, states are required to adopt
programs regulating outdoor advertising along federal highways. This Act also
provides for the payment of compensation to the owner of a lawfully erected
outdoor advertising structure that is removed by operation of the statute.



TELEVISION AND RADIO BROADCASTING



     Government Regulation of Broadcasting Industry. Pursuant to the
Communications Act of 1934 (the "Communications Act"), the domestic broadcasting
industry is subject to extensive federal regulation. Among other things, federal
law requires approval by the FCC


                                       18
<PAGE>   20


for the issuance, renewal, transfer, and assignment of broadcasting station
operating licenses, and limits, among other things, the number of broadcasting
properties we may acquire in any market. In addition, our television station,
KVOS, which is located in Bellingham, Washington and broadcasts into Vancouver,
British Columbia, is regulated and affected by Canadian law. Unlike U.S. law,
for instance, a Canadian firm cannot deduct expenses for advertising on a
U.S.-based television station which broadcasts into a Canadian market. In order
to compensate for this disparity, KVOS (TV) sells advertising time in Canada at
a discounted rate. In addition, Canadian law limits KVOS (TV)'s ability to
broadcast certain programming. The restrictions and obligations imposed by these
laws and regulations, including their amendment, interpretation, or enforcement,
could have a material adverse effect on our business, financial condition, or
results of operations.



     Renewal of Broadcasting Licenses. Our business will continue to be
dependent upon acquiring and maintaining broadcasting licenses issued by the
FCC. Such licenses are currently issued for a term of eight years. We own and
operate ten television stations, operate two television stations under time
brokerage agreements, and own and operate four radio stations. License renewal
applications for KION(TV), KCBA(TV), and the four New York television stations
are currently pending. As a result, the renewal of these licenses, as well as
the renewal of licenses for our other broadcasting stations, is crucial to our
broadcasting operations. In considering whether to renew a license, the FCC
considers several factors, including the licensee's compliance with the FCC's
children's television rules, the FCC's equal employment opportunity rules, and
the FCC's radio frequency rules. The FCC also considers the Communications Act's
limitations on license ownership by foreign individuals and foreign companies,
and rules limiting common ownership of broadcast, cable, and newspaper
properties. In addition, the FCC considers the licensee's general character,
including the character of the persons holding interests in the licensee. In
addition, third parties may challenge renewal applications or file competing
applications to acquire the licenses that are subject to renewal. Historically,
we have been able to renew our broadcast licenses on a regular basis. However,
we cannot guarantee that pending or future applications to acquire or renew
broadcasting licenses will be approved, or will not include conditions or
qualifications adversely affecting our operations, any of which could have a
material adverse effect on the Company. Moreover, governmental regulations and
policies may change over time and we cannot guarantee that such changes would
not have a material adverse impact on our business, financial condition, or
results of operations.



     Approval of Purchase and Sale Transactions. We are seeking FCC approval to
acquire the broadcasting licenses for two television stations and will be
required to obtain FCC approval to acquire additional broadcasting licenses in
the future. In connection with the application to acquire a broadcasting
license, the FCC considers factors generally similar to those discussed in the
preceding paragraph. In addition, the filing by third parties of petitions to
deny, informal objections or comments to a proposed transaction can result in
significant delays to, as well as denial of, FCC action on a particular
application. On May 21, 1996, certain local persons filed a Petition for
Emergency Relief with the FCC, seeking an order terminating our existing time
brokerage agreement for KION(TV) and the purchase option pursuant to which we
are seeking to acquire KION(TV). This Petition for Emergency Relief is still
pending before the FCC. The petitioners have filed comments in connection with
the KCBA(TV) and KION(TV) assignment and license renewal applications noting the
pendency of their petition. Also, a Petition to Deny the Company's application
to acquire KTVF(TV) has been filed by a local radio station owner. See
"Business--Television Broadcasting." As a result, we cannot guarantee that the


                                       19
<PAGE>   21


FCC will approve our application for the broadcasting licenses we are seeking or
in the future may seek to acquire. Likewise, we are seeking to sell one
television station, which requires FCC approval as discussed above. Accordingly,
there can be no assurance that the FCC will approve our disposition of
broadcasting stations we are seeking or in the future may seek to sell. Failure
to obtain FCC approval to transfer broadcasting licenses in connection with such
transactions could adversely affect our business, financial condition, or
results of operations.



     Time Brokerage Agreements. Currently, the FCC's Duopoly Rule prevents the
common ownership of more than one television station in a single market, or in
two different markets if the stations have significantly overlapping service
areas. Without regard to the Duopoly Rule, however, the FCC does permit a
television station owner to program significant amounts of the broadcast time of
another station under a time brokerage agreement, as long as the licensee of
that other station maintains ultimate control and responsibility for the
programming and operations of the station and compliance with applicable FCC
rules and policies. In addition, the FCC currently has a policy of granting
waivers of the Duopoly Rule to permit common ownership of two stations with
overlapping service areas in certain circumstances, provided the stations are
located in different markets. However, the FCC is currently reviewing its
television ownership rules, and all such waivers are subject to the condition
that stations come into compliance with any new rules adopted by the FCC.



     The FCC is considering whether to eliminate or amend the Duopoly Rule and
whether to treat the programming of more than 15% of another station's weekly
broadcast time under a time brokerage agreement as outright ownership of that
station in counting the number of stations the programmer owns. The FCC has
indicated that if it ultimately decides to treat time brokerage agreements as
equivalent to ownership, it will either grandfather time brokerage agreements
entered into before a specific date or provide a period of time (which we expect
would be at least six months) for station owners to comply with the new rules by
disposing of their interests in television stations and/or time brokerage
agreements for television stations operating in the same markets or with
overlapping service areas. We cannot predict whether or when the FCC will change
these rules or whether Congress will take action which impacts these rules.



     Currently, the only areas in which we both own a television station and
operate another television station under a time brokerage agreement are (i) the
Syracuse-Utica, New York area, where we own and operate WIXT(TV) in Syracuse and
operate WUTR(TV) in Utica under a time brokerage agreement, and (ii) the
Monterey-Salinas, California area, where we own and operate KCBA(TV) in Salinas
and operate KION(TV) in Monterey under a time brokerage agreement. We have
applications pending with the FCC to acquire KION(TV) and to sell KCBA(TV). We
also have a time brokerage agreement with the purchaser of KCBA(TV) which
provides for us to operate KCBA(TV) following its sale. Thus, if the FCC were to
treat time brokerage agreements as equivalent to outright station ownership
without eliminating the Duopoly Rule or grandfathering our time brokerage
agreements, we would be required to dispose of our interests in one of the
stations in the Syracuse-Utica area and one of the stations in the
Monterey-Salinas area, which could have a material adverse effect on our
business, financial condition, or results of operations. If, prior to the time
it acts on the KCBA(TV) application, the FCC changes its rules to prohibit time
brokerage agreements with stations in the same markets, it is not certain that
we would be permitted to operate KCBA(TV) under a time brokerage agreement
following the sale.


                                       20
<PAGE>   22


     In August 1998 we acquired television station WIVT in Binghamton, New York.
Since the service areas of the Binghamton station and our television station
WIXT in Syracuse, New York overlap, we obtained a waiver of the Duopoly Rule
conditioned on the outcome of the FCC's review of its television ownership
rules. Similarly, the service areas of WOKR(TV) in Rochester, New York and
WIXT(TV) overlap and we obtained a conditional waiver of the Duopoly Rule in
connection with the acquisition of WOKR(TV). Also, the service areas of
KCOY(TV), Santa Maria, California and KGET(TV), Bakersfield, California overlap
and we obtained a conditional waiver of the Duopoly Rule in connection with our
acquisition of KCOY(TV). If the FCC decides to retain its current Duopoly Rule,
we would be required to dispose of our interest in one of the stations in each
of the areas where we have an overlap, which could have a material adverse
effect on our business, financial condition, or results of operations.



     New Technologies. The Telecommunications Act of 1996 (the
"Telecommunications Act") requires the FCC to oversee the transition from
current analog television broadcasting to digital television ("DTV")
broadcasting. During the transition period, the FCC will issue one digital
broadcast license to each existing television licensee which files a license
application. The FCC has ordered network affiliates in larger broadcast markets
to begin DTV broadcasts during 1999. Our stations are required to begin
construction of their digital transmission facilities by May 1, 2002. The
stations will then be allowed to broadcast two signals using two channels, one
digital and one analog, during the transition period which will extend until
2006. At the end of the transition period, broadcasters will be required to
choose whether they will continue broadcasting on the digital or the analog
channel, and to return the other channel to the FCC.



     We are unable to predict the effect any such new technology will have on
the Company. However, DTV will impose additional costs on our television
broadcasting operations, due to increased equipment and operating costs. In
addition, conversion to DTV may reduce the geographical coverage area of our
television stations. The increased costs of DTV for us and its potential
limitations on geographical coverage may have a material adverse effect on our
business, financial condition, or results of operations.



     Microradio. On January 28, 1999, the FCC proposed to license new 1000 watt
and 100 watt low power FM ("LPFM") radio stations throughout the U.S., and
sought comment on also establishing a third "microradio" class at power levels
from 1-10 watts. We cannot predict what effect such LPFM or microradio stations,
if authorized by the FCC, would have on our business, financial condition, or
results of operations.



     KJR(AM) Transmission Facilities. One of our radio stations, KJR(AM),
broadcasts from transmission facilities located on property leased from the Port
of Seattle, currently on a month-to-month basis. We have filed an application
with the FCC to co-locate KJR(AM)'s transmission facilities with KHHO's
facilities in Tacoma, Washington. On May 5, 1998 the FCC issued a construction
permit granting us authority to begin construction of the transmission
facilities at the KHHO site, and construction is underway. We are negotiating
with the Port of Seattle to continue broadcasting from the present tower
location or from an alternative site until KJR(AM) can broadcast from the KHHO
site. However, we do not expect that KJR(AM) will be able to broadcast from the
KHHO site for at least one to two years. The Port of Seattle has recently
advised us that it may object to KJR's broadcasting from the present site after
January 1, 2000. Accordingly, we may not be able to broadcast from the present
site after that date, although we are in the process of negotiations with the
Port with respect to this matter. We are exploring our legal options in the
event that the Port of Seattle attempts to evict


                                       21
<PAGE>   23


us from the current site before we are able to use the new site. While
management expects to successfully resolve this matter, there can be no
assurance that it will do so or that this matter will not have a material
adverse effect on our business, financial condition, or results of operations.



SPORTS & ENTERTAINMENT



     NBA Lockout; Labor Relations in Professional Sports. On March 23, 1998, the
Board of Governors of the NBA voted to exercise their option to reopen the NBA's
collective bargaining agreement with the National Basketball Players
Association, which was originally scheduled to expire on June 30, 2001. As a
result, the collective bargaining agreement expired on June 30, 1998 and the
players were locked out. Preseason and regular season games scheduled through
February 4, 1999 were cancelled, which adversely affected our results of
operations for fiscal 1998 and the first quarter of 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." On
January 20, 1999, the NBA Board of Governors and the National Basketball Players
Association entered into a new six-year collective bargaining agreement.
Consequently, the 1998-99 NBA season started on February 5, 1999 and ended May
4, 1999. The 1998-99 NBA season consisted of a shortened regular season in which
each team played 50 games (25 at home and 25 on the road). Playoffs are in the
usual NBA format. In a full-length NBA season, each team plays 82 regular-season
games (41 at home and 41 on the road).



     We expect that the shortened 1998-99 season and other effects of NBA
lockout will adversely affect our results for second quarter 1999 and possibly
thereafter. See "--Anticipated Adverse Impact of Certain Events on Second
Quarter Results." There can be no assurance that the NBA or the Seattle
SuperSonics will not experience other labor relations difficulties in the
future, which could have a material adverse effect on our business, financial
condition, or results of operations.



     We share equally with the other NBA members in revenues generated by the
NBA as a whole. Contracts between the NBA and two major television networks (NBC
and TBS/ TNT) accounted for a total of approximately $12.0 million of our net
revenue for fiscal year 1997. In 1998, the NBA renewed its contracts with NBC
and TBS/TNT through the 2001-02 season. These contracts provide for total
payments to the NBA over the four-year contract period of up to $2.6 billion,
plus, under certain circumstances, revenue sharing payments. Over the course of
the year, fees are paid by NBC in five installments and by TBS/TNT in six
installments. However, as a result of the NBA lockout, the NBA may not receive
the full $2.6 billion over the life of these contracts (due to the contract
provisions described below and other factors), which could have a material
adverse effect on our business, financial condition, and results of operations.



     Under these contracts, the NBA continued to receive scheduled fees during
the lockout. However, fees received from the networks during the lockout are
considered to be loans to the NBA and must be repaid as described below. In
addition, the NBA is required to pay interest on certain of the fee payments
made during the lockout at the rate of 4% per annum. The NBA is required under
the TBS/TNT contract to repay the loans and accrued interest through equal
deductions from the fee payments due from the networks over the remaining term
of the contract (currently due to expire at the end of the 2001-02 season).
Under the NBC contract, the NBA is required to repay the loans and accrued
interest through equal deductions from the first ten fee installments due from


                                       22
<PAGE>   24


NBC after the end of the lockout. Accordingly, these loan repayments will, and
any future adjustments made to the terms of the contract may, reduce the amount
that we and the NBA otherwise would have received under the television
contracts.



     Dependence on Competitive Success. Our financial results and those of our
sports & entertainment segment depend, to a large extent, on the performance of
the Seattle SuperSonics and its ranking relative to other NBA teams in its
division. By qualifying for the NBA playoffs, for example, we can receive
significant additional revenue from ticket sales for home playoff games and from
selling advertising during broadcasts of playoff games. In that regard, the
Seattle SuperSonics qualified for the NBA playoffs in their 1995-96, 1996-97,
and 1997-98 seasons, which substantially increased our net revenue and Operating
Cash Flow, as well as the net revenue and Operating Cash Flow for our sports &
entertainment segment, for fiscal years 1996, 1997, and 1998. However, the
Seattle SuperSonics did not quality for the NBA playoffs for the 1998-99 season.
We expect our results of operations and those for our sports & entertainment
segment will be adversely affected for the second quarter of 1999 and possibly
for fiscal year 1999 by the fact that the Seattle SuperSonics did not qualify
for the NBA playoffs for the 1998-99 season, and may be adversely affected in
future years by poor performance by the Seattle SuperSonics in subsequent
seasons, and there can be no assurance that the Seattle SuperSonics will perform
well or qualify for the playoffs in the future. See "--Anticipated Adverse
Impact of Certain Events on Second Quarter Results" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Subsequent
Events."



     League Membership Risks. Because the NBA is a joint venture, the Seattle
SuperSonics and other members of the NBA are generally jointly and severally
liable for the debts and other liabilities of the NBA. Any failure of other
members of the NBA to pay their pro rata share of any such debts and other
liabilities could adversely affect our business, financial condition, and
results of operations. The success of the NBA and its member teams depends in
part on the competitiveness of other NBA teams and their ability to maintain
fiscally sound franchises. Certain NBA teams have at times encountered financial
difficulties, and there can be no assurance that the NBA and its members will
continue to be able to operate on a fiscally stable and effective basis. In
addition, as a member of the NBA we must abide by a number of rules,
regulations, and agreements, including the Constitution and Bylaws of the NBA,
national television contracts, and collective bargaining agreements, and the NBA
Board of Governors' interpretation and implementation of those matters. For
example, the NBA Constitution requires that the sale of any NBA franchise, or
the transfer of an equity interest of more than 5% in an NBA member, is subject
to the approval of the NBA. See "--Restrictions on the Ownership and Transfer of
Common Stock." The Board of Governors consists of representatives appointed by
each NBA member. The Board of Governors, in turn, elects a Commissioner. The
Commissioner and the Board of Governors (1) arbitrate disputes between
franchises, (2) assure that the conduct of franchises, players, and officials is
in accordance with the NBA Constitution and Bylaws, (3) review and authorize
player transactions between franchises and (4) impose sanctions (including fines
and suspensions) on members, players, and officials who are found to have
breached NBA rules. The Commissioner's interpretations are final and binding on
the Company, the Seattle SuperSonics, and its personnel. In addition, member
clubs of the NBA may not resort to the courts to enforce or maintain rights or
claims against other member clubs, or to seek resolution of any dispute or
controversy between member clubs. Instead, all such matters will be decided by
the Commissioner of the NBA without any right of appeal to the courts or
otherwise. Any interpretations of or changes to these rules, regulations, and
agreements


                                       23
<PAGE>   25


adopted by the NBA will be binding upon us regardless of whether we agree or
disagree with them, and it is possible that any such interpretations or changes
could adversely affect our business, financial condition, or results of
operations.



     Dependence on Talented Players; Risks Related to Player Salaries. The
success of the Seattle SuperSonics will depend upon the team's continued ability
to retain and attract talented players. The Seattle SuperSonics compete with
other United States and foreign basketball teams for available players. There
can be no assurance that the Seattle SuperSonics will be able to retain players
upon expiration of their contracts or identify and obtain new players of
comparable talent to replace players who retire or are injured, traded, or
released. Even if the Seattle SuperSonics are able to retain or obtain players
who have had successful college or professional careers, there can be no
assurance that their performance for the Seattle SuperSonics in subsequent years
will be at the same level as their prior performance.



     Players' salaries in the NBA have increased significantly in recent years.
Significant further increases in players' salaries could occur and could have a
material adverse effect on our business, financial condition, or results of
operations.



     NBA player contracts generally provide that a player is entitled to receive
his salary even if he is unable to play as a result of injuries sustained from
basketball-related activities during the course of his employment. These
salaries represent significant financial commitments of the Seattle SuperSonics.
Disability insurance for NBA players (which in certain instances provides up to
80% of salary reimbursement after 41 consecutive games are missed) is costly to
maintain, and, as required by NBA rules, the Seattle SuperSonics carry such
insurance for their six most highly compensated players. In the event an injured
player is not insured or insurance does not cover the entire amount of the
injured player's salary, we would be obligated to pay all or a portion, as the
case may be, of the injured player's salary. In addition, if we acquire a new
player to replace the injured player, we would also be required to pay the
salary of the replacement player. To the extent that our financial results are
dependent on the Seattle SuperSonics' competitive success (as discussed above),
the likelihood of achieving such success is substantially reduced by serious
injuries to key players. There can be no assurance that key players for the
Seattle SuperSonics will not sustain serious injuries during any given season.
As a result, injuries to players could have a material adverse effect on our
business, financial condition, or results of operations.



COMPETITION



     Our four business segments are in highly competitive industries. Our
broadcasting and outdoor media businesses compete for audiences and advertising
revenue with other broadcasting stations and outdoor media advertising
companies, as well as with other media forms. Such other media forms may include
newspapers, magazines, transit advertising, yellow page directories, direct
mail, local cable systems, and satellite broadcasting systems. Audience ratings
and market shares are subject to many variables. Any change, and any adverse
change in a particular market, could have a material adverse effect on our
business, financial condition, or results of operations. Changes which could
have an adverse effect on us include economic conditions, both general and
local; shifts in population and other demographics; the level of competition for
advertising dollars; a station's market rank, broadcasting power, assigned
frequency, network affiliation, and audience identification; fluctuations in
operating costs; technological changes and innova-


                                       24
<PAGE>   26


tions; changes in labor conditions; and changes in governmental regulations and
policies and actions of federal regulatory bodies. There can be no assurance
that we will be able to maintain or increase our current audience ratings and
advertising revenue. In this respect, the entrance of a new television station
in the Vancouver, British Columbia market in October 1997 has adversely affected
the financial performance of our television station in Bellingham, Washington
(KVOS).



     Certain of our competitors, including a few outdoor advertising companies
that are substantially larger than our outdoor advertising operations, have
significantly greater financial, marketing, sales and other resources than we
have. There can be no assurance that we will be able to compete successfully
against our competitors in the future.



     The Seattle SuperSonics compete directly with other professional and
amateur sporting franchises and events, both in the Seattle/Tacoma market area
and nationally via sports broadcasting. During portions of their season, the
Seattle SuperSonics experience competition from professional football (the
Seattle Seahawks) and professional baseball (the Seattle Mariners). In addition,
the colleges and universities in the region offer a full schedule of athletic
events throughout the year. The Seattle SuperSonics also compete for attendance
and advertising revenue with a wide range of other entertainment and
recreational activities available in the region, including television, radio,
newspapers, movies, live performances, and other events.



LEGAL PROCEEDINGS



     We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation and matters affecting the
operation of broadcasting facilities. Management believes that the outcome of
any such pending claims or proceedings, individually or in the aggregate, will
not have a material adverse effect on the Company's business or financial
condition, except for the matters disclosed below.



     Lambert v. Ackerley. In December 1994, six former employees of one of our
subsidiaries filed a complaint in King County (Washington) Superior Court
against two of our wholly-owned subsidiaries at the time, Seattle SuperSonics,
Inc. and Full House Sports & Entertainment, Inc., and two of our officers, Barry
A. Ackerley, Chairman and Chief Executive Officer, and William N. Ackerley,
former Co-President and Chief Operating Officer. The complaint alleged various
violations of applicable wage and hour laws and breaches of employment
contracts. The plaintiffs sought unspecified damages and injunctive relief.



     On or about January 10, 1995, those claims were removed on motion by the
defendants to the U.S. District Court for the Western District of Washington in
Seattle. On September 5, 1995, the plaintiffs amended the claims (1) to specify
violations of Washington and U.S. federal labor laws and (2) to seek additional
relief, including liquidated and punitive damages under the U.S. Fair Labor
Standards Act and double damages under Washington law for willful refusal to pay
overtime and minimum wages.



     On February 29, 1996, the jury rendered a verdict finding that the
defendants had wrongfully terminated the plaintiffs' employment under Washington
law and U.S. federal


                                       25
<PAGE>   27


laws, and awarded compensatory damages of approximately $1.0 million for the
plaintiffs and punitive damages against the defendants of $12.0 million.
Following post-trial motions, the court reduced the punitive damages award to
$4.2 million, comprised of $1.4 million against each of Barry A. Ackerley and
William N. Ackerley, and $1.4 million against the corporate defendants
collectively.



     On November 22, 1996, the defendants filed their Notice of Appeal from the
U.S. District Court to the Ninth Circuit Court of Appeals in San Francisco.



     On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit issued
an opinion ruling in our favor, holding that the plaintiffs did not have a valid
claim under the U.S. Fair Labor Standards Act and striking the award of damages,
including all punitive damages that had been entered by the District Court. The
Court of Appeals further reversed the lower court's award of $75,000 in
emotional distress damages. Finally, the Court of Appeals remanded the cases for
further consideration of whether or not the plaintiffs had a valid claim under
the Washington State Fair Labor Standards Act and whether, if such were the
case, the corporate officers named in the suit could have individual liability
separate from the Company under State law. Subsequently, the plaintiffs filed a
Motion for Rehearing or Reconsideration en banc.



     On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing, which was held on April 23, 1999. On
June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. We intend to petition for review of this decision by
the U.S. Supreme Court and we anticipate that the U.S. Supreme Court would
decide whether or not to grant our petition for review before the end of 1999.
If the Court does not grant our petition for review, we will be required to pay
the awarded damages, accrued interest thereon, and plaintiff's attorney's fees
(which, at June 1, 1999, totaled approximately $7.2 million, including estimated
attorney's fees). The foregoing amount includes damages payable by Barry A.
Ackerley and William N. Ackerley, which we will pay on their behalf unless our
Board of Directors determines that Barry A. Ackerley and William N. Ackerley are
not covered by the indemnification provisions of our Certificate of
Incorporation or otherwise entitled to be indemnified by us with respect to this
matter. If the Court grants our petition for review, we anticipate that a final
decision in this case would be rendered during 2000.



     Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales
manager for television station WIXT, Syracuse, New York filed a complaint in the
U.S. District Court for the Northern District of New York against The Ackerley
Group, Inc., WIXT and the current and former general managers of WIXT. The
complaint seeks unspecified damages and injunctive relief for discrimination on
the basis of gender and disability, as well as unlawful retaliation, under both
state and federal law. We have filed a motion for summary judgment which has not
yet been decided. In the event that this motion is not successful, a trial date
will be set. We believe that a trial is not likely to take place prior to
September 1999.



     RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a
supplier of outdoor advertising in Massachusetts, filed a complaint in the U.S.
District Court for the District of Massachusetts (the "Court") alleging that we
have unlawfully monopolized the Boston-area billboard market in violation of the
Sherman Antitrust Act, engaged in unlawful restraint of trade in violation of
the Sherman Antitrust Act, and committed unfair trade practices in violation of
Massachusetts state law. The plaintiff is seeking in excess of $20.0 million in
damages. On May 22, 1998, the Court, in a ruling


                                       26
<PAGE>   28


from the bench, dismissed the count of plaintiff's complaint that alleged that
the existence of leases between us and landowners restricted the landowners'
ability to lease that same space to the plaintiff in violation of the Sherman
Antitrust Act. We have filed a motion for summary judgment with respect to the
remaining counts which is currently pending.



DEPENDENCE ON MANAGEMENT



     Certain of our executive officers and divisional managers, including Mr.
Barry A. Ackerley, are especially important to our direction and management. The
loss of the services of such persons could have a material adverse effect on the
Company, and there can be no assurance that we would be able to find
replacements for such persons with equivalent business experience. See
"Management."


TRADING MARKET AND POSSIBLE PRICE VOLATILITY


     The market price of Common Stock may be subject to wide fluctuations and
possible rapid increases or declines in a short period of time. These
fluctuations may be due to factors specific to us such as variations in annual
and quarterly operating results and may also be due to factors affecting the
economy and the securities markets generally. Investors in the Common Stock
should be willing to incur the risk of such fluctuations.


SHARES ELIGIBLE FOR FUTURE SALE


     As of June 1, 1999, 10,517,454 shares of Common Stock and 10,967,517 shares
of Class B Common Stock were held by officers and directors who are considered
to be our "affiliates" for purposes of Rule 144 under the Securities Act. As
noted above, each share of Class B Common Stock is convertible by the holder at
any time into one share of Common Stock. Our affiliates may sell these shares in
the public market subject to the volume and other limitations (other than the
holding period limitations, which have been satisfied) of Rule 144 under the
Securities Act. The Ackerley Group, our executive officers and directors,
certain of our employees, and the Selling Stockholders have agreed that, for a
period of 90 days from the date of this prospectus, they will not, without the
prior written consent of Salomon Smith Barney Inc., sell or otherwise dispose of
any shares of Common Stock or Class B Common Stock, or any securities
convertible into or exchangeable for Common Stock or Class B Common Stock except
for the shares of Common Stock offered hereby. Salomon Smith Barney Inc. in its
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice. No prediction can be made as to the
effect, if any, that future sales of shares, or the availability of shares for
future sale, will have on the market price of the Common Stock from time to
time. Sales of substantial amounts of Common Stock in the public market
(including Common Stock issued upon conversion of Class B Common Stock), or the
perception that such sales could occur, could have a material adverse effect on
prevailing market prices for the Common Stock. See "Underwriting."


YEAR 2000


     Many computer systems will experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. Management has
completed an assessment of our automated systems and has implemented a program
to complete all steps necessary to


                                       27
<PAGE>   29


resolve identified issues. Our compliance program has several phases, including
(1) project management, (2) assessment, (3) testing, and (4) remediation and
implementation.



     We formed a Year 2000 compliance team in December 1997. All of our mission-
critical software programs have been identified, and the assessment phase is
essentially complete. Our primary software vendors and business partners were
also assessed during this phase, and vendors/business partners who provide
mission-critical software have been contacted. In most cases, the
vendors/business partners that are not already compliant have planned new Year
2000 compliant software releases to be available by the third quarter of 1999.
Updating and testing of our automated systems is currently underway and we
anticipate that testing will be complete by August 31, 1999. The remediation and
implementation process for in-house software applications and hardware will
continue through 1999.



     The total financial impact that Year 2000 issues will have on us cannot be
predicted with certainty at this time. In fact, in spite of all efforts being
made to rectify these issues, the success of our efforts will not be known for
sure until the Year 2000 actually arrives. However, based on our assessment to
date, we do not believe that expenses related to meeting Year 2000 challenges
will exceed $750,000, of which approximately $360,000 has been expended as of
June 1, 1999, although there can be no assurance in this regard.



     The year 2000 poses certain risks to us and our operations. Some of these
risks are present because we purchase technology and information systems
applications from other parties who face Year 2000 challenges. Other risks are
present simply because we transact business with organizations who also face
Year 2000 challenges. Although it is impossible to identify all possible risks
that we may face moving into the next millennium, management has identified the
following significant potential risks:



     The functions performed by our mission-critical software that are primarily
at risk from Year 2000 challenges generally involve the scheduling of
advertising and programming in our television broadcasting, radio broadcasting,
and sports & entertainment segments, the scheduling of advertising in our
outdoor media segment, and the scheduling of events in our sports &
entertainment segment. In all of these cases, Year 2000 challenges could impact
our ability to deliver our product with the same efficiency as we do now.



     Our operations, like those of many other organizations, can be adversely
affected by Year 2000 triggered failures of other companies upon whom we depend.
As described above, we have identified our mission-critical vendors and are
monitoring their Year 2000 compliance programs. We have not determined the state
of compliance of certain third-party suppliers of services such as phone
companies, long distance carriers, financial institutions, and electric
companies, the failure of any one of which could severely disrupt our ability to
carry on our business.



     We have developed contingency plans related to Year 2000 issues covering
approximately 80% of our systems. As we continue the testing phase, and based on
future ongoing assessment of the readiness of vendors and service providers, we
intend to develop appropriate contingency plans for our remaining systems. It is
possible that certain circumstances may occur for which there are no completely
satisfactory contingency plans. As a result, there can be no assurance that Year
2000 issues will not have a material adverse effect on our business, financial
condition, or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000."

                                       28
<PAGE>   30

                                USE OF PROCEEDS


     The net proceeds to us from the offering, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $          (approximately $          if the underwriters'
over-allotment option is exercised in full), based on an assumed public offering
price of $     per share. We will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.



     We plan to use all of the net proceeds received by us in this offering to
repay revolving credit borrowings outstanding under the 1999 Credit Agreement.
Revolving credit borrowings under the 1999 Credit Agreement have been used for
general corporate purposes, including acquisitions. As of June 1, 1999, the
annual weighted average interest rate on borrowings under the 1999 Credit
Agreement was approximately 7.74%. Subject to the terms of the 1999 Credit
Agreement, including compliance with financial covenants and customary
conditions to borrowing, we will thereafter be entitled to make further
revolving credit borrowings under the 1999 Credit Agreement in the future and
use such borrowings for general corporate purposes which may include funding
capital expenditures and funding possible future acquisitions. For a summary of
certain provisions of the 1999 Credit Agreement, including interest rates and
maturity dates, see "Risk Factors--Leverage; Restrictions Under Debt
Instruments; Covenant Compliance," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
and "Business--Restrictions On Our Operations." Pending application for the
foregoing purposes, the net proceeds from this offering may be invested in short
term investments.


                          PRICE RANGE OF COMMON STOCK

COMMON STOCK


     On December 15, 1997, our Common Stock became listed and began trading on
the New York Stock Exchange under the symbol "AK." The Common Stock previously
traded on the American Stock Exchange under the same symbol.



     The table below sets forth the high and low sales prices of the Common
Stock for the periods shown according to the American Stock Exchange until
December 15, 1997, and from and after such date according to the New York Stock
Exchange.



<TABLE>
<CAPTION>
                                        HIGH      LOW
                                        -----    -----
<S>                                     <C>      <C>
1997
  First Quarter.......................  $13 3/4  $10 5/8
  Second Quarter......................  $13 7/8  $10
  Third Quarter.......................  $18 1/2  $11
  Fourth Quarter......................  $18 1/8  $14
1998
  First Quarter.......................  $24 3/8  $14 5/8
  Second Quarter......................  $22 1/2  $19 7/16
  Third Quarter.......................  $24 7/8  $19 1/2
  Fourth Quarter......................  $21 1/16 $16 1/2
</TABLE>


                                       29
<PAGE>   31


<TABLE>
<CAPTION>
                                        HIGH      LOW
                                        -----    -----
<S>                                     <C>      <C>
1999
  First Quarter.......................  $19 1/4  $16 1/2
  Second Quarter (through June 17,
     1999)............................  $20      $16 5/8
</TABLE>



     The last reported sale price of the Common Stock on the New York Stock
Exchange as of a recent date is set forth on the cover page of this prospectus.


CLASS B COMMON STOCK


     The Class B Common Stock, initially issued in June 1987, is not publicly
traded. Persons owning shares of Class B Common Stock may trade such shares only
as permitted by our Certificate of Incorporation, which imposes restrictions on
such transfer. Thus, there is no trading market for shares of Class B Common
Stock. See "Description of Capital Stock."


                                DIVIDEND POLICY


     Our Board of Directors first declared a cash dividend of $.015 per share on
its Common Stock and Class B Common Stock in 1995. In each of 1996, 1997, and
1998, the Board of Directors declared an annual cash dividend of $.02 per share.
Recently, the Board of Directors declared an annual cash dividend of $.02 per
share that was paid on April 15, 1999 to shareholders of record on March 25,
1999. Payment of any future dividends is at the discretion of the Board of
Directors and depends on a number of factors. Among other things, dividend
payments depend upon our results of operations and financial condition, capital
requirements, and general economic conditions. In addition, the 1999 Credit
Agreement and the Indenture impose certain limits upon our ability to pay
dividends and make other distributions. See "Risk Factors--Leverage;
Restrictions Under Debt Instruments; Covenant Compliance." We also are subject
to the Delaware General Corporation Law ("DGCL"), which restricts our ability to
pay dividends in certain circumstances.


                                       30
<PAGE>   32

                                 CAPITALIZATION


     The following table sets forth, as of March 31, 1999, our consolidated
capitalization (i) on an actual basis, (ii) on a pro forma basis after giving
effect to our acquisition of WOKR(TV) as if it had occurred on that date, and
(iii) on a pro forma as adjusted basis after giving effect to our acquisition of
WOKR(TV), the sale of Common Stock offered by us in this offering at an assumed
public offering price of $     per share, and the application of the estimated
net cash proceeds to be received by us from the sale of such Common Stock to
repay borrowings under the 1999 Credit Agreement. See "Use of Proceeds." This
table should be read in conjunction with the financial statements and notes
thereto included and incorporated by reference herein and the information set
forth herein under "Unaudited Pro Forma Condensed Consolidated Financial
Information."



<TABLE>
<CAPTION>
                                                                MARCH 31, 1999
                                                      ----------------------------------
                                                                              PRO FORMA
                                                       ACTUAL    PRO FORMA   AS ADJUSTED
                                                      --------   ---------   -----------
                                                                (IN THOUSANDS)
<S>                                                   <C>        <C>         <C>
Long-term debt:
  Credit Agreement(1)...............................  $111,000   $224,831     $
  9% Senior Subordinated Notes due 2009.............   200,000    200,000      200,000
  Other.............................................    23,682     23,682       23,682
  Less current maturities...........................    (4,973)    (4,973)      (4,973)
                                                      --------   --------     --------
       Total long-term debt.........................  $329,709   $443,540     $
Stockholders' deficiency:
  Common stock, $.01 par value per share; 50,000,000
     shares authorized; 21,952,214 shares issued and
     20,577,268 shares outstanding, actual and pro
     forma; and 24,952,214 shares issued and
     23,577,268 shares outstanding, pro forma as
     adjusted(2)....................................       219        219          249
  Class B common stock, $.01 par value per share;
     11,406,510 shares authorized; 11,051,230 shares
     issued, actual, pro forma and pro forma as
     adjusted(2)....................................       111        111          111
  Capital in excess of par value....................    10,584     10,584
  Deficit...........................................   (30,974)   (30,974)     (30,974)
  Less common stock in treasury, at cost (1,374,946
     shares)........................................   (10,089)   (10,089)     (10,089)
                                                      --------   --------     --------
       Total stockholders' deficiency...............  $(30,149)  $(30,149)    $
                                                      --------   --------     --------
          Total capitalization......................  $299,560   $413,391     $
                                                      ========   ========     ========
</TABLE>


-------------------------

(1) As of June 1, 1999, borrowings of $229.0 million were outstanding under the
    1999 Credit Agreement. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations--Liquidity and Capital
    Resources."



(2) Does not include 490,250 shares of Common Stock reserved for issuance under
    our Employees Stock Option Plan; 37,500 shares of Common Stock and 37,500
    shares of Class B Common Stock reserved for issuance under certain stock
    purchase agreements; and 91,354 shares of Common Stock reserved for issuance
    under our Nonemployee-Directors' Equity Compensation Plan, in each case at
    March 31, 1999. For information as to shares outstanding as of June 1, 1999,
    see "Prospectus Summary--the Offering" and "Description of Capital Stock."


                                       31
<PAGE>   33


                      SELECTED CONSOLIDATED FINANCIAL DATA



     The following historical consolidated statement of operations and other
data for each of the three years in the period ended December 31, 1998, and the
following historical consolidated balance sheet data at December 31, 1998 and
1997, are derived from the 1998 Financial Statements included herein that have
been audited by Ernst & Young LLP, independent auditors, and are qualified by
reference to such 1998 Financial Statements. The following historical
consolidated statement of operations and other data for the years ended December
31, 1995 and 1994 and the following historical consolidated balance sheet data
at December 31, 1996, 1995, and 1994 are derived from our audited financial
statements not included in this prospectus. The historical consolidated
financial data as of and for the three-month periods ended March 31, 1999 and
1998 are unaudited but, in the opinion of management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The results of operations for
the three-month period ended March 31, 1999 are not necessarily indicative of
the results to be expected for the full fiscal year. The following historical
consolidated financial data is qualified in its entirety by reference to, and
should be read in conjunction with, our consolidated financial statements and
notes thereto, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations," and other financial information included and
incorporated by reference in this prospectus.



<TABLE>
<CAPTION>
                                           THREE-MONTH PERIOD
                                             ENDED MARCH 31,                   YEAR ENDED DECEMBER 31,
                                           -------------------   ----------------------------------------------------
                                             1999       1998       1998       1997       1996       1995       1994
                                           --------   --------   --------   --------   --------   --------   --------
                                               (UNAUDITED)             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Net revenue..............................  $ 67,696   $ 81,046   $256,651   $271,175   $247,298   $207,397   $186,102
Operating expenses.......................    60,164     69,388    209,030    210,752    186,954    156,343    142,812
Depreciation and amortization expenses...     4,723      3,843     16,574     16,103     16,996     13,243     10,883
Gain on disposition of assets............    (1,626)         0    (33,524)         0          0          0     (2,506)
Other non-cash expenses(1)...............       244          0        452      4,344          0     14,200          0
Interest expense.........................     7,311      6,510     25,109     26,219     24,461     25,010     25,909
                                           --------   --------   --------   --------   --------   --------   --------
Income (loss) before income taxes and
  extraordinary item.....................  $ (3,120)  $  1,305   $ 39,010   $ 13,757   $ 18,887   $ (1,399)  $  9,004
                                           ========   ========   ========   ========   ========   ========   ========
Net income (loss) applicable to common
  shares.................................  $ (3,921)  $    809   $ 19,177   $ 32,929   $ 15,774   $ (2,914)  $  6,832
                                           ========   ========   ========   ========   ========   ========   ========
Per common share--assuming
  dilution(2)(3):
  Income (loss) before extraordinary
    item.................................  $  (0.08)  $   0.03   $   0.74   $   1.04   $   0.51   $  (0.09)  $   0.28
  Extraordinary item.....................     (0.04)      0.00      (0.14)      0.00      (0.01)      0.00      (0.06)
                                           --------   --------   --------   --------   --------   --------   --------
  Net income (loss)......................  $  (0.12)  $   0.03   $   0.60   $   1.04   $   0.50   $  (0.09)  $   0.22
                                           ========   ========   ========   ========   ========   ========   ========
Weighted average number of
  shares--assuming dilution..............    31,882     31,692     31,883     31,652     31,760     31,052     31,483
Dividends per common share(2)............  $   0.02   $   0.02   $   0.02   $   0.02   $   0.02   $  0.015   $   0.00
BALANCE SHEET DATA:
Working capital..........................  $ 24,903   $ 16,341   $ 15,706   $ 12,019   $ 11,154   $ 15,110   $ 16,783
Total assets.............................   366,798    282,898    316,126    266,385    224,912    189,882    170,783
Total debt(4)............................   334,682    255,089    270,100    229,424    235,141    220,147    228,646
Stockholders' deficiency.................   (30,149)   (44,661)   (25,841)   (44,909)   (83,839)   (99,093)   (95,958)
OTHER DATA:
Segment Operating Cash Flow(5)...........  $ 11,344   $ 14,715   $ 62,112   $ 70,436   $ 68,577   $ 58,571   $ 49,342
Corporate overhead expense...............    (3,812)    (3,057)   (14,491)   (10,013)    (8,233)    (7,517)    (6,052)
                                           --------   --------   --------   --------   --------   --------   --------
EBITDA(6)................................  $  7,532   $ 11,658   $ 47,621   $ 60,423   $ 60,344   $ 51,054   $ 43,290
                                           ========   ========   ========   ========   ========   ========   ========
After-Tax Cash Flow(7)...................  $  1,167   $  4,652   $ 19,312   $ 26,397   $ 33,125   $ 19,133   $ 18,260
Capital expenditures.....................     5,919     11,976     32,719     17,593     13,124     15,098      8,794
Cash flow from operating activities......   (13,130)      (751)    14,844     28,010     16,337     36,338     11,667
Cash flow from investing activities......   (46,682)   (23,169)   (46,947)   (19,801)   (32,095)   (14,620)   (19,047)
Cash flow from financing activities......    57,729     24,343     33,077     (7,463)    12,247    (17,585)     2,936
</TABLE>


                                       32
<PAGE>   34

-------------------------

(1) Includes litigation expense (credit) and stock compensation expense.



(2) The shares of Common Stock and Class B Common Stock are entitled to share
    ratably in such dividends as may be declared by our Board of Directors from
    time to time and in assets available for distribution to stockholders in the
    event of a liquidation, dissolution, or winding up of The Ackerley Group.
    See "Description of Capital Stock." Accordingly, data set forth on a per
    common share basis is calculated by aggregating the Common Stock and Class B
    Common Stock.



(3) Historical data for 1994 have been restated to conform with Financial
    Accounting Standards Board Statement No. 128. See Note 1 to the 1998
    Financial Statements.



(4) Historical data reflects total debt, including current portion of long-term
    debt. Historical data as of December 31, 1995 and 1994 have been restated to
    conform to the current presentation.



(5) Operating Cash Flow is defined as net revenue less operating expenses before
    amortization, depreciation, interest, litigation, and stock compensation
    expenses and gain on disposition of assets. Operating Cash Flow is the same
    as EBITDA, as defined below. Segment Operating Cash Flow is defined as
    Operating Cash Flow before corporate overhead. Operating Cash Flow and
    Segment Operating Cash Flow are not to be considered as alternatives to net
    income (loss) as an indicator of our operating performance or to cash flow
    as a measure of our liquidity. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations--Results of Operations."



(6) EBITDA means, in general, the sum of consolidated net income (loss),
    consolidated depreciation and amortization expense, consolidated interest
    expense and consolidated income tax expense (benefit), consolidated non-cash
    charges, and extraordinary or non-recurring items. EBITDA has been included
    solely because we understand that it is used by certain investors and
    financial analysts as one measure of a company's historical ability to
    service its debt. EBITDA is the same as Operating Cash Flow and is not to be
    considered as an alternative to net income (loss) as an indicator of our
    operating performance or to cash flow as a measure of our liquidity.



(7) After-Tax Cash Flow means, in general, the sum of consolidated net income
    (loss), consolidated depreciation and amortization expense, and
    extraordinary or non-recurring items, including after-tax gain on
    disposition of assets. After-Tax Cash Flow has been included solely because
    we understand that it is used by certain investors and financial analysts as
    a measure of a company's historical ability to service its debt. After-Tax
    Cash Flow is not to be considered as an alternative to net income (loss) as
    an indicator of our operating performance or to cash flow as a measure of
    our liquidity. In 1997, After-Tax Cash Flow excluded a $19.5 million tax
    benefit for the change in valuation account.


                                       33
<PAGE>   35


                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED


                             FINANCIAL INFORMATION



     On June 30, 1998, we sold substantially all of the assets of our
wholly-owned subsidiary, Ackerley Airport Advertising, Inc. ("Airport"). The
sale price consisted of a base cash price of $40.0 million, paid on the closing
date of the transaction, and a post-closing contingent payment of approximately
$2.9 million, of which $1.2 million was paid in December 1998 and the remainder
was paid in January 1999. We recorded a gain from this transaction of $35.3
million, before taxes.



     On April 12, 1999, we purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately
$128.2 million plus the assumption of certain liabilities. In September 1998, we
paid $12.5 million of the purchase price into an escrow account, with the
balance paid at closing. We recorded net assets with estimated fair values
aggregating $9.8 million and goodwill of $118.4 million in connection with this
transaction.



     The following unaudited pro forma condensed consolidated financial
information consists of an unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999, and unaudited pro forma condensed consolidated
statements of income for the three month period ended March 31, 1999 and year
ended December 31, 1998 and related notes (collectively, the "Unaudited Pro
Forma Condensed Consolidated Financial Statements"). The pro forma condensed
consolidated balance sheet has been prepared assuming the acquisition of
WOKR(TV) occurred on March 31, 1999 and the pro forma condensed consolidated
statements of income have been prepared assuming the acquisition of WOKR(TV) and
the sale of Airport both occurred on the first day of each period. The Unaudited
Pro Forma Condensed Consolidated Financial Statements are subject to a number of
estimates, assumptions and uncertainties and do not purport to reflect the
financial condition or results of operations that would have existed or occurred
had such transactions taken place on the dates indicated, nor do they purport to
reflect the financial condition or results of operations that will exist or
occur in the future. In particular, because we financed the acquisition of
WOKR(TV) with borrowings under the 1999 Credit Agreement, the pro forma interest
expense resulting therefrom is based upon the historical interest rate on
borrowings under the 1999 Credit Agreement. Likewise, the acquisition of
WOKR(TV) will be accounted for using the purchase method of accounting. The
total purchase price will be allocated to the tangible and intangible assets and
liabilities acquired based on their respective fair values. The allocation of
the purchase price reflected in the Unaudited Pro Forma Condensed Consolidated
Financial Statements is preliminary and is subject to adjustment, upon receipt
of, among other things, certain appraisals of the acquired assets and
liabilities. Finally, the accuracy of the Unaudited Pro Forma Condensed
Consolidated Financial Statements depends in large part upon the accuracy of the
historical financial data on which such pro forma financial statements are
based. In that regard, the historical financial data for WOKR(TV) as of March
31, 1999 and for the three months then ended has not been independently verified
by us nor has it been separately audited by any accounting firm. The Unaudited
Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the historical financial statements and notes thereto of The
Ackerley Group and WOKR(TV) included and incorporated by reference herein.


                                       34
<PAGE>   36


                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED


                                 BALANCE SHEET


                                 MARCH 31, 1999





<TABLE>
<CAPTION>
                                HISTORICAL     HISTORICAL    PRO FORMA        PRO FORMA
                              ACKERLEY GROUP      WOKR      ADJUSTMENTS     ACKERLEY GROUP
                              --------------   ----------   -----------     --------------
                                                     (IN THOUSANDS)
<S>                           <C>              <C>          <C>             <C>
           ASSETS
Current assets..............     $ 77,113       $ 4,441      $    (15)(a)      $ 81,539
Property and equipment,
  net.......................      120,551         6,709           646           127,906
Intangibles, net............      114,562        43,812        74,430(a)        232,804
Other assets................       54,572         3,281       (12,500)(a)        45,353
                                 --------       -------      --------          --------
     Total assets...........     $366,798       $58,243      $ 62,561          $487,602
                                 ========       =======      ========          ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities.........     $ 52,210       $ 2,586      $     --          $ 54,796
Long-term debt, net of
  current portion...........      329,709            --       113,831(b)        443,540
Other long-term
  liabilities...............       15,028        55,657       (51,270)(a)        19,415
Stockholders' equity
  (deficiency)..............      (30,149)           --            --           (30,149)
                                 --------       -------      --------          --------
     Total liabilities and
       stockholders' equity
       (deficiency).........     $366,798       $58,243      $ 62,561          $487,602
                                 ========       =======      ========          ========
</TABLE>


                                       35
<PAGE>   37


                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED


                              STATEMENT OF INCOME


                    THREE-MONTH PERIOD ENDED MARCH 31, 1999



<TABLE>
<CAPTION>
                            HISTORICAL     HISTORICAL   HISTORICAL    PRO FORMA      PRO FORMA
                          ACKERLEY GROUP      WOKR       AIRPORT     ADJUSTMENTS   ACKERLEY GROUP
                          --------------   ----------   ----------   -----------   --------------
                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                       <C>              <C>          <C>          <C>           <C>
Net revenue..............    $67,696         $3,898      $    --       $    --        $71,594
Operating expenses.......     60,164          2,552           --            --         62,716
Depreciation and
  amortization
  expenses...............      4,723          1,136           --         1,064(c)       6,923
Gain on disposition of
  assets.................     (1,626)            --       (1,626)           --             --
Other non-cash
  expenses...............        244             --           --            --            244
Interest expense.........      7,311             --           --         2,220(d)       9,531
                             -------         ------      -------       -------        -------
          Total
             expenses....    $70,816         $3,688      $(1,626)      $ 3,284         79,414
                             -------         ------      -------       -------        -------
Income (loss) before
  income taxes and
  extraordinary item.....     (3,120)           210        1,626        (3,284)        (7,820)
Income tax (benefit)
  expense................       (572)            95(e)       618        (1,248)(e)     (2,343)
                             -------         ------      -------       -------        -------
Income before
  extraordinary item.....     (2,548)           115        1,008        (2,036)        (5,477)
Extraordinary item.......     (1,373)            --           --            --         (1,373)
                             -------         ------      -------       -------        -------
Net income applicable to
  common shares..........    $(3,921)        $  115      $ 1,008       $(2,036)       $(6,850)
                             =======         ======      =======       =======        =======
Per common share:
  Income before
     extraordinary
     item................    $ (0.08)        $   --      $  0.03       $ (0.06)       $ (0.17)
  Extraordinary item.....      (0.04)            --           --            --          (0.04)
                             -------         ------      -------       -------        -------
Net income...............    $ (0.12)        $   --      $  0.03       $ (0.06)       $ (0.21)
                             =======         ======      =======       =======        =======
Per common share--
  assuming dilution:
  Income before
     extraordinary
     item................    $ (0.08)        $   --      $  0.03       $ (0.06)       $ (0.17)
  Extraordinary item.....      (0.04)            --           --            --          (0.04)
                             -------         ------      -------       -------        -------
Net income...............    $ (0.12)        $   --      $  0.03       $ (0.06)       $ (0.21)
                             =======         ======      =======       =======        =======
</TABLE>


                                       36
<PAGE>   38


                   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED


                              STATEMENT OF INCOME


                          YEAR ENDED DECEMBER 31, 1998



<TABLE>
<CAPTION>
                           HISTORICAL     HISTORICAL   HISTORICAL    PRO FORMA      PRO FORMA
                         ACKERLEY GROUP      WOKR       AIRPORT     ADJUSTMENTS   ACKERLEY GROUP
                         --------------   ----------   ----------   -----------   --------------
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                      <C>              <C>          <C>          <C>           <C>
Net revenue............     $256,651       $18,291      $ 16,204     $     --        $258,738
Operating expenses.....      209,030        10,364        14,851           --         204,543
Depreciation and
  amortization
  expenses.............       16,574         4,658           921        3,219(c)       23,530
Gain on disposition of
  assets...............      (33,524)           --       (33,651)          --             127
Other non-cash
  expenses.............          452            --            --           --             452
Interest expense.......       25,109            --            --        7,502(d)       32,611
                            --------       -------      --------     --------        --------
          Total
            expenses...      217,641        15,022       (17,879)      10,721         261,263
                            --------       -------      --------     --------        --------
Income (loss) before
  income taxes and
  extraordinary item...       39,010         3,269        34,083      (10,721)         (2,525)
Income tax (benefit)
  expense..............       15,487         1,351(e)     12,952(e)    (4,074)(e)        (188)
                            --------       -------      --------     --------        --------
Income before
  extraordinary item...       23,523         1,918        21,131       (6,647)         (2,337)
Extraordinary item.....       (4,346)           --            --           --          (4,346)
                            --------       -------      --------     --------        --------
Net income applicable
  to common shares.....     $ 19,177       $ 1,918      $ 21,131     $ (6,647)       $ (6,683)
                            ========       =======      ========     ========        ========
Per common share:
  Income before
     extraordinary
     item..............     $   0.75       $  0.06      $   0.67     $  (0.21)       $  (0.07)
  Extraordinary item...     $  (0.14)           --            --           --           (0.14)
                            --------       -------      --------     --------        --------
Net income.............     $   0.61       $  0.06      $   0.67     $  (0.21)       $  (0.21)
                            ========       =======      ========     ========        ========
Per common share--
  assuming dilution:
  Income before
     extraordinary
     item..............     $   0.74       $  0.06      $   0.66     $  (0.21)       $  (0.07)
  Extraordinary item...        (0.14)           --            --           --           (0.14)
                            --------       -------      --------     --------        --------
Net income.............     $   0.60       $  0.06      $   0.66     $  (0.21)       $  (0.21)
                            ========       =======      ========     ========        ========
</TABLE>


                                       37
<PAGE>   39


                     NOTES TO UNAUDITED PRO FORMA CONDENSED


                       CONSOLIDATED FINANCIAL STATEMENTS



     The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements consist of the consolidated historical financial statements of the
Company and WOKR(TV), less the historical financial statement of Airport,
adjusted for certain pro forma adjustments, as described below:



          (a) Balance sheet adjustments give effect to the elimination of the
     historical net assets of WOKR(TV) not acquired by the Company and to the
     recording of goodwill associated with the acquisition.



          (b) Reflects borrowings for the purchase price of WOKR(TV), less $12.5
     million in escrow at September 30, 1998.



          (c) Represents the change in depreciation and amortization based on
     the estimated allocation of the purchase price of WOKR(TV) to tangible and
     intangible assets. The estimated useful lives of the assets acquired are as
     follows:



<TABLE>
<S>                                            <C>
Building and improvements....................  25 years
Broadcast equipment..........................  10 years
Other equipment..............................   7 years
Intangible assets............................  15 years
</TABLE>



          (d) Represents the change in interest expense, assuming cash proceeds
     of $42.9 million from the sale of Airport are applied to the reduction of
     the Company's borrowings under our former $265.0 million credit agreement
     (the "1998 Credit Agreement") and the purchase of WOKR(TV) for $128.2
     million is financed from borrowings under the 1999 Credit Agreement. The
     impact on interest expense is based on the Company's historical annual
     interest rate on borrowings under the 1998 Credit Agreement.



          (e) Represents income tax expense based on the Company's estimated
     statutory income tax rate.


                                       38
<PAGE>   40

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


OVERVIEW



     We reported a net loss of $3.9 million for the first three months of 1999,
compared to net income of $0.8 million for the first three months of 1998. Net
revenues for the first three months of 1999 decreased over the same period last
year by $13.3 million, or 16%, while our Operating Cash Flow (as defined below)
decreased by $4.2 million, or 36%. On April 15, 1999, we paid an annual cash
dividend of $.02 per share.



     We reported net income of $19.2 million in 1998, compared to $32.9 million
in 1997. This decrease in net income primarily reflects the $11.9 million
decrease in Operating Cash Flow in our television broadcasting and sports &
entertainment segments and an increase in income tax expense, partially offset
by a $3.6 million increase in Operating Cash Flow in our outdoor media and radio
broadcasting segments and a $33.5 million gain on the sale of our airport
advertising operations in 1998. The 1998 decrease also reflects higher net
income in 1997 that included a $19.2 million income tax benefit, resulting from
recognition of our deferred tax asset, and a $5.0 million reduction for
litigation expenses, partially offset by a $9.3 million charge for stock
compensation expense. Operating Cash Flow was $47.6 million in 1998, compared to
$60.4 million in 1997.



     On June 30, 1998, we sold substantially all of the assets of our airport
advertising operations. This has caused our results of operations and financial
condition for periods and dates subsequent to the sale to differ in certain
respects from our results of operations and financial condition for periods and
dates prior to the sale. See "Unaudited Pro Forma Condensed Consolidated
Financial Information."



     As with many media companies that have grown through acquisitions, our
acquisitions and dispositions of television and radio stations have resulted in
significant non-cash and non-recurring charges to income. For this reason, in
addition to net income, our management believes that Operating Cash Flow
(defined as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses and gain on
disposition of assets) is an appropriate measure of our financial performance.
Similarly, we believe that Segment Operating Cash Flow (defined as Operating
Cash Flow of the relevant segment or segments before corporate overhead) is an
appropriate measure of our segments' financial performance. These measures
exclude certain expenses that management does not consider to be costs of
ongoing operations. We use Operating Cash Flow to pay interest and principal on
our long-term debt as well as to finance capital expenditures. Operating Cash
Flow and Segment Operating Cash Flow, however, are not to be considered as
alternatives to net income (loss) as an indicator of our operating performance
or to cash flows as a measure of our liquidity.



     As noted under "Risk Factors--Anticipated Adverse Impact of Certain Events
on Second Quarter Results," we expect that our results of operations for the
second quarter of 1999 will be adversely affected by certain matters.


                                       39
<PAGE>   41


RESULTS OF OPERATIONS



     The following tables set forth certain historical financial and operating
data for the three-month periods ended March 31, 1999 and March 31, 1998 and
each of the three years in the period ended December 31, 1998, including net
revenue, operating expenses, and Operating Cash Flow information by segment:



<TABLE>
<CAPTION>
                              THREE MONTH PERIOD ENDED MARCH 31,                       YEAR ENDED DECEMBER 31,
                             -------------------------------------   ------------------------------------------------------------
                                   1999                1998                 1998                 1997                 1996
                             -----------------   -----------------   ------------------   ------------------   ------------------
                                       AS % OF             AS % OF              AS % OF              AS % OF              AS % OF
                                         NET                 NET                  NET                  NET                  NET
                             AMOUNT    REVENUE   AMOUNT    REVENUE    AMOUNT    REVENUE    AMOUNT    REVENUE    AMOUNT    REVENUE
                             -------   -------   -------   -------   --------   -------   --------   -------   --------   -------
                                                                    (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>       <C>       <C>        <C>       <C>        <C>       <C>        <C>
Net revenue................  $67,696    100.0%   $81,046    100.0%   $256,651    100.0%   $271,175    100.0%   $247,298    100.0%
Segment operating
 expenses..................   56,352     83.2     66,331     81.8     194,539     75.8     200,739     74.0     178,721     72.3
Corporate overhead.........    3,812      5.6      3,057      3.8      14,491      5.6      10,013      3.7       8,233      3.3
                             -------             -------             --------             --------             --------
     Total operating
       expenses............   60,164     88.9     69,388     85.6     209,030     81.4     210,752     77.7     186,954     75.6
                             -------             -------             --------             --------             --------
Operating Cash Flow........    7,532     11.1     11,658     14.4      47,621     18.6      60,423     22.3      60,344     24.4
Other expenses (income):
 Depreciation and
   amortization............    4,723      7.0      3,843      4.7      16,574      6.5      16,103      5.9      16,996      6.9
 Interest expense..........    7,311     10.8      6,510      8.0      25,109      9.8      26,219      9.7      24,461      9.9
 Stock compensation
   expense.................      244      0.4         --       --         452      0.2       9,344      3.4          --       --
 Gain on disposition of
   assets..................   (1,626)    (2.4)        --       --     (33,524)   (13.1)         --       --          --       --
 Litigation expense
   (adjustment)............       --                  --                   --               (5,000)    (1.8)         --       --
                             -------             -------             --------             --------    -----    --------    -----
     Total other expenses
       (income)............   10,652     15.7     10.353     12.8       8,611      3.4      46,666     17.2      41,457     16.8
                             -------             -------             --------             --------             --------
Income before income taxes
 and extraordinary item....   (3,120)    (4.6)     1,305      1.6      39,010     15.2      13,757      5.1      18,887      7.6
   Income tax benefit
     (expense).............      572      0.8       (496)    (0.6)    (15,487)    (6.0)     19,172      7.1      (2,758)    (1.1)
Income before extraordinary
 item......................   (2,548)    (3.8)       809      1.0      23,523      9.2      32,929     12.1      16,129      6.5
Extraordinary item.........   (1,373)    (2.0)        --       --      (4,346)    (1.7)         --       --        (355)    (0.1)
                             -------             -------             --------             --------             --------
Net income.................  $(3,921)    (5.8)   $   809      1.0    $ 19,177      7.5    $ 32,929     12.1    $ 15,774      6.4
                             =======             =======             ========             ========             ========
</TABLE>


                                       40
<PAGE>   42


<TABLE>
<CAPTION>
                               THREE MONTH PERIOD
                                 ENDED MARCH 31,        YEAR ENDED DECEMBER 31,
                               -------------------   ------------------------------
                                 1999       1998       1998       1997       1996
                               --------   --------   --------   --------   --------
                                              (DOLLARS IN THOUSANDS)
<S>                            <C>        <C>        <C>        <C>        <C>
NET REVENUE:
  Outdoor media..............  $19,990    $26,467    $108,560   $113,162   $ 99,833
  Television broadcasting....   16,251     14,536      68,467     63,611     57,863
  Radio broadcasting.........    5,221      4,956      24,474     20,970     17,955
  Sports & entertainment.....   26,234     35,087      55,150     73,432     71,647
                               -------    -------    --------   --------   --------
       Total net revenue.....  $67,696    $81,046    $256,651   $271,175   $247,298
                               =======    =======    ========   ========   ========
OPERATING CASH FLOW:
  Outdoor media..............  $ 7,033    $ 7,505    $ 42,955   $ 41,003   $ 35,909
  Television broadcasting....      (40)       885      12,471     16,676     15,726
  Radio broadcasting.........    1,769      1,454       9,655      7,987      7,111
  Sports & entertainment.....    2,582      4,871      (2,969)     4,770      9,831
                               -------    -------    --------   --------   --------
     Total Segment Operating
       Cash Flow.............   11,344     14,715      62,112     70,436     68,577
  Corporate overhead.........   (3,812)    (3,057)    (14,491)   (10,013)    (8,233)
                               -------    -------    --------   --------   --------
       Operating Cash Flow...  $ 7,532    $11,658    $ 47,621   $ 60,423   $ 60,344
                               =======    =======    ========   ========   ========
CHANGE IN NET REVENUE FROM
  PRIOR PERIOD:
  Outdoor media..............    (24.5)%      6.3%       (4.1)%     13.4%       7.1%
  Television broadcasting....     11.8        7.5         7.6        9.9       20.6
  Radio broadcasting.........      5.3       20.1        16.7       16.8       21.9
  Sports & entertainment.....    (25.2)      21.4       (24.9)       2.5       39.1
                               -------    -------    --------   --------   --------
     Change in total net
       revenue...............    (16.5)%     13.4%       (5.4)%      9.7%      19.2%
SEGMENT OPERATING CASH FLOW
  AS A % OF NET REVENUE BY
  SEGMENT:
     Outdoor media...........     35.2%      28.4%       39.6%      36.2%      36.0%
     Television
       broadcasting..........     (0.2)       6.1        18.2       26.2       27.2
     Radio broadcasting......     33.9       29.3        39.5       38.1       39.6
     Sports &
       entertainment.........      9.8       13.9        (5.4)       6.5       13.7
OPERATING CASH FLOW AS A % OF
  TOTAL NET REVENUE..........     11.1%      14.4%       18.6%      22.3%      24.4%
</TABLE>



THREE-MONTH PERIOD ENDED MARCH 31, 1999 COMPARED WITH THREE-MONTH PERIOD ENDED
MARCH 31, 1998



     Net Revenue. Our net revenue for the first quarter of 1999 was $67.7
million. This represented a decrease of $13.3 million, or 16%, compared to $81.0
million for the first quarter of 1998. Changes in net revenue were as follows:



     - Outdoor Media. Our net revenue for the first quarter of 1999 from our
       outdoor media segment decreased by $6.5 million, or 25%, compared to the
       first quarter of 1998. This decrease was primarily due to the absence of
       our airport advertising operations, which we sold in June 1998, partially
       offset by increased national sales. Excluding our airport advertising
       operations, our net revenue for the first quarter of 1999 from our
       outdoor media segment increased by $1.0 million, or 5%, compared to the
       first quarter of 1998.


                                       41
<PAGE>   43


     - Television Broadcasting. Our net revenue for the first quarter of 1999
       from our television broadcasting segment increased by $1.8 million, or
       12%, compared to the first quarter of 1998. This increase was mainly due
       to the addition of stations KVIQ in July 1998 and KMTR in December 1998,
       and the exchange of station KKTV for station KCOY in January 1999.
       Excluding these transactions, our net revenue for the first quarter of
       1999 from our television broadcasting segment was $12.3 million for the
       first quarter of both 1999 and 1998.



     - Radio Broadcasting. Our net revenue for the first quarter of 1999 from
       our radio broadcasting segment increased by $0.2 million, or 5%, compared
       to the first quarter of 1998. This increase was mainly due to higher
       national and local sales.



     - Sports & Entertainment. Our net revenue for the first quarter of 1999
       from our sports & entertainment segment decreased by $8.9 million, or
       25%, compared to the first quarter of 1998. This decrease primarily
       represented decreased ticket and sponsorship sales for the first quarter
       of 1999 as a result of the NBA lockout.



     Segment Operating Expenses (Excluding Corporate Overhead). Our operating
expenses (excluding corporate overhead) for the first quarter of 1999 were $56.4
million. This represented a decrease of $9.9 million, or 15%, compared to $66.3
million for the first quarter of 1998. Changes in operating expenses (excluding
corporate overhead) were as follows:



     - Outdoor Media. Our operating expenses for the first quarter of 1999 from
       our outdoor media segment decreased by $6.0 million, or 32%, compared to
       the first quarter of 1998. This decrease was primarily due to the absence
       of our airport advertising operations which we sold in June 1998,
       partially offset by higher employment-related expenses. Excluding our
       airport advertising operations, our operating expenses for the first
       quarter of 1999 from our outdoor media segment increased by $0.9 million,
       or 7%, compared to the first quarter of 1998.



     - Television Broadcasting. Our operating expenses for the first quarter of
       1999 from our television broadcasting segment increased by $2.6 million,
       or 19%, compared to the first quarter of 1998. This increase was
       primarily due to the addition of stations KVIQ in July 1998, and KMTR in
       December 1998, and the exchange of station KKTV for station KCOY in
       January 1999, and higher program, promotion, and production expenses
       relating to the expansion of local news. Excluding these transactions,
       our operating expenses for the first quarter of 1999 from our television
       broadcasting segment increased by $0.4 million, or 3%, compared to the
       first quarter of 1998.



     - Radio Broadcasting. Our operating expenses for the first quarter of 1999
       from our radio broadcasting segment was $3.5 million for the first
       quarter of both 1999 and 1998.



     - Sports & Entertainment. Our operating expenses for the first quarter of
       1999 from our sports & entertainment segment decreased by $6.5 million,
       or 22%, compared to the first quarter of 1998. This decrease was mainly
       attributable to decreased expenses in the first quarter of 1999 due to
       the NBA lockout.



     Corporate Overhead. Our corporate overhead expenses were $3.8 million for
the first quarter of 1999. This represented an increase of $0.7 million, or 23%,
compared to the first


                                       42
<PAGE>   44


quarter of 1998. This increase was primarily due to higher utilization of
outside services and increased marketing costs.



     Operating Cash Flow. Our Operating Cash Flow decreased by $4.2 million to
$7.5 million for the first quarter of 1999 compared to $11.7 million for the
first quarter of 1998. The decrease in Operating Cash Flow from our outdoor
media, television broadcasting, and sports & entertainment segments and the
increase in our corporate overhead expenses were partially offset by the
increase in Operating Cash Flow from our radio broadcasting segment. Operating
Cash Flow as a percentage of total net revenue decreased to 11% for the first
quarter of 1999 compared to 14% from the first quarter of 1998.



     Depreciation and Amortization Expense. Our depreciation and amortization
expense was $4.7 million for the first quarter of 1999. This represented an
increase of $0.9 million, or 24%, compared to the first quarter of 1998. This
increase mainly resulted from amortization expense relating to our business
acquisitions during 1998 and depreciation expense on our new Seattle SuperSonics
aircraft, which was placed in service in December 1998.



     Interest Expense. Our interest expense was $7.3 million for the first
quarter of 1999. This represented an increase of $0.8 million, or 12%, compared
to the first quarter of 1998. This increase was primarily due to higher average
debt balances during the first quarter of 1999.



     Stock Compensation Expense. For the first quarter of 1999, we recognized
stock compensation expense of $0.2 million, primarily relating to the amendment
of a stock option agreement. There was no stock compensation expense in the
first quarter of 1998.



     Gain on Disposition of Assets. For the first quarter of 1999, we recognized
a gain on disposition of assets of $1.6 million, which represented the final
cash payment received on the sale of our airport advertising operations in June
1998.



     Income Tax Benefit (Expense). We recorded an income tax benefit of $0.6
million for the first quarter of 1999, primarily as a result of our loss before
income taxes of $3.1 million. For the first quarter of 1998, our income tax
expense was $0.5 million.



     Extraordinary Item. For the first quarter of 1999, we replaced the 1998
Credit Agreement with the $325.0 million 1999 Credit Agreement and redeemed our
$20.0 million 10.48% Senior Subordinated Notes. These transactions resulted in
an aggregate charge of $1.4 million, net of taxes, primarily consisting of the
write-off of deferred financing costs and prepayment fees.



     Net Income (Loss). Our net loss was $3.9 million for the first quarter of
1999. This represented a $4.7 million decrease from our net income of $0.8
million for the first quarter of 1998. This decrease primarily resulted from the
decrease in Operating Cash Flow and the recognition of the extraordinary loss
related to debt extinguishment, partially offset by the gain on disposition of
assets in the first quarter of 1999. Net loss as a percentage of net revenue was
6% for the first quarter of 1999, which represented a decrease from net income
as a percentage of net revenue of 1% for the first quarter of 1998.


                                       43
<PAGE>   45


1998 COMPARED WITH 1997



     Net Revenue. Our 1998 net revenue was $256.7 million. This represented a
decrease of $14.5 million, or 5%, from $271.2 million in 1997. Changes in net
revenue were as follows:



     - Outdoor Media. Our 1998 net revenue from our outdoor media segment
       decreased by $4.6 million, or 4%, from 1997. This decrease was mainly due
       to the absence of airport advertising operations in the third and fourth
       quarters of 1998, partially offset by increased national advertising
       sales.



     - Television Broadcasting. Our 1998 net revenue from our television
       broadcasting segment increased by $4.9 million, or 8%, from 1997. This
       increase resulted primarily from the addition of television station KVIQ
       in July 1998, the completion of a full 12 months of operations at
       WUTR(TV) (which we began operating under a time brokerage agreement in
       June 1997) and WIVT(TV) (which we acquired in July 1997), higher
       political advertising, and higher national and local sales.



     - Radio Broadcasting. Our 1998 net revenue from our radio broadcasting
       segment increased by $3.5 million, or 17%, from 1997. This increase was
       primarily due to an increase in both national and local sales.



     - Sports & Entertainment. Our 1998 net revenue from our sports &
       entertainment segment decreased by $18.2 million, or 25%, from 1997. This
       decrease was primarily due to decreased revenue in the fourth quarter of
       1998 as a result of the NBA lockout, partially offset by increased ticket
       and sponsorship sales during the 1997-98 basketball season.



     Segment Operating Expenses (Excluding Corporate Overhead). Our 1998
operating expenses (excluding corporate overhead) were $194.5 million. This
represented a decrease of $6.2 million, or 3%, from $200.7 million in 1997.
Changes in operating expenses (excluding corporate overhead) were as follows:



     - Outdoor Media. Our 1998 operating expenses from our outdoor segment
       decreased by $6.6 million, or 9%, from 1997. This decrease was due mainly
       to the absence of airport advertising operations in the third and fourth
       quarters of 1998, partially offset by higher expenses related to
       increased sales activity.



     - Television Broadcasting. Our 1998 operating expenses from our television
       broadcasting segment increased by $9.1 million, or 19%, from 1997. This
       increase was primarily a result of the addition of television station
       KVIQ in July 1998, the completion of a full 12 months of operations at
       WUTR(TV) and WIVT(TV), and higher program, promotion, and production
       expenses in conjunction with the expansion of local news programming.



     - Radio Broadcasting. Our 1998 operating expenses from our radio
       broadcasting segment increased by $1.8 million, or 14%, from 1997. This
       increase primarily resulted from higher expenses related to increased
       sales activity.



     - Sports & Entertainment. Our 1998 operating expenses from our sports &
       entertainment segment decreased by $10.6 million, or 15%, from 1997. This
       decrease is mainly attributable to decreased expenses in the fourth
       quarter of 1998 due to the NBA lockout, partially offset by increased
       basketball operating expenses related to team costs during the 1997-98
       basketball season.


                                       44
<PAGE>   46


     Corporate Overhead. Our corporate overhead expenses were $14.5 million in
1998. This represented an increase of $4.5 million, or 45%, from 1997. This
increase was mainly due to personnel costs, travel and entertainment, insurance,
and the utilization of outside services, primarily for public relations.



     Operating Cash Flow. As a result of the above, our Operating Cash Flow
decreased from $60.4 million in 1997 to $47.6 million in 1998. The decrease in
Operating Cash Flow from our television broadcasting and sports & entertainment
segments and the increase in our corporate overhead expenses were partially
offset by the increase in our Operating Cash Flow from our outdoor and radio
broadcasting segments. Operating Cash Flow as a percentage of net revenue
decreased to 19% in 1998 from 22% in 1997.



     Depreciation and Amortization Expense. Our depreciation and amortization
expenses were $16.6 million in 1998. This represents an increase of $0.5
million, or 3%, from 1997.



     Interest Expense. Our interest expense was $25.1 million in 1998. This
represents a decrease of $1.1 million, or 4%, from 1997. This decrease is
primarily due to lower average interest rates and interest income from our
interest rate swap agreements in 1998.



     Stock Compensation Expense. In 1998, we recognized stock compensation
expense of $0.5 million, primarily relating to the amendments of certain stock
option agreements. In 1997, we recognized stock compensation expense of $9.3
million, which was primarily due to the conversion of certain incentive stock
options into nonqualified stock options.



     Gain on Disposition of Assets. In 1998, we recognized a gain of $33.5
million relating to the sale of our airport advertising operations. There was no
gain on disposition of assets in 1997.



     Litigation Expense Adjustment. In 1997, we reduced an accrual for
litigation expense by $5.0 million. There was no such adjustment in 1998.



     Income Tax (Benefit) Expense. Our income tax expense was $15.5 million in
1998. In 1997, we incurred an income tax benefit of $19.2 million, which
primarily resulted from the recognition of our deferred tax asset.



     Extraordinary Item. In October 1998, we redeemed our 10.75% Senior Secured
Notes with proceeds under the 1998 Credit Agreement. This resulted in a charge
of $4.3 million, net of applicable income taxes, consisting of prepayment fees
and the write-off of deferred financing costs. There were no extraordinary items
in 1997.



     Net Income. Our net income was $19.2 million in 1998. This represents a
decrease of $13.7 million, or 42%, from 1997. This decrease was primarily due to
decreased Operating Cash Flow and increased income tax expense in 1998, the
litigation expense adjustment in 1997, and the recognition of our deferred tax
asset in 1997, partially offset by the gain on the sale of our airport
advertising operations in 1998 and stock compensation expense in 1997. Net
income as a percentage of net revenue decreased to 8% in 1998 from 12% in 1997.


                                       45
<PAGE>   47


1997 COMPARED WITH 1996



     Net Revenue. Our 1997 net revenue was $271.2 million. This represented an
increase of $23.9 million, or 10%, from $247.3 million in 1996. Changes in net
revenue were as follows:



     - Outdoor Media. Our 1997 net revenue from our outdoor segment (which, for
       both 1997 and 1996, included our airport advertising operations)
       increased by $13.3 million, or 13%, from 1996. This increase was mainly
       due to an increase in both national and local advertising sales.



     - Television Broadcasting. Our 1997 net revenue from our television
       broadcasting segment increased by $5.7 million, or 10%, from 1996. This
       increase was mainly due to the effects of increased rates and sales
       volumes, the addition of time brokerage agreements with television
       stations WUTR and WIVT, and the completion of a full 12 months of
       operations at television stations KFTY (which was acquired in April 1996)
       and KION (which we began operating under a time brokerage agreement in
       April 1996).



     - Radio Broadcasting. Our 1997 net revenue from our radio broadcasting
       segment increased by $3.0 million, or 17%, from 1996. This increase was
       primarily due to an increase in both national and local sales.



     - Sports & Entertainment. Our 1997 net revenue from our sports &
       entertainment segment increased by $1.8 million, or 3%, from 1996. This
       increase was primarily due to the combination of increased sponsorship
       and ticket sales, offset primarily by decreased revenues due to the
       Seattle SuperSonics participating in 12 games of the 1997 NBA playoffs
       compared to 21 games in the 1996 playoffs.



     Segment Operating Expenses (Excluding Corporate Overhead). Our 1997
operating expenses (excluding corporate overhead) were $200.7 million. This
represented an increase of $22.0 million, or 12%, from $178.7 million in 1996.
Changes in our operating expenses (excluding corporate overhead) were as
follows:



     - Outdoor Media. Our 1997 operating expenses from our outdoor segment
       increased by $8.2 million, or 13%, from 1996, to $72.2 million. This
       increase was primarily due to expenses related to increased sales
       activity.



     - Television Broadcasting. Our 1997 operating expenses from our television
       broadcasting segment increased by $4.8 million from 1996, or 11%, to
       $46.9 million. This increase was primarily due to the effects of higher
       programming, promotion, and production expenses primarily reflecting the
       development and expansion of our local news programming. The addition of
       time brokerage agreements with television stations WUTR and WITV, and a
       full 12 months of operations at television stations KFTY and KION, also
       contributed to the increase in operating expenses.



     - Radio Broadcasting. Our 1997 operating expenses from our radio
       broadcasting segment increased by $2.2 million from 1996, or 20%, to
       $13.0 million. This increase primarily resulted from higher expenses
       related to increased sales activity.



     - Sports & Entertainment. Our 1997 operating expenses from our sports &
       entertainment segment increased by $6.9 million from 1996, or 11%, to
       $68.7 million. This increase was primarily due to the combination of
       expenses related to increased team costs, offset in part by lower costs
       associated with the


                                       46
<PAGE>   48


       Seattle SuperSonics participating in 12 games of the 1997 NBA playoffs
       instead of 21 games in the 1996 NBA playoffs.



     Corporate Overhead. Our corporate overhead expenses were $10.0 million in
1997. This represented an increase of $1.8 million, or 22%, from 1996. This
increase was mainly due to increased utilization of outside services, primarily
for public relations, and insurance costs.



     Operating Cash Flow. Our Operating Cash Flow increased slightly from 1996
to $60.4 million in 1997. The increase in Operating Cash Flow in our outdoor,
television broadcasting, and radio broadcasting segments offset the decrease in
the sports & entertainment segment's Operating Cash Flow and the increase in
corporate overhead expenses. Operating Cash Flow as a percentage of net revenue
decreased to 22% in 1997 from 24% in 1996.



     Depreciation and Amortization Expense. Our depreciation and amortization
expenses were $16.1 million in 1997. This represented a decrease of $0.9
million, or 5%, from $17.0 million in 1996. This decrease was mainly due to
certain intangible assets becoming fully amortized in 1997.



     Interest Expense. Our interest expenses were $26.2 million in 1997. This
represented an increase of $1.7 million, or 7%, from $24.5 million in 1996. This
increase was primarily due to higher average debt balances during 1997.



     Litigation Expense. In 1997, we reduced an accrual for litigation expense
by $5.0 million to reflect a reduction in the amount of a judgment rendered
against the Company and certain of its officers as described under "Risk
Factors--Legal Proceedings." No such adjustment was made in 1996.



     Stock Compensation Expense. In 1997, we recognized $9.3 million of stock
compensation expense, which was primarily due to the conversion of incentive
stock options into nonqualified stock options as described in Note 11 to the
1998 Financial Statements. We did not recognize any stock compensation expense
in 1996.



     Income Tax (Benefit) Expense. In 1997, we incurred a $19.2 million income
tax benefit, compared to an income tax expense of $2.8 million in 1996. This
benefit primarily resulted from the recognition of a deferred tax asset in 1997,
offset in part by alternative minimum taxes and state income taxes. Recognition
of this deferred tax asset in 1997 occurred as a result of a $27.2 million
decrease in the Company's valuation allowance, primarily through utilization of
net operating loss carryforwards and the reversal of the remaining valuation
allowance. We are unable to predict whether income tax expense will be
recognized at statutory rates in 1999.



     Extraordinary Item. In 1996, as a result of entering into a new bank credit
agreement, we wrote off deferred costs of $0.4 million related to the previous
credit agreement. There were no extraordinary items in 1997.



     Net Income. Our net income was $32.9 million in 1997. This represented an
increase of $17.2 million, or 109%, from 1996. The increase was mainly due to
the combination of the recognition of a deferred tax asset and the adjustment to
the litigation accrual, offset in part by the recognition of stock compensation
expense. Our net income as a percentage of net revenue increased to 12% in 1997
from 6% in 1996.


                                       47
<PAGE>   49


LIQUIDITY AND CAPITAL RESOURCES



     On December 14, 1998, we issued 9% Senior Subordinated Notes in the
aggregate principal amount of $175.0 million. These notes were issued under the
Indenture, which allows for an aggregate principal amount of up to $250.0
million of 9% Senior Subordinated Notes. On February 24, 1999, we issued
additional 9% Senior Subordinated Notes in the aggregate principal amount of
$25.0 million. The total aggregate amount of 9% Senior Subordinated Notes issued
and outstanding is $200.0 million. The 9% Senior Subordinated Notes bear
interest at 9%, which is payable semi-annually in January and July. Principal is
payable in full in January 2009.



     On January 22, 1999, we replaced the 1998 Credit Agreement with the new
$325.0 million 1999 Credit Agreement, consisting of a $150.0 million term loan
facility (the "Term Loan") and a $175.0 million revolving credit facility (the
"Revolver"), which includes up to $10.0 million in standby letters of credit.
Under the 1999 Credit Agreement, we can choose to have interest calculated at
rates based on either a base rate or LIBOR plus defined margins which vary based
on our total leverage ratio. As of June 1, 1999, the annual weighted average
interest rate of borrowings under the 1999 Credit Agreement was approximately
7.74%.



     On March 15, 1999, we redeemed the $20.0 million outstanding principal of
our 10.48% Senior Subordinated Notes with borrowings under the Revolver. This
resulted in a charge of approximately $0.8 million, net of applicable taxes,
consisting of prepayment fees and the write-off of deferred financing costs. As
a result of this redemption, we provided our bank lenders and the holders of the
9% Senior Subordinated Notes with guarantees by substantially all of our
subsidiaries of our obligations under the 1999 Credit Agreement and the
Indenture.



     As of March 31, 1999, we had borrowed $65.0 million of the Term Loan and
$46.0 million of the Revolver. Principal repayments under the Term Loan are due
quarterly from March 31, 2000 through December 31, 2005. The Revolver requires
scheduled annual commitment reductions, with required principal prepayments of
outstanding amounts in excess of the commitment levels, quarterly beginning
March 31, 2001.



     In connection with our time brokerage agreements with the owners of
television stations WUTR and KION, we have guaranteed certain bank loan
obligations of the station owners. The aggregate principal balance outstanding
on such obligations was $10.5 million at December 31, 1998. See Note 12 to the
1998 Financial Statements.



     We have pledged substantially all of our subsidiaries' outstanding stock
and assets as collateral for amounts due under the 1999 Credit Agreement. Thus,
if we default under the 1999 Credit Agreement, the lenders may take possession
of and sell substantially all of our subsidiaries and their assets.



     In addition, the 1999 Credit Agreement and the 9% Senior Subordinated Notes
restrict, among other things, our ability to borrow, pay dividends, repurchase
outstanding shares of our stock, and sell or transfer our assets. They also
contain restrictive covenants requiring us to maintain certain financial ratios.
See "Business--Restrictions on Our Operations."



     In 1999, we have purchased the assets of an outdoor advertising company in
the Boston/Worcester, Massachusetts market and television stations KVIQ, KMTR,
WOKR


                                       48
<PAGE>   50


and KCOY. These acquisitions were financed with borrowings under our 1998 and
1999 Credit Agreements. We intend to finance the pending acquisition of
television station KTVF with borrowings under the 1999 Credit Agreement. See
"Business--Television Broadcasting."



     Our working capital increased to $24.9 million at March 31, 1999 from $15.7
million at December 31, 1998 primarily due to a reduction of deferred revenue
resulting from the NBA lockout, partially offset by an increase in accrued
interest resulting from the refinancing activity in the fourth quarter of 1998
and first quarter of 1999. Our working capital was $15.7 million as of December
31, 1998, $12.0 million as of December 31, 1997, and $11.2 million as of
December 31, 1996.



     We expended $5.9 million for capital expenditures in the first quarter of
1999, compared to $12.0 million in the corresponding quarter in 1998. Capital
expenditures in the first quarter of 1999 were primarily for broadcasting
equipment and advertising signs. We expended $32.7 million, $17.6 million, and
$13.1 million for capital expenditures in 1998, 1997 and 1996, respectively. Our
capital expenditures in 1998 included the acquisition and refurbishment of a new
aircraft for the Seattle SuperSonics. This capital expenditure was financed by
separate aircraft loans in the aggregate principal amount of $16.0 million, of
which $15.4 million was outstanding as of December 31, 1998. Our management
anticipates that 1999 capital expenditures, consisting primarily of construction
and maintenance of billboard structures, broadcasting equipment, and other
capital additions, will be between $10.0 million and $15.0 million. This forward
looking statement is, however, subject to the qualifications set forth under
"Forward-Looking Statements" above, and these amounts do not include amounts
that may be expended in connection with acquisitions, if any.



     Historically, we have financed our working capital needs primarily from
cash provided by operating activities and bank borrowings. Over that period, our
long-term liquidity needs, including for acquisitions and to refinance our
indebtedness, have been financed through additions to our long-term debt,
principally through bank borrowings and the sale of senior and subordinated debt
securities. Capital expenditures for new property and equipment have been
financed with both cash provided by operating activities and long-term debt.
Cash used in operating activities for the first quarter of 1999 was $13.1
million, an increase from cash used in operating activities of $0.8 million for
the first quarter of 1998. Cash provided by operating activities for 1998
decreased to $14.8 million from $28.0 million in 1997. This decrease is mainly
due to the decrease in Operating Cash Flow for 1998, as described above.



     On April 15, 1999, we paid our shareholders an annual cash dividend of $.02
per share.



SUBSEQUENT EVENTS



     Digital CentralCasting. On April 6, 1999, we announced the launch of
Digital CentralCasting, a digital broadcasting system which will allow us to
consolidate back-office functions such as operations, programming and
advertising scheduling, and accounting for all of our television stations within
a regional group at one station. See "Prospectus Summary--Strategy--Use of
Advanced Technology to Create Regional Television Groups." In addition, we
expect to record a $1.0 million reorganization charge in the second quarter of
1999 relating to the implementation of Digital CentralCasting. See "Risk
Factors--Anticipated Adverse Impact of Certain Events on Second Quarter
Results."


                                       49
<PAGE>   51


     Acquisition of WOKR (TV). On April 12, 1999, we purchased substantially all
of the assets and assumed certain liabilities of WOKR (TV). See "Prospectus
Summary--Recent Developments."



     Pending Acquisition of KTVF(TV). In April 1999, we amended our agreement to
purchase the assets of KTVF(TV), a NBC affiliate, and two radio stations,
KXLR(FM) and KCBF(AM), each of which is licensed to Fairbanks, Alaska. The
amended agreement now provides for our purchase only of the assets of KTVF(TV)
for $7.2 million. We similarly amended the option granted to a third party to
purchase from us the assets of KTVF(TV). See "Business--Television
Broadcasting--Acquisitions and Time Brokerage Agreements." The acquisition is
subject to conditions, including receipt of approval by the FCC. See "Risk
Factors--Broadcasting--Approval of Purchase and Sale Transactions." Accordingly,
we cannot guarantee that the transaction will be completed.



     Exchange of KKTV(TV) for KCOY(TV). On May 1, 1999, we exchanged
substantially all of the assets plus certain liabilities of KKTV(TV), our former
CBS affiliate licensed to Colorado Springs, Colorado, for substantially all of
the assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to
Santa Maria, California. In conjunction with the transaction, we received a cash
payment of approximately $9.0 million. Pending closing of the transaction, we
operated KCOY(TV) and the former owner of KCOY(TV) operated KKTV(TV) pursuant to
time brokerage agreements. We recorded net assets with estimated fair values
aggregating $7.2 million and goodwill of $16.8 million in connection with this
transaction.



     Sports & Entertainment. We expect that our sports & entertainment segment's
Operating Cash Flow for the second quarter of 1999 will be between $1.0 million
and $2.0 million lower than its Operating Cash Flow for the same period in 1998.
This is due to reduced revenues (after expenses) from the failure of the Seattle
SuperSonics to participate in the 1999 NBA playoffs (in contrast to the prior
season, when they participated in the first two rounds of the NBA playoffs) and
lower than anticipated revenues from NBA-related activities primarily due to the
NBA lockout, offset, in part, by additional revenue (after expenses) generated
by the extension of the 1999 regular season into the second quarter of 1999 to
make up for some of the games cancelled as a result of the lock-out. See "Risk
Factors--Anticipated Adverse Impact of Certain Events on Second Quarter
Results."



YEAR 2000



     Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the Year 2000, these
date code fields will need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. The issue is not
limited to computer systems. Year 2000 issues may affect any system or equipment
that has an embedded microchip that processes date sensitive information.



State of Readiness



     We are committed to addressing the Year 2000 issue in a prompt and
responsible manner, and have dedicated the resources to do so. Our management
has completed an assessment of its automated systems and has implemented a
program to complete all steps necessary to resolve identified issues. Our
compliance program has several phases,


                                       50
<PAGE>   52


including (1) project management; (2) assessment; (3) testing; and (4)
remediation and implementation.



     Project Management: We formed a Year 2000 compliance team in December 1997.
The team meets generally on a semi-monthly basis to discuss project status,
assign tasks, determine priorities, and monitor progress. The team also reports
to senior management on a regular basis.



     Assessment: All of our mission-critical software programs have been
identified. This phase is essentially complete. Our primary software vendors and
business partners were also assessed during this phase, and vendors/business
partners who provide mission-critical software have been contacted. In most
cases, the vendors/business partners that are not already compliant have planned
new Year 2000 compliant releases to be available by the third quarter of 1999.
We will continue to monitor and work with vendors and business partners to
ensure that appropriate upgrades and/or testing is completed.



     Testing: Updating and testing of our automated systems is currently
underway and we anticipate that testing will be complete by August 31, 1999.
Upon completion, we expect to be able to identify any in-house developed
computer systems that remain non-compliant.



     Remediation and Implementation: This phase involves obtaining and
implementing renovated Year 2000 compliant software applications provided by our
vendors and performing the necessary programming to render in-house developed
systems Year 2000 compliant. This process also involves replacing non-compliant
hardware. The remediation and implementation process will continue through 1999.



Costs



     The total financial impact that Year 2000 issues will have on us cannot be
predicted with certainty at this time. In fact, in spite of all efforts being
made to rectify these issues, the success of our efforts will not be known for
sure until the Year 2000 actually arrives. However, based on our assessment to
date, we do not believe that expenses related to meeting Year 2000 challenges
will exceed $750,000, of which approximately $360,000 has been expended to date,
although there can be no assurance in this regard.



Risks Related to Year 2000 Issues



     The Year 2000 poses certain risks to our company and our operations. Some
of these risks are present because we purchase technology and information
systems applications from other parties who face Year 2000 challenges. Other
risks are present simply because we transact business with organizations who
also face Year 2000 challenges. Although it is impossible to identify all
possible risks that we may face moving into the next millennium, our management
has identified certain potential risks described above in the section entitled
"Risk Factors--Year 2000."



Contingency Plans



     We have developed contingency plans related to Year 2000 issues covering
approximately 80% of our systems. As we continue the testing phase, and based on
future ongoing assessment of the readiness of vendors and service providers, we
intend to develop


                                       51
<PAGE>   53


appropriate contingency plans for our remaining systems. It is possible that
certain circumstances may occur for which there are no completely satisfactory
contingency plans.



QUARTERLY VARIATIONS



     Our results of operations may vary from quarter to quarter due in part to
the timing of acquisitions and to seasonal variations in the operations of the
television broadcasting, radio broadcasting, and sports & entertainment
segments. In particular, our net revenue and Operating Cash Flow historically
have been affected positively during the NBA basketball season (the first,
second, and fourth quarters) and by increased advertising activity in the second
and fourth quarters.



TAXES



     At December 31, 1998, we had a net operating loss carryforward for federal
income tax purposes of approximately $15.7 million that expires in the years
2006 and 2007, and an alternative minimum tax credit carryforward of
approximately $2.3 million.



INFLATION



     The effects of inflation on our costs generally have been offset by our
ability to correspondingly increase our rate structure.



NEW ACCOUNTING STANDARDS



     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and disclosure of comprehensive income and its components.
Comprehensive income includes net income and other comprehensive income which
refers to unrealized gains and losses that under generally accepted accounting
principles are excluded from net income. Adoption of this statement is required
in 1998. Currently, we do not engage in any transactions that would result in
the reporting of comprehensive income.



     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. However, the
Financial Accounting Standards Board subsequently issued an exposure draft
which, if adopted, would delay the effective date to require adoption in fiscal
years beginning after June 15, 2000. Because of our minimal use of derivatives,
our management does not anticipate that the adoption of the new Statement will
have a significant effect on our earnings or financial position.


                                       52
<PAGE>   54

                                    BUSINESS

GENERAL INFORMATION


     The Ackerley Group, Inc. was founded in 1975 as a Washington corporation.
We are a diversified media and entertainment company which engages in four
principal businesses: outdoor media, television broadcasting, radio
broadcasting, and sports & entertainment. Our outdoor media, television
broadcasting, radio broadcasting, and sports & entertainment segments accounted
for approximately 42%, 27%, 10%, and 21%, respectively, of our net revenue for
the year ended December 31, 1998.



     Outdoor Media. We engage in outdoor advertising in selected markets in
Florida, Massachusetts, and the Pacific Northwest. At March 31, 1999, we had
9,353 outdoor displays in the markets of Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida; Boston-Worcester, Massachusetts; Seattle-Tacoma,
Washington; and Portland, Oregon. We believe that we have the leading position
in outdoor advertising in each of these markets, based upon the number of
outdoor advertising displays.



     Television Broadcasting. We engage in television broadcasting in New York,
California, Oregon, and Washington, and have agreed to acquire a television
station in Fairbanks, Alaska. Assuming completion of all pending acquisitions
and dispositions, we would own eleven television stations and operate two
additional television stations under time brokerage agreements. Consistent with
our strategy of local news leadership, eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs, in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index.



     Radio Broadcasting. We own and operate four radio stations in the
Seattle-Tacoma, Washington market, including KUBE(FM), the leading FM station in
the market in terms of Share, according to the Winter 1999 Arbitron Radio Market
Report, and KJR(AM), the only sports talk station in the market. KJR(AM) is tied
for first place as the highest ranked sports talk radio station in the United
States in terms of Share of its MSA, according to the Winter 1999 Arbitron Radio
Market Report.



     Sports & Entertainment. Our sports & entertainment segment includes
ownership of the professional men's basketball franchise in Seattle, the Seattle
SuperSonics. The Seattle Supersonics have been the NBA's Pacific Division
Champions for three of the last four NBA seasons. Our Full House Sports &
Entertainment division provides marketing and promotional support for the
Seattle SuperSonics and coordinates related cross-media activities within our
company. We also are considering other investments in other Seattle-area
entertainment activities which would utilize our marketing and promotional
infrastructure. For instance, we have been conditionally awarded operating
rights to a WNBA expansion team in Seattle.



OUTDOOR MEDIA



     Our outdoor media business sells advertising space on outdoor displays and
often participates in the design of advertisements and the construction of
outdoor structures that carry those displays. Until our airport advertising
operations were sold on June 30, 1998, we also sold advertising space on
displays located in airport terminals.


                                       53
<PAGE>   55


     At March 31, 1999, we had 1,547 bulletins, 6,478 posters, and 1,328 junior
posters. The following chart itemizes the markets we serve and their designated
market area (DMA) rank:



<TABLE>
<CAPTION>
                                           DMA                                   JUNIOR
                MARKET                   RANK(1)   BULLETINS(2)   POSTERS(2)   POSTERS(2)
                ------                   -------   ------------   ----------   ----------
<S>                                      <C>       <C>            <C>          <C>
NORTHWEST:
  Seattle-Tacoma.......................    12          243          1,696         292
  Portland.............................    23          174          1,112           0
BOSTON:
  Boston-Worcester.....................     6(3)       371          2,186          83
FLORIDA:
  Miami-Fort Lauderdale................    16          541          1,139         953
  West Palm Beach-Fort Pierce..........    44          218            345           0
</TABLE>


-------------------------

(1) Source: Television & Cable Factbook, 1999 Edition. DMA rank is a measure of
    market size in the United States based on population as reported by the
    Nielsen Rating Service.



(2) Bulletins are generally fourteen feet high and forty-eight feet wide.
    Posters, the most common type of billboard, are generally twelve feet high
    by twenty-five feet wide. Junior posters are generally six feet high by
    twelve feet wide.



(3) Reflects the DMA ranking for the Boston market.



     Outdoor advertising is used by large national advertisers as part of
multi-media and other advertising campaigns, as well as by local and regional
advertisers seeking to reach local and regional markets.



     Displays provide advertisers with advertising targeted at a specified
percentage of the general population and are generally placed in appropriate
well-traveled areas throughout a geographic area. This results in the
advertisement's broad exposure within a market. We believe that outdoor
advertising is a cost-effective form of advertising, particularly when compared
to television, radio, and print, on a "cost-per-rating point" basis (meaning
cost per 1,000 impressions).



     While outdoor advertising has been a stable source of revenue for us over
the last five years, the number and diversity of our advertisers have increased.
For example, we have seen an increase in outdoor advertising revenues from
retail, real estate, entertainment, media, and financial services companies. In
addition, we have seen an increase in customers who have not traditionally used
outdoor advertising, such as fashion designers, internet service providers and
internet-based businesses, and telecommunications companies.



     We have actively sought to reduce the percentage of our revenue
attributable to tobacco products and to any individual company. As a result of
these efforts, no single outdoor advertiser accounted for more than 1% of our
consolidated revenue in 1998. In addition, outdoor tobacco advertising accounted
for approximately 3% of our consolidated revenue for that year. See
"-- Regulation" below.



     We believe that our presence in large markets, the geographic diversity of
our operations, and our emphasis on local advertisers within each of our markets
lend stability to our revenue base, reduce our reliance on any particular
regional economy or advertiser, and mitigate the effects of fluctuations in
national advertising expenditures. However, because of zoning and other
regulatory limitations on the development of new outdoor advertising displays,
we anticipate that future growth in our outdoor advertising business


                                       54
<PAGE>   56


will result primarily through diversification of our customer base, increased
demand brought about by creative marketing, and increased rates.



     We own substantially all of our outdoor displays. These displays generally
are located on leased property. The typical property lease provides for a term
ranging from 5 to 15 years and for a reduction in or termination of rental
payments if the display becomes obstructed during the lease term. In certain
circumstances leases may be terminated, such as where the property owner
develops or sells the property. If a lease is terminated, we generally seek to
relocate the display in order to maintain our inventory of advertising displays
in the particular geographic region. Display relocation is typically subject to
local zoning laws.



     In August 1998, we announced the launch of AK MediaPrint, our in-house
large format printing business for vinyl billboards and other types of large
format signs. AK MediaPrint allows us to digitally design and produce artwork
which was once laid out by hand. AK MediaPrint's digital systems allow us to
produce a superior product that is brighter in color and sharper in text than
signs produced by traditional methods, to streamline the production process, and
to offer our clients a faster turnaround. In addition to producing signs and
billboards for our operating segments (which had previously been produced
externally), we intend to market AK MediaPrint's services to advertising and
other companies.



     Acquisition. Our acquisition strategy for the outdoor media segment is to
acquire outdoor advertising companies with operations in and near our current
markets. On an opportunistic basis, we may also consider acquisitions outside
our current markets where such acquisitions meet a variety of operational and
financial criteria. On February 19, 1999, we purchased substantially all of the
assets of an outdoor advertising company in the Boston-Worcester, Massachusetts
market for approximately $11.0 million. We financed the acquisition with
borrowings under the 1999 Credit Agreement.



Airport Advertising



     On June 30, 1998, we sold substantially all of the assets of our airport
advertising operations to Sky Sites, Inc., a subsidiary of Havas, S.A., pursuant
to an agreement dated May 19, 1998. The sale price consisted of a base cash
price of $40.0 million, paid on the closing date of the transaction, and an
additional cash payment of approximately $2.9 million, of which $1.2 million was
paid in December 1998 and the remainder was paid in January 1999. The pretax
gain on the transaction was approximately $35.3 million. The asset sale
agreement contained customary indemnification provisions by us and the buyer,
and also contains a noncompetition agreement whereby we have agreed not to
engage in the airport advertising business for a period of five years after the
closing date of the transaction. Prior to the sale, we engaged in airport
advertising for 18 years.



TELEVISION BROADCASTING



     Our television broadcasting operations provide programming, sales, and
administrative services to our television stations and the sale of air time to a
broad range of national, regional, and local advertisers.



     Assuming completion of all pending acquisitions and dispositions, we would
own eleven television stations and would operate two additional television
stations under time brokerage agreements. We currently own ten television
stations and operate two stations


                                       55
<PAGE>   57


under time brokerage agreements. The following tables sets forth information
about our portfolio of television stations (including television stations we
plan to acquire and television stations operated under time brokerage
agreements) and the markets in which they operate.



<TABLE>
<CAPTION>
                                                                                                     NO. OF
                                       DATE                                                        COMMERCIAL
                                     ACQUIRED                                PROPOSED     DMA     TV STATIONS
                          CALL          OR          NETWORK        NTSC      DIGITAL    MARKET     RANKED IN
DESIGNATED MARKET AREA   LETTERS    AFFILIATED    AFFILIATION   CHANNEL(1)   CHANNEL    RANK(2)    MARKET(3)
----------------------   -------   ------------   -----------   ----------   --------   -------   ------------
<S>                      <C>       <C>            <C>           <C>          <C>        <C>       <C>
NEW YORK

Syracuse, New York
  (owned)..............   WIXT       May 1982        ABC             9          17         74         3 VHF
                                                                                                      2 UHF(4)
Rochester, New York
  (owned)..............   WOKR      April 1999       ABC            13          59         77         3 VHF
                                                                                                      1 UHF
Binghamton, New York
  (owned)..............   WIVT      July 1997        ABC            34           4        154         1 VHF
                                       (5)                                                            2 UHF
Utica, New York (time
  brokerage
  agreement)...........   WUTR      June 1997        ABC            20          30        168         1 VHF
                                       (6)                                                            2 UHF
CENTRAL COAST

Santa Barbara-Santa
  Maria-San Luis
  Obispo, California
  (owned)..............   KCOY     January 1999      CBS            12          19        116         3 VHF
                                       (7)
Monterey-Salinas,
  California (owned;
  pending sale; future
  time brokerage
  agreement)...........   KCBA      June 1986        FOX            35          13        119         1 VHF(9)
                                       (8)                                                            3 UHF
Monterey-Salinas,
  California (pending
  acquisition; interim
  time brokerage
  agreement)...........   KION      April 1996       CBS            46          32        119         1 VHF(9)
                                       (10)                                                           3 UHF
Bakersfield, California
  (owned)..............   KGET     October 1983      NBC            17          25        130         4 UHF(11)

NORTH COAST

Eureka, California
  (owned)..............   KVIQ      July 1998        CBS             6          17        191         2 VHF
                                       (12)                                                           2 UHF
Santa Rosa, California
  (owned)..............   KFTY      April 1996      None            50          54         --(13)     6 VHF
                                                                                                     12 UHF

Eugene, Oregon
  (owned)..............   KMTR       December        NBC            16          17        121         2 VHF
                                    1998 (14)                                                         3 UHF
PACIFIC NORTHWEST

Fairbanks, Alaska
  (pending
  acquisition).........   KTVF        --(15)       NBC/UPN          11          26        203         4 VHF

Vancouver, British
  Columbia and portions
  of Seattle,
  Washington (owned)...   KVOS      June 1985       None            12          35         --(16)        --(16)
</TABLE>


-------------------------

 (1) Refers to the current analog channel used by such station.



 (2) Source: Television & Cable Fact Book, 1999 Edition.



 (3) Source: Television & Cable Fact Book, 1999 Edition. The number of stations
     listed does not include digital television stations, public broadcasting
     stations, satellite stations, or translators which rebroadcast signals from
     distant stations, and also may not include smaller television stations
     whose rankings fall below reporting thresholds.



 (4) Two additional UHF channels have been allocated in the Syracuse market;
     however, there has been no construction activity to date with respect to
     these channels.



 (5) We acquired WIVT in August 1998. Pending approval of the acquisition by the
     FCC, we operated the station under a time brokerage agreement with the
     previous owner. The date in this column reflects the date the time
     brokerage agreement was entered into.


                                       56
<PAGE>   58


 (6) We do not own WUTR but operate the station under a time brokerage agreement
     with the current owner. The date in this column reflects the date the time
     brokerage agreement was entered into.



 (7) In December 1998, we entered into an asset exchange agreement, pursuant to
     which we agreed to exchange KKTV, our former CBS affiliate licensed to
     Colorado Springs, Colorado, for KCOY and a cash payment. From January 1,
     1999 until closing of the asset exchange agreement on May 1, 1999, we
     operated KCOY under a time brokerage agreement with the previous owner. The
     date in this column reflects the date that the time brokerage agreement was
     entered into.



 (8) In November 1998, we entered into an agreement to sell substantially all
     the assets of KCBA. Subject to FCC approval, we would continue to operate
     the station after the sale pursuant to a time brokerage agreement with the
     purchaser.



 (9) One additional UHF channel has been allocated in the Monterey-Salinas
     market; however, there has been no construction activity to date with
     respect to this channel.



(10) In November 1998, we entered into a purchase agreement to acquire KION. The
     purchase of this station is contingent upon our sale of KCBA, as described
     in footnote (8). Pending approval of this acquisition by the FCC, we are
     operating the station under a time brokerage agreement with the current
     owner. The date in this column reflects the date the time brokerage
     agreement was entered into.



(11) Two additional UHF channels have been allocated in the Bakersfield market;
     however, there has been no construction activity to date with respect to
     these channels.



(12) We acquired KVIQ in January 1999. Pending approval of this acquisition by
     the FCC, we operated the station under a time brokerage agreement with the
     former owner. The date in this column reflects the date this time brokerage
     agreement was entered into.



(13) While KFTY is included in the San Francisco-Oakland-San Jose DMA market,
     which has a DMA rank of 5, the station principally serves the community of
     Santa Rosa, which is not separately ranked.



(14) We acquired KMTR in March 1999. Pending approval of this acquisition by the
     FCC, we operated the station under a time brokerage agreement with the
     former owner. The date in this column reflects the date the time brokerage
     agreement was entered into. The acquisition included the assets of two full
     power satellite stations, KMTX (Roseburg, Oregon) and KMTZ (Coos Bay,
     Oregon), and one low power station, KMOR-LP (Eugene, Oregon), all of which
     we currently own.



(15) In August 1998, we entered into an agreement to purchase KTVF, subject to
     FCC approval.



(16) KVOS, located in Bellingham, Washington, serves primarily the Vancouver,
     British Columbia market (located in size, according to the Nielsen Rating
     Service as of February 1999, between the markets of Denver, Colorado and
     Pittsburgh, Pennsylvania, which have DMA rankings of 18 and 19,
     respectively), and a portion of the Seattle, Washington market (DMA rank
     12) and the Whatcom County, Washington market. The station's primary
     competition consists of five Canadian stations. DMA rankings are from the
     Television & Cable Factbook, 1999 Edition.



     Acquisitions and Time Brokerage Agreements. We seek to acquire television
broadcast stations generally in DMA markets ranking from 50 to 200. We also
enter into time brokerage agreements with owners of television stations. Under
those agreements, we provide programming and sales services and make monthly
payments to station owners in exchange for the right to receive revenues from
network compensation and advertising sold by the stations. Over the past year,
we have acquired, sold, or entered into time brokerage agreements to operate the
following stations:



     - On August 4, 1998, we entered into an agreement to purchase the assets of
       KTVF(TV), a NBC affiliate licensed to Fairbanks, Alaska, for $7.2
       million. The transaction is subject to, among other things, FCC approval
       and closing prior to July 31, 1999. In conjunction with this agreement,
       on August 5, 1998, we granted an option to a third party for $0.5 million
       to purchase the assets of KTVF(TV) for $6.7 million, plus certain
       additional payments. The option may be exercised at any time beginning on
       the third anniversary of our acquisition of the station through the


                                       57
<PAGE>   59


       seventh anniversary of the acquisition, subject to earlier termination
       under certain circumstances. In addition, the optionee may require us to
       repurchase the option for $0.5 million under certain circumstances. The
       agreement and the option were recently amended as described under
       "Management's Discussion and Analysis of Financial Condition and Results
       of Operations -- Subsequent Events."



     - On November 2, 1998, we entered into an agreement to purchase
       substantially all of the assets of KION(TV), a CBS affiliate licensed to
       Monterey, California, for $7.7 million, subject to certain reductions.
       The purchase of this station is subject to FCC approval and closing prior
       to December 31, 1999, and is contingent upon our sale of KCBA(TV) as
       described below. Pending FCC approval of this transaction, we are
       operating the station pursuant to a time brokerage agreement with the
       current owner.



     - On November 3, 1998, we entered into an agreement to sell substantially
       all of the assets of KCBA(TV), our FOX affiliate licensed to Salinas,
       California, for $11.0 million. This transaction is subject to FCC
       approval and is contingent upon our purchase of KION(TV), as described
       above. Subject to FCC approval, we would continue to operate the station
       after the sale pursuant to a time brokerage agreement with the purchaser.



     - Effective January 5, 1999, we purchased substantially all of the assets
       of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for
       approximately $5.5 million, pursuant to an agreement dated July 15, 1998.
       Pending closing of the transaction, we operated the station pursuant to a
       time brokerage agreement with the former owner. The Company recorded net
       assets with estimated fair values aggregating $0.5 million and goodwill
       of $5.0 million in connection with the transaction.



     - Effective March 16, 1999, we purchased substantially all of the assets of
       KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two
       satellite stations licensed to Roseburg and Coos Bay, Oregon and a low
       power station licensed to Eugene. The purchase price was approximately
       $26.0 million. Pending closing of the transaction, we operated the
       stations pursuant to a time brokerage agreement with the former owner
       since December 1, 1998. The Company recorded net assets with estimated
       fair values aggregating $3.0 million and goodwill of $23.0 million in
       connection with the transaction.



     - On April 12, 1999, we purchased substantially all of the assets of
       WOKR(TV), the ABC affiliate licensed to Rochester, New York, for
       approximately $128.2 million. In September 1998, we paid $12.5 million of
       the purchase price into an escrow account, with the balance paid at
       closing. We recorded net assets with estimated fair values aggregating
       $9.8 million and goodwill of $118.4 million in connection with the
       transaction.



     - On May 1, 1999, we exchanged substantially all of the assets plus certain
       liabilities of KKTV(TV), our former CBS affiliate licensed to Colorado
       Springs, Colorado, for substantially all of the assets plus certain
       liabilities of KCOY(TV), the CBS affiliate licensed to Santa Maria,
       California. In conjunction with the transaction, we also received a cash
       payment of approximately $9.0 million. Pending closing of the
       transaction, we operated KCOY(TV) and the former owner of KCOY(TV)
       operated KKTV(TV) pursuant to time brokerage agreements. We recorded net


                                       58
<PAGE>   60


       assets with estimated fair values aggregating $7.2 million and goodwill
       of $16.8 million in connection with the transaction.



     Programming. The programming that each of our stations broadcasts depends
in part upon whether that station is affiliated with a major television network.
The television networks offer our network-affiliated stations a variety of
programs, and grant us a right of first refusal to broadcast network programs
before those programs can be offered to any other television station in the same
market. Our network-affiliated television stations operate under standard
contracts. These standard contracts are automatically renewed for successive
terms unless we or the network exercises cancellation rights. During the
broadcast of network programming, we have less commercial time available to sell
on our own behalf.



     Our network-affiliated stations often pre-empt network programming with
alternative programming. By emphasizing non-network programming during certain
time periods, we increase the amount of commercial time available to us. Such
programming includes locally produced news, as well as syndicated and first-run
talk programs, children's programming and movies acquired from independent
sources.



     KVOS(TV), which does not have a network affiliation, is located in
Bellingham, Washington and serves primarily the market of Vancouver, British
Columbia, Canada. Canadian regulations require Canadian cable television
operators to delete the signals of U.S.-based stations broadcasting network
programs in regularly scheduled time slots and to replace them with the signals
of the Canadian-based network affiliates broadcasting at the same time. By
broadcasting non-network programming, however, KVOS(TV) is able to increase the
amount of time it is on the air in the Vancouver market.



     Sales and Marketing. We receive revenues from the sale of advertising time
in the form of local, regional, and national spot or schedule advertising, and,
to a much lesser extent, network compensation. Spot or schedule advertising
consists of short announcements and sponsored programs either on behalf of
advertisers in the immediate area served by the station or on behalf of national
and regional advertisers.



     During 1998, local spot or schedule advertising, which is sold by our
personnel at each broadcast station, accounted for approximately 42% of our
television stations' total revenue. National spot or schedule advertising, which
is sold primarily through national sales representative firms on a
commission-only basis, accounted for approximately 53% of our television
stations' total revenue.



     We also receive revenue from our network affiliations. The networks pay us
an hourly rate that is tied to the number of network programs that our
television stations broadcast. Hourly rates are established in our agreements
with the networks and are subject to change by the networks. We have the right,
however, to terminate a network agreement if the network effects a decrease in
hourly rates. Overall, network compensation revenue was not a significant
portion of our television stations' total revenue for 1998.



     Digital CentralCasting. On April 6, 1999, we announced the launch of
Digital CentralCasting, a digital broadcasting system which will allow us to
consolidate back-office functions such as operations, programming and
advertising scheduling, and accounting for several television stations within a
regional group at one station. See "Prospectus Summary--Strategy--Use Advanced
Communications Technology to Create Regional Television Groups."


                                       59
<PAGE>   61


RADIO BROADCASTING



     Our radio broadcasting operations involve the sale of air time to a broad
range of national, regional, and local advertisers. In addition, we earn revenue
from the sale of sponsorships to a variety of events, such as concerts.



     The following table sets forth information about our portfolio of radio
stations.



<TABLE>
<CAPTION>
                                                                    NO. OF
                                                        MSA       COMMERCIAL      RADIO STATION FORMAT
                                                      MARKET    RADIO STATIONS         AND PRIMARY
       MARKET          CALL LETTERS   DATE ACQUIRED   RANK(1)    IN MARKET(1)      DEMOGRAPHIC TARGET
       ------          ------------   -------------   -------   --------------   -----------------------
<S>                    <C>            <C>             <C>       <C>              <C>
Seattle-Tacoma,......   KJR(AM)         May 1984       14         9 AM                Sports Talk;
  Washington                              (2)                                           Men 25-54
  (owned)                                                                                  (3)
                         KJR-FM       October 1987                20 FM               Classic Hits;
                          (4)             (2)                                         Adults 25-54
                        KUBE(FM)       July 1994                                 Top 40 Contemporary Hit
                                          (5)                                            Radio;
                                                                                      Persons 18-34
                        KHHO(AM)       March 1998                                     Sports Talk;
                                                                                        Men 24-54
</TABLE>


-------------------------

(1) Source: Winter 1999 Arbitron Radio Market Report. Metro Service Area ("MSA")
    market rank is based on population as reported upon by The Arbitron Company.



(2) Reflects the dates on which we originally acquired the stations. We
    contributed the stations' assets to New Century Seattle Partners L.P., a
    Delaware limited partnership ("the Partnership") in 1994. We first acquired
    a limited partnership interest in the Partnership in 1994 and, in 1998, the
    Partnership became a wholly-owned subsidiary. Since then, the broadcast
    licenses have been transferred to one of our other subsidiaries, and the
    Partnership has been dissolved.



(3) KJR(AM) serves as the Seattle SuperSonics' flagship radio station.



(4) Formerly KLTX(FM).



(5) The date shown in the column reflects the date on which the Partnership
    acquired the station from Cook Inlet, Inc.



     Our radio stations derive most of their revenue from local, regional, and
national advertising and, to a lesser extent, from network compensation. In
1998, approximately 71% of our radio broadcasting revenue was derived from local
advertising generated by the stations' local sales staffs. National sales, on
the other hand, are usually generated by national independent sales
representatives acting as agents for the stations. The representatives obtain
advertising from national advertising agencies and receive commissions based on
a percentage of gross advertising revenue generated.



     Approximately 26% of the radio stations' 1998 revenue was received from
national spot or schedule advertising, which is sold primarily through national
independent sales representative firms on a commission-only basis. The remaining
revenue consisted of tower rentals and production fees.



SPORTS & ENTERTAINMENT



     Our sports and entertainment business consists of ownership of our
professional sports franchise, the Seattle SuperSonics, and our marketing and
promotions business, Full House Sports & Entertainment ("Full House"). We are
also considering other investments in Seattle-area sports and entertainment
activities. For instance, we have been awarded operating rights to a WNBA
expansion team in Seattle, subject to advance sale of at least


                                       60
<PAGE>   62


5,500 season tickets by December 31, 1999 and various other conditions regarding
operation of the team. Although we anticipate that these conditions will be
satisfied, there can be no assurance in this regard.



     The SuperSonics franchise is one of 29 members of the National Basketball
Association, or "NBA." By virtue of our ownership of the Seattle SuperSonics
franchise we are a member of the NBA. Thus, we share in profits generated by the
NBA as a whole, and share joint and several liability for the NBA's debts and
other obligations. Revenues shared equally by NBA members include profits from
television broadcasting agreements, merchandising, the award of new NBA
franchises, and related activities.



     A large portion of these revenues consist of broadcast licenses granted to
television networks. Such broadcast rights have increased significantly in
recent years and are expected to become a more significant portion of total NBA
revenue, primarily due to the growth of cable television, although there can be
no assurance in this regard. Last year, the NBA renewed its contracts with NBC
and TBS/TNT through the 2001-2002 season. These contracts provided for minimum
total payments to the NBA over the four-year contract period of $2.6 billion.
However, as a result of the NBA lockout, the NBA may not receive the full $2.6
billion over the life of these contracts. In addition, we recognize certain
revenues from the NBA generally on a straight-line basis over the number of
regular season games played. The actual payments from the NBA for our share of
league revenues from merchandising and related activities occur subsequent to
the end of the basketball season, so our revenue accruals during the season are
based upon our estimate of such revenues, which in turn are calculated on the
basis of historical results and revenue estimates provided to us by the NBA. As
such, the actual revenues we receive from the NBA can and do differ from the
amounts we accrue based on our estimates. Due to the NBA lockout and related
factors, we expect that the actual revenues we will receive from the NBA for the
1998-99 season will be lower than the revenues we recognized in the first
quarter of 1999, and that second quarter 1999 revenues for the sports &
entertainment segment will be reduced to the extent of this shortfall. See "Risk
Factors--Anticipated Adverse Impact of Certain Events on Second Quarter
Results," "Risk Factors--Sports & Entertainment" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."



     The Seattle SuperSonics have played in the Seattle-Tacoma area since the
NBA granted Seattle an NBA franchise in 1966. In November 1995, the team began
using the Key Arena, a 17,100-seat events facility, under a 15-year lease with
the City of Seattle. We acquired the Seattle SuperSonics in 1983.



     Currently, the Seattle SuperSonics maintain a full roster of 12 active
players. The minimum roster under NBA rules is 11 players. The Seattle
SuperSonics acquire new players primarily through the college draft, by signing
veteran free agents uncommitted to another NBA franchise or by trading players
with another franchise. NBA rules limit the aggregate annual salaries payable by
each team to its players.



     Players in the NBA are covered by the terms of a collective bargaining
agreement, which was originally scheduled to expire on June 30, 2001. On March
23, 1998, the Board of Governors of the NBA voted to exercise their option to
reopen the NBA's collective bargaining agreement with the National Basketball
Players Association. As a result, the collective bargaining agreement expired on
June 30, 1998 and the players were locked out. Preseason and regular season
games scheduled through February 4, 1999 were cancelled. On January 7, 1999, the
NBA Board of Governors ratified a new six-year collective bargaining agreement
between the NBA and the National Basketball Players Association.


                                       61
<PAGE>   63


     NBA teams play a regular season schedule of 82 games from November through
April, in addition to several preseason exhibition games. Due to the NBA
lockout, however, the 1998-99 NBA preseason and regular season games scheduled
through February 4, 1999 were cancelled. The season resumed on February 5, 1999,
ended May 4, 1999, and consisted of a shortened regular season in which each
team played 50 games (25 at home and 25 on the road), with playoffs in the usual
NBA format. Based on their regular season records, 16 teams qualify for
post-season play, which culminates in the NBA championship. Although the
SuperSonics did not participate in the 1998-99 playoffs, they have qualified for
post-season play in each of the prior five seasons and played for the NBA
championship in 1996.



     Our revenues from the SuperSonics come from (1) our own activities, such as
ticket sales, merchandising, concessions, and multi-media advertising packages
(called sponsorship packages) that include local television and radio broadcast
advertising and display and sign advertising in Key Arena, and (2) our share of
NBA revenues, such as network television broadcasting rights, merchandising, and
the granting of new NBA franchises to new cities. In addition, Full House
manages sales and operations of the luxury suites and concessions for all events
at Key Arena.



     A major source of revenue is ticket sales for home games. We receive
substantially all of the revenue from Seattle SuperSonics ticket sales. Revenue
from ticket sales depends highly on the Seattle SuperSonics win/loss record.
Average paid attendance per game was 14,451 in the 1998-99 season, down from
15,424 in the prior season primarily due to the NBA lockout.



     A majority of the Seattle SuperSonics games are broadcast on three
Seattle-Tacoma area television stations, KSTW, KONG and KTZZ, and one cable
station, FOX. All of the SuperSonics' games are broadcast exclusively in the
Seattle-Tacoma area over radio stations KJR(AM) and KHHO(AM), which we own. We
also license radio stations owned by other broadcasting companies to carry
SuperSonics games.



     For additional information regarding our sports & entertainment segment's
operations and NBA-related matters, see "Risk Factors--Sports & Entertainment."



COMPETITION



     We compete directly with other advertising media companies, including
providers of outdoor advertising, television, radio, newspapers, magazines,
transit advertising, yellow page directories, direct mail, local cable systems,
and satellite broadcasting systems. Substantial competition exists among all
advertising media on a cost-per-rating-point basis and on the ability to
effectively reach a particular demographic section of the market. As a general
matter, competition is confined to defined geographic markets.



     The outdoor advertising industry is highly fragmented, although several
large outdoor advertising and media companies with operations in multiple
markets exist. However, the predominant basis of competition in outdoor
advertising is local. Within our outdoor advertising markets, we believe we are
well positioned versus our competition due to our significant presence in such
markets, the quality of our displays, and our emphasis on sales and customer
service.



     With respect to our television broadcasting operations, maintenance of our
competitive positions in our broadcast markets generally depends upon the
management experience of each station's managers, the station's authorized
broadcasting power, the station's assigned


                                       62
<PAGE>   64


frequency, the station's network affiliation, the station's access to
non-network programming, the audience's identification with the station and its
acceptance of the station's programming, and the strength of the local
competition.



     Historically, cable television system operators and high-powered direct
broadcast satellite service producers have not competed with local television
broadcast stations for a share of the local news audience. If they do, however,
the increased competition for local news audiences could have an adverse effect
on our advertising revenue.



     With respect to our radio broadcasting operations, maintenance of the
competitive position of each of our radio stations is dependent upon a number of
factors, including (1) the station's rank within the market, (2) transmitter
power, (3) assigned frequency, (4) audience characteristics, (5) audience
acceptance of the station's local programming, and (6) the number and types of
other stations in the market area. Radio stations frequently change their
broadcasting formats and radio personalities in order to seize a larger
percentage of the market. Thus, our radio stations' ratings are regularly
affected by these factors and changing formats.



     Our Sports & Entertainment operations compete directly with other
professional and amateur sporting franchises and events, both in the
Seattle-Tacoma market area and nationally via sports broadcasting. We also
compete indirectly with other types of entertainment, including television,
radio, newspapers, live performances, and other events. Because we own the only
NBA franchise located in the Seattle-Tacoma metropolitan area, we experience no
significant local competition involving professional basketball. We compete with
professional football and baseball franchises located in the Seattle-Tacoma
metropolitan area, as well as with local college sporting events.



REGULATION



     Outdoor Media. Outdoor advertising displays are subject to governmental
regulation at the federal, state, and local levels. These regulations, in some
cases, limit the height, size, location, and operation of outdoor displays and,
in some circumstances, regulate the content of the advertising copy displayed on
outdoor displays. Most jurisdictions have recently proposed or enacted
regulations restricting or banning outdoor advertising of tobacco or liquor,
while the major tobacco companies and the Attorneys General of 46 states
recently entered into agreements which eliminate all cigarette advertising on
outdoor displays. Likewise, regulations in certain jurisdictions prohibit the
construction of new outdoor displays or the replacement, relocation,
enlargement, or upgrading of existing structures.



     Federal and corresponding state outdoor advertising statutes require
payment of compensation for removal of existing structures by governmental order
in some circumstances. Some jurisdictions have adopted ordinances which have
sought the removal of existing structures without compensation. Our policy, when
a governmental entity seeks to remove one of our outdoor advertising displays,
is to actively resist such removal unless adequate compensation is paid.



     For additional information regarding the regulation of outdoor advertising,
see "Risk Factors--Outdoor Media--Regulation of Outdoor Advertising."



     Television and Radio Broadcasting. Our television and radio operations are
heavily regulated under the Communications Act and other federal laws. The
Communications Act, for instance, limits the number of broadcast properties that
we may acquire and


                                       63
<PAGE>   65


operate. It also restricts ownership of broadcasting properties by foreign
individuals and foreign companies.



     The Communications Act authorizes the FCC to supervise the administration
of federal communications laws, and to adopt additional rules governing
broadcasting. Thus, our television and radio broadcasting operations are
primarily regulated by the FCC. The FCC, for example, approves all transfers,
assignments and renewals of our broadcasting properties.



     The Communications Act requires broadcasters to serve the public interest.
Thus, our television and radio stations are required to present some programming
that is responsive to community problems, needs, and interests. We must also
broadcast informational and educational programming for children, and limit the
amount of commercials aired during children's programming. We are also required
to maintain records demonstrating our broadcasting of public interest
programming. FCC rules impose restrictions on the broadcasting of political
advertising, sponsorship identifications, and the advertisement of contests and
lotteries.



     KVOS(TV), which derives much of its revenue from the Vancouver, British
Columbia market, is additionally regulated and affected by Canadian law. Unlike
U.S. law, for instance, a Canadian firm cannot deduct expenses for advertising
on a U.S.-based television station which broadcasts into a Canadian market. In
order to compensate for this disparity, KVOS(TV) sells advertising time in
Canada at a discounted rate. In addition, Canadian law limits KVOS(TV)'s ability
to broadcast certain programming.



     Affirmative Action. Until recently, FCC rules required us to develop and
implement programs designed to promote equal employment opportunities. A federal
court struck down the FCC's equal employment opportunity rules, and the FCC has
proposed revised rules. There are currently no such FCC rules in effect.



     Cable Television. In many parts of the country, cable television operators
rebroadcast television signals via cable. In connection with cable rebroadcasts
of those signals, each television station is granted, pursuant to the Cable
Television Consumer Protection and Competition Act of 1992, either "must-carry
rights" or "retransmission consent rights." Each television broadcaster must
choose either must-carry rights or retransmission consent rights with regard to
its local cable operators.



     If a broadcaster chooses must-carry rights, then the cable operator will
probably be required to carry the local broadcaster's signal. Must-carry rights
are not absolute, however, and their exercise depends on variables such as the
number of activated channels on, and the location and size of, the cable system,
and the amount of duplicative programming on a broadcast station.



     If a broadcaster chooses retransmission consent rights, the broadcaster is
entitled to (1) prohibit a cable operator from carrying its signal, or (2)
consent to a cable operator's rebroadcast of the broadcaster's signal, either
without compensation or pursuant to a negotiated compensation arrangement.



     The eight network-affiliated television stations (KCBA, KGET, KVIQ, KMTR,
KCOY, WIVT, WIXT and WOKR) that we own have chosen retransmission consent
rights, rather than must-carry rights, for substantially all of the cable
systems within their respective markets. These stations have granted consents to
their local cable operators for the rebroadcast of their signals. The two
network-affiliated stations that we operate under


                                       64
<PAGE>   66


time brokerage agreements (KION and WUTR) also have chosen retransmission
consent rights within their respective markets.



     The FCC has initiated a rulemaking proceeding to consider whether to apply
must-carry rules to require cable companies to carry both the analog and digital
signals of local broadcasters during the digital television ("DTV") transition
period between 2002 and 2006 when television stations will be broadcasting both
signals. If the FCC does not implement DTV must-carry rules, cable customers in
our broadcast markets may not receive the station's digital signal, which could
have an adverse affect on our business.



     FCC Rule Changes. Communications laws and FCC rules are subject to change.
For example, the FCC recently adopted rules that reduce the required distance
between existing stations and allow the utilization of directional antennas,
terrain shielding, and other engineering techniques. Another recent rule change
resulted in the expansion of the AM radio band. Other changes may result in the
addition of more AM and FM stations, or increased broadcasting power for
existing AM and FM stations, thus increasing competition to our broadcasting
operations.



     Congress and the FCC are currently considering many new laws, regulations,
and policies that could affect our broadcasting operations. For instance,
Congress and/or the FCC currently are considering proposals to:



     - impose spectrum use or other fees upon broadcasters;



     - adopt revised FCC equal employment opportunity rules and other rules
       relating to minority and female employment in the broadcasting industry;



     - revise rules governing political broadcasting, which may require stations
       to provide free advertising time to political candidates;



     - permit expanded use of FM translator stations or the creation of
       microradio stations;



     - restrict or prohibit broadcast advertising of alcoholic beverages;



     - change broadcast technical requirements;



     - auction the right to use radio and television broadcast spectrum;



     - expand the operating hours of daytime-only stations; and



     - revise the FCC's television ownership and attribution rules.



     We cannot predict the likelihood of Congress or the FCC adopting any of
these proposals. If any should be adopted, we cannot assess their impact on our
broadcasting operations. In addition, we cannot predict the other changes that
Congress or the FCC might consider in the future.



     For additional information regarding the regulation of television and radio
broadcasting, see "Risk Factors--Television and Radio Broadcasting."



RESTRICTIONS ON OUR OPERATIONS


     In addition to restrictions on our operations imposed by governmental
regulations, franchise relationships and other restrictions discussed above, our
operations are subject to

                                       65
<PAGE>   67


additional restrictions imposed by our current financing arrangements. See "Risk
Factors--Leverage; Restrictions Under Debt Instruments; Covenant
Compliance--Restrictions Imposed by Debt Instruments; Pledge of Assets."



     In addition, we are required to maintain specified financial ratios,
including maximum leverage ratios, a minimum interest coverage ratio, and a
minimum fixed charge coverage ratio. The 1999 Credit Agreement also provides
that it is an event of default thereunder if the Ackerley family (as defined)
owns less than a 51% of the outstanding voting stock of our company. Similarly,
upon a Change of Control (as defined in the Indenture), the 9% Senior
Subordinated Note holders may require us to repurchase their notes.



     We have pledged substantially all of the stock and assets of our
subsidiaries to secure our obligations under the 1999 Credit Agreement. In
addition, nearly all of our subsidiaries have provided guarantees of our
obligations under the 1999 Credit Agreement and the Indenture. In the event of a
default under the 1999 Credit Agreement, the bank lenders could demand immediate
payment of the principal of and interest on all such indebtedness, and could
force a sale of substantially all of our subsidiaries and their assets to
satisfy our obligations. Likewise, because of cross-default provisions in our
debt instruments, a default under the 1999 Credit Agreement or the Indenture
could result in acceleration of indebtedness outstanding under other debt
instruments.



     Additional information concerning the 1999 Credit Agreement and the
Indenture is set forth in Note 7 to the 1998 Financial Statements.



FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS



     Financial information concerning each of our business segments is set forth
in Note 14 to the 1998 Financial Statements.



LEGAL PROCEEDINGS



     We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation and matters affecting the
operation of broadcasting facilities. For further information regarding certain
legal proceedings in which we are currently involved, see "Risk Factors--Legal
Proceedings."


                                       66
<PAGE>   68

                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS


     The following table sets forth the name, age and positions of individuals
who are serving as our directors and executive officers. Each director will hold
office until the next annual meeting of stockholders or until his or her
successor has been elected and qualified. Executive officers are elected by, and
serve at the discretion of, the Board of Directors.



<TABLE>
<CAPTION>
          NAME            AGE                    POSITION(S)
          ----            ---                    -----------
<S>                       <C>  <C>
Barry A. Ackerley.......   65  Chairman and Chief Executive Officer
Gail A. Ackerley........   61  Co-Chairman and Co-President
Deborah L. Bevier.......   48  Director
M. Ian G. Gilchrist.....   49  Director
Michael C. Thielen......   65  Director
Denis M. Curley.........   51  Co-President and Chief Financial Officer,
                               Secretary, and Treasurer
Christopher H.             30  Executive Vice President, Operations and
  Ackerley..............       Development
Keith W. Ritzmann.......   47  Senior Vice President and Chief Information
                               Officer, Assistant Secretary, and Controller
</TABLE>



     Mr. Barry A. Ackerley, one of our founders, assumed the responsibilities of
President and Chief Operating Officer following the resignation of Donald E.
Carter effective March 1991 and served until April 1991. He has been the Chief
Executive Officer and a director of The Ackerley Group and its predecessor and
subsidiary companies since 1975. He also currently serves as our Chairman.



     Ms. Gail A. Ackerley was elected to our Board of Directors in May 1995. She
became Co-Chairman in September 1996, and was elected as one of our
Co-Presidents in November 1996. Ms. Ackerley has served as Chair of Ackerley
Corporate Giving since 1986, supervising the Company's charitable activities.



     Ms. Deborah L. Bevier is the Chief Executive Officer and President of Laird
Norton Trust Company, a personal investment and trust services company. She also
serves as a member of the Board of Directors of Laird Norton Trust Company and
the Laird Norton Financial Group. Prior to joining Laird Norton Trust Company in
1996, she served as Chairman and Chief Executive Officer of Key Bank of
Washington and Northwest Region Executive for Key Private Bank.



     Mr. M. Ian G. Gilchrist was elected to the Board of Directors in May 1995.
He is a Managing Director of Salomon Smith Barney Inc., an investment banking
firm. Prior to joining a predecessor to that company in May 1995, Mr. Gilchrist
was a Managing Director of CS First Boston Corporation.



     Mr. Michael C. Thielen has served as one of our directors since 1979. Mr.
Thielen is Chairman and President of Thielen & Associates, an advertising
agency. He is also Vice President of Executive Wings, Inc., an airport
operations company.



     Mr. Denis M. Curley, who joined us in December 1984, was elected as a Co-
President in November 1997. Previously, he served as Executive Vice President
from March 1995 to his election as a Co-President. Before then, he served as
Senior Vice President from January 1990 through the date of his election as
Executive Vice President. He has served as our Chief Financial Officer since May
1988. Mr. Curley also presently serves as Secretary and Treasurer.


                                       67
<PAGE>   69


     Mr. Christopher H. Ackerley joined us in 1995. He was elected Vice
President for Marketing and Development in May 1998, and was elected Executive
Vice President, Operations and Development in December 1998.


     Mr. Keith W. Ritzmann was named Senior Vice President and Chief Information
Officer in January 1998. Before then, he served as a Vice President from January
1990 through the date of his election as Senior Vice President. He also
presently serves as Assistant Secretary and Controller.


DIVISION MANAGEMENT



     The following table sets forth information concerning the senior managers
of our principal operating divisions.



<TABLE>
<CAPTION>
              NAME                                  POSITION(S)
              ----                                  -----------
<S>                                <C>
Outdoor Media:
Randal G. Swain..................  Senior Vice President, AK Media Group, Inc.,
                                   and President, AK Media Northwest

Television Broadcasting:
Steve Kimatian...................  Senior Vice President, AK Media Group, Inc.,
                                   and General Manager, WIXT(TV)

Radio Broadcasting:
Michele Grosenick................  President and General Manager, New Century
                                   Media

Sports & Entertainment:
John Dresel......................  President, Full House Sports & Entertainment
Walter F. ("Wally") Walker.......  President, Seattle SuperSonics
</TABLE>



     Mr. Randal G. Swain was named Senior Vice President of AK Media Group, Inc.
in December 1998. He has served as President of the Company's Northwest outdoor
division, AK Media Northwest, since 1993. Previously, he served as the
division's Vice President of Operations from 1992 and assistant Operations
Manager from 1982. Mr. Swain originally joined the Company in 1976 and has 22
years of industry experience.



     Mr. Steve Kimatian was named Senior Vice President of AK Media Group, Inc.
in December 1998. In addition, Mr. Kimatian serves as the General Manager of our
Syracuse ABC affiliate, WIXT, a position he has held since 1995. Prior to
joining WIXT, Mr. Kimatian was President and General Manager of ABC affiliates
WJZ-TV, Baltimore and WKBW-TV, Buffalo and the six-station network of Maryland
Public Television. He has 27 years of industry experience.



     Ms. Michele Grosenick was named President and General Manager of New
Century Media in August of 1998. As President and General Manager, Ms. Grosenick
oversees the operations of radio stations KJR(AM), KHHO(AM), KJR-FM and
KUBE(FM). Prior to becoming President and General Manager, Ms. Grosenick was the
Director of Sales for New Century Media. Ms. Grosenick has worked at KUBE since
she started in 1980 as a sales associate. She has 19 years of industry
experience.


     Mr. John Dresel serves as President of Full House Sports & Entertainment, a
position he has held since 1994. Prior to that date he served as General Manager
of KJR(AM), KLTX-FM (now KJR-FM) and the Seattle SuperSonics from 1992 to 1994.
Mr. Dresel's

                                       68
<PAGE>   70

affiliation with the Company dates back to 1986, when he joined the Seattle
SuperSonics as Director of Ticket Sales. He has 12 years of industry experience.


     Mr. Walter F. ("Wally") Walker serves as President of the Seattle
SuperSonics, a position he has held since 1994. Prior to joining the Company,
Mr. Walker worked for Goldman, Sachs & Co. for seven years (1987-1994), and in
1992, was certified as a Chartered Financial Analyst. From 1976 to 1984 he
played professional basketball with three different NBA teams, including the
Seattle SuperSonics (1977-1982). Upon his completion of his professional
basketball career, he attended Stanford University's Graduate School of Business
from 1985 to 1987. He has 12 years of industry experience.




                                       69
<PAGE>   71

                       PRINCIPAL AND SELLING STOCKHOLDERS


     The following table sets forth certain information regarding the beneficial
ownership of our Common Stock and Class B Common Stock as of June 1, 1999, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
with respect to (i) each person known by us to own beneficially more than 5% of
the outstanding shares of Common Stock or Class B Common Stock, (ii) Barry A.
Ackerley, our Chairman and Chief Executive Officer, and The Ginger and Barry
Ackerley Foundation (collectively, the "Selling Stockholders"), (iii) each of
our executive officers and directors, and (iv) all of our executive officers and
directors as a group. Unless otherwise indicated, the address of each
stockholder is c/o The Ackerley Group, Inc., 1301 Fifth Avenue, Suite 4000,
Seattle, Washington 98101.



<TABLE>
<CAPTION>
                                                   COMMON STOCK                                     CLASS B COMMON STOCK
                       --------------------------------------------------------------------    ------------------------------
                                                                         NUMBER OF SHARES
                        NUMBER OF        PERCENT OF                     BENEFICIALLY OWNED      NUMBER OF       PERCENT OF
                          SHARES            CLASS                       AFTER THE OFFERING        SHARES           CLASS
                       BENEFICIALLY     BENEFICIALLY     SHARES BEING   -------------------    BENEFICIALLY    BENEFICIALLY
  NAME AND ADDRESS       OWNED(1)         OWNED(1)         OFFERED        NUMBER        %        OWNED(1)        OWNED(1)
  ----------------     ------------    ---------------   ------------   -----------   -----    ------------   ---------------
<S>                    <C>             <C>               <C>            <C>           <C>      <C>            <C>
Barry A. Ackerley....    9,894,043(2)       48.1%         1,000,000      8,894,043    37.7%     10,954,699(2)      99.1%
Gail A. Ackerley.....    9,894,043(3)       48.1%                --      8,894,043    37.7%     10,954,699(3)      99.1%
Deborah L. Bevier....          569             *                 --            569       *              --           --
M. Ian G.
  Gilchrist..........          569             *                 --            569       *              --           --
Michel C. Thielen....        4,256             *                 --          4,256       *              --           --
Denis M. Curley......       58,423             *                 --         58,423       *              --           --
Christopher H.
  Ackerley...........       18,928             *                 --         18,928       *          12,618            *
Keith W. Ritzmann....       11,854             *                 --         11,854       *             200            *
Gabelli Funds,
  Inc................    3,392,200          16.5%                --      3,392,200    14.4%             --           --
  One Corporate
    Center
  Rye, NY 10580-1434
The Ginger and Barry
  Ackerley
    Foundation.......      528,812           2.6%           200,000        328,812     1.4%             --           --
All Directors and
  Executive Officers
    as
  a group (8
    persons).........    9,988,642          48.5%                --      8,988,642    38.1%     10,967,517         99.2%
</TABLE>


-------------------------
 *  Indicates amounts equal to less than 1% of the outstanding shares.

(1) Unless otherwise indicated, represents shares over which each stockholder
    exercises sole voting or investment power.


(2) Barry A. Ackerley and Gail A. Ackerley are husband and wife. The amount
    shown includes 7,264 shares of Common Stock and 264 shares of Class B Common
    Stock held by Gail A. Ackerley, of which Mr. Ackerley disclaims beneficial
    ownership. Does not include shares held by The Ginger and Barry Ackerley
    Foundation.



(3) Barry A. Ackerley and Gail A. Ackerley are husband and wife. The amount
    shown includes 9,886,779 shares of Common Stock and 10,954,435 shares of
    Class B Common Stock held by Barry A. Ackerley, of which Ms. Ackerley
    disclaims beneficial ownership. Does not include shares held by The Ginger
    and Barry Ackerley Foundation.




                                       70
<PAGE>   72

                          DESCRIPTION OF CAPITAL STOCK


     Our authorized capital stock consists of 50,000,000 shares of Common Stock
and 11,406,510 shares of Class B Common Stock. At June 1, 1999, 20,578,141
shares of Common Stock and 11,051,230 shares of Class B Common Stock were
outstanding. After giving effect to the issuance and sale of the Common Stock
being offered hereby, we will have outstanding 23,578,141 shares of Common Stock
and 11,051,230 shares of Class B Common Stock, based on shares outstanding at
June 1, 1999.


COMMON STOCK AND CLASS B COMMON STOCK


     Voting Rights. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters presented
for a vote of our stockholders. The Common Stock and the Class B Common Stock
vote together as a single class on all matters presented for a vote of
stockholders, except as otherwise provided by law. Under the DGCL, the holders
of a majority of the outstanding shares of Common Stock or Class B Common Stock,
voting as separate classes, must approve certain amendments to our Certificate
of Incorporation affecting the shares of such class. Specifically, if there is
any proposal to amend the Certificate of Incorporation in a manner that would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences or special rights of the shares of such class so
as to affect such class adversely, such an amendment must be approved by a
majority of the outstanding shares of the affected class, voting separately as a
class. Shares of Common Stock and Class B Common Stock do not have cumulative
voting rights whether voting as a separate class or a single class.



     After the sale of the Common Stock offered hereby, Barry A. Ackerley, our
Chairman of the Board and Chief Executive Officer, will beneficially own
approximately 37.7% of the outstanding shares of Common Stock and approximately
99.1% of the outstanding shares of Class B Common Stock, giving him
approximately 88.3% of the combined voting power of our voting securities. So
long as Mr. Ackerley continues to own or control stock having a majority of the
combined voting power of our voting securities, he will have the power to elect
all of our directors and effect fundamental corporate transactions such as
mergers, asset sales, and "going private" transactions without the approval of
any other stockholder. Moreover, Mr. Ackerley's voting control would effectively
delay or prevent any other person or entity from acquiring or taking control of
The Ackerley Group without his approval, whether or not the transaction could
provide stockholders with a premium over the then-prevailing market price of
their shares or would otherwise be in their best interests. See "Risk
Factors--Voting Control by Principal Stockholder," "Management," and "Principal
and Selling Stockholders."



     Dividends. Holders of shares of Common Stock and Class B Common Stock share
equally in such dividends, if any, as may be declared from time to time by our
Board of Directors at its discretion from funds legally available therefor. See
"Dividend Policy."



     Terms of Conversion. The shares of Common Stock have no conversion rights.
Each share of Class B Common Stock is convertible at any time, at the option of
the holder, into one share of Common Stock, subject to any applicable
governmental ownership, control, or voting restrictions.



     Restrictions on Ownership and Transfer of Common Stock and Class B Common
Stock.  Our Bylaws provide that no shares shall be issued or transferred to any
person


                                       71
<PAGE>   73


where such issuance or transfer will result in the violation of the
Communications Act or any regulations promulgated thereunder, and that any
purported transfer in violation of such restrictions is void. Likewise, our
Certificate of Incorporation provides that, so long as we or any of our
subsidiaries hold authority from the FCC (or any successor thereto) to operate
any television or radio broadcast station, if we have reason to believe that the
ownership, or proposed ownership, of shares of our capital stock by any
stockholder or any person presenting any shares of our capital stock for
transfer into his name (a "Proposed Transferee") may be inconsistent with, or in
violation of, any Federal Communications Laws (as defined therein), such
stockholder or Proposed Transferee, upon our request, is required to furnish
such information (including, without limitation, information with respect to
citizenship, other ownership interests and affiliations) as we shall reasonably
request to determine whether the ownership of, or the exercise of any rights
with respect to, shares of our capital stock by such stockholder or Proposed
Transferee is inconsistent with, or in violation of, the Federal Communications
Laws. If any stockholder or Proposed Transferee from whom such information is
requested shall fail to respond to such request, or if we shall conclude that
the ownership of, or the exercise of any rights of ownership with respect to,
shares of capital stock by such stockholder or Proposed Transferee could result
in any inconsistency with or violation of Federal Communications Laws, we may
refuse to permit the transfer of shares of capital stock to such Proposed
Transferee or may suspend those rights of stock ownership the exercise of which
would result in such inconsistency with or violation of the Federal
Communications Laws, with such refusal of transfer or suspension to remain in
effect until the requested information has been received or until we have
determined that such transfer, or the exercise of such suspended rights, as the
case may be, is permissible under the Federal Communications Laws. We may
exercise any and all appropriate remedies, at law or in equity, in any court of
competent jurisdiction, against any such stockholder or Proposed Transferee,
with a view towards obtaining such information or preventing or curing any
situation which would cause any inconsistency with, or violation of, any
provision of the Federal Communication Laws. The existence of the foregoing
restrictions on transfer is noted in a legend set forth on the certificates
evidencing the Common Stock and Class B Common Stock.


     The foregoing restrictions on transfer are intended to ensure compliance
with, among other things, the alien ownership restrictions of the Communications
Act. Among these restrictions is a provision which prohibits aliens or their
representatives, a foreign government or representatives thereof or any
corporation organized under the laws of a foreign country from owning of record
or voting, directly or indirectly, more than one-fifth of the capital stock of a
corporation holding a radio or television station license or more than
one-fourth of the capital stock of a corporation holding the stock of a
broadcast licensee.


     The ownership and transfer of Common Stock and Class B Common Stock is also
subject to restrictions under the Constitution and Bylaws of the NBA. See "Risk
Factors--Restrictions on Ownership and Transfer of Common Stock." These
restrictions, as well as those set forth in our Bylaws and Certificate of
Incorporation and the Communications Act, could adversely affect the ability of
investors to own or transfer our Common Stock.


     Restrictions on Transfers of Class B Common Stock. The transfer of Class B
Common Stock is restricted by the Certificate of Incorporation to Permitted
Transferees (as defined therein), which, in general, include only (i) spouses
and former spouses of the current holder, and the current holders' estates; (ii)
the original holders of the Class B

                                       72
<PAGE>   74


Common Stock, their spouses and former spouses, and their lineal descendants
(including lineal descendants of their spouses and former spouses); (iii)
entities controlled by, or solely benefitting, the current holder or a Permitted
Transferee (such as trusts, corporations, charitable organizations, and
partnerships); and (iv) our executive officers and employee benefit plans. Any
purported transfer of shares of Class B Common Stock other than in accordance
with the restrictions set forth in the Certificate of Incorporation results in
the automatic conversion of such shares into a like number of shares of Common
Stock.



     Liquidation Rights. In the event of the liquidation, dissolution or winding
up of The Ackerley Group, holders of shares of Common Stock and Class B Common
Stock are entitled to share ratably in the assets available for distribution to
stockholders.



     Other. None of our stockholders has preemptive or other rights to subscribe
for additional shares of our stock. All outstanding shares of Common Stock and
Class B Common Stock are, and the shares of Common Stock to be sold by us in the
offering hereby will be, fully paid and nonassessable.



     Our Certificate of Incorporation provides that, if we subdivide or combine
the outstanding shares of Common Stock or Class B Common Stock, we are required
to proportionately subdivide or combine the outstanding shares of the other
class of capital stock.



     Our Certificate of Incorporation eliminates, in certain circumstances, the
liability of our directors and former directors for monetary damages for breach
of their fiduciary duty as directors. This provision does not eliminate or limit
the liability of a director (i) for a breach of the director's duty of loyalty
to us or our stockholders; (ii) for acts or omissions by the director not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for a willful or negligent declaration and payment of an unlawful
dividend, stock purchase or redemption; (iv) for transactions from which the
director derived an improper personal benefit; or (v) for any act or omission
which occurred before such section of our Certificate of Incorporation became
effective.


SECTION 203 OF THE DELAWARE LAW

     Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (A) persons who are both
directors and officers and (B) certain employee stock plans; or (iii) on or
after such date the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder. A "business
combination" includes certain mergers, consolidations, asset sales, transfers,
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is, in general, a person who, together with affiliates
and associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. Although a corporation's

                                       73
<PAGE>   75


certificate of incorporation may exclude such corporation from the restrictions
imposed by Section 203, our Certificate of Incorporation does not exclude us
from those restrictions.


REGISTRAR AND TRANSFER AGENT


     The registrar and transfer agent for the Common Stock is First Union
National Bank.


                                       74
<PAGE>   76

                                  UNDERWRITING


     Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and The Ackerley Group and the Selling Stockholders have agreed to
sell to such underwriter, the number of shares set forth opposite the name of
such underwriter.



<TABLE>
<CAPTION>
                                                               NUMBER
                        UNDERWRITER                           OF SHARES
                        -----------                           ---------
<S>                                                           <C>
Salomon Smith Barney Inc....................................
First Union Capital Markets Corp............................
Merrill Lynch, Pierce, Fenner & Smith
              Incorporated..................................
                                                              ---------
          Total.............................................  4,200,000
                                                              =========
</TABLE>



     The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.



     The underwriters, for whom Salomon Smith Barney Inc., First Union Capital
Markets Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as representatives, propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $       per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $       per share on
sales to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms.



     The Ackerley Group has granted to the underwriters an option, exercisable
for 30 days from the date of this prospectus, to purchase up to 630,000
additional shares of Common Stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.



     The Ackerley Group, our executive officers and directors, certain of our
employees, and the Selling Stockholders have agreed that, for a period of 90
days from the date of this prospectus, they will not, without the prior written
consent of Salomon Smith Barney Inc., sell or otherwise dispose of any shares of
Common Stock or Class B Common Stock or any securities convertible into or
exchangeable for Common Stock or Class B Common Stock, other than the shares to
be sold in this offering. Salomon Smith Barney Inc. in its


                                       75
<PAGE>   77


sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice.



     The Common Stock is listed on the New York Stock Exchange under the symbol
"AK."



     The following table shows the underwriting discounts and commissions to be
paid to the underwriters by The Ackerley Group and the Selling Stockholders in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares of
Common Stock.



<TABLE>
<CAPTION>
                                           PAID BY                   PAID BY SELLING
                                     THE ACKERLEY GROUP               STOCKHOLDERS
                                 ---------------------------   ---------------------------
                                 NO EXERCISE   FULL EXERCISE   NO EXERCISE   FULL EXERCISE
                                 -----------   -------------   -----------   -------------
<S>                              <C>           <C>             <C>           <C>
Per share......................   $              $              $              $
Total..........................   $              $              $              $
</TABLE>



     In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of Common Stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of Common Stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of Common Stock made for the purpose of preventing or retarding a
decline in the market price of the Common Stock while the offering is in
progress.



     The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.



     Any of these activities may cause the price of the Common Stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New York
Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.



     The Ackerley Group estimates that the total expenses of this offering will
be $515,000.



     The Ackerley Group and the Selling Stockholders have agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.



     Some of the underwriters and their affiliates have provided certain
investment banking, commercial banking, transfer agent, and advisory services
for The Ackerley Group from time to time, and may in the future provide similar
services for The Ackerley Group.



     M. Ian G. Gilchrist, a Managing Director of Salomon Smith Barney Inc., one
of the representatives, serves as one of our directors. See "Management."


                                       76
<PAGE>   78


     As described under "Use of Proceeds," The Ackerley Group intends to use the
net proceeds from the offering of the Common Stock to repay indebtedness
outstanding under the 1999 Credit Agreement. Certain of the lenders under the
1999 Credit Agreement include affiliates of certain of the underwriters. These
lenders may in the aggregate receive more than 10% of the net proceeds from the
offering of the Common Stock in the form of repayment of borrowings outstanding
under the 1999 Credit Agreement. Accordingly, the offering of the Common Stock
is being made pursuant to Conduct Rule 2710(c)(8) of the National Association of
Securities Dealers, Inc.


                                 LEGAL MATTERS


     Certain legal matters in connection with the sale of the Common Stock being
offered, including the validity of the Common Stock being offered, will be
passed upon for The Ackerley Group and the Selling Stockholders by Graham & Dunn
PC, Seattle, Washington. Certain legal matters concerning federal communications
law and other legal matters are being passed upon for The Ackerley Group by
Rubin, Winston, Diercks, Harris & Cooke, L.L.P., Washington, D.C. and by Eric M.
Rubin, our General Counsel. Mr. Rubin, our General Counsel and a partner in
Rubin, Winston, Diercks, Harris & Cooke, L.L.P., beneficially owns 54,600 shares
of Common Stock and 600 shares of Class B Common Stock and has been granted
options to purchase 30,000 shares of Common Stock. Brown & Wood LLP, San
Francisco, California will act as counsel for the Underwriters.


                                    EXPERTS


     The consolidated financial statements of The Ackerley Group, Inc. at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998 and the financial statements of WOKR(TV) at December 31, 1998
and for the year then ended appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.



                      WHERE YOU CAN FIND MORE INFORMATION



     We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), covering the shares of Common Stock offered hereby. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is not necessarily complete. If we have
filed any such contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the document or matter involved. Each statement regarding a
contract, agreement or other document is qualified in its entirety by reference
to the actual document. We are required to file periodic reports and other
information with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Accordingly, we file reports and other information with
the SEC.


                                       77
<PAGE>   79


     You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file, at the
SEC's public reference room at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549-1004, and at the SEC's Midwest Regional Office located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
its Northeast Regional Office located at 7 World Trade Center, Suite 1300, New
York, New York 10048. You can request copies of these documents, upon payment of
a duplicating fee, by writing to the SEC at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC's Internet site
(http://www.sec.gov).



     The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is considered to
be part of this prospectus. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superceded for purposes of this prospectus to the extent that a
statement herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supercedes such
statement. Any such statement so modified or superceded shall not be deemed,
except as so modified or superceded, to constitute a part of this prospectus.



     The following documents which we have filed with the SEC, and all other
documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering of Common Stock made hereby, are incorporated by
reference into this prospectus:



          (1) Our Annual Report on Form 10-K for the year ended December 31,
     1998;



          (2) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
     1999; and



          (3) Our Current Reports on Form 8-K filed March 2, April 21, April 27,
     and June 17, 1999.



     These filings are available at the SEC's offices and internet site
described above. They are also available to any person to whom a copy of this
prospectus is delivered, without charge, directly from us. To obtain such
materials, please contact Denis M. Curley, The Ackerley Group, Inc., 1301 Fifth
Avenue, Suite 4000, Seattle, Washington 98101. Our telephone number is (206)
624-2888.


                                       78
<PAGE>   80

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                               PAGE
                                                              NUMBER
                                                              ------
<S>                                                           <C>
THE ACKERLEY GROUP, INC.
Report of Ernst & Young LLP, independent auditors...........    F-2
Consolidated balance sheets as of December 31, 1998 and
  1997......................................................    F-3
Consolidated statements of income for the years ended
  December 31, 1998, 1997, and 1996.........................    F-4
Consolidated statements of stockholders' deficiency for the
  years ended December 31, 1998, 1997, and 1996.............    F-5
Consolidated statements of cash flows for the years ended
  December 31, 1998, 1997, and 1996.........................    F-6
Notes to consolidated financial statements..................    F-7
Condensed consolidated balance sheets as of March 31, 1999
  and December 31, 1998.....................................   F-25
Condensed consolidated statements of operations for the
  three month periods ended March 31, 1999 and 1998.........   F-26
Condensed consolidated statements of cash flows for the
  three month periods ended March 31, 1999 and 1998.........   F-27
Notes to condensed consolidated financial statements........   F-28
WOKR(TV)
Report of Ernst & Young LLP, independent auditors...........   F-33
Balance sheet as of December 31, 1998.......................   F-34
Statement of income for the year ended December 31, 1998....   F-35
Statement of cash flows for the year ended December 31,
  1998......................................................   F-36
Notes to financial statements...............................   F-37
Balance sheets as of March 31, 1999 and December 31, 1998...   F-42
Statement of income for the three-month period ended March
  31, 1999..................................................   F-43
Statement of cash flows for the three-month period ended
  March 31, 1999............................................   F-44
Notes to first quarter 1999 financial statements............   F-45
</TABLE>


                                       F-1
<PAGE>   81

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
The Ackerley Group, Inc.


     We have audited the accompanying consolidated balance sheets of The
Ackerley Group, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' deficiency, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.


     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Ackerley Group, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.



                                          /s/  ERNST & YOUNG LLP


Seattle, Washington

March 16, 1999




                                       F-2
<PAGE>   82


                            THE ACKERLEY GROUP, INC.



                          CONSOLIDATED BALANCE SHEETS



                                     ASSETS



<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  1998        1997
                                                                --------    --------
                                                                   (IN THOUSANDS)
<S>                                                             <C>         <C>
Current assets:
  Cash and cash equivalents.................................    $  4,630    $  3,656
  Accounts receivable, net of allowance ($1,435 in 1998,
    $1,498 in 1997).........................................      44,680      52,923
  Current portion of broadcast rights.......................       7,339       7,349
  Prepaid expenses..........................................      10,212      12,360
  Deferred tax asset........................................       4,497      11,499
  Other current assets......................................       3,883       4,734
                                                                --------    --------
         Total current assets...............................      75,241      92,521
Property and equipment, net.................................     113,108      94,968
Goodwill, net...............................................      70,034      33,279
Other intangibles, net......................................       7,780       9,039
Other assets................................................      49,963      36,578
                                                                --------    --------
         Total assets.......................................    $316,126    $266,385
                                                                ========    ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable..........................................    $  8,004    $  9,103
  Accrued interest..........................................         694       3,995
  Other accrued liabilities.................................      11,861      19,071
  Deferred revenue..........................................      27,736      23,857
  Current portion of broadcasting obligations...............       8,139       8,346
  Current portion of long-term debt.........................       3,101      16,130
                                                                --------    --------
         Total current liabilities..........................      59,535      80,502
Long-term debt, less current portion........................     266,999     213,294
Litigation accrual..........................................       8,016       8,072
Other long-term liabilities.................................       7,417       9,426
                                                                --------    --------
         Total liabilities..................................     341,967     311,294
Commitments and contingencies
Stockholders' deficiency:
  Common stock, par value $.01 per share--authorized
    50,000,000 shares; issued 21,951,380 and 21,855,398
    shares at December 31, 1998 and 1997 respectively; and
    outstanding 20,576,434 and 20,480,452 shares at December
    31, 1998 and 1997 respectively..........................         219         218
  Class B common stock, par value $.01 per share--authorized
    11,406,510 shares; issued and outstanding 11,051,230 and
    11,053,510 shares at December 31, 1998 and 1997
    respectively............................................         111         111
Capital in excess of par value..............................      10,339       9,816
Deficit.....................................................     (26,421)    (44,965)
Less common stock in treasury, at cost (1,374,946 shares)...     (10,089)    (10,089)
                                                                --------    --------
         Total stockholders' deficiency.....................     (25,841)    (44,909)
                                                                --------    --------
         Total liabilities and stockholders' deficiency.....    $316,126    $266,385
                                                                ========    ========
</TABLE>



                            See accompanying notes.

                                       F-3
<PAGE>   83


                            THE ACKERLEY GROUP, INC.



                       CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                        -----------------------------------------
                                                           1998           1997           1996
                                                        -----------    -----------    -----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                     <C>            <C>            <C>
Revenue...............................................   $292,907       $306,169       $279,662
Less agency commissions and discounts.................     36,256         34,994         32,364
                                                         --------       --------       --------
Net revenue...........................................    256,651        271,175        247,298
Expenses (other income):
  Operating expenses..................................    209,030        210,752        186,954
  Amortization........................................      4,839          4,146          6,404
  Depreciation........................................     11,735         11,957         10,592
  Interest expense....................................     25,109         26,219         24,461
  Stock compensation expense..........................        452          9,344             --
  Gain on disposition of assets.......................    (33,524)            --             --
  Litigation expense (adjustment).....................         --         (5,000)            --
                                                         --------       --------       --------
         Total expenses and other income..............    217,641        257,418        228,411
Income before income taxes and extraordinary item.....     39,010         13,757         18,887
Income tax benefit (expense)..........................    (15,487)        19,172         (2,758)
                                                         --------       --------       --------
Income before extraordinary item......................     23,523         32,929         16,129
Extraordinary item: loss on debt extinguishment.......     (4,346)            --           (355)
                                                         --------       --------       --------
Net income............................................   $ 19,177       $ 32,929       $ 15,774
                                                         ========       ========       ========
Earnings per common share:
Income per common share, before extraordinary item....   $    .75       $   1.05       $    .52
Extraordinary item: loss on debt extinguishment.......       (.14)            --           (.01)
                                                         --------       --------       --------
Net income per common share...........................   $    .61       $   1.05       $    .51
                                                         ========       ========       ========
Earnings per common share--assuming dilution:
Income per common share, before extraordinary item....   $    .74       $   1.04       $    .51
Extraordinary item: loss on debt extinguishment.......       (.14)            --           (.01)
                                                         --------       --------       --------
Net income per common share...........................   $    .60       $   1.04       $    .50
                                                         ========       ========       ========
Weighted average number of shares.....................     31,627         31,345         31,166
Weighted average number of shares--assuming
  dilution............................................     31,883         31,652         31,760
</TABLE>



                            See accompanying notes.

                                       F-4
<PAGE>   84


                            THE ACKERLEY GROUP, INC.



              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY


                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)



<TABLE>
<CAPTION>
                                                      CLASS B                                   COMMON
                             COMMON STOCK          COMMON STOCK       CAPITAL IN               STOCK IN
                          -------------------   -------------------   EXCESS OF                TREASURY
                            SHARES     AMOUNT     SHARES     AMOUNT   PAR VALUE    DEFICIT    (AT COST)
                          ----------   ------   ----------   ------   ----------   --------   ----------
<S>                       <C>          <C>      <C>          <C>      <C>          <C>        <C>
Balance, December 31,
  1995..................  20,777,012    $208    11,731,522    $117     $ 3,093     $(92,422)   $(10,089)
Exercise of stock
  options and stock
  conversions...........     409,712       4      (377,712)     (3)        102           --          --
Cash dividend, $0.02 per
  share.................          --      --            --      --          --         (623)         --
Net income..............          --      --            --      --          --       15,774          --
                          ----------    ----    ----------    ----     -------     --------    --------
Balance, December 31,
  1996..................  21,186,724     212    11,353,810     114       3,195      (77,271)    (10,089)
Stock compensation,
  exercise of stock
  options and stock
  conversions...........     663,964       6      (300,300)     (3)      6,561           --          --
Stock issued to
  directors.............       4,710      --            --      --          60           --          --
Cash dividend, $0.02 per
  share.................          --      --            --      --          --         (623)         --
Net income..............          --      --            --      --          --       32,929          --
                          ----------    ----    ----------    ----     -------     --------    --------
Balance, December 31,
  1997..................  21,855,398     218    11,053,510     111       9,816      (44,965)    (10,089)
                          ----------    ----    ----------    ----     -------     --------    --------
Stock compensation,
  exercise of stock
  options and stock
  conversions...........      92,880       1        (2,280)     --         463           --          --
Stock issued to
  directors.............       3,102      --            --      --          60           --          --
Cash dividend, $0.02 per
  share.................          --      --            --      --          --         (633)         --
Net income..............          --      --            --      --          --       19,177          --
                          ----------    ----    ----------    ----     -------     --------    --------
Balance, December 31,
  1998..................  21,951,380    $219    11,051,230    $111     $10,339     $(26,421)   $(10,089)
                          ==========    ====    ==========    ====     =======     ========    ========
</TABLE>



                            See accompanying notes.

                                       F-5
<PAGE>   85


                            THE ACKERLEY GROUP, INC.



                     CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                              -------------------------------
                                                                1998        1997       1996
                                                              ---------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>        <C>
Cash flows from operating activities:
Reconciliation of net income to net cash provided by
  operating activities:
  Net income................................................  $  19,177   $ 32,929   $ 15,774
  Adjustment to reconcile net income to net cash provided by
    operating activities:
    Litigation expense adjustment...........................         --     (5,000)        --
    Stock compensation expense..............................        452      9,344         --
    Deferred tax expense (benefit)..........................     15,130    (19,798)        --
    Debt extinguishment, net of taxes.......................       (394)        --        355
    Depreciation and amortization...........................     16,574     16,103     16,996
    Amortization of deferred financing costs................        713      1,790      1,379
    Gain on disposition of assets...........................    (33,524)      (155)      (423)
    Amortization of broadcast rights........................     10,283      8,957      8,765
    Income from barter transactions.........................     (1,645)    (1,535)    (2,480)
  Change in assets and liabilities:
    Accounts receivable.....................................      7,760     (9,169)      (164)
    Prepaid expenses........................................      1,958        976     (6,236)
    Other current assets and other assets...................     (3,545)    (3,418)   (14,411)
    Accounts payable and accrued interest...................     (4,483)     4,120      1,066
    Other accrued liabilities and other long-term
      liabilities...........................................     (6,038)    (1,663)     2,147
    Deferred revenues.......................................      3,879      3,807      1,781
    Current portion of broadcast obligations................    (11,453)    (9,278)    (8,212)
                                                              ---------   --------   --------
  Net cash provided by operating activities.................     14,844     28,010     16,337
Cash flows from investing activities:
  Proceeds from disposition of assets.......................     41,237         --         --
  Proceeds from sale of property and equipment..............        294        275      1,474
  Payments for acquisitions.................................    (55,759)    (2,483)   (20,445)
  Capital expenditures......................................    (32,719)   (17,593)   (13,124)
                                                              ---------   --------   --------
         Net cash used in investing activities..............    (46,947)   (19,801)   (32,095)
Cash flows from financing activities:
  Borrowings under credit agreements........................    461,100     27,000     38,000
  Repayments under credit agreements........................   (419,588)   (33,283)   (23,825)
  Payments under capital lease obligations..................       (765)      (817)      (714)
  Dividends paid............................................       (633)      (623)      (623)
  Payments of deferred financing costs......................     (7,109)        --       (694)
  Proceeds from the issuance of stock.......................         72        260        103
                                                              ---------   --------   --------
         Net cash provided (used in) financing activities...     33,077     (7,463)    12,247
                                                              ---------   --------   --------
Net increase (decrease) in cash and cash equivalents........        974        746     (3,511)
Cash and cash equivalents at beginning of period............      3,656      2,910      6,421
                                                              ---------   --------   --------
  Cash and cash equivalents at end of period................  $   4,630   $  3,656   $  2,910
                                                              =========   ========   ========
Supplemental cash flow information:
  Interest paid, net of capitalized interest................  $  27,697   $ 23,163   $ 21,524
  Income taxes paid.........................................      1,069        836      2,157
  Noncash transactions:
    Broadcast rights acquired and broadcast obligations
      assumed...............................................  $   8,828   $ 12,201   $  9,165
    Assets acquired through barter..........................      1,234      1,053      1,342
</TABLE>



                            See accompanying notes.

                                       F-6
<PAGE>   86


                            THE ACKERLEY GROUP, INC.



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



     (a) Organization--The Ackerley Group, Inc. and its subsidiaries (the
"Company") is a diversified media and entertainment company that engages in four
principal business segments: (i) outdoor media, including outdoor and, prior to
June 30, 1998, airport advertising; (ii) television broadcasting; (iii) radio
broadcasting; and (iv) sports marketing and promotion, primarily through
ownership of the Seattle SuperSonics, a franchise of the National Basketball
Association. Outdoor advertising operations are conducted principally in the
Seattle, Portland, Boston, Miami, Ft. Lauderdale, and West Palm Beach markets,
whereas airport advertising operations were conducted in airports throughout the
United States. The markets served by the Company's television stations and their
affiliations are as follows: Syracuse, New York (ABC); Utica, New York (ABC
through a time brokerage agreement); Binghamton, New York (ABC); Colorado
Springs, Colorado (CBS); Santa Rosa, California (independent); Bakersfield,
California (NBC); Salinas/Monterey, California (CBS through a time brokerage
agreement); Eureka, California (CBS through a time brokerage agreement and FOX);
Eugene, Oregon (NBC through a time brokerage agreement); and Bellingham,
Washington/Vancouver, British Columbia (independent). Radio broadcasting
consists of two AM and two FM stations serving the Seattle/Tacoma area.



     (b) Principles of consolidation--The accompanying financial statements
consolidate the accounts of The Ackerley Group, Inc. and its subsidiaries, all
of which are wholly-owned. All significant intercompany transactions have been
eliminated in consolidation.



     (c) Revenue recognition--Outdoor display advertising revenue is recognized
ratably on a monthly basis over the period in which advertisement displays are
posted on the advertising structures or in the display units. Broadcast revenue
is recognized in the period in which the advertisements are aired. Payments from
clients received in excess of one month's advertising are recorded as deferred
revenue. Ticket payments are recorded as deferred revenue when received and
recognized as revenue ratably as home games are played.



     (d) Barter transactions--The Company engages in nonmonetary trades of
advertising space or time in exchange for goods or services. These barter
transactions are recorded at the estimated fair value of the asset or service
received in accordance with Financial Accounting Standard No. 29, Accounting for
Nonmonetary Transactions. Revenue is recognized when the advertising is provided
and assets or expenses are recorded when assets are received or services are
used. Goods and services due to the Company in excess of advertising provided
are recorded in other current assets. Advertising to be provided in excess of
goods and services received are recorded in other accrued liabilities.



     (e) Property and equipment--Property and equipment are carried at cost. The
Company depreciates groups of large number of assets with homogeneous
characteristics and useful lives. Under group depreciation, no gain or loss on
disposals is recognized unless the asset group is fully depreciated. For assets
accounted for under group depreciation, the Company recognizes gains on
disposals primarily from proceeds received from condemnations of
fully-depreciated advertising structures. The Company recognizes gains and
losses on disposals of individual, non-homogeneous assets. Depreciation of
property and


                                       F-7
<PAGE>   87

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



equipment, including the cost of assets recorded under capital lease agreements,
is provided on the straight-line and accelerated methods over the estimated
useful lives of the assets or lease terms.



     (f) Intangible assets--Intangible assets are carried at cost and amortized
principally on the straight-line method over estimated useful lives. Goodwill
represents the cost of acquired businesses in excess of amounts assigned to
certain tangible and intangible assets at the dates of acquisition.



     (g) Broadcast rights and obligations--Television films and syndication
rights acquired under license agreements (broadcast rights) and the related
obligations incurred are recorded as assets and liabilities for the gross amount
of the contract at the time the rights are available for broadcasting. Broadcast
rights are amortized on an accelerated basis over the contract period or the
estimated number of showings, whichever results in the greater aggregate monthly
amortization. Broadcast rights are carried at the lower of unamortized cost or
net realizable value. The estimated cost of broadcast rights to be amortized
during the next year has been classified as a current asset. Broadcast
obligations are stated at contractual amounts and balances due within one year
are reported as current obligations.



     (h) Stock based compensation--The Company generally grants stock options
for a fixed number of shares to employees with an exercise price equal to the
fair value of the shares at the date of grant. The Company has elected to
account for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations, and
recognizes compensation expense for incentive stock option grants using the
intrinsic method.



     (i) Earnings per share--The Company presents earnings per share in
accordance with Financial Accounting Standard No. 128, Earnings Per Share.
Earnings per common share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Earnings per common share, assuming dilution reflect
the potential dilution that could occur if options and rights to purchase common
stock were exercised.



     The dilutive effects of the weighted-average number of shares representing
options and rights included in the calculation of earnings per common share,
assuming dilution were 256,079 shares, 306,982 shares, and 594,283 shares in
1998, 1997, and 1996, respectively. There were no differences between net income
amounts used to calculate earnings per common share and earnings per common
share, assuming dilution for any of the periods presented.



     (j) Cash equivalents--The Company considers investments in highly liquid
debt instruments with a maturity of three months or less when purchased to be
cash equivalents.



     (k) Concentration of credit risk and financial instruments--The Company
sells advertising to local and national companies throughout the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
credit losses. The Company invests its


                                       F-8
<PAGE>   88

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



excess cash in short-term investments with major banks. The carrying value of
financial instruments, which include cash, receivables, payables, and long-term
debt, approximates fair value at December 31, 1998.



     The Company uses interest rate swap agreements to modify the interest rate
characteristics of its long-term debt. Each interest rate swap agreement is
designated with all or a portion of the principal balance and term of a specific
debt obligation. These agreements generally involve the exchange of floating for
fixed-rate payment obligations over the life of the agreement without an
exchange of underlying principal amount. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense related to the debt (the accrual accounting method). The
related net amount payable to or receivable from counterparties is included in
other current liabilities or assets. The fair values of the swap agreements and
changes in their fair value as a result of changes in market interest rates are
not recognized in the financial statements.



     (l) Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.



     (m) Reclassifications--Certain prior years' amounts have been reclassified
to conform to the 1998 presentation.



 2. NEW ACCOUNTING STANDARDS



     The Company adopted Financial Accounting Standard No. 130, Reporting
Comprehensive Income. This statement establishes standards for reporting and
disclosure of comprehensive income and its components. Comprehensive income
includes net income and other comprehensive income which refers to unrealized
gains and losses that under generally accepted accounting principles are
excluded from net income. The Company had no other comprehensive income for any
of the periods presented.



     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Management does
not anticipate that the adoption of the new Statement will have a significant
effect on the earnings or financial position of the Company.



 3. ACQUISITIONS AND DISPOSITIONS



     During 1996, the Company acquired a television station in Santa Rosa,
California, and substantially all of the assets of an outdoor advertising
company in Boston, Massachusetts. The Company recorded net assets with estimated
fair values aggregating $4.7 million and goodwill of $15.8 million. The
operations of the acquired businesses did not materially affect the consolidated
financial statements of the Company.



     The Company's wholly-owned subsidiary, KJR Radio, Inc., was a limited
partner in New Century Seattle Partners, L.P. (the "Partnership") which owned
and operated radio


                                       F-9
<PAGE>   89

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



stations in the Seattle/Tacoma area. The Company accounted for this investment
using the consolidation method.



     On February 17, 1998, the Partnership redeemed the limited partnership
interests and satisfied certain other obligations of the former limited partners
for $18.0 million. Effective April 30, 1998, the Partnership redeemed all the
interests of Century Management, Inc., its general partner, for approximately
$17.8 million. Upon closing, KJR Radio, Inc., a wholly-owned subsidiary of the
Company, became the Partnership's sole general partner and licensee of the radio
stations held by the Partnership and at that same time, AK Media Group, Inc.,
the Company's principal operating subsidiary, became the Partnership's nominal
and sole limited partner. Effective December 31, 1998, the Partnership was
dissolved and KJR Radio, Inc. was merged into AK Media Group, Inc.



     Sale of Airport Advertising Operations. On June 30, 1998, the Company sold
substantially all of the assets of its airport advertising operations to Sky
Sites, Inc., a subsidiary of Havas, S.A., pursuant to an agreement dated May 19,
1998. The sale price consisted of a base cash price of $40.0 million, paid on
the closing date of the transaction, and an additional cash payment of
approximately $2.9 million (the "Contingent Payment"), of which $1.2 million was
paid in December 1998 and the remainder was paid in January 1999. The pre-tax
gain recognized in 1998 from this transaction (after giving effect to the
Contingent Payment) was approximately $33.5 million.



     Pending Acquisition of KTVF(TV), KXLR(FM), and KCBF(AM). On August 4, 1998,
the Company entered into an agreement to purchase the assets of KTVF-TV, a NBC
affiliate, for $7.2 million, and two radio stations, KXLR(FM) and KCBF(AM), for
$0.8 million. All three stations are licensed to Fairbanks, Alaska. The
transaction is currently pending FCC approval, which must be obtained separately
for the television and radio stations. The purchase of the radio stations is
contingent on the purchase of the television station. In conjunction with this
agreement, on August 5, 1998, the Company granted an option to a third party
(the "Optionee") for $0.5 million to purchase from the Company the assets of
KTVF(TV) for $6.7 million and the two radio stations for $0.8 million, plus a
15% annual return based on the actual purchase price for the Company's
acquisition of the stations. The option may be exercised at any time starting on
the third anniversary of the Company's acquisition of the stations through the
seventh anniversary of such acquisition. The option may terminate earlier if the
FCC makes certain changes to certain of its ownership rules. In addition, the
Optionee may require the Company to repurchase the option for $0.5 million under
certain circumstances.



     Acquisition of WIVT(TV). On August 31, 1998, the Company exercised its
option to purchase the assets of WIVT(TV), an ABC affiliate licensed to
Binghamton, New York, for $9.0 million. The Company recorded net assets with
estimated fair values aggregating $1.2 million and goodwill of $7.8 million. The
Company previously operated the station under a time brokerage agreement.



     Acquisition of Out-of-Home Advertising Company in Miami, Florida. On
September 4, 1998, the Company purchased substantially all of the assets of an
out-of-home advertising company in Miami, Florida for approximately $2.4
million.


                                      F-10
<PAGE>   90

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     Pending Acquisition of WOKR(TV). On September 25, 1998, the Company entered
into a purchase agreement with Sinclair Communications, Inc. to acquire
substantially all of the assets of WOKR(TV), an ABC affiliate licensed to
Rochester, New York. The purchase price is approximately $125.0 million, subject
to possible adjustments under the terms of the purchase agreement, plus the
assumption of certain liabilities. The Company has paid $12.5 million of the
purchase price into an escrow account, which is recorded in other assets, with
the balance due at closing. Closing of the transaction is subject to a number of
conditions, including the acquisition of the station by Sinclair Communications,
Inc. from Guy Gannet Communications and the receipt of approval from the FCC,
which has been requested. Either party may terminate the purchase agreement,
subject to certain conditions, if closing has not occurred by September 4, 1999.



     Pending Sale of KCBA(TV) and Acquisition of KION(TV). On November 2, 1998,
the Company entered into an agreement to purchase substantially all of the
assets of KION(TV), a CBS affiliate licensed to Monterey, California, for $7.7
million, subject to certain reductions. The purchase of this station is subject
to FCC approval and is contingent upon the sale of KCBA(TV) as described below.
Pending FCC approval of this transaction, the Company is operating the station
pursuant to a time brokerage agreement with the current owner.



     On November 3, 1998, the Company entered into an agreement to sell
substantially all of the assets of KCBA(TV), a FOX affiliate licensed to
Salinas, California, for $11.0 million. This transaction is subject to FCC
approval and is contingent upon the Company's purchase of KION(TV), as described
above. Subject to FCC approval, the Company would continue to operate the
station after the sale pursuant to a time brokerage agreement with the
purchaser.



     Pending Exchange of KKTV(TV) for KCOY(TV). On December 30, 1998, the
Company entered into an asset exchange agreement with Benedek Broadcasting
Corporation ("Benedek"). Under the agreement, Benedek would acquire
substantially all of the assets, and assume certain liabilities, of KKTV(TV), a
CBS affiliate licensed to Colorado Springs, Colorado. In exchange, the Company
would (i) acquire substantially all of the assets, and assume certain
liabilities, of KCOY(TV), a CBS affiliate licensed to Santa Maria, California,
and (ii) receive a cash payment of approximately $9.0 million (subject to
certain adjustment). Closing is subject to, among other things, approval of the
FCC and expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Also on December 30, 1998, the Company entered into a
time brokerage agreement to operate KCOY(TV) until closing and a time brokerage
agreement for Benedek to operate KKTV(TV) until closing.



     Acquisition of KVIQ(TV). Effective January 1, 1999, the Company purchased
substantially all of the assets of KVIQ(TV), a CBS affiliate licensed to Eureka,
California, for $5.5 million, pursuant to an agreement dated July 15, 1998.
Pending closing of the transaction, the Company operated the station pursuant to
a time brokerage agreement with the former owner. The Company recorded net
assets with estimated fair values aggregating $0.5 million and goodwill of $5.0
million.


                                      F-11
<PAGE>   91

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     Acquisition of Out-of-Home Advertising Company in Boston, Massachusetts. On
February 19, 1999, the company purchased substantially all of the assets of an
outdoor advertising company in the Boston/Worcester, Massachusetts market for
approximately $11.0 million.



     Acquisition of KMTR(TV). Effective March 16, 1999, the Company purchased
substantially all of the assets of KMTR(TV), a NBC affiliate licensed to Eugene,
Oregon, together with two satellite stations licensed to Roseburg and Coos Bay,
Oregon and a low power station licensed to Eugene. The purchase price was
approximately $26.0 million. Pending closing of the transaction, the Company
operated the stations pursuant to a time brokerage agreement with the former
owner since December 1, 1998. The Company recorded net assets with estimated
fair values aggregating $3.0 million and goodwill of $23.0 million.



 4. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS



     As of December 31, 1998 and 1997, accounts receivable includes employee
receivables of $2.4 million and $2.9 million, respectively.



     The activity in the allowance for doubtful accounts is summarized as
follows:



<TABLE>
<CAPTION>
                                                     1998       1997      1996
                                                    -------    ------    -------
<S>                                                 <C>        <C>       <C>
Balance at beginning of year......................  $ 1,498    $1,426    $ 1,163
Additions charged to operating expense............    1,023       814      1,386
Write-offs of receivables, net of recoveries......   (1,086)     (742)    (1,123)
                                                    -------    ------    -------
Balance at end of year............................  $ 1,435    $1,498    $ 1,426
                                                    =======    ======    =======
</TABLE>



 5. PROPERTY AND EQUIPMENT



     At December 31, 1998 and 1997, property and equipment consisted of the
following:



<TABLE>
<CAPTION>
                                                        ESTIMATED
                                 1998        1997      USEFUL LIFE
                               --------    --------    -----------
<S>                            <C>         <C>         <C>
Land.........................  $  7,719    $  7,468
Advertising structures.......    82,789      86,737    6-20 years
Broadcast equipment..........    57,891      56,065    6-20 years
Building and improvements....    40,387      38,351    3-40 years
Office furniture and
  equipment..................    26,909      25,482    5-10 years
Transportation and other
  equipment..................    29,573      10,335     5-6 years
Equipment under capital
  leases.....................     8,008       7,982      10 years
                               --------    --------
                                253,276     232,420
Less accumulated
  depreciation...............   140,168     137,452
                               --------    --------
                               $113,108    $ 94,968
                               ========    ========
</TABLE>


                                      F-12
<PAGE>   92

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



 6. INTANGIBLES



     At December 31, 1998 and 1997, intangibles consisted of the following:



<TABLE>
<CAPTION>
                                                       ESTIMATED
                                 1998       1997      USEFUL LIFE
                               --------    -------    -----------
<S>                            <C>         <C>        <C>
Goodwill.....................  $ 84,032    $46,229    15-40 years
Favorable leases and
  contracts..................    17,462     17,462       20 years
Broadcasting agreements......     4,000      4,000       15 years
Other........................     6,196      6,196     5-30 years
                               --------    -------
                                111,690     73,887
Less accumulated
  amortization...............    33,876     31,569
                               --------    -------
                               $ 77,814    $42,318
                               ========    =======
</TABLE>



     The increase in intangibles in 1998 is primarily due to the recording of
goodwill related to the Partnership redemption and acquisition of WIVT(TV), as
discussed in Note 3.



 7. DEBT



     On September 30, 1996, the Company entered into a credit agreement (the
"1996 Credit Agreement") with various banks which increased the aggregate
principal amount of borrowings available under the lending facility from $65.0
million to $77.5 million. The refinancing of the Company's debt in 1996 resulted
in an extraordinary loss of $0.4 million.



     In January 1998, the Company replaced the 1996 Credit Agreement with a
$265.0 million credit agreement (the "1998 Credit Agreement") and in October
1998 used borrowings therefrom to redeem its $120.0 million 10.75% Senior
Secured Notes. This resulted in a charge of approximately $4.3 million, net of
applicable taxes of $2.5 million, consisting of prepayment fees and the
write-off of deferred financing costs.



     On January 22, 1999, the Company replaced the 1998 Credit Agreement with a
new $325.0 million credit agreement (the "1999 Credit Agreement"), consisting of
a $150.0 million term loan facility (the "Term Loan") and a $175.0 million
revolving credit facility (the "Revolver"), which includes up to $10.0 million
in standby letters of credit. At closing of this transaction, the Company had
available borrowings of $85.0 million under the Term Loan and $166.3 million
under the Revolver. The commitment fees under the Revolver are payable quarterly
at a rate based on the Company's total leverage ratio. The Company can choose to
have interest calculated under the 1999 Credit Agreement at rates based on
either a base rate or LIBOR plus defined margins which vary based on the
Company's total leverage ratio. At January 22, 1999, the interest rate under the
1999 Credit Agreement was LIBOR (5.00%) plus 2.75%.



     Principal repayments under the Term Loan are due quarterly from March 31,
2000 through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal prepayments of outstanding
amounts in excess of the commitment levels, quarterly beginning March 31, 2001
through December 31, 2005.


                                      F-13
<PAGE>   93

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     On December 14, 1998, the Company issued 9% Senior Subordinated Notes due
2009 (the "9% Senior Subordinated Notes") in the aggregate principal amount of
$175.0 million. These notes were issued under an indenture which allows for an
aggregate principal amount of up to $250.0 million. On February 24, 1999, the
Company issued additional 9% Senior Subordinated Notes under the indenture in
the aggregate amount of $25.0 million, for a total aggregate amount of 9% Senior
Subordinated Notes issued of $200.0 million. These notes bear interest at 9%
which is payable semi-annually in January and July. Principal is payable in full
in January 2009.



     At December 31, 1998 and 1997, outstanding balances under letter of credit
agreements totaled $3.8 million and $1.1 million, respectively.



     At December 31, 1998, senior subordinated notes consisted of $175.0 million
of the 9% Senior Subordinated Notes and $20.0 million 10.48% Senior Subordinated
Notes due December 15, 2000 payable to several insurance companies (the "10.48%
Senior Subordinated Notes"). On March 15, 1999, the 10.48% Senior Subordinated
Notes were repaid with borrowings under the 1999 Credit Agreement Revolver. This
transaction resulted in a charge of approximately $0.8 million, net of
applicable taxes, consisting of prepayment fees and the write-off of deferred
financing costs.



     Other debt consists primarily of notes payable related to the acquisition
of a new aircraft for the Seattle SuperSonics in 1998 and obligations under
deferred compensation agreements in 1998 and 1997.



     At December 31, 1998 and 1997, long-term debt consisted of the following:



<TABLE>
<CAPTION>
                                              1998        1997
                                            --------    --------
<S>                                         <C>         <C>
Credit agreements.........................  $ 51,811    $ 59,000
Senior notes..............................        --     120,000
Senior subordinated notes.................   195,000      32,500
Partnership debt..........................        --       8,888
Capital lease obligation (net of imputed
  interest of $987 in 1998 and $1,434 in
  1997)...................................     5,686       6,451
Other debt................................    17,603       2,585
                                            --------    --------
                                             270,100     229,424
Less amounts classified as current........     3,101      16,130
                                            --------    --------
                                            $266,999    $213,294
                                            ========    ========
</TABLE>



     Approximately $0.8 million of interest was capitalized in 1998. There was
no capitalized interest in 1997 or 1996.


                                      F-14
<PAGE>   94

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     Aggregate annual payments of long-term debt during the next five years,
reflecting the terms of the 1999 Credit Agreement and the repayment of the
10.48% Senior Subordinated Notes are as follows:



<TABLE>
<CAPTION>
                        CREDIT
                       AGREEMENT               CAPITAL LEASE
                       AND NOTES     OTHER      OBLIGATION       TOTAL
                       ---------    -------    -------------    --------
<S>                    <C>          <C>        <C>              <C>
1999.................  $     --     $ 2,198       $  903        $  3,101
2000.................     7,500       2,482          963          10,945
2001.................    15,000       2,546        1,027          18,573
2002.................    22,500       2,775        1,094          26,369
2003.................     6,811       3,012        1,699          11,522
Later years..........   195,000       4,590           --         199,590
                       --------     -------       ------        --------
  Total..............  $246,811     $17,603       $5,686        $270,100
                       ========     =======       ======        ========
</TABLE>



     Substantially all of the outstanding stock and material assets of the
Company's subsidiaries are pledged as collateral under the 1999 Credit
Agreement. In addition, the 1999 Credit Agreement and the Indenture restrict,
among other things, the Company's borrowings, dividend payments, stock
repurchases, sales or transfers of assets and contain certain other restrictive
covenants which require the Company to maintain certain debt coverage and other
financial ratios.



     At December 31, 1998, the Company had outstanding interest rate contacts
with financial institutions which involve the exchange of fixed for floating
rate of LIBOR (5.688% at December 27, 1998) on a notional principal amount of
$200.0 million. The Company's risk in this transaction is the cost of replacing,
at current market rates, the contracts in the event of default by the
counterparties. At December 31, 1998, the fair value of the contracts, as quoted
by the counterparties, were $2.7 million. Management believes the risk of
incurring a loss as a result of non-performance by the counterparties is remote
as the contracts are with major financial institutions.


                                      F-15
<PAGE>   95

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



 8. INCOME TAXES



     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1998 and
1997 significant components of the Company's deferred tax liabilities and assets
are as follows:



<TABLE>
<CAPTION>
                                              1998       1997
                                             -------    -------
<S>                                          <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards.........  $ 5,497    $14,579
  Litigation accrual.......................    3,046      3,067
  Tax credit carryforwards.................    2,346      2,133
  Capital lease obligation.................    2,160      2,451
  Deferred NBA expansion revenue...........       --        772
  Deferred compensation agreements.........      828        730
  Other....................................    3,095      5,494
                                             -------    -------
Total deferred tax assets..................   16,972     29,226
Deferred tax liabilities:
  Tax over book depreciation...............    7,562      7,131
  Other....................................      348        297
                                             -------    -------
Total deferred tax liabilities.............    7,910      7,428
                                             -------    -------
Net deferred tax assets....................  $ 9,062    $21,798
                                             =======    =======
</TABLE>



     In 1997, the Company's valuation allowance decreased by $27.2 million,
primarily through utilization of net operating loss carryforwards and the
elimination of the remaining balance due to improved recent and anticipated
future operating results.



     Significant components of the income tax expense (benefit) are as follows:



<TABLE>
<CAPTION>
                                    1998        1997       1996
                                   -------    --------    ------
<S>                                <C>        <C>         <C>
Current:
  Federal........................  $   387    $    263    $1,561
  State..........................      (30)        363     1,197
                                   -------    --------    ------
                                       357         626     2,758
Deferred:
  Federal........................   14,094     (18,235)       --
  State..........................    1,036      (1,563)       --
                                   -------    --------    ------
                                    15,130     (19,798)       --
                                   -------    --------    ------
Income tax expense (benefit).....  $15,487    $(19,172)   $2,758
                                   =======    ========    ======
</TABLE>


                                      F-16
<PAGE>   96

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense (benefit) is as follows:



<TABLE>
<CAPTION>
                                   1998        1997       1996
                                  -------    --------    -------
<S>                               <C>        <C>         <C>
Tax at U.S. statutory rate......  $13,654    $  4,815    $ 6,422
Non-deductible expenses.........      831         929        582
State taxes and other...........    1,002         363      1,197
Net operating loss
  carryforwards.................       --      (5,744)    (7,004)
Alternative minimum tax.........       --          --      1,561
Change in valuation account.....       --     (19,535)        --
                                  -------    --------    -------
Provision (benefit) for income
  taxes.........................  $15,487    $(19,172)   $ 2,758
                                  =======    ========    =======
</TABLE>



     At December 31, 1998, the Company has net operating loss carryforwards of
approximately $15.7 million that expire in the years 2006 and 2007 and
alternative minimum tax credit carryforwards of approximately $2.3 million.



9. EMPLOYEE BENEFIT PLAN



     The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees, who may contribute
from 1% to 15% of their compensation up to a limit imposed by the Internal
Revenue Code. The Company matches participating employee contributions up to 4%
of their compensation and may also make an additional voluntary contribution to
the plan. The Company's contributions totaled $1.4 million in 1998, $1.1 million
in 1997, and $1.1 million in 1996.



10. STOCKHOLDERS' DEFICIENCY



     The Class B common stock has the same rights as common stock, except that
the Class B common stock has ten times the voting rights of common stock and is
restricted as to its transfer. Each outstanding share of Class B common stock
may be converted into one share of common stock at any time at the option of the
stockholder.



     In 1981, the Company entered into various stock purchase agreements to sell
shares of its common stock and Class B common stock to key employees and
officers at fair market value at the time the agreements were executed. The
agreements expire in 1999. The stock purchase agreements provide for
distribution of one share of Class B common stock at no extra cost to the holder
for each share of common stock at the time the common stock is purchased. At
December 31, 1998 and 1997, there were an aggregate of 37,500 and 52,500 shares,
respectively, of common stock and an equal number of shares of Class B common
stock available for purchase at $2.00 per share of common stock. In 1998, 15,000
shares of common stock and 15,000 shares of Class B common stock were purchased
under these agreements. No shares were purchased under these agreements in 1997
and 1996.



     The Company's Nonemployee-Directors' Equity Compensation Plan (the
"Directors Plan") was approved by the Board of Directors in 1995 and the
stockholders of the Company in 1996. The Directors Plan's purpose is to allow
nonemployee directors to elect


                                      F-17
<PAGE>   97

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



to receive directors' fees in the form of common stock instead of cash. There
are 100,000 shares of common stock authorized and reserved for issuance under
the Directors Plan.



     At December 31, 1998, the Company had 11,051,230 shares of common stock
reserved for conversion of Class B common stock, 490,250 shares reserved under
the Employee Stock Option Plan, 75,000 shares reserved under stock purchase
agreements, and 92,188 shares reserved under the Directors Plan.



11. STOCK OPTION PLAN



     The Company's Employee Stock Option Plan (the "Plan") was approved by the
Board of Directors and the stockholders of the Company in 1983. In 1994, the
Plan was amended to extend the term of the Plan and to increase the amount of
common stock reserved for issuance to 1,000,000 shares. As of December 31, 1998
and 1997, there were 230,250 shares of common stock available for future grants
under the Plan.



     Under the Plan, the exercise price of the options equals the market price
of the Company's stock on the date of grant and the options' maximum life is 10
years. The options vest at the end of five years of continuous employment.



     In 1998, the Company recognized stock compensation expense of $0.4 million
primarily due to the amendments of certain stock option agreements.



     In 1997, the Company amended certain employees' stock option agreements,
converting 338,000 incentive stock options to nonqualified stock options. In
conjunction with this transaction, the Company declared bonuses to the option
holders to pass on the Company's projected tax savings, representing deductions
attributable to the exercise of these nonqualified options, to the option
holders. Accordingly, the Company recognized total compensation expense of $8.3
million, consisting of stock compensation expense of $5.4 million and bonus
expense of $2.9 million. The Company also granted 70,000 nonqualified options at
below-market exercise prices and recorded compensation expense of $1.0 million.



     A summary of the Company's stock option activity and related information
for the years ended December 31 follows:



<TABLE>
<CAPTION>
                                             1998                  1997                  1996
                                      ------------------   --------------------   ------------------
                                                WEIGHTED               WEIGHTED             WEIGHTED
                                                AVERAGE                AVERAGE              AVERAGE
                                                EXERCISE               EXERCISE             EXERCISE
                                      OPTIONS    PRICE      OPTIONS     PRICE     OPTIONS    PRICE
                                      -------   --------   ---------   --------   -------   --------
<S>                                   <C>       <C>        <C>         <C>        <C>       <C>
Options outstanding at beginning of
  year..............................  320,600    $4.75       658,000    $2.96     690,000    $2.97
Granted.............................       --       --        70,000     0.69          --       --
Exercised...........................  (60,600)    0.69      (367,400)    0.69     (32,000)    3.23
Canceled............................       --       --       (40,000)    5.53          --       --
                                      -------    -----     ---------    -----     -------    -----
Options outstanding at end of
  year..............................  260,000    $5.69       320,600    $4.75     658,000    $2.96
Exercisable at end of year..........       --       --        60,600    $0.69          --       --
Weighted average fair value of
  options granted during year.......       --              $   14.00                   --
</TABLE>


                                      F-18
<PAGE>   98

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     Exercise prices for options outstanding at December 31, 1998 ranged from
$3.44 to $7.63. A summary of options outstanding as of December 31, 1998 is as
follows:



<TABLE>
<CAPTION>
                                  WEIGHTED-
                                   AVERAGE          WEIGHTED-
   RANGE OF        OPTIONS        REMAINING          AVERAGE
EXERCISE PRICE   OUTSTANDING   CONTRACTUAL LIFE   EXERCISE PRICE   EXERCISABLE
--------------   -----------   ----------------   --------------   -----------
<S>              <C>           <C>                <C>              <C>
$0.70 -  3.44      120,000              6.1           $3.44               --
 3.45 -  7.63      140,000              7.0            7.63               --
                   -------
$0.70 - $7.63      260,000        6.6 years           $5.69
</TABLE>



     As required by Financial Accounting Standards Board Statement No. 123, the
pro forma information regarding net income and earnings per share has been
calculated as if the Company had accounted for its employee stock options under
the fair value method of that statement. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1997 (there were
no grants in 1998 and 1996): Dividend yield of 0%; expected volatility of 55%;
risk-free interest rate of 6%; and a weighted-average expected life of the
options of 7.5 years.



     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
net income and earnings per common share follows:



<TABLE>
<CAPTION>
                                            1998       1997       1996
                                           -------    -------    -------
<S>                                        <C>        <C>        <C>
Pro forma net income.....................  $18,971    $32,742    $15,554
Pro forma net income per common share....  $  0.60    $  1.04    $  0.50
Pro forma net income per common share,
  assuming dilution......................  $  0.60    $  1.03    $  0.49
</TABLE>



12. COMMITMENTS AND CONTINGENCIES



     The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its operations, including such
matters as contract and lease disputes and complaints alleging employment
discrimination. In addition, the Company participates in various governmental
and administrative proceedings relating to, among other things, condemnation of
outdoor advertising structures without payment of just compensation and matters
affecting the operation of broadcasting facilities. The Company believes that
the outcome of any such pending claims or proceedings individually or in the
aggregate, will not have a material adverse effect upon its business or
financial condition, except for the matters discussed in Note 13.


                                      F-19
<PAGE>   99

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     The Company has employment contracts with certain employees, including
basketball coaches and players of the Seattle SuperSonics, extending beyond
December 31, 1998. Most of these contracts require that payments continue to be
made if the individual should be unable to perform because of death or
disability. Future minimum obligations under these contracts are as follows:



<TABLE>
<S>                                                     <C>
1999..................................................  $27,535
2000..................................................   25,947
2001..................................................   22,048
2002..................................................   13,625
2003..................................................    8,542
Later years...........................................       --
                                                        -------
                                                        $97,697
                                                        =======
</TABLE>



     The Seattle SuperSonics maintains disability and life insurance policies on
most of its key players. The level of insurance coverage maintained is based on
the determination of the insurance proceeds which would be required to meet its
guaranteed obligations in the event of permanent or total disability of its key
players.



     The Company is required to make minimum payments for equipment and
facilities under non-cancelable operating lease agreements and broadcast
agreements which expire in more than one year as follows:



<TABLE>
<CAPTION>
                          EQUIPMENT/FACILITIES    BROADCAST OBLIGATIONS
                          --------------------    ---------------------
<S>                       <C>                     <C>
1999..................          $ 4,376                  $ 8,753
2000..................            3,608                    3,897
2001..................            3,241                    2,063
2002..................            2,673                      816
2003..................            2,382                       --
Later years...........            9,820                       --
                                -------                  -------
                                $26,100                  $15,529
                                =======                  =======
</TABLE>



     Rent expense for operating leases aggregated $5.5 million in 1998, $5.4
million in 1997, and $4.5 million in 1996. Broadcasting film and programming
expense aggregated $10.3 million in 1998, $8.3 million in 1997, and $8.2 million
in 1996.



     On June 30, 1997, the Company entered into a time brokerage agreement with
Utica Television Partners, L.L.C., the owner of television station WUTR licensed
to Utica, New York. In conjunction with the transaction, the Company guaranteed
a bank loan obligation of the licensee which had an aggregate principal amount
of $7.9 million at December 31, 1998, maturing in December 2001. To date, there
has been no default under the bank loan obligation and revenues from WUTR have
been and are expected to continue to service the bank loan obligation.



     On April 24, 1996, the Company entered into a time brokerage agreement with
Harron Television of Monterey, the owner of television station KION licensed to
Monterey, California. In conjunction with the transaction, the Company
guaranteed a bank loan obligation of the licensee which had an aggregate
principal amount of $4.8 million


                                      F-20
<PAGE>   100

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



maturing in December 1999. At December 31, 1998 and 1997, the outstanding
principal amount of the bank loan obligation under the guarantee was $2.6
million and $3.7 million, respectively. To date, there has been no default under
the bank loan obligation and revenues from KION have been and are expected to
continue to service the bank loan obligation.



     The Company has incurred transportation costs of $1.3 million in 1998, $2.0
million in 1997, and $2.0 million in 1996, and made advance payments of $0.3
million at December 31, 1998, to a company controlled by the Company's major
stockholder. At December 31, 1998, principal amounts outstanding on loans to the
Company's major stockholder were $2.0 million.



13. LITIGATION ACCRUAL



     The Company and two of its executive officers were defendants in a wrongful
termination suit brought by former employees. On February 29, 1996, a jury
issued a verdict awarding the plaintiffs compensatory and punitive damages of
approximately $13.0 million. At December 31, 1995, the Company initially
recorded an accrual of $14.2 million, including estimated additional legal
costs, related to the verdict. Following post-trial motions, the punitive
damages award was reduced, and in 1997, the Company reduced the accrual related
to this litigation by $5.0 million, leaving a total accrual of approximately
$8.0 million.



     On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit ruled
in the Company's favor, holding that the plaintiffs did not have a valid claim
under the Federal Fair Labor Standards Act and striking the award of damages,
including all punitive damages. The Court of Appeals remanded the case for
further consideration of whether the plaintiffs have a valid claim under the
Washington State Fair Labor Standards Act.



     On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing. A hearing has been set for April 22,
1999. A decision from the hearing has not yet been rendered.



14. INDUSTRY SEGMENT INFORMATION



     In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 131. The Company organizes its segments based on the products and services
from which revenues are generated. Segment information has been restated to
present the out-of-home media, television broadcasting, radio broadcasting, and
sports & entertainment segments. The Company evaluates segment performance and
allocates resources based on Segment Operating Cash Flow. The Company defines
Operating Cash Flow as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses. Segment
Operating Cash Flow is defined as Operating Cash Flow before corporate overhead.


                                      F-21
<PAGE>   101

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     Selected financial information for these segments for the years ended
December 31, 1998, 1997 and 1996 is presented as follows:



<TABLE>
<CAPTION>
                                OUT-OF-HOME    TELEVISION       RADIO         SPORTS &
                                   MEDIA      BROADCASTING   BROADCASTING   ENTERTAINMENT   CONSOLIDATED
                                -----------   ------------   ------------   -------------   ------------
<S>                             <C>           <C>            <C>            <C>             <C>
1998:
Net revenue...................   $108,560       $ 68,467       $ 24,474       $ 55,150       $ 256,651
Segment operating expenses....    (65,605)       (55,996)       (14,819)       (58,119)       (194,539)
                                 --------       --------       --------       --------       ---------
Segment Operating Cash Flow...   $ 42,955       $ 12,471       $  9,655       $ (2,969)         62,112
                                 ========       ========       ========       ========
Corporate overhead............                                                                 (14,491)
                                                                                             ---------
Operating Cash Flow...........                                                                  47,621
Other expenses:
  Depreciation and
    amortization..............                                                                  16,574
  Interest expense............                                                                  25,109
  Stock compensation
    expense...................                                                                     452
  Gain on disposition of
    assets....................                                                                 (33,524)
                                                                                             ---------
Income before income taxes and
  extraordinary item..........                                                               $  39,010
                                                                                             =========
Segment assets................   $ 75,113       $ 87,308       $ 59,650       $ 31,546       $ 253,617
                                 ========       ========       ========       ========
Corporate assets..............                                                                  62,509
                                                                                             ---------
Total assets..................                                                               $ 316,126
                                                                                             =========
Capital expenditures..........   $  6,986       $  4,415       $  1,389       $    238       $  13,028
                                 ========       ========       ========       ========
Corporate capital
  expenditures................                                                                  19,691
                                                                                             ---------
Total capital expenditures....                                                               $  32,719
                                                                                             =========
1997:
Net revenue...................   $113,162       $ 63,611       $ 20,970       $ 73,432       $ 271,175
Segment operating expenses....    (72,159)       (46,935)       (12,983)       (68,662)       (200,739)
                                 --------       --------       --------       --------       ---------
Segment Operating Cash Flow...   $ 41,003       $ 16,676       $  7,987       $  4,770          70,436
                                 ========       ========       ========       ========
Corporate overhead............                                                                 (10,013)
                                                                                             ---------
Operating Cash Flow...........                                                                  60,423
Other expenses:
  Depreciation and
    amortization..............                                                                 (16,103)
  Interest expense............                                                                 (26,219)
  Litigation credit...........                                                                   5,000
  Stock compensation
    expense...................                                                                  (9,344)
                                                                                             ---------
Income before income taxes and
  extraordinary item..........                                                               $  13,757
                                                                                             =========
Segment assets................   $ 79,208       $ 75,955       $ 29,568       $ 45,261       $ 229,992
                                 ========       ========       ========       ========
Corporate assets..............                                                                  36,393
                                                                                             ---------
Total assets..................                                                               $ 266,385
                                                                                             =========
Capital expenditures..........   $  6,523       $  7,211       $    873       $  1,706       $  16,313
                                 ========       ========       ========       ========
Corporate capital
  expenditures................                                                                   1,280
                                                                                             ---------
Total capital expenditures....                                                               $  17,593
                                                                                             =========
</TABLE>


                                      F-22
<PAGE>   102

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



<TABLE>
<CAPTION>
                                OUT-OF-HOME    TELEVISION       RADIO         SPORTS &
                                   MEDIA      BROADCASTING   BROADCASTING   ENTERTAINMENT   CONSOLIDATED
                                -----------   ------------   ------------   -------------   ------------
<S>                             <C>           <C>            <C>            <C>             <C>
1996:
Net revenue...................   $ 99,833       $ 57,863       $ 17,955       $ 71,647       $ 247,298
Segment operating expenses....    (63,924)       (42,137)       (10,844)       (61,816)       (178,721)
                                 --------       --------       --------       --------       ---------
Segment Operating Cash Flow...   $ 35,909       $ 15,726       $  7,111       $  9,831          68,577
                                 ========       ========       ========       ========
Corporate overhead............                                                                  (8,233)
                                                                                             ---------
Operating Cash Flow...........                                                                  60,344
Other expenses:
  Depreciation and
    amortization..............                                                                 (16,996)
  Interest expense............                                                                 (24,461)
                                                                                             ---------
Income before income taxes and
  extraordinary item..........                                                               $  18,887
                                                                                             =========
Segment assets................   $ 67,918       $ 62,915       $ 31,925       $ 49,546       $ 212,304
                                 ========       ========       ========       ========
Corporate assets..............                                                                  12,608
                                                                                             ---------
Total assets..................                                                               $ 224,912
                                                                                             =========
Capital expenditures..........   $  4,674       $  3,770       $    393       $  1,652       $  10,489
                                 ========       ========       ========       ========       =========
Corporate capital
  expenditures................                                                                   2,635
                                                                                             ---------
Total capital expenditures....                                                               $  13,124
                                                                                             =========
</TABLE>



15. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)



     The Company's results of operations may vary from quarter to quarter due in
part to the timing of acquisitions and to seasonal variations in the operations
of the broadcasting segment. In particular, the Company's net revenue and
Operating Cash Flow historically have been affected positively during the NBA
basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters. For the fourth quarter
of 1998, net revenue and Operating Cash Flow were adversely affected by the NBA
lockout.


                                      F-23
<PAGE>   103

                            THE ACKERLEY GROUP, INC.



            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)



     The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1998 and 1997:



<TABLE>
<CAPTION>
                                         FIRST     SECOND      THIRD     FOURTH
                                        QUARTER    QUARTER    QUARTER    QUARTER
                                        -------    -------    -------    -------
<S>                                     <C>        <C>        <C>        <C>
1998
Net revenue...........................  $81,046    $75,837    $48,087    $51,681
Operating Cash Flow...................   11,658     13,940     10,903     11,120
Income before extraordinary item......      809     22,398*       229         87
Extraordinary loss....................       --         --         --     (4,346)
Net income............................      809     22,398        229     (4,259)
Net income per share..................      .03        .71        .01       (.14)
Net income per share--assuming
  dilution............................      .03        .70        .01       (.14)

1997
Net revenue...........................  $71,454    $68,207    $52,605    $78,909
Operating Cash Flow...................   12,212     18,718     10,182     19,311
Net income............................    3,194     10,469        940**   18,326***
Net income per share..................      .10        .34        .03        .58
Net income per share--assuming
  dilution............................      .10        .33        .03        .58
</TABLE>


-------------------------

  * Includes a gain on the sale of the Company's airport advertising operations.



 ** Includes stock compensation expense of $4.7 million and adjustment to
    litigation accrual of $5.0 million.



*** Includes adjustment to deferred tax valuation allowance of $14.6 million and
    additional stock compensation expense of $4.6 million.




                                      F-24
<PAGE>   104


                            THE ACKERLEY GROUP, INC.



                     CONDENSED CONSOLIDATED BALANCE SHEETS



                                     ASSETS



<TABLE>
<CAPTION>
                                                        MARCH 31,     DECEMBER 31,
                                                          1999            1998
                                                       -----------    ------------
                                                       (UNAUDITED)
                                                             (IN THOUSANDS)
<S>                                                    <C>            <C>
Current assets:
  Cash and cash equivalents..........................   $  2,547        $  4,630
  Accounts receivable, net of allowance..............     46,832          44,680
  Current portion of broadcast rights................      6,719           7,339
  Prepaid expenses...................................     12,954          10,212
  Deferred tax asset.................................      4,497           4,497
  Other current assets...............................      3,564           3,883
                                                        --------        --------
          Total current assets.......................     77,113          75,241
Property and equipment, net..........................    120,551         113,108
Goodwill, net........................................    107,028          70,034
Other intangibles, net...............................      7,534           7,780
Other assets.........................................     54,572          49,963
                                                        --------        --------
          Total assets...............................   $366,798        $316,126
                                                        ========        ========
                     LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable...................................   $  4,703        $  8,004
  Accrued interest...................................      6,320             694
  Other accrued liabilities..........................     17,105          11,861
  Deferred revenue...................................     12,046          27,736
  Current portion of broadcasting obligations........      7,063           8,139
  Current portion of long-term debt..................      4,973           3,101
                                                        --------        --------
          Total current liabilities..................     52,210          59,535
Long-term debt, less current portion.................    329,709         266,999
Litigation accrual...................................      7,999           8,016
Other long-term liabilities..........................      7,029           7,417
                                                        --------        --------
          Total liabilities..........................    396,947         341,967
Stockholders' deficiency:
  Common stock, par value $.01 per
     share -- authorized 50,000,000 shares; issued
     21,952,214 shares at March 31, 1999 and
     21,951,380 shares at December 31, 1998; and
     outstanding 20,577,268 shares at March 31, 1999
     and 20,576,434 shares at December 31, 1998......        219             219
  Class B common stock, par value $.01 per share --
     authorized 11,406,510 shares; and issued and
     outstanding 11,051,230 shares at March 31, 1999
     and December 31, 1998...........................        111             111
Capital in excess of par value.......................     10,584          10,339
Deficit..............................................    (30,974)        (26,421)
Less common stock in treasury, at cost...............    (10,089)        (10,089)
                                                        --------        --------
          Total stockholders' deficiency.............    (30,149)        (25,841)
                                                        --------        --------
          Total liabilities and stockholders'
             deficiency..............................   $366,798        $316,126
                                                        ========        ========
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                      F-25
<PAGE>   105


                            THE ACKERLEY GROUP, INC.



                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                              FOR THE THREE MONTH
                                                                 PERIODS ENDED
                                                                   MARCH 31,
                                                             ----------------------
                                                               1999         1998
                                                             ---------    ---------
                                                             (IN THOUSANDS, EXCEPT
                                                               PER SHARE AMOUNTS)
<S>                                                          <C>          <C>
Revenue....................................................   $75,117      $89,629
Less agency commissions and discounts......................    (7,421)      (8,583)
                                                              -------      -------
Net revenue................................................    67,696       81,046
Expenses (other income):
  Operating expenses.......................................    60,164       69,388
  Depreciation and amortization expense....................     4,723        3,843
  Interest expense.........................................     7,311        6,510
  Stock compensation expense...............................       244           --
  Gain on disposition of assets............................    (1,626)          --
                                                              -------      -------
     Total expenses and other income.......................    70,816       79,741
                                                              -------      -------
Income (loss) before income taxes..........................    (3,120)       1,305
Income tax benefit (expense)...............................       572         (496)
                                                              -------      -------
Income (loss) before extraordinary item....................    (2,548)         809
Extraordinary item; loss on debt extinguishment............    (1,373)          --
                                                              -------      -------
Net income (loss)..........................................   $(3,921)     $   809
                                                              =======      =======
Income (loss) per common share, before extraordinary
  item.....................................................   $ (0.08)     $  0.03
Extraordinary item; loss on debt extinguishment............     (0.04)          --
                                                              -------      -------
Net income (loss) per common share.........................   $ (0.12)     $  0.03
                                                              =======      =======
Income (loss) per common share, assuming dilution, before
  extraordinary item.......................................   $ (0.08)     $  0.03
Extraordinary item; loss on debt extinguishment............     (0.04)          --
                                                              -------      -------
Net income (loss) per common share, assuming dilution......   $ (0.12)     $  0.03
                                                              =======      =======
Dividends per common share.................................   $  0.02      $  0.02
                                                              =======      =======
Dividends per common share, assuming dilution..............   $  0.02      $  0.02
                                                              =======      =======
Weighted average number of common shares...................    31,627       31,458
Weighted average number of common shares, assuming
  dilution.................................................    31,882       31,692
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.


                                      F-26
<PAGE>   106


                            THE ACKERLEY GROUP, INC.



                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTH
                                                              PERIODS ENDED MARCH 31,
                                                              ------------------------
                                                                 1999          1998
                                                              ----------    ----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
Cash flows from operating activities;
  Reconciliation of net income (loss) to net cash used in
    operating activities:
    Net income (loss).......................................   $ (3,921)     $    809
    Adjustment to reconcile net income (loss) to net cash
       used in operating activities:
       Stock compensation expense...........................        244            --
       Deferred tax expense (benefit).......................     (1,092)          290
       Debt extinguishment, net of taxes....................      1,373            --
       Depreciation and amortization........................      4,723         3,843
       Amortization of deferred financing costs.............        429           130
       Gain on disposition of assets........................     (1,626)           --
       Gain on sale of property and equipment...............         --           (25)
       Amortization of broadcast rights.....................      2,727         2,781
       Income from barter transactions......................       (576)         (545)
    Change in assets and liabilities:
       Accounts receivable..................................     (2,152)        4,262
       Prepaid expenses.....................................     (2,742)          102
       Other current assets and other assets................      1,211        (4,051)
       Accounts payable and accrued interest................      2,325         4,972
       Other accrued liabilities and other long-term
         liabilities........................................      4,926         1,631
       Deferred revenues....................................    (15,690)      (12,168)
       Current portion of broadcast obligations.............     (3,289)       (2,782)
                                                               --------      --------
    Net cash used in operating activities...................    (13,130)         (751)
Cash flows from investing activities
  Proceeds from disposition of assets.......................      1,626            --
  Proceeds from sale of property and equipment..............        175            76
  Capital expenditures......................................     (5,919)      (11,976)
  Payments for acquisitions.................................    (42,564)      (10,756)
  Other, net................................................         --          (513)
                                                               --------      --------
  Net cash used in investing activities.....................    (46,682)      (23,169)
Cash flows from financing activities:
  Borrowings under credit agreements........................    169,063       171,750
  Payments under credit agreements..........................   (104,274)     (145,924)
  Payments under capital lease obligations..................       (220)         (210)
  Note redemption prepayment fees...........................     (1,208)           --
  Payments of deferred financing costs......................     (5,632)       (1,345)
  Proceeds from stock issuance..............................         --            72
                                                               --------      --------
  Net cash provided by financing activities.................     57,729        24,343
Net increase (decrease) in cash and cash equivalents........     (2,083)          423
Cash and cash equivalents at beginning of period............      4,630         3,656
                                                               --------      --------
Cash and cash equivalents at end of period..................   $  2,547      $  4,079
                                                               ========      ========
  Supplemental disclosure of noncash transactions:
    Broadcast rights acquired and broadcast obligations
       assumed..............................................   $  1,567      $     29
Property and equipment acquired through barter..............        606           602
</TABLE>



           See Notes to Condensed Consolidated Financial Statements.

                                      F-27
<PAGE>   107


                            THE ACKERLEY GROUP, INC.



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                  (UNAUDITED)



NOTE 1. BASIS OF REPRESENTATION



     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The balance sheet at December 31, 1998 has been derived
from the audited consolidated financial statements at that date. The
accompanying condensed consolidated financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal and recurring adjustments necessary for a fair presentation of the
financial position and the results of operations for such periods have been
included. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.



     The results of operations for any interim period are not necessarily
indicative of anticipated results for the full year. The Company's results of
operations may vary from quarter to quarter due in part to the timing of
acquisitions and to seasonal variations in the operations of the television
broadcasting, radio broadcasting, and sports & entertainment segments. In
particular, the Company's net revenue and net income historically have been
affected positively during the NBA basketball season (the first, second, and
fourth quarters) and by increased advertising activity in the second and fourth
quarters.



     Certain prior year's amounts have been reclassified to conform to the 1999
presentation.



NOTE 2. DEBT



     On January 22, 1999, the Company replaced its $300.0 million credit
agreement with a new $325.0 million credit agreement (the "1999 Credit
Agreement"), consisting of a $150.0 million term loan facility (the "Term Loan")
and a $175.0 million revolving credit facility (the "Revolver"). The Revolver
includes up to $10.0 million in standby letters of credit. The transaction
resulted in a charge of approximately $0.6 million, net of applicable taxes,
consisting of the write-off of deferred financing costs.



     Principal repayments under the Term Loan are due quarterly from March 31,
2000 through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal repayments of outstanding amounts
in excess of the commitment levels, quarterly beginning March 31, 2001 through
December 31, 2005.



     The Company can choose to have interest calculated at rates based on either
a base rate or LIBOR plus defined margins which vary based on the Company's
total leverage ratio. The commitment fees under the Revolver are payable
quarterly at a rate based on the Company's total leverage ratio.


                                      F-28
<PAGE>   108

                            THE ACKERLEY GROUP, INC.



        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                  (UNAUDITED)



     On February 24, 1999, the Company issued additional 9% Senior Subordinated
Notes due 2009 (the "9% Senior Subordinated Notes") in the aggregate amount of
$25.0 million. The total aggregate amount of 9% Senior Subordinated Notes issued
and outstanding is $200.0 million. These notes bear interest at 9% which is
payable semi-annually in January and July. Principal is payable in full in
January 2009.



     On March 15, 1999, the Company redeemed its $20.0 million outstanding
principal of the 10.48% Senior Subordinated Notes due 2000 (the "10.48% Senior
Subordinated Notes") with borrowings under the Revolver. This transaction
resulted in a charge of approximately $0.8 million, net of applicable taxes,
consisting of prepayment fees and the write-off of deferred financing costs.



NOTE 3. ACQUISITIONS



     On January 5, 1999, the Company purchased substantially all of the assets
of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for approximately
$5.5 million, pursuant to an agreement dated July 15, 1998. Pending closing of
the transaction, the Company operated the station pursuant to a time brokerage
agreement with the former owner. The Company recorded net assets with estimated
fair values aggregating $0.5 million and goodwill of $5.0 million.



     On February 19, 1999, the Company purchased substantially all of the assets
of an outdoor advertising company in the Boston/Worcester, Massachusetts market
for approximately $11.0 million. The Company recorded net assets with estimated
fair values aggregating $0.6 million and goodwill of $10.4 million.



     On March 16, 1999, the Company purchased substantially all of the assets of
KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two
satellite stations licensed to Roseburg and Coos Bay, Oregon, and a low power
station licensed to Eugene. The purchase price was approximately $26.0 million.
From December 1, 1998 until closing of the transaction, the Company operated the
stations pursuant to a time brokerage agreement with the former owner. The
Company recorded net assets with estimated fair values aggregating $3.0 million
and goodwill of $23.0 million.



     On April 12, 1999, the Company purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately
$128.2 million. In September 1998, the Company paid $12.5 million of the
purchase price into an escrow account, with the balance paid at closing. The
Company recorded net assets with estimated fair values aggregating $9.8 million
and goodwill of $118.4 million.



     The following table summarizes, on an unaudited pro forma basis, the
consolidated results of operations of the Company for the three month periods
ended March 31, 1999 and 1998, giving pro forma effect to the acquisition of
WOKR(TV) as if the acquisition had been made at the beginning of the periods
presented. These pro forma consolidated


                                      F-29
<PAGE>   109

                            THE ACKERLEY GROUP, INC.



        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                  (UNAUDITED)



statements do not necessarily reflect the results of operations which would have
occurred had such an acquisition taken place on the date indicated.



<TABLE>
<CAPTION>
                                                             FOR THE THREE MONTH
                                                           PERIODS ENDED MARCH 31,
                                                           ------------------------
                                                              1999          1998
                                                           ----------    ----------
                                                            (IN THOUSANDS, EXCEPT
                                                              PER SHARE AMOUNTS)
<S>                                                        <C>           <C>
Net revenue..............................................   $ 71,606      $ 84,741
Operating expenses.......................................    (62,728)      (71,737)
Income (loss) before extraordinary item..................     (2,337)          781
Net income (loss)........................................     (3,710)          781
Net income (loss) per common share.......................      (0.12)         0.02
Net income (loss) per common share, assuming dilution....      (0.12)         0.02
</TABLE>



     On May 1, 1999, the Company exchanged substantially all of the assets plus
certain liabilities of KKTV(TV), a CBS affiliate licensed to Colorado Springs,
Colorado, for substantially all of the assets plus certain liabilities of
KCOY(TV), a CBS affiliate licensed to Santa Maria, California. In conjunction
with the transaction, the Company received a cash payment of approximately $9.0
million (subject to certain adjustments). Pending closing of the transaction,
the Company operated KCOY(TV) and the former of KCOY(TV) operated KKTV(TV)
pursuant to time brokerage agreements. The Company recorded net assets with
estimated fair values aggregating $7.2 million and goodwill of $16.8 million.



NOTE 4. TELEVISION BROADCASTING SEGMENT RESTRUCTURING



     On April 6, 1999, the Company announced the launch of Digital
CentralCasting, a digital broadcasting system which allows the Company to
consolidate back-office functions such as operations, traffic, programming, and
accounting for several television stations at one location. To implement this
strategy, the Company has organized the television stations it owns and operates
into the following three regional station groups: New York (WIXT, WIVT, WUTR,
and WOKR), Central Coast (KGET, KCBA, KION, and KCOY), and North Coast (KFTY,
KVIQ, and KMTR). Using Digital CentralCasting, one station will perform the
back-office functions for all of the stations in a regional station group.



     The Company expects to implement Digital CentralCasting in the New York
station group by July 1, 1999, the Central Coast station group in the fourth
quarter of 1999, and the North Coast station group in the first quarter of 2000.
The Company will accrue the costs related to the implementation when the amount
of these costs becomes reasonably determinable.


                                      F-30
<PAGE>   110

                            THE ACKERLEY GROUP, INC.



        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                  (UNAUDITED)



NOTE 5. LITIGATION ACCRUAL



     The Company and two of its executive officers were defendants in a wrongful
termination suit brought by former employees. On February 29, 1996, a jury
issued a verdict awarding the plaintiffs compensatory and punitive damages of
approximately $13.0 million. At December 31, 1995, the Company initially
recorded an accrual of $14.2 million, including estimated additional legal
costs, related to the verdict. Following post-trial motions, the punitive
damages award was reduced, and in 1997, the Company reduced the accrual related
to this litigation by $5.0 million, leaving a total accrual of approximately
$8.0 million.



     On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit ruled
in the Company's favor, holding that the plaintiffs did not have a valid claim
under the Federal Fair Labor Standards Act and striking the award of damages,
including all punitive damages. The Court of Appeals remanded the case for
further consideration of whether the plaintiff have a valid claim under the
Washington State Fair Labor Standards Act.



     On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing, which was held on April 23, 1999. On
June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. We intend to petition for review of this decision by
the U.S. Supreme Court.



NOTE 6. INDUSTRY SEGMENT INFORMATION



     The Company organizes its segments based on the products and services from
which revenues are generated. The Company evaluates segment performance and
allocates resources based on Segment Operating Cash Flow. The Company defines
Operating Cash Flow as net revenue less operating expenses before depreciation,
amortization, interest, disposition of assets, and stock compensation expenses.
Segment Operating Cash Flow is defined as Operating Cash Flow before corporate
overhead.


                                      F-31
<PAGE>   111

                            THE ACKERLEY GROUP, INC.



        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                  (UNAUDITED)



     Selected financial information for these segments for the three month
periods ended March 31, 1999 and 1998 is presented as follows:



<TABLE>
<CAPTION>
                                   OUTDOOR     TELEVISION       RADIO         SPORTS &
                                    MEDIA     BROADCASTING   BROADCASTING   ENTERTAINMENT   CONSOLIDATED
                                   --------   ------------   ------------   -------------   ------------
                                                              (IN THOUSANDS)
<S>                                <C>        <C>            <C>            <C>             <C>
THREE MONTH PERIOD ENDED MARCH
  31, 1999:
Net revenue......................  $ 19,990     $ 16,251       $ 5,221        $ 26,234        $ 67,696
Segment operating expenses.......   (12,957)     (16,291)       (3,452)        (23,652)        (56,352)
                                   --------     --------       -------        --------        --------
Segment Operating Cash Flow......  $  7,033     $    (40)      $ 1,769        $  2,582        $ 11,344
                                   ========     ========       =======        ========
Corporate Overhead...............                                                               (3,812)
                                                                                              --------
Operating Cash Flow..............                                                                7,532
Other (expenses) income:
  Depreciation and
    amortization.................                                                               (4,723)
  Interest expense...............                                                               (7,311)
  Stock compensation expense.....                                                                 (244)
  Gain on disposition of
    assets.......................                                                                1,626
                                                                                              --------
Income before income taxes and
  extraordinary item.............                                                             $ (3,120)
                                                                                              ========
Segment assets...................  $ 88,114     $115,644       $57,964        $ 39,343        $301,065
                                   ========     ========       =======        ========
Corporate assets.................                                                               65,733
                                                                                              --------
Total assets.....................                                                             $366,798
                                                                                              ========
THREE MONTH PERIOD ENDED MARCH
  31, 1998:
Net revenue......................  $ 26,467     $ 14,536       $ 4,956        $ 35,087        $ 81,046
Segment operating expenses.......   (18,962)     (13,651)       (3,502)        (30,216)        (66,331)
                                   --------     --------       -------        --------        --------
Segment Operating Cash Flow......  $  7,505     $    885       $ 1,454        $  4,871        $ 14,715
                                   ========     ========       =======        ========
Corporate Overhead...............                                                               (3,057)
                                                                                              --------
Operating Cash Flow..............                                                               11,658
Other (expenses) income:
  Depreciation and
    amortization.................                                                               (3,843)
  Interest expense...............                                                               (6,510)
                                                                                              --------
Income before income taxes and
  extraordinary item.............                                                             $ (1,305)
                                                                                              ========
</TABLE>



     The increase in assets from the outdoor media and television broadcasting
segments as of March 31, 1999 compared to December 31, 1998 is primarily due to
the acquisitions of an outdoor advertising company for $11.0 million and
television stations KMTR for $26.0 million and KVIQ for $5.5 million, as
discussed in Note 3.


                                      F-32
<PAGE>   112

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
The Ackerley Group, Inc.

     We have audited the accompanying balance sheet of WOKR(TV) (a division of
Guy Gannett Communications) as of December 31, 1998 and the related statements
of income and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WOKR(TV) at December 31,
1998 and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.


                                              /s/ ERNST & YOUNG LLP



Seattle, Washington

April 12, 1999

                                      F-33
<PAGE>   113

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)
                                 BALANCE SHEET
                               DECEMBER 31, 1998

<TABLE>
<S>                                                           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $   174,791
  Accounts receivable, net of allowance for doubtful
     accounts of $95,000....................................    3,454,586
  Prepaid expenses and other current assets.................      120,854
  Deferred tax assets.......................................       88,367
  Current portion of broadcast rights.......................    1,199,727
                                                              -----------
          Total current assets..............................    5,038,325
Property and equipment, net (Note 3)........................    7,140,138
Intangible assets, net (Note 4).............................   44,498,036
Broadcast rights, less current portion......................    3,387,946
                                                              -----------
          Total assets......................................  $60,064,445
                                                              ===========
LIABILITIES
Current liabilities:
  Accounts payable..........................................  $    94,612
  Income taxes payable......................................      830,096
  Other accrued liabilities.................................      580,537
  Current portion of broadcast obligations..................    1,253,628
                                                              -----------
          Total current liabilities.........................    2,758,873
Broadcast obligations, less current portion.................    3,953,044
Deferred tax liabilities....................................      455,233
Other long-term obligations.................................       90,000
Guy Gannett investment in WOKR(TV)..........................   52,807,295
                                                              -----------
          Total liabilities.................................  $60,064,445
                                                              ===========
</TABLE>

See accompanying notes.

                                      F-34
<PAGE>   114

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                              STATEMENT OF INCOME
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<S>                                                           <C>
Revenue.....................................................  $21,567,347
Less agency commissions.....................................   (3,276,732)
                                                              -----------
Net revenue.................................................   18,290,615
Expenses:
  Sales and community affairs...............................    2,228,993
  News......................................................    2,779,507
  Programming...............................................    1,515,430
  Creative services.........................................      990,799
  Engineering...............................................      980,478
  General and administrative................................    1,869,195
  Depreciation and amortization.............................    4,658,018
                                                              -----------
Total expenses..............................................   15,022,420
                                                              -----------
Income before income taxes..................................    3,268,195
Provision for income taxes..................................    1,350,649
                                                              -----------
Net income..................................................  $ 1,917,546
                                                              ===========
</TABLE>

See accompanying notes.

                                      F-35
<PAGE>   115

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                            STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1998


<TABLE>
<S>                                                           <C>
OPERATING ACTIVITIES
Reconciliation of net income to net cash provided by
  operating activities:
  Net income................................................  $1,917,546
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Deferred income tax expense............................     520,553
     Depreciation and amortization..........................   4,658,018
     Amortization of broadcast rights.......................   1,222,919
     Net expense from barter transactions...................      11,801
     Change in assets and liabilities:
       Accounts receivable..................................     469,666
       Prepaid expenses and other current assets............      43,989
       Accounts payable.....................................     (63,222)
       Income taxes payable.................................     830,096
       Other accrued liabilities............................     146,420
       Broadcast obligations................................  (1,388,781)
       Other long-term obligations..........................      20,000
                                                              ----------
Net cash provided by operating activities...................   8,389,005
INVESTING ACTIVITY -- capital expenditures..................    (702,629)
                                                              ----------
FINANCING ACTIVITY -- payments to Guy Gannett
  Communications............................................  (7,511,585)
Net increase in cash and cash equivalents...................     174,791
Cash and cash equivalents at beginning of year..............          --
                                                              ----------
Cash and cash equivalents at end of year....................  $  174,791
                                                              ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION
Broadcast rights acquired and broadcast obligations
  assumed...................................................  $5,045,036
                                                              ==========
</TABLE>


See accompanying notes.

                                      F-36
<PAGE>   116

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1998


1. ORGANIZATION AND BASIS OF PRESENTATION



     WOKR(TV) (the Company) operates an ABC-affiliated television station
licensed to Rochester, New York. Prior to 1998, the Company operated as a
partnership in which Guy Gannett Communications (Gannett) was the general
partner. Effective December 31, 1997, Gannett purchased the interest of the
other general partner, dissolved the partnership, and began operating the
Company as an operating division.



     On September 4, 1998, Gannett entered into a sales agreement with Sinclair
Communications, Inc. (Sinclair) to sell substantially all of the assets and
certain liabilities of the Company along with various other television stations
owned by Gannett. On September 25, 1998, Sinclair separately entered into an
agreement with The Ackerley Group, Inc. (Ackerley) to sell substantially all of
the assets and certain liabilities of the Company to Ackerley. The transactions
closed on April 12, 1999.


     The accompanying financial statements were prepared from the books and
records maintained by Gannett which were used to prepare Gannett's annual
financial statements. As such, income taxes were not allocated at the division
level by Gannett. For purposes of preparing the accompanying separate financial
statements of the Company, however, income taxes have been allocated as if the
Company filed a separate return.


2. SIGNIFICANT ACCOUNTING POLICIES


CASH AND CASH EQUIVALENTS

     The Company considers investments in highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

PROPERTY AND EQUIPMENT

     Purchases of property and equipment are capitalized at cost and depreciated
using the straight-line method over their estimated useful lives.

INTANGIBLE ASSETS

     The excess of cost over the fair value of acquired net assets has been
recorded as goodwill. Intangible assets include the acquired fair value of the
Company's ABC network agreement and FCC licenses. Goodwill and other intangible
assets are amortized on a straight-line basis over their estimated useful lives
ranging from 5 to 20 years.

BROADCAST RIGHTS AND OBLIGATIONS


     Television films and syndication rights acquired under license agreements
(broadcast rights) and the related obligations incurred are recorded as assets
and liabilities for the gross amount of the contract when the rights are
acquired. Broadcast rights are amortized on an accelerated basis over the
contract period or the estimated number of showings,


                                      F-37
<PAGE>   117

                                    WOKR(TV)


                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)



                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1998



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

whichever results in the greater aggregate monthly amortization. Broadcast
rights are carried at the lower of unamortized cost or net realizable value. The
estimated cost of broadcast rights to be amortized during the next year has been
classified as a current asset. Broadcast obligations are stated at contractual
amounts and balances due within one year are reported as current obligations.

REVENUE RECOGNITION

     Revenue is recognized in the period in which the advertisements are aired.
Payments from clients received in excess of one month's advertising are recorded
as deferred revenue.

BARTER TRANSACTIONS

     The Company engages in nonmonetary trades of advertising time in exchange
for goods or services. These barter transactions are recorded at the estimated
fair value of the asset or service received in accordance with Accounting
Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions.
Revenue is recognized when the advertising is provided and assets or expenses
are recorded when assets are received or services are used. Goods and services
due to the Company in excess of advertising provided are recorded in other
current assets. Advertising to be provided in excess of goods and services
received are recorded in other accrued liabilities.

CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS

     The Company sells advertising services to local and national companies
throughout the United States. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
an allowance for doubtful accounts at a level that management believes is
sufficient to cover potential credit losses. The carrying value of financial
instruments, which includes cash, receivables, and payables, approximates fair
value at December 31, 1998.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

                                      F-38
<PAGE>   118

                                    WOKR(TV)


                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)



                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1998



3. PROPERTY AND EQUIPMENT


     As of December 31, 1998, property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                      ESTIMATED
                                                                     USEFUL LIFE
                                                                     ------------
<S>                                                   <C>            <C>
Land................................................  $   394,040
Broadcasting towers and equipment...................    7,671,176    5 - 15 years
Studio, office furniture, and equipment.............    3,812,061    1 - 10 years
Buildings and leasehold improvements................    3,732,053    5 - 20 years
Vehicles and other..................................      292,631         3 years
                                                      -----------
                                                       15,901,961
Less accumulated depreciation.......................   (8,761,823)
                                                      -----------
                                                      $ 7,140,138
                                                      ===========
</TABLE>

4. INTANGIBLE ASSETS

     As of December 31, 1998, intangible assets consisted of the following:

<TABLE>
<S>                                                           <C>
Goodwill....................................................  $    774,506
FCC license.................................................    12,963,604
ABC network affiliation.....................................    41,051,413
                                                              ------------
                                                                54,789,523
Less accumulated amortization...............................   (10,291,487)
                                                              ------------
Intangible assets, net......................................  $ 44,498,036
                                                              ============
</TABLE>


5. RELATED-PARTY TRANSACTIONS



     The Company's excess cash is deposited on a daily basis into Gannett's bank
accounts. Gannett charges the Company for its allocated share of certain
corporate expenses. These costs aggregated $14,385 in 1998. Amounts recorded in
excess of allocated corporate expenses are recorded in the Guy Gannett
investment in WOKR(TV) account. Gannett does not charge or credit interest on
the balance. The Company does not have significant transactions with other
affiliated companies owned by Gannett.



6. EMPLOYEE BENEFIT PLAN



     The Company has a voluntary defined contribution 401(k) plan for the
benefit of all employees who may contribute from 1% to 15% of their
compensation, annually, subject to Internal Revenue Service limitations.
Employee contributions, plus a matching amount of up to 2% of compensation
provided by the Company ($87,622 in 1998), are contributed to the plan. The
Company may also make an additional voluntary contribution to the plan.


                                      F-39
<PAGE>   119

                                    WOKR(TV)


                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)



                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1998



7. INCOME TAXES



     The operations of the Company are included in the federal and state income
tax returns filed by Gannett. The liability method is used in accounting for
income taxes. The Company's financial statements have been presented as if the
Company filed its own tax return. Gannett does not charge nor give credit for
the tax effects of its individual stations, including the Company. Therefore,
while presentation is required, the tax effects included in the accompanying
financial statements will not result in any tax liability or benefit being paid
or received by the Company. If the financial statements did not reflect income
taxes as if the Company filed its own tax return, Guy Gannett investment in
WOKR(TV) account would be increased by the amount of income tax expense.


     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, 1998,
significant components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<S>                                                           <C>
Deferred tax assets:
  Book-over-tax depreciation of property and equipment......  $  708,169
  Book-over-tax film program expense........................     269,484
  Other.....................................................     127,067
                                                              ----------
     Total deferred tax assets..............................   1,104,720
Deferred tax liabilities:
  Tax-over-book amortization of intangible assets...........   1,471,586
                                                              ----------
Net deferred tax liabilities................................  $  366,866
                                                              ==========
</TABLE>

     As of December 31, 1998, significant components of the provision for income
taxes are as follows:

<TABLE>
<S>                                                           <C>
Current:
  Federal...................................................  $  643,044
  State.....................................................     187,052
                                                              ----------
                                                                 830,096
Deferred:
  Federal...................................................     411,600
  State.....................................................     108,953
                                                              ----------
                                                                 520,553
                                                              ----------
                                                              $1,350,649
                                                              ==========
</TABLE>

                                      F-40
<PAGE>   120

                                    WOKR(TV)


                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)



                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


                               DECEMBER 31, 1998



7. INCOME TAXES (CONTINUED)


     The reconciliation of income taxes computed at the U.S. federal statutory
rate to income tax expense is as follows:


<TABLE>
<S>                                                           <C>
Provision for income taxes at statutory rate (34%)..........  $1,111,186
Tax effect on state income taxes............................     195,363
Other.......................................................      44,100
                                                              ----------
                                                              $1,350,649
                                                              ==========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES


     The Company is required to make minimum payments for equipment and
facilities under noncancelable operating lease agreements, which expire in more
than one year as follows:



<TABLE>
<CAPTION>
                        YEAR ENDING
                        DECEMBER 31
                        -----------
<S>                                                           <C>
     1999...................................................  $ 88,556
     2000...................................................    58,803
     2001...................................................    32,276
     2002...................................................     9,579
     2003...................................................        --
     Later years............................................        --
                                                              --------
                                                              $189,214
                                                              ========
</TABLE>


     Rent expense incurred under operating leases totaled $81,265 in 1998.


9. YEAR 2000 (UNAUDITED)


     Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. The issue is not limited to computer
systems. Year 2000 issues may affect any system or equipment that has an
embedded microchip that processes date-sensitive information.

     As described in Note 1, Ackerley acquired substantially all of the
Company's assets and certain liabilities on April 12, 1999. Accordingly,
Ackerley has expanded the scope of its year 2000 compliance program to include
the computer systems and equipment of the Company that it acquired. In addition,
it is likely that Ackerley will replace many of the Company's computer systems
with new systems that are compatible with those of Ackerley. Ackerley is
committed to addressing the Year 2000 issue in a prompt and responsible manner,
and has dedicated the resources to do so. Ackerley management has implemented a
program to complete all steps necessary to resolve identified Year 2000 issues.

                                      F-41
<PAGE>   121

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                       MARCH 31,     DECEMBER 31,
                                                         1999            1998
                                                      -----------    ------------
                                                      (UNAUDITED)
<S>                                                   <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................  $    14,838    $   174,791
  Accounts receivable, net of allowance for doubtful
     accounts ($113,750 in 1999, $95,000 in 1998)...    3,097,598      3,454,586
  Prepaid expenses and other current assets.........      253,194        120,854
  Deferred tax assets...............................       96,709         88,367
  Current portion of broadcast rights...............      978,711      1,199,727
                                                      -----------    -----------
Total current assets................................    4,441,050      5,038,325
Property and equipment, net.........................    6,708,862      7,140,138
Intangible assets, net..............................   43,811,937     44,498,036
Broadcast rights, less current portion..............    3,281,004      3,387,946
                                                      -----------    -----------
Total assets........................................  $58,242,853    $60,064,445
                                                      ===========    ===========
LIABILITIES
Current liabilities:
  Accounts payable..................................  $    60,680    $    94,612
  Income taxes payable..............................      794,847        830,096
  Other accrued liabilities.........................      661,031        580,537
  Current portion of broadcast obligations..........    1,068,949      1,253,628
                                                      -----------    -----------
Total current liabilities...........................    2,585,507      2,758,873
Broadcast obligations, less current portion.........    3,793,348      3,953,044
Deferred tax liabilities............................      594,285        455,233
Other long-term obligations.........................       90,000         90,000
Guy Gannett investment in WOKR(TV)..................   51,179,713     52,807,295
                                                      -----------    -----------
Total liabilities...................................  $58,242,853    $60,064,445
                                                      ===========    ===========
</TABLE>

See accompanying notes.

                                      F-42
<PAGE>   122

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                              STATEMENT OF INCOME
                    THREE-MONTH PERIOD ENDED MARCH 31, 1999

<TABLE>
<S>                                                           <C>
Revenue.....................................................  $4,563,183
Less agency commissions.....................................    (664,884)
                                                              ----------
Net revenue.................................................   3,898,299
Expenses:
  Sales and community affairs...............................     499,952
  News......................................................     690,278
  Programming...............................................     407,445
  Creative services.........................................     226,183
  Engineering...............................................     247,256
  General and administrative................................     480,554
  Depreciation and amortization.............................   1,136,099
                                                              ----------
     Total expenses.........................................   3,687,767
                                                              ----------
Income before income taxes..................................     210,532
Provision for income taxes..................................      95,461
                                                              ----------
Net income..................................................  $  115,071
                                                              ==========
</TABLE>

See accompanying notes.

                                      F-43
<PAGE>   123

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                            STATEMENT OF CASH FLOWS
                    THREE-MONTH PERIOD ENDED MARCH 31, 1999

<TABLE>
<S>                                                           <C>
OPERATING ACTIVITIES
Reconciliation of net income to net cash provided by
  operating activities:
  Net income................................................  $   115,071
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Deferred income tax expense............................      130,710
     Depreciation and amortization..........................    1,136,099
     Amortization of broadcast rights.......................      329,458
     Net expense from barter transactions...................        1,039
     Change in assets and liabilities:
       Accounts receivable..................................      356,988
       Prepaid expenses and other current assets............      (63,747)
       Accounts payable.....................................      (33,932)
       Income taxes payable.................................      (35,249)
       Other accrued liabilities............................        9,362
       Broadcast obligations................................     (344,375)
                                                              -----------
Net cash provided by operating activities...................    1,601,424
INVESTING ACTIVITY -- capital expenditures..................      (18,724)
FINANCING ACTIVITY -- payments to Guy Gannett
  Communications............................................   (1,742,653)
                                                              -----------
Net decrease in cash and cash equivalents...................     (159,953)
Cash and cash equivalents at beginning of period............      174,791
                                                              -----------
Cash and cash equivalents at end of period..................  $    14,838
                                                              ===========
</TABLE>

See accompanying notes.

                                      F-44
<PAGE>   124

                                    WOKR(TV)
                   (A DIVISION OF GUY GANNETT COMMUNICATIONS)

                         NOTES TO FINANCIAL STATEMENTS
                                 MARCH 31, 1999

1. BASIS OF PRESENTATION

     The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. The balance sheet at December 31,
1998 has been derived from the audited financial statements at that date. The
accompanying financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal and recurring
adjustments necessary for a fair presentation of the financial position, the
results of its operations and its cash flows for such period have been included.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1998.

     The results of operations for any interim period are not necessarily
indicative of anticipated results for the year. The Company's results of
operations may vary from quarter to quarter due in part to seasonal variations
in its operations. In particular, the Company's net revenue and net income have
been historically affected by increased advertising activity in the second and
fourth quarters.

2. ACQUISITION OF THE COMPANY


     On September 4, 1998, Guy Gannett Communications (Gannett) entered into a
sales agreement with Sinclair Communications, Inc. (Sinclair) to sell
substantially all of the assets of the Company along with various other
television stations owned by Gannett. On September 25, 1998, Sinclair separately
entered into an agreement with The Ackerley Group, Inc. (Ackerley) to sell
substantially all of the assets and certain liabilities of the Company to
Ackerley. The transactions closed on April 12, 1999.


3. YEAR 2000

     Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. The issue is not limited to computer
systems. Year 2000 issues may affect any system or equipment that has an
embedded microchip that processes date-sensitive information.

     As described in Note 2, Ackerley acquired substantially all of the
Company's assets and certain liabilities on April 12, 1999. Accordingly,
Ackerley has expanded the scope of its year 2000 compliance program to include
the computer systems and equipment of the Company that it acquired. In addition,
it is likely that Ackerley will replace many of the Company's computer systems
with new systems that are compatible with those of Ackerley. Ackerley is
committed to addressing the Year 2000 issue in a prompt and responsible manner,
and has dedicated the resources to do so. Ackerley management has implemented a
program to complete all steps necessary to resolve identified Year 2000 issues.

                                      F-45
<PAGE>   125

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                                4,200,000 SHARES


                            THE ACKERLEY GROUP, INC.
                                  COMMON STOCK

                                     [LOGO]

                               ------------------

                                   PROSPECTUS


                                            , 1999


                               ------------------

                              SALOMON SMITH BARNEY


                       FIRST UNION CAPITAL MARKETS CORP.



                              MERRILL LYNCH & CO.




--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   126

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.


     The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock offered hereby.


<TABLE>
<S>                                                           <C>
Securities and Exchange Commission Registration Fee.........  $ 25,850
NASD Filing Fee.............................................  $  9,800
New York Stock Exchange Listing Fee.........................  $ 12,700
Printing and Engraving Expenses.............................  $130,000
Legal Fees and Expenses.....................................  $250,000
Accounting Fees and Expenses................................  $ 50,000
Blue Sky Fees and Expenses (including fees of counsel)......  $ 10,000
Transfer Agent and Registrar Fee............................  $  1,500
Miscellaneous Expenses......................................  $ 25,150
                                                              --------
     Total..................................................  $515,000
                                                              ========
</TABLE>



ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.



     Under Article SEVENTH of the Company's Certificate of Incorporation and
Section 9.1 of the Company's Bylaws, the Company indemnifies all directors,
officers, employees, agents, and other persons whom it may indemnify to the full
extent permitted by the Delaware General Corporation Law against any liability
and the expenses incurred in defense of such liability. Nothing contained in the
Company's Certificate of Incorporation or Bylaws shall be deemed to require or
make mandatory the purchase and maintenance of insurance permitted under Section
145(g) of the Delaware General Corporation Law. The Company will pay the
expenses of any director or officer in defense of such liability in advance of
the final disposition of the matter upon receipt of an undertaking by or on
behalf of such director or officer to repay such amounts if it shall ultimately
be determined that such person is not entitled to such indemnification. In
addition, the Underwriting Agreement, a copy of which is filed as Exhibit 1.1 to
this Registration Statement, provides that each Underwriter will indemnify and
hold harmless the Company, its directors and its officers who sign this
Registration Statement and each person, if any, who controls the Company within
the meanings of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against certain specified liabilities and expenses caused by any
untrue statements or omissions in the Registration Statement based upon
information furnished in writing to the Company by such Underwriter expressly
for use therein.


     The Company maintains directors' and officers' liability insurance for the
directors and principal officers of the Company.

                                      II-1
<PAGE>   127


ITEM 16. EXHIBITS





<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
        *1.1  Form of Underwriting Agreement
         4.1  Fourth Restated Certificate of Incorporation(1)
         4.2  Amended and Restated Bylaws(2)
        *5.1  Opinion of Graham & Dunn PC as to legality of securities
       *23.1  Consent of Graham & Dunn PC (included in Exhibit 5.1)
        23.2  Consent of Ernst & Young LLP
        24    Powers of Attorney for each of Barry A. Ackerley, Gail A.
                Ackerley, Deborah L. Bevier, M. Ian G. Gilchrist, Michel
                C. Thielen, and Denis M. Curley
</TABLE>


---------------
 *  To be filed by amendment.


(1) Incorporated by reference to Exhibit 3.0 to the Company's Quarterly Report
    on Form 10-Q for the quarter ended March 31, 1998.



(2) Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on
    Form 10-K for the year ended December 31, 1997.


ITEM 17. UNDERTAKINGS.

     (a) The undersigned Registrant hereby undertakes that:

          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance upon Rule 430A and contained in
     a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.

          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.

     (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

                                      II-2
<PAGE>   128


     (c) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.


                                      II-3
<PAGE>   129

                                   SIGNATURES


     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SEATTLE, STATE OF WASHINGTON, ON JUNE 18, 1999.


                                          THE ACKERLEY GROUP, INC.


                                          By:

                                             -----------------------------------

                                              Christopher H. Ackerley


                                              Executive Vice President,


                                              Operations and Development


     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.


<TABLE>
<CAPTION>
                  SIGNATURE                               TITLE                  DATE
                  ---------                               -----                  ----
<S>                                            <C>                           <C>

                      *                        Chairman and Chief Executive  June 18, 1999
---------------------------------------------      Officer and Director
              Barry A. Ackerley                    (Principal Executive
                                                         Officer)

                      *                        Co-Chairman and Co-President  June 18, 1999
---------------------------------------------          and Director
              Gail A. Ackerley

                      *                           Co-President and Chief     June 18, 1999
---------------------------------------------  Financial Officer, Secretary
               Denis M. Curley                   and Treasurer (Principal
                                                    Financial Officer)

            /s/ KEITH W. RITZMANN               Senior Vice President and    June 18, 1999
---------------------------------------------   Chief Information Officer,
              Keith W. Ritzmann                  Assistant Secretary and
                                                        Controller
                                                  (Principal Accounting
                                                         Officer)

                      *                                  Director            June 18, 1999
---------------------------------------------
              Deborah L. Bevier

                      *                                  Director            June 18, 1999
---------------------------------------------
             M. Ian G. Gilchrist
</TABLE>


                                      II-4
<PAGE>   130


<TABLE>
<CAPTION>
                  SIGNATURE                               TITLE                  DATE
                  ---------                               -----                  ----
<S>                                            <C>                           <C>
                      *                                  Director            June 18, 1999
---------------------------------------------
              Michel C. Thielen

         *By: /s/ KEITH W. RITZMANN                                          June 18, 1999
---------------------------------------------
              Attorney-In-Fact
</TABLE>


                                      II-5
<PAGE>   131

                                 EXHIBIT INDEX




<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
        *1.1  Form of Underwriting Agreement
         4.1  Fourth Restated Certificate of Incorporation(1)
         4.2  Amended and Restated Bylaws(2)
        *5.1  Opinion of Graham & Dunn PC as to legality of securities
       *23.1  Consent of Graham & Dunn PC (included in Exhibit 5.1)
        23.2  Consent of Ernst & Young LLP
        24    Powers of Attorney for each of Barry A. Ackerley, Gail A.
                Ackerley, Deborah L. Bevier, M. Ian G. Gilchrist, Michel
                C. Thielen, and Denis M. Curley
</TABLE>


---------------
 *  To be filed by amendment.


(1) Incorporated by reference to Exhibit 3.0 to the Company's Quarterly Report
    on Form 10-Q for the quarter ended March 31, 1998.



(2) Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on
    Form 10-K for the year ended December 31, 1997.