<PAGE>
 
ANNUAL REPORT

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1998

                         Commission File No. 333-3338

                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP
-------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


          MINNESOTA                                    41-1540241
-------------------------------------------------------------------------------
 (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)                 
 
                             ---------------------
                        Commission File No. 333-3338-01

                        ADAMS OUTDOOR ADVERTISING, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


          MINNESOTA                                    41-1540245
--------------------------------------------------------------------------------
 (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)                  
 

 1380 West Paces Ferry Road, N.W., 
 Suite 170, South Wing,   Atlanta, GA                       30327
--------------------------------------------------------------------------------
   (Address of principal executive offices)              (Zip Code)


Registrants' telephone number, including area code       (404) 233-1366
                                                         --------------
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES  X  NO  __
                                        ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. (Applicable only to Adams
Outdoor Advertising, Inc.)

Class               Outstanding as of  March 26, 1999
-----               ---------------------------------
Common Stock,
$.001 par value     10,000
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                            CONTENTS
                                                            --------

                                                             PART I
<S>         <C>                                                                                           <C> 
ITEM  1.    BUSINESS
                  General............................................................................     1
                  History............................................................................     1
                  Industry Overview..................................................................     1
                  Business Strategy..................................................................     2
                  Markets............................................................................     3
                  Sales and Marketing................................................................     5
                  Local Market Operations............................................................     6
                  Competition........................................................................     7
                  Government Regulation..............................................................     7
                  Employees..........................................................................     8


ITEM  2.    FACILITIES...............................................................................     9
ITEM  3.    LEGAL PROCEEDINGS........................................................................     9
ITEM  4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................     9

                                                             PART II

ITEM  5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS................................................................     9
ITEM  6.    SELECTED FINANCIAL DATA..................................................................     10
ITEM  7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS
                  General............................................................................     11
                  Results of Operations..............................................................     13
                  Liquidity and Capital Resources....................................................     15
                  Impact of Inflation................................................................     16
                  Seasonality........................................................................     16
                  Forward Looking Statements.........................................................     16
                  Year 2000 Compliance...............................................................     16
ITEM 7a.    Quantitative and Qualitative Disclosures about Market Risk...............................     17
ITEM  8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................     18
ITEM  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                ACCOUNTING AND FINANCIAL DISCLOSURE..................................................     18

                                                            PART III

ITEM 10.    MANAGEMENT
                  Executive Officers and Directors...................................................     18
                  Other Significant Management Personnel.............................................     19
ITEM 11.    EXECUTIVE COMPENSATION...................................................................     21
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................     23
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................     23

                                                             PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K........................     25
</TABLE> 

                                       i
<PAGE>
 
ITEM 1.
BUSINESS

GENERAL

  Adams Outdoor Advertising Limited Partnership (the "Company") is the seventh
largest owner and operator of outdoor advertising structures in the United
States. Adams Outdoor Advertising, Inc. is the managing general partner of the
Company. The Company provides outdoor advertising services to fourteen markets
and surrounding areas in the Midwest, Southeast and mid-Atlantic states:
Charlotte, NC; Charleston, SC; Orangeburg, SC; Florence, SC; Laurens, SC;
Kalamazoo, MI; Lansing, MI; Jackson, MI; Lehigh Valley, PA; Northeast PA;
Madison, WI; Minneapolis, MN; Norfolk, VA; and Peoria, IL. As of December 31,
1998, the Company operated, in the aggregate, 9,497 advertising displays,
including 2,993 painted bulletins, 6,288 30-sheet posters, and 216 junior (8-
sheet) posters.


HISTORY

  The Company's business was founded in 1983 with the acquisition of Central
Outdoor Advertising, which had offices in Lansing, Jackson and Kalamazoo, MI.
Over the next five years, the Company pursued a strategy of geographic expansion
into additional medium-sized markets, primarily through the acquisition of
existing outdoor advertising businesses in selected Midwest, Southeast and mid-
Atlantic markets. This geographic expansion strategy has enabled the Company to
capitalize on the efficiencies, economies of scale and marketing opportunities
associated with operating outdoor advertising businesses located in proximate or
contiguous geographic markets to its primary markets. Since 1988, the Company's
sales and growth in Operating Cash Flow (operating income plus depreciation,
amortization and deferred compensation expense) have resulted from a
concentration on rate and occupancy levels of existing inventory, construction
of new displays, upgrading of displays in existing markets, acquisition of
displays in existing markets, and new market acquisitions in South Carolina and
Pennsylvania.


INDUSTRY OVERVIEW

  Outdoor advertising is one of several major advertising media that includes
television, radio, newspapers and magazines, among others. According to the
Outdoor Advertising Association of America, Inc. ("OAAA"), an industry trade
association, outdoor advertising in the United States generated total revenues
of approximately $2.3 billion in 1998, a record for the industry and an 9.1%
increase over 1997. Because of its repetitive impact and relatively low cost-
per-thousand impressions (a commonly used media standard), outdoor advertising
is attractive to both large national advertisers and smaller local and regional
businesses.

  The principal outdoor advertising display is the billboard, of which there are
three standardized formats:

 . PAINTED BULLETINS are generally 14 feet high and 48 feet wide (672 square
feet) and consist of panels or a single sheet of vinyl that are hand painted at
the facilities of the outdoor advertising company or computer painted in
accordance with design specifications supplied by the advertiser. The panels or
vinyl are then transported to the billboard site and mounted to the face of the
display. On occasion, to attract more attention, some of the displays are
designed to extend beyond the linear edges of the display face and may include
three-dimensional embellishments for which the outdoor advertising company often
receives additional revenue. Because of painted bulletins' greater impact and
higher cost relative to other types of billboards, they are usually located near
major highways, and space is usually sold to advertisers for periods of four to
twelve months.

 . 30-SHEET POSTERS are generally 12 feet high by 25 feet wide (300 square feet)
and are the most common type of billboard. Lithographed or silk-screened paper
sheets that are supplied by the advertiser are pre-pasted and packaged in
airtight bags by the outdoor advertising company and applied, like wallpaper, to
the face of the display. The 30-sheet posters are concentrated on major traffic
arteries and space is usually sold to advertisers for periods of one to twelve
months.

                                       1
<PAGE>
 
 .  JUNIOR (8-SHEET) POSTERS are usually 6 feet high by 12 feet wide (72 square
feet). The displays are prepared and mounted in the same manner as 30-sheet
posters. Most junior posters, because of their smaller size, are generally
concentrated on city streets and are targeted at pedestrian traffic. Space on
junior posters is usually sold to advertisers for periods of one to twelve
months.

  Typically, billboards are mounted on structures that are owned by the outdoor
advertising company and located on sites that are owned or leased by it or on
which it has an easement. Leases of structure sites usually provide for a term
of three to ten years depending on locale. A structure may contain one or more
displays (generally two), each of which is referred to as a "face."

  A more recent addition to the various types of outdoor advertising displays is
bus shelter displays and transit ads, which are located on the sides of buses.
Bus shelter displays are usually enclosed within glassed, back-lit cases on two
or more sides of a pedestrian shelter located at an urban bus stop. Transit
displays are inserted into panels on the sides and back exteriors of buses. The
advertisements appear on lithographed or silk-screened posters supplied in a
single sheet by the advertiser. Transit displays and bus shelter displays
generally are sold to advertisers for periods of one to twelve months.

  Advertisers usually contract for outdoor displays (and other media exposure)
through advertising agencies, which are responsible for the artistic design and
written content of the advertising as well as the choice of media and the
planning and implementation of the overall campaign. Outdoor advertising
companies pay commissions to the agencies for advertising contracts secured
through such agencies. Advertising contracts are negotiated on the basis of the
monthly rates that are published in the outdoor advertising company's "rate
card." These rates, which are typically set annually during the first quarter
of each year, are based on a particular display's exposure (or number of
"impressions" delivered) in relation to the demographics of the particular
market and its location within that market. The number of "impressions"
delivered by a display (measured by the number of vehicles passing the site
during a defined period and weighted to give effect to such factors as its
proximity to other displays and the speed and viewing angle of approaching
traffic) are determined by surveys that are verified by the Traffic Audit
Bureau, an independent agency which is the outdoor advertising industry's
equivalent of television's Arbitron ratings and which audits approximately
175,000 outdoor advertising sites annually.

  Advertisers purchase outdoor advertising for a variety of reasons. In the case
of restaurants, motels, service stations and similar roadside businesses, the
message reaches potential customers close to the point of sale and provides
ready directional information. For advertisers seeking to build product brand
name awareness, outdoor advertising is attractive because of its constant
repetition and comparatively low cost per thousand impressions.

  According to the OAAA, the top ten categories of businesses ranked by outdoor
advertising expenditures for 1998 were local services and amusements, hotels and
resorts, retail establishments, miscellaneous merchandise (as of 1998 includes
tobacco), restaurants, media and advertising, automotive: dealers and services,
insurance and real estate, automotive: auto access and equipment, and financial.


BUSINESS STRATEGY

  The Company's strategy is to focus its operations on providing value-added
outdoor advertising services to advertisers in medium-sized markets in which it
is or could be the leading provider of such services. The Company believes that
its focus on medium-sized markets allows it to achieve a dominant share of
outdoor advertising revenues and display faces within those markets. The Company
also believes that by educating current and potential customers on the
effectiveness of the outdoor medium, it has a significant opportunity to gain a
larger share of overall advertising expenditures. The Company's business
strategy comprises the following elements:

  .  Focus marketing efforts on local and regional advertisers in order to
     develop and maintain a diverse client base and to limit reliance on
     national advertising accounts. The Company believes that focusing on local
     and regional advertisers helps generate stable revenue growth and reduce
     its reliance on any single local

                                       2
<PAGE>
 
     economy or industry segment. In 1998 net revenues attributable to local and
     regional advertising accounted for 89.7% of total net revenues.

  .  Take advantage of recent technological advances in computer and printing
     technology, which allow the Company to provide higher quality reproduction
     to its customers, thereby attracting new advertisers to the outdoor medium.

  .  Raise potential customers' awareness of the reach, impact and value of
     outdoor advertising and convince customers to use outdoor advertising as an
     integral part of their advertising plan.

  .  Continue to enhance sales, marketing and customer service capabilities. The
     Company's salespersons are paid pursuant to a performance-based
     compensation system and supervised by a local sales manager executing a
     coordinated marketing plan.

  .  Increase revenues from existing display faces by developing programs that
     maximize advertising rates and optimize occupancy levels in each market. In
     addition, the Company also plans to continue to pursue new advertising
     categories, such as transit buses and passenger shelters, to further
     diversify the Company's revenue base.

  .  Expand operations within the Company's markets through construction of new
     display faces and the upgrading of existing displays, placing an emphasis
     on painted bulletins, which generally command higher rates and longer
     contracts from advertisers.

  .  Pursue strategic acquisitions of outdoor displays in existing and
     contiguous markets and capitalize on the efficiencies, economies of scale
     and significant opportunities for inter-market cross-selling that are
     associated with operating in proximate or contiguous geographic markets.

  The Company recognizes, and closely monitors, the needs of its customers and
seeks to provide them with a quality advertising product at a lower cost than
competitive media. The Company believes it has a reputation of providing
excellent customer service and quality outdoor advertising space. As such, the
Company is nationally recognized as a five star member (the highest ranking) of
the OAAA, a distinction currently held by only 35 of the approximately 800
members of the OAAA.


MARKETS

  The Company operates in eleven geographically diverse medium-sized markets
that offer to local, regional and national advertisers significant areas of
population to whom advertising may be targeted. In addition, the Company offers
comprehensive outdoor advertising services, including local production
facilities and local representation, in all of its markets except in the
Minneapolis market.

  The following table sets forth information as of December 31, 1998 with
respect to each of the Company's markets, including the ADI (as defined herein)
rank of that market and the number of each display type operated by the Company
in that market:

                                       3
<PAGE>
 
<TABLE>
<CAPTION>
                                         ADI          PAINTED       30-SHEET        8-SHEET
                                        ----          -------       --------        -------     
MARKET                               RANKING(A)      BULLETINS       POSTERS        POSTERS     TOTAL
------                              -----------      ---------       -------        -------     -----   
<S>                                 <C>              <C>             <C>            <C>         <C>
Charlotte, NC....................            29            658           833             56     1,547
Lansing, MI......................           107            330           498             --       828
Jackson, MI (b)..................            --            131           440             --       571
Kalamazoo, MI....................            38            289           749             --     1,038
Lehigh Valley, PA (c)............            --            202           734             --       936
Madison, WI......................            88             71           262             --       333
Norfolk, VA......................            39            158           580             24       762
Peoria, IL.......................           116             73           314             32       419
Minneapolis, MN..................            13            115            --             --       115
Northeast PA.....................            46            541           193             --       734
South Carolina...................           114            425         1,685            104     2,214
                                                         -----         -----            ---     -----
             Total...............                        2,993         6,288            216     9,497
                                                         =====         =====            ===     =====
</TABLE>
--------------

(a) Indicates the market rank of the area of dominant influence ("ADI"), as
    determined by The Arbitron Company, within which the office is located. ADIs
    are ranked based on population, with the market having the largest
    population ranked first. ADI rank is the standard measure of market size
    used by the media industry.

(b) The Jackson, MI market is included in the Lansing, MI ADI ranking.

(c) The Lehigh Valley market is included in the Philadelphia ADI ranking.
    According to the U.S. Census Bureau, the Lehigh Valley market was the 86th
    largest metropolitan statistical area in the United States at December 31,
    1990, the latest date for which such information is available.

     The following tables set forth information with respect to the net
revenues, operating income and operating margins for the Company's displays in
each of its markets for each of the past five years.  Amounts presented for
Northeast PA and South Carolina include results from their acquisition dates of
November 8, 1996 and December 2, 1996, respectively, through December 31, 1998.

                                  NET REVENUES

                                         YEAR ENDED DECEMBER 31,
                          ----------------------------------------------------
         MARKET             1998       1997       1996       1995       1994
---------------------     --------   --------   --------   --------   --------
                                        (DOLLARS IN THOUSANDS)
Charlotte, NC..........    $12,932    $11,882    $10,499    $ 9,680    $ 8,646
Lansing/Jackson, MI....     10,719      9,296      8,683      8,227      7,541
Kalamazoo, MI..........      7,094      6,460      5,628      5,535      4,976
Lehigh Valley, PA......      7,113      6,461      6,293      5,909      5,045
Madison, WI............      3,951      3,782      3,430      3,070      2,545
Norfolk, VA............      6,980      6,065      6,359      5,672      4,827
Peoria, IL.............      3,266      3,016      2,836      2,562      2,397
Minneapolis, MN........      3,710      3,274      2,930      2,236      1,674
Northeast PA...........      2,685      2,212        273         --         --
South Carolina.........      6,119      4,837        329         --         --
                           -------    -------    -------    -------    -------
    Total..............    $64,569    $57,285    $47,260    $42,891    $37,651
                           =======    =======    =======    =======    =======

                                       4
<PAGE>
 
                                OPERATING INCOME


                                           YEAR ENDED DECEMBER 31,
                           ----------------------------------------------------
       MARKET                1998       1997       1996       1995       1994
--------------------       --------   --------   --------   --------   -------- 
                                          (DOLLARS IN THOUSANDS)
Charlotte, NC..........    $  6,322   $  5,425   $  4,251   $  3,602   $  2,701
Lansing/Jackson, MI....       4,049      3,636      3,738      3,570      3,044
Kalamazoo, MI..........       3,141      2,646      2,409      2,440      1,967
Lehigh Valley, PA......       3,107      2,500      2,495      2,161      1,466
Madison, WI............       1,844      1,799      1,597      1,232        915
Norfolk, VA............       3,424      2,479      2,798      2,279      1,387
Peoria, IL.............       1,494      1,329      1,110        863        851
Minneapolis, MN........       1,188      1,036        889        631        233
Northeast PA...........         379        166         (8)        --         --
South Carolina.........        (131)      (735)       (50)        --         --
Corporate..............      (8,439)    (4,724)    (4,342)    (3,844)    (2,871)

                           --------   --------   --------   --------   --------
     Total.............    $ 16,378   $ 15,557   $ 14,887   $ 12,934   $  9,693
                           ========   ========   ========   ========   ========


                                OPERATING MARGIN


                                           YEAR ENDED DECEMBER 31,
                           ----------------------------------------------------
       MARKET                1998       1997       1996       1995       1994
--------------------       --------   --------   --------   --------   --------
Charlotte, NC...........       48.9%      45.7%      40.5%      37.2%      31.2%
Lansing/Jackson, MI.....       37.8       39.1       43.1       43.4       40.4
Kalamazoo, MI...........       44.3       41.0       42.8       44.1       39.5
Lehigh Valley, PA.......       43.7       38.7       39.6       36.6       29.1
Madison, WI.............       46.7       47.6       46.6       40.1       36.0
Norfolk, VA.............       49.1       40.9       44.0       40.2       28.7
Peoria, IL..............       45.7       44.1       39.1       33.7       35.3
Minneapolis, MN.........       32.0       31.6       30.3       28.2       13.9
Northeast PA............       14.1        7.5         --         --         --
South Carolina..........       (2.1)     (15.2)        --         --         --
                               ----      -----       ----       ----       ----
     Total..............       25.4%      27.2%      31.5%      30.2%      25.7%
                               ====      =====       ====       ====       ====
                                        

SALES AND MARKETING

  The growth in the Company's revenues and Operating Cash Flow is primarily a
result of its focus on the use of sales and marketing staff to increase the
productivity of its inventory of displays while maintaining strict controls on
its expenses.

  Historically, outdoor advertising companies have derived a significant portion
of their revenues from large national advertisers, such as tobacco companies,
auto manufacturers and distributors of alcoholic beverages. As tobacco industry
advertising purchases have declined in recent years, some outdoor advertising
companies have recently shifted their marketing focus to local and regional
advertisers to replace these lost revenues. Nonetheless, large national
advertisers continue to account for a significant percentage of outdoor
advertising industry revenues. Despite this fact, the Company believes that
sales to local and regional advertisers lend stability to its revenue stream by
diversifying its customer base. The Company emphasizes sales to local and
regional customers. In 1998, the Company generated approximately 89.7% of its
net revenues from local and regional sales. The Company believes that the
Company's local and regional focus enables it to capitalize on the growing use
of outdoor media by advertisers that historically have relied on other media in
marketing their products and services, such as consumer product companies,
professional service firms, health care providers and financial institutions.

                                       5
<PAGE>
 
  The Company's sales and marketing strategy has been successful largely due to
the efforts of its team of general managers in its markets. These general
managers have an average of over 14 years of experience in the outdoor
advertising industry and are responsible for implementing the Company's sales
and marketing strategy. Each of the Company's markets has a team of account
executives that is supported locally by a creative department, which provides
innovative marketing ideas, generates art work and designs billboard advertising
for potential customers' advertising campaigns. In addition, each market has a
business development staff, which makes available comprehensive information
about local market research, customer needs and advertising opportunities. This
allows the Company to assess the impact and potential reach for a potential
target customer's display in a given market. The sales and marketing departments
focus on increasing revenues through developing new marketing programs for
customers, educating both current and potential customers on the effectiveness
of the outdoor advertising product relative to other advertising media and
integrating this medium into a customer's marketing plan. The Company's sales
personnel are compensated primarily on a commission basis which maximizes their
incentive to perform.

  The following table illustrates the diversity of the Company's markets and
customers by setting forth the percentage of the Company's gross revenues for
1998 attributable to each of the top ten advertising categories:

                           1998 REVENUES BY CATEGORY
                          (PERCENT OF GROSS REVENUES)
                                        
                                                                     TOTAL
                                                                     -----
Tobacco.............................................................. 11.9%
Restaurants..........................................................  9.0
Automotive...........................................................  8.1
Amusement............................................................  5.5
Hotel/Motel..........................................................  5.3
Telecommunications...................................................  3.4
Banking..............................................................  3.3
Radio/Television.....................................................  3.2
Grocery/Convenience Stores...........................................  3.1
Hospital/Nursing.....................................................  2.9
All Others........................................................... 44.3
                                                                     -----
 Total...............................................................100.0%
                                                                     =====


LOCAL MARKET OPERATIONS

  In each of its primary markets, the Company maintains a complete outdoor
advertising operation including a sales office, a construction and maintenance
facility, an art department equipped with state-of-the-art computer technology,
a real estate unit and support staff. The Company conducts its outdoor
advertising operations through these local offices, which is consistent with
senior management's belief that an organization with decentralized sales and
operations is more responsive to local market demand and provides greater
incentives to employees. At the same time, the Company maintains consolidated
accounting and financial controls, which allow it to monitor closely the
operating and financial performance of each market. The general managers, who
report directly to the Company's chief executive officer, are responsible for
the day-to-day operations of their offices and are compensated based on the
financial performance of their respective markets. In general, these local
managers oversee market development, production and local sales.

  Each local office is responsible for locating and ultimately obtaining sites
for the displays in its market. Each office has a leasing department, which
maintains an extensive data base containing information on local property
ownership, lease contract terms, zoning ordinances and permit requirements. The
Company owns certain of the sites on which its displays are located and leases
others. Site lease contracts vary in term but typically range from three to 

                                       6
<PAGE>
 
ten years with various termination and renewal provisions. As of and for the
twelve months ended December 31, 1998, the Company had approximately 4,561
active site leases accounting for a total land lease expense of approximately
$7.3 million, representing approximately 11.0% of net revenues.

  In each of its primary markets, the Company has construction and maintenance
facilities, which facilitate the expeditious and economical construction and
maintenance of displays and the painting and mounting of customers'
advertisements. Typically, the Company uses vinyl skins for bulletins. The vinyl
skins are reusable, thereby reducing the Company's production costs, and are
easily transportable. Due to the geographic proximity of the Company's markets
and the transportability of vinyl skins, the Company can shift production among
markets to use its available capacity more effectively. The local offices also
maintain fully equipped art departments to assist local customers in the
development and production of creative, effective advertisements.


COMPETITION

  The Company competes in each of its markets with other outdoor advertisers as
well as other media, including broadcast and cable television, radio, newspaper
and direct mail marketers. In competing with other media, outdoor advertising
relies on its low cost-per-thousand impressions and its ability to repetitively
reach a broad segment of the population in a specific market or geographic area
within that market. In most of its markets, the Company encounters direct
competition from other major outdoor media companies, including Outdoor Systems,
Inc. and Whiteco, among others, each of which has a large national network and
resources significantly greater than the Company's. The Company believes that
its focus on local and regional advertisers and its position as the leading
provider of full service outdoor advertising in each of its primary markets
enable it to compete effectively with other outdoor media operators, as well as
other media, both within those markets and in each respective region. The
Company also competes with other outdoor advertising companies for sites on
which to build new structures.


GOVERNMENT REGULATION

  The outdoor advertising industry is subject to governmental regulation at the
federal, state and local level. Federal law, principally the Highway
Beautification Act of 1965, encourages states, by the threat of withholding
federal appropriations for the construction and improvement of highways within
such states, to implement legislation to control outdoor advertising structures
located within 660 feet of or visible from interstates and primary highways,
except in commercial or industrial areas, and to force the removal at the
owner's expense and without any compensation of any nonconforming structures on
such highways. The Highway Beautification Act and the various state statutes
implementing it require the payment of just compensation whenever governmental
authorities require legally erected and maintained structures to be removed from
federally-aided highways.

  States and local jurisdictions have, in some cases, passed additional
regulation on the construction, repair, upgrading, height, size and location of
outdoor advertising structures adjacent to federally-aided highways and other
thoroughfares. Such regulations, often in the form of municipal building, sign
or zoning ordinances, specify standards for the height, size and location of
outdoor advertising structures. In the event non-conforming advertising
structures are damaged, including damage caused by natural events, such as
windstorms and hurricanes, the Company may not be able to repair the structures.
In some cases, the construction of new or relocation of existing structures is
prohibited. Some jurisdictions also have restricted the ability to enlarge or
upgrade existing structures, such as converting from wood to steel or from non-
illuminated to illuminated structures. From time to time, governmental
authorities order the removal of structures by the exercise of eminent domain or
through various regulatory actions or other litigation. In such cases, the
Company seeks compensation under appropriate procedures and thus far, the
Company has been able to obtain satisfactory compensation for any of its
structures removed at the direction of governmental authorities. However,
compensation may not always be available in such circumstances. Some
municipalities have attempted to regulate outdoor advertising by taxing revenues
attributable to advertising structures, or by requiring the payment of annual
permit fees based on factors such as the square footage of an outdoor
advertising company's display faces, located in those municipalities. Other
municipalities take into account 

                                       7
<PAGE>
 
lease payments received by lessors of property on which advertising structures
are located in making property tax assessments. These taxes and fees can
increase an outdoor advertising company's direct operating costs.

  Amortization legislation has also been adopted in some areas across the
country, including Charlotte, NC, one of the Company's markets. Amortization
only permits the owner of an outdoor advertising structure to operate its
structure as a non-conforming use for a specified period of time, after which it
must remove or otherwise conform its structure to the applicable regulations at
its own cost without any compensation. Some jurisdictions require the removal of
certain structures without any compensation if there is a change in use of the
premises (e.g., construction on previously unimproved land). Amortization and
such other regulations requiring the removal of structures without compensation
currently are subject to vigorous litigation in the state and federal courts,
which have reached differing conclusions as to their constitutionality.

  In 1988, the company reached an agreements with the city of Charlotte, NC that
no boards will have to be removed for 5 years in settlement of the 1998 lawsuit
with Charlotte, NC.

     In other localities in which the Company operates, outdoor advertising is
subject to restrictive and, in some cases, prohibitive zoning regulations.
Management expects federal, state, and local regulations to continue to be a
significant factor in the operation of the Company's business

     In recent years, there have been efforts to restrict billboard advertising
of certain products, including tobacco and alcohol. Congress has passed no
legislation at the federal level except legislation requiring health hazard
warnings similar to those on cigarette packages and print advertisements.

  In November 1998, the major U.S. tobacco companies (the "Tobacco Companies")
reached an out of court settlement (the "Agreement") with 46 states, the
District of Columbia, the Commonwealth of Puerto Rico and four other U.S.
territories (the "Settling States"). The remaining four states had already
reached similar settlements with the Tobacco Companies. The Agreement calls for
the removal of tobacco advertising from out-of-home media, including billboards,
along with signs and placards in arenas, stadiums, shopping malls and video game
arcades by April 23, 1999. Additionally, the Agreement provides that, at the
Settling States' option, the Tobacco Companies must, at their expense,
substitute for tobacco advertising alternative advertising which discourages
youth smoking. That alternative advertising must remain in place for the
duration of the Tobacco Companies' out-of-home media advertising contracts which
existed as of the date of the Agreement.

  The elimination of tobacco advertising as called for by the Agreement will
cause a reduction in direct revenues from Tobacco Companies and may
simultaneously increase the available space on the existing inventory of
billboards in the outdoor advertising industry. Although the extent of the
future impact on operations is not known, the Company has been successful thus
far in replacing tobacco advertising in its Minneapolis market where settlement
was reached prior to the Agreement. While this is positive, the Company can give
no assurance that the further cutbacks in tobacco advertising during 1999 will
not have an adverse effect on operations for 1999 or beyond.

     To date regulations applicable in the Company's markets have not materially
affected its operations, and compliance with those regulations has not had a
material impact on its costs. No assurance can be given, however, as to the
effect of changes in those regulations or of new regulations that may be adopted
in the future.


EMPLOYEES

  As of December 31, 1997, the Company employed 334 persons, of whom
approximately 117 were primarily engaged in sales and marketing, 157 were
engaged in painting, posting, construction and maintenance of displays, and the
balance were employed in financial, administrative and similar capacities. No
employees are covered by a collective bargaining agreement except for five
production shop workers in Peoria, IL covered by a collective bargaining
agreement with the Brotherhood and Painters and Allied Trades that expires on
December 31, 1998. Management considers its employee relations to be good.

                                       8
<PAGE>
 
ITEM 2.

FACILITIES

  The Company's corporate office is located in Atlanta, GA. In addition, the
Company has an office and complete production and maintenance facilities in each
of Charlotte, NC; Charleston, SC; Orangeburg, SC; Florence, SC; Laurens, SC;
Kalamazoo, MI; Lansing, MI; Jackson, MI; Lehigh Valley, PA; Northeast PA;
Madison, WI; Norfolk, VA; and Peoria, IL. Additionally, the Company has a sales
office in Minneapolis, MN. The Peoria and Minneapolis facilities are leased, and
all other facilities are owned. The Company considers its facilities to be well
maintained and adequate for its current and reasonably anticipated future needs.

  The Company owns approximately 146 parcels of real property that serve as the
sites for its outdoor displays. The Company also has easements on approximately
48 parcels of real property on which it has outdoor displays. Additionally, the
Company's displays are located on sites leased or licensed by the Company,
typically for three to ten years with renewal options.


ITEM 3

LEGAL PROCEEDINGS

  The Company from time to time is involved in litigation in the ordinary course
of business, including disputes involving advertising contracts, site leases,
employment claims, construction matters, condemnation and amortization. The
Company is also involved in routine administrative and judicial proceedings
regarding permits and fees relating to outdoor advertising structures and
compensation for condemnations. The Company is not a party to any lawsuit or
proceeding which, in the opinion of management, is likely to have a material
adverse effect on the Company. See "Business--Government Regulation."

  Information contained in this Annual Report, including, without limitation
information in this Business section may contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology as "may,"
"will," "would," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. Certain
factors, including, the Company's substantial leverage, regulation of outdoor
advertising by federal, state and local governments, tobacco advertising
patterns, competition and general economic conditions, could cause actual
results to differ materially from those in such forward-looking statements.


ITEM 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


PART II

ITEM 5

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not Applicable.

                                       9
<PAGE>
 
ITEM 6

SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data, insofar as it relates
to each of the years in the five-year period ended December 31, 1998, has been
derived from the Company's financial information and should be read in
conjunction with the audited financial statements, including the Company's
balance sheets at December 31, 1998 and 1997 and the related statements of
operations for each of the years in the three-year period ended December 31,
1998 and the notes thereto appearing elsewhere in this Form 10-K. The selected
consolidated financial data should also be read in conjunction with the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

                      SELECTED CONSOLIDATED FINANCIAL DATA
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------
                                                        1998      1997       1996       1995       1994
                                                        ----      ----       ----       ----       ----
<S>                                                  <C>       <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Gross revenues.................................    $ 71,592   $ 63,302   $ 52,421   $ 47,589   $ 41,748
  Agency commissions.............................       7,023      6,017      5,161      4,698      4,097
                                                     --------   --------   --------   --------   --------
  Net revenues...................................      64,569     57,285     47,260     42,891     37,651
  Direct advertising expenses....................      32,097     29,089     22,412     20,848     19,561
  Corporate general and administrative expense...       3,903      3,589      2,405      1,114      1,183
  Depreciation and amortization..................       7,875      8,149      6,105      5,568      5,684
  Deferred compensation expense(a)...............       4,316        901      1,451      2,427      1,530
                                                     --------   --------   --------   --------   --------
  Operating income...............................      16,378     15,557     14,887     12,934      9,693
  Interest expense...............................      14,408     14,601     12,523     11,263      9,877
  Other expenses (income), net...................          78         43        (32)        16         38
  Loss on disposal of assets, net................         378        122        861         93        388
  Extraordinary loss on early extinguishment of..         330         --         --         --         --
  debt...........................................    --------   --------   --------   --------   --------
  Net income (loss)..............................    $  1,184   $    791   $  1,535   $  1,562   $   (610)
                                                     ========   ========   ========   ========   ========

                                                                       AS OF DECEMBER 31,
                                                     ----------------------------------------------------
                                                       1998       1997       1996       1995       1994
                                                       ----       ----       ----       ----       ----
BALANCE SHEET DATA:
          Cash and cash equivalents..............    $  1,687   $  3,121   $  3,533   $  2,131   $  1,722
          Working capital........................       4,805      3,096      4,969      5,944      4,646
          Total assets...........................      78,193     77,474     77,114     48,211     50,650
          Total debt.............................     132,728    135,034    133,421    107,443    113,261
          Total partners' deficit................    $(69,447)  $(69,586)  $(68,444)  $(66,829)  $(68,391)

                                                                   YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------
                                                       1998       1997       1996       1995       1994
                                                       ----       ----       ----       ----       ----
OTHER DATA:
          Operating Cash Flow(b).................    $ 28,569   $ 24,606   $ 22,443   $ 20,929   $ 16,907
          Capital expenditures...................    $ 10,144   $  7,646   $  4,419   $  2,251   $  1,926
          Ratio of earnings to fixed charges(c)..       1.09x      1.05x      1.11x      1.07x         --
          Ratio of debt to net income(d).........      112.13     170.71      86.92      68.79         --
          Cash flow provided by (used in):
          Operating activities...................    $ 11,873   $  7,150   $ 12,537   $  9,151   $  7,092
          Investing activities...................    $ (9,659)  $ (7,462)  $(28,675)  $ (1,979)  $ (1,791)
          Financing activities...................    $ (3,647)  $   (100)  $ 17,540   $ (6,763)  $ (5,569)
</TABLE>


                                      10
<PAGE>
 
(a)  Deferred compensation expense represents accrued expenses under certain
     deferred compensation arrangements, including phantom stock and
     nonqualified retirement plan agreements with certain key management
     personnel. The phantom stock agreements in effect provide for the
     repurchase of the "phantom stock" in three equal annual payments after each
     executive's termination, death or disability, the sale of the Company, or
     the fifth anniversary of the agreement's execution. See "Executive
     Compensation--Agreements with Management--Incentive Compensation under
     Phantom Stock Agreements."

(b)  The following table sets forth the calculation of "Operating Cash Flow."


<TABLE>
<CAPTION>
 
                                                      YEAR ENDED DECEMBER 31
                                          ------------------------------------------------
                                            1998       1997      1996     1995      1994
                                          ---------  --------  --------  --------  -------
<S>                                       <C>        <C>       <C>       <C>       <C>
     Operating income.................     $16,378   $15,557   $14,887   $12,934   $ 9,693
     Depreciation and amortization....       7,875     8,148     6,105     5,568     5,684
     Deferred compensation expense....       4,316       901     1,451     2,427     1,530
                                           -------   -------   -------   -------   -------
     Operating Cash Flow..............     $28,569   $24,606   $22,443   $20,929   $16,907
                                           =======   =======   =======   =======   =======
</TABLE>

     Operating Cash Flow is not intended to represent net cash flow provided by
     operating activities as defined by generally accepted accounting principles
     and should not be considered as an alternative to net income (loss) as an
     indicator of the Company's operating performance or to net cash provided by
     operating, investing and financing activities as a measure of liquidity or
     ability to meet cash needs. The Company believes Operating Cash Flow is a
     measure commonly reported and widely used by analysts, investors and other
     interested parties in the media industry. Accordingly, this information has
     been disclosed herein to permit a more complete comparative analysis of the
     Company's operating performance relative to other companies in the media
     industry. However, the definition of Operating Cash Flow or of similarly
     defined terms may vary among companies and such differences should be noted
     in comparing the Company's operating performance relative to other
     companies. See "Management's Discussion and Analysis of Financial Condition
     and Results of Operations."
(c)  Earnings consist of operating income plus fixed charges adjusted to exclude
     capitalized interest. The Company's fixed charges consist of interest
     expense plus amortization of deferred financing costs and the estimated
     interest portion of rents. Earnings were inadequate to cover fixed charges
     by approximately $1.3 million for the year ended December 31, 1994.
(d)  The ratio of total debt to net income for the year ended December 31, 1994
     is not meaningful due to the net loss for that period.

ITEM 7

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

GENERAL

     The Company is the seventh largest owner and operator of outdoor
advertising structures in the United States. The Company provides outdoor
advertising services through fourteen facilities in the Midwest, southeast and
mid-Atlantic states: Charlotte, NC; Charleston, SC; Orangeburg, SC; Florence,
SC; Laurens, SC; Kalamazoo, MI; Lansing, MI; Jackson, MI; Lehigh Valley, PA;
Northeast PA; Madison, WI; Minneapolis, MN; Norfolk, VA; and Peoria, IL. As of
December 31, 1998, the Company operated 9,497 advertising displays, including
2,993 painted bulletins, 6,288 30-sheet posters, and 216 junior (8-sheet)
posters.

     The Company's business was founded in 1983 with the acquisition of Central
Outdoor Advertising, which had offices in Lansing, Jackson and Kalamazoo, MI.
Over the next five years, the Company pursued a strategy of geographic expansion
into additional medium-sized markets, primarily through the acquisition of
existing outdoor advertising businesses in selected Midwest, southeast and mid-
Atlantic markets. This geographic expansion strategy has enabled the Company to
capitalize on the efficiencies, economies of scale and marketing opportunities
associated with operating outdoor advertising businesses located in proximate or
contiguous geographic markets.

     As a result of its acquisition of outdoor advertising businesses from 1983
to 1988, the Company incurred substantial debt. Interest expense required to
service such debt, together with depreciation and amortization, has contributed
to historical marginal profits for the Company.

     Since 1991, the Company has continued to strengthen its market share
through the construction and acquisition of displays in its existing markets,
introduction of transit advertising in its Madison, WI market and acquisitions,
in

                                      11

<PAGE>
 
the last quarter of 1996, of operations in South Carolina and Pennsylvania. This
expansion has been financed through internally generated cash flow and
borrowings from the Company's $43 million credit facilities.

     The following table presents certain information from the Consolidated
Statements of Operations as a percentage of net revenues for each of the three
years in the three-year period ended December 31, 1998.


<TABLE>
<CAPTION>

                                                                    YEARS ENDED DECEMBER 31,
                                                              -----------------------------------
                                                               1998           1997           1996
                                                               ----           ----           ----
<S>                                                          <C>            <C>            <C>
Net revenues..........................................        100.0%        100.0%         100.0%
Direct advertising expenses...........................         49.7          50.8           47.4
Corporate general and administrative expenses.........          6.0           6.2            5.1
                                                              -----         -----          -----
                                                                            
Operating Cash Flow...................................         44.3          43.0           47.5
Depreciation and amortization.........................         12.2          14.2           12.9
Deferred compensation expense.........................          6.7           1.6            3.1
                                                              -----         -----          -----
                                                                            
Operating income......................................         25.4          27.2           31.5
Interest expense......................................         22.3          25.5           26.5
Other expenses (income), net..........................          0.2           0.1           (0.1)
Loss on disposals of property and equipment, net......          0.6           0.2            1.8
Extraordinary loss on early estinguishment of debt....          0.5            --             --
                                                              -----         -----          -----
Net income (loss).....................................          1.8%          1.4%           3.3%
                                                               =====         =====          =====
</TABLE>


     The Company's revenues are a function of both the occupancy rate of the
Company's outdoor advertising display inventory (the percentage of time that its
displays contain paid-for advertisements) and the rates that the Company charges
for use of its displays. The Company's business strategy includes the
optimization of the mix of rate and occupancy of its display inventory in order
to maximize revenues. Advertising rates for the Company's displays are based
upon a variety of factors, including historical base rates, the time of year,
and the occupancy rate of a particular market's display inventory.

     The following table presents the number of painted bulletins and 30-sheet
poster displays operated by the Company and the average rates and occupancy
levels with respect to such displays for the three years ended December 31,
1998. These figures do not include junior-posters and route town paints.


<TABLE>
<CAPTION>
 
                                                                     YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------
                                                               1998           1997          1996 (2)
                                                           -------------  -------------  --------------
<S>                                                        <C>            <C>            <C>
Number of Displays:                                    
Painted Bulletins....................................          1900          1,934           $1750
30-Sheet Posters.....................................         4,950          4,892           4,418
Average Rates: (1)                                     
Painted Bulletin.....................................        $1,933         $1,624        $  1,610
30-Sheet Posters.....................................        $  536         $  529        $    523
Average Occupancy:                                     
Painted Bulletins..................................           78%            73%             78%
30-Sheet Posters...................................           74%            69%             71%
</TABLE>

(1) Represents average rate per display per month
(2) The above figures for 1996 do not include the Company's operations in
Northeast PA or South Carolina acquired during the fourth quarter of 1996; for
1997 and 1998, all are included except South Carolina.
                                   
                                        12

<PAGE>
 
     The primary operating expenses incurred by the Company are advertising
agency commissions, lease payments to property owners for use of the land on
which the Company's displays are located, operational and administrative costs
and sales expenses (primarily commissions). Of these expenses, advertising
agency commissions, sales expenses, and certain operational and administrative
costs are considered direct costs. Commissions are paid to advertising agencies
that contract for the use of the Company's advertising displays on behalf of
advertisers. These agency commissions are deducted from gross revenues to
calculate net revenues.

     The Company currently maintains a phantom stock program under which certain
executive management personnel and general managers have the ability to earn
deferred compensation based upon the operating performance of the Company or, in
the case of the general managers, their respective divisions. Annual accruals
under the program are based upon exceeding a base level of operating profit. The
Company believes that its phantom stock program provides its senior employees
incentives to continue improving the operating performance of the Company.

     The Company's marketing strategy of servicing local and regional
advertisers and reducing its dependence on national and tobacco advertising
resulted in moderate increases in overall revenues during a time when national
advertising dollars, primarily tobacco, were declining. The Company concentrates
its marketing efforts on generating sales from local and regional advertisers in
each of its markets, including those advertisers within industries and product
categories that have not historically been traditional users of outdoor media.
These potential advertisers include fast food restaurants, retailers, food
stores, casinos, cellular and telecommunications companies, building supply
retailers, radio stations, travel-related industries and medical care providers.
This focus on local and regional advertisers has been critical to the Company's
ability to control revenue fluctuations resulting from the variability and
potential long-term decline of revenues attributable to the tobacco products
industry, the latter of which represented 10.3% of the Company's net revenues in
1998, 10.5% in 1997, 12.5% in 1996, 12.6% in 1995, and 10.3% in 1994. Sales to
local and regional advertisers accounted for 89.7% of the Company's net revenues
in 1998.

          The Company's sales and marketing strategy has been successful largely
due to its team of general managers in its markets. These key managers have an
average of 15 years of industry experience. The Company also has integrated a
business development department into each market, making available to each
region's sales force comprehensive information about local market research,
customer needs and advertising opportunities. The business development
departments have given the Company's sales departments significantly improved
information and tools to develop additional local and regional advertising
customers, especially with many customers that have not historically advertised
through the outdoor medium. Sales representatives have been able to use these
additional resources to develop creative ideas for new customers and educate
them about the cost effectiveness of outdoor advertising in attempting to reach
their customers. The Company considers its emphasis on local and regional sales,
the expertise and tenure of its managers and its marketing and customer service
capabilities to be factors which enhance the productivity of its inventory of
advertising displays.

RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared With Year Ended December 31, 1997

     Net revenues (gross revenues net of agency commissions) for 1998 of $64.6
million increased by 12.7% from $57.3 million for 1997. This increase resulted
from higher advertising rates in certain markets and an increase in the number
of displays sold.

     Direct advertising expenses for 1998 of $32.1 million increased by 10.3%
from $29.1 million in 1997. The increase was attributable to direct costs
associated with increased sales from new displays and an increase in sales
commissions due to higher average rates.

                                      13
<PAGE>
 
     Corporate, general and administrative expenses for 1998 of $3.9 million
increased by 8.8% from $3.6 million in 1997. This increase was attributable to
increased travel expenses and costs associated with the new Company logo and
identification project.

     Depreciation and amortization for 1998 of $7.9 million decreased by 3.4%
from $8.1 million in 1997. Depreciation expense decreased as a result of the
expiration of the depreciable life of certain assets during 1998.
 
     Deferred compensation expense for 1998 of $4.3 million increased
significantly from $901,000 in 1997 primarily due to the inclusion of the Chief
Executive Officer in the Phantom Stock Plan to acquire his 3% interest in the
company and the additional vesting of General Managers under the Phantom Stock
Plan.

     Interest expense for 1998 of $14.4 million decreased 1.2% from $14.6
million in 1997. This decrease was attributable to a lower interest rate in
1998. The Company's effective interest rate decreased to 10.2% for 1998 from
10.4% for 1997.

     Net income for 1998 increased to $1.2 million from $791,000 in 1997 as a
result of the items discussed above.

     Operating cash flow for 1998 of $28.6 million increased by 16.1% from $24.6
million in 1997. This increase was attributable to the aforementioned increase
in net revenues coupled with only a modest increase in total operating expenses.

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996

     Net revenues (gross revenues net of agency commissions) for 1997 of $57.3
million increased by 21.2% from $47.3 million for 1996. This increase resulted
from higher advertising rates in certain markets and an increase in the number
of displays sold as well as the increased net revenue of $ 6.4 million from
operations in South Carolina and Northeast Pennsylvania which were acquired in
the fourth quarter of 1996.

     Direct advertising expenses for 1997 of $29.1 million increased by 29.8%
from $22.4 million in 1996. The increase was attributable to direct costs
associated with increased sales from new displays, an increase in sales
commissions due to higher average rates, and $5.0 million in additional direct
costs associated with the first full year of operations for the South Carolina
and Northeast Pennsylvania branches acquired in 1996.

     Corporate, general and administrative expenses for 1997 of $3.6 million
increased by 49.2% from $2.4 million in 1996. This increase was attributable to
increased professional fees, travel expenses, relocation expenses, and single
use business taxes.

     Depreciation and amortization for 1997 of $8.1 million increased by 33.5%
from $6.1 million in 1996. Depreciation expense increased as a result of
additions to property, plant and equipment during 1996 and early 1997 from
acquisitions and building of new structures.
 
     Deferred compensation expense for 1997 of $901,000 decreased by 37.9% from
$1.5 million in 1996 primarily due to the removal of the Chief Financial Officer
from the phantom stock plan and management changes in the Michigan market.

     Interest expense for 1997 of $14.6 million increased 16.6% from $12.5
million in 1996. This increase was attributable to a higher outstanding balance
in 1997. The Company's effective interest rate was 10.4% for 1997 and 1996.

     Net income for 1997 decreased to $791,000 from $1.5 million in 1996 as a
result of the items discussed above.

                                      14
<PAGE>
 
     Operating cash flow for 1997 of $24.6 million increased by 9.6% from $22.4
million in 1996. This increase was attributable to the aforementioned increase
in net revenues coupled with only a modest increase in total operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company's cash needs have arisen from operating expenses
(primarily direct advertising expenses and corporate general and administrative
expenses), debt service, capital expenditures and deferred compensation payments
under phantom stock agreements. The Company's interest expense was $14.4 million
in 1998, $14.6 million in 1997, and $12.5 million in 1996.

     The Company's primary sources of cash are net cash generated from operating
activities and borrowings under its credit facility. The Company's net cash
provided from operations increased by 66.1% to $11.9 million for 1998, decreased
by 43.0% to $7.1 million for 1997 and increased by 36.6% to $12.5 million for
1996.

     In 1996 the Company issued $105 million in aggregate principal amount of
its 10-3/4% Senior Notes due 2006 (the "Senior Notes") and entered into a
revolving credit facility, which was increased to $35 million in December 1996.
As a result of such financings, and borrowings for acquisitions in 1996 and for
capital expenditures in 1997, the average outstanding indebtedness increased in
1996 and 1997. During 1996 the Company had interest expense of $12.5 million on
average outstanding indebtedness of approximately $112.3 million, resulting in
an effective annual interest rate of 10.4%. During 1997 the Company had interest
expense of $14.6 million on average outstanding indebtedness of $135.3 million,
resulting in an effective annual interest rate of 10.4%. During 1998 the Company
had interest expense of $14.4 million on average outstanding indebtedness of
$136.7 million, resulting in an effective annual interest rate of 10.2%.
Scheduled interest payments on the Senior Notes aggregate approximately $10.9
million per year.

     In November 1998, the Senior Unsecured Credit Facility was increased to $8
million. At December 31, 1998 nothing was outstanding under such facility.
 
     Substantially all of the assets of the Company are pledged to secure
indebtedness of up to $35.0 million (of which approximately $31.7 million was
outstanding as of December 31, 1998) under the Credit Facility and, accordingly,
the lenders thereunder will have a prior claim on those assets. Permitted
borrowings under the Credit Facility are subject to various conditions. In
addition, the availability of borrowings are subject to compliance with certain
financial covenants. The agreement governing the Credit Facility contains a
number of covenants that are more restrictive than those contained in the
Indenture, including covenants requiring the Company to maintain certain
financial ratios that become more restrictive over time. Adverse operating
results could cause noncompliance with one or more of these covenants, reducing
the Company's borrowing availability, and, in certain circumstances, entitling
the lenders to accelerate the maturity of outstanding borrowings. In November
1998 the senior unsecured credit facility was increased to $8 million.

     On March 31, 1998, the Company entered into an additional $3 million senior
unsecured credit facility. In September 1998, the proceeds from the senior
unsecured facility were used to purchase $4 million of the Company's Senior
Notes on the open market at 105% of principal plus accrued interest. As a result
of the redemption, the Company recognized an extraordinary loss of $330,000,
which represented the redemption premium plus recognition of a proportionate
share of the associated deferred financing fees.

     The Company believes that net cash provided from operations and available
credit under the revolving credit facility will be sufficient to meet its cash
needs for its current operations, required debt payments, anticipated capital
expenditures and the deferred compensation payments for the reasonably
foreseeable future.

     The Company reduced its debt by $2.3 million in 1998, and increased its
debt by $1.8 million in 1997, and $26.0 million in 1996. The Company also made
capital expenditures, primarily for new billboard construction in existing
markets, of $10.1 million in 1998, $7.6 million in 1997, and $4.4 million in
1996. The Company expects 

                                      15
<PAGE>
 
that its capital expenditures during 1999 will be approximately $6.0 million and
will be primarily for new billboard construction and the upgrading of existing
displays. The Company expects to finance such capital expenditures with cash
flow provided by operating activities or borrowings under the revolving credit
facilities.

IMPACT OF INFLATION

     Though increases in operating costs could adversely affect the Company's
operations, management does not believe that inflation has had a material effect
on operating profit during the past several years.

SEASONALITY

     Although revenues during the first and fourth quarters are slightly lower
than the other quarters, management does not believe that seasonality has a
significant impact on the operations or cash flow of the Company.

FORWARD LOOKING STATEMENTS

     Information contained in this Form 10-K, including, without limitation in
the foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, which can be
identified by the use of forward-looking terminology as "may," "will,"
"would," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. Certain
factors, including the Company's substantial leverage, regulation of outdoor
advertising by federal, state and local governments, tobacco advertising
patterns, competition and general economic conditions, could cause actual
results to differ materially from those in such forward-looking statements.

YEAR 2000 COMPLIANCE

OVERVIEW

     The "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000
approaches. The Year 2000 issue exists because many existing computer systems
and software products have been written using two digits, rather than four, to
define the applicable year, thus not properly recognizing dates after December
31, 1999.

COMPANY'S STATE OF READINESS

     The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures and has therefore undertaken
the project of identifying and resolving its Year 2000 issues. The Company's
assessment included both its software and hardware. The Company has identified
all significant applications that require modification to ensure Year 2000
compliance and during the second quarter of 1998, Year 2000 compliant versions
of these programs (primarily financial applications) were installed. The vendor
upgrades have been tested and certified as Year 2000 compliant by an independent
third party.

     In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.

                                      16
<PAGE>
 
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

     During 1997 and 1998, the Company incurred approximately $100,000 and
$150,000, respectively in Year 2000 compliance efforts and estimates of
additional costs to complete its Year 2000 compliance plan are not anticipated
to be material to the Company's financial condition or results of operations.

RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND THE COMPANY'S CONTINGENCY PLANS

     Based on the results of its review of Year 2000 issues to date and
compliance efforts completed, the Company does not believe that the Year 2000
issue presents a significant risk of disruption of the Company's ability to
transact business with its major customers and suppliers. Therefore, the Company
does not believe that a contingency plan to handle Year 2000 problems is
necessary at this time and has not yet developed such a plan. The Company will,
however, continue to monitor the Year 2000 issues and evaluate the need for a
contingency plan to handle the most reasonably likely worst case Year 2000
scenario.

NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
which will be effective for the Company beginning January 1, 2000, establishes
accounting and reporting standards requiring that every derivative instrument
(including certain embedded in other contracts) be recorded in the balance sheet
as either assets or liabilities measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company has not
yet quantified the impact of adopting SFAS No. 133 and has not determined the
timing or method of its adoption, however it is not expected that adoption will
have a material impact on earnings.

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates. The
information below summarizes the Company's market risk associated with its debt
obligations as of December 31, 1998. The information presented below should be
read in conjunction with Note 8 of the Notes to Consolidated Financial
Statements.

INTEREST RATE RISK

The Company carries some floating rate debt and thus is exposed to the impact of
interest rate changes. At December 31, 1998, indebtedness under its Revolving
Credit Facilities representing approximately 24% of the Company's long-term debt
bears interest at variable rates. Accordingly, the Company's net income and cash
flow are affected by changes in interest rates. An 88 basis point move in
interest rates (10% of the Company's weighted average interest rate) would have
and immaterial impact on earnings and cashflow.

Fluctuations in interest rates may also adversely affect the fair market value
of the Company's fixed rate borrowings. The fair value of debt with a fixed
interest rate will increase as interest rates fall and decrease as interest
rates rise. The Company's fixed rate borrowings consist of $101 million of
senior notes bearing interest at 10 3/4%. An 88 basis point move in interest
rates would also have and immaterial effect on the fair value of the Company's
fixed rates senior notes.

                                      17
<PAGE>
 
ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

The information required by Item 9 was previously reported by the Company.
Please see the Company's report on Form 8-K filed on September 15, 1998.

PART III

ITEM 10

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The executive officers and directors of Adams Outdoor Advertising, Inc.,
the managing general partner of the Company, are as follows:

NAME                            AGE    POSITION
------------------------------- ----   ---------------------------------------
Stephen Adams...............     61    Chairman of the Board

J. Kevin Gleason............     47    Chief Executive Officer, President and
                                       Director
                                       
Abe Levine..................     45    Chief Financial Officer, Vice President,
                                       Secretary and Treasurer
                                       
George Pransky..............     58    Director
                                       
David Frith-Smith...........     53    Director
                                       
Andris A. Baltins...........     53    Director


     Stephen Adams has been Chairman of Adams Outdoor Advertising, Inc. since
its founding in 1983. Since the 1970's, Mr. Adams has served as chairman of
privately owned banking, bottling, publishing, outdoor advertising, television
and radio companies in which he held a controlling ownership interest. Mr. Adams
is Chairman of the Board of Directors of Affinity Group, Inc., a membership-
based marketing company.

     J. Kevin Gleason has served as the Chief Executive Officer of the Company
and President of Adams Outdoor Advertising, Inc. since 1991. Mr. Gleason has
seventeen years of experience in advertising, eleven of which have been
dedicated to the outdoor advertising industry. Mr. Gleason has been with Adams
Outdoor Advertising, Inc. since 1987, serving as General Manager of various
local markets and then as Executive Vice President at the corporate level. Prior
to joining Adams Outdoor Advertising, Inc., Mr. Gleason served as General
Manager of 

                                      18
<PAGE>
 
Naegele Outdoor Advertising ("Naegele") of Southern California from 1985 to
1987. Mr. Gleason also currently serves as a Vice-Chairman of the Outdoor
Advertising Association of America.

     Abe Levine has served as Chief Financial Officer of the Company and as Vice
President of Adams Outdoor Advertising, Inc. since 1991. From 1988 to 1991, Mr.
Levine worked as Controller of Adams Outdoor Advertising of Atlanta, Inc. Mr.
Levine was employed by Gulf + Western Industries, Inc. from 1979 through 1987 in
various senior accounting and financial positions, and by KPMG Peat Marwick from
1975 through 1979 in various auditing positions.

     George Pransky, Ph.D. has been in private practice as co-director of
Pransky and Associates in La Conner, Washington since 1988. He is a frequent
consultant for government and private agencies and has been a contract faculty
member for a number of educational institutions, including the University of
Washington, the University of Oregon and Antioch College. Dr. Pransky has
trained management groups in team building, stress elimination and management
development for fifteen years.

     David Frith-Smith has served as managing partner of Biller, Frith-Smith &
Archibald, Certified Public Accountants, since 1988. Mr. Frith-Smith was a
principal in Maidy and Lederman, Certified Public Accountants, from 1980 to
1984, and with Maidy Biller Frith-Smith & Brenner, Certified Public Accountants,
from 1984 to 1988. Mr. Frith-Smith is a director of various private and non-
profit corporations.

     Andris A. Baltins has been a member of the law firm of Kaplan, Strangis and
Kaplan, P.A. since 1979. He is a director of Polaris Industries Inc., a
manufacturer of snowmobiles, all-terrain vehicles, personal watercraft and
related products. Mr. Baltins is also a director of various private and non-
profit corporations.

OTHER SIGNIFICANT MANAGEMENT PERSONNEL

     The following table sets forth certain information with respect to other
significant management personnel:

NAME                    AGE     POSITION
----------------------- ----    -----------------------------------
Jon Kane                 33     General Manager - Lansing          
                                                                 
Jim Balestino            35     General Manager - Jackson        

Mike Peters              36     General Manager - Kalamazoo, MI  
                                                                 
John Hayes               44     General Manager - Lehigh Valley, 
                                and Northeast PA                  
                                                                  
Michelle Kullmann        31     General Manager - Madison, WI    
                                                                 
Gardner King             47     General Manager - Norfolk, VA    
                                                                 
Barry M. Asmann          41     General Manager - Charlotte, NC  
 
Robert J. Lord           40     General Manager - Peoria, IL
 
Robert A. Graiziger      45     General Manager - Minneapolis, MN
 
Jerry Heinz              57     General Manager - South Carolina

                                      19
<PAGE>
 
     Jon Kane has been general manager of the Madison, WI division since
November 1995. He joined the Company in 1989 as an account executive in its
Lehigh Valley, PA division. He also served as regional sales manager and poster
sales manager for Lehigh until his recent promotion to general manager of
Madison.

     Jim Balestino has served as General Manager of the Jackson, MI division
since January 1999. He joined the Company in 1997 as the Sales Manager in its
Florence, SC division. Mr. Balestino previously held the position of General
Sales Manager with FKM Advertising in Youngstown, OH. In addition he served as
the Regional Account Manager and Market Development Manager from 1992 until
1995. He began his career in 1988 as a Real Estate/Account Executive for Penn
Advertising in Altoona, PA.

     Mike Peters has been general manager of the Kalamazoo, MI division since
October, 1996. He began his "outdoor advertising" career in 1985 as an account
executive with Creative Displays in Lehigh Valley, PA. Mr. Peters stayed on as
an account executive when Adams purchased Creative Displays and in 1989 was
promoted to sales manager. He has thirteen years of experience in the outdoor
advertising industry.

     John Hayes has served as general manager of the Lehigh Valley, PA division
from 1985 to 1991 and from 1994 to the present. He began his career in outdoor
advertising in 1976 as an account executive with Creative Displays in the Lehigh
Valley market, later becoming sales manager in 1979 and assistant manager in
1981. From 1991 to 1994 Mr. Hayes managed a paging business in the Lehigh Valley
area.

     Michelle Kullmann has been general manager of the Madison, Wisconsin
division since June 1997. Michelle first started with Adams in 1991 as an
account executive. In 1993 she was promoted to sales manager of Madison and held
that position until her most recent promotion to General Manager.

     Gardner King has served as general manager of the Norfolk, VA division
since January 1988. From 1980 through 1985, Mr. King was the founder and sole
proprietor of an outdoor advertising company in Norfolk, VA, which he sold to
Whiteco. After the expiration of his non-compete agreement with Whiteco, Mr.
King joined the Company in 1988. Mr. King has 16 years of experience in the
outdoor advertising industry.

     Barry Asmann has served as general manager of the Charlotte, NC division
since January 1993 and prior thereto was sales manager in both the Charlotte, NC
and Lehigh Valley, PA divisions. Mr. Asmann has 13 years of experience in the
outdoor advertising industry, working in various markets throughout the country
with the Company and Naegele.

     Robert Lord has served as general manager of the Peoria, IL division since
December 1993. From February 1993 to December 1993, he served as the sales
manager of the Company's Charlotte division and from 1989 to January 1993, he
served as the sales manager of the Company's Peoria, IL division. Mr. Lord
served as an account executive in the Peoria division from 1986 to 1989.

     Robert Graiziger has served as general manager of the Minneapolis, MN
division since 1988, when he sold an outdoor advertising company that he founded
and operated in Minneapolis to the Company. Mr. Graiziger has been involved in
the outdoor advertising business in various capacities since 1978.

     Jerry Heinz has served as general manager of the South Carolina division
since December 1996. He came to Adams Outdoor from Burkhart Advertising, Inc.
Mr. Heinz joined Burkhart Advertising, Inc. in 1969 as and account executive.
During the next 27 years Mr. Heinz held the positions of sales manager, general
manager and finally as President and CEO.

                                      20
<PAGE>
 
ITEM 11

EXECUTIVE COMPENSATION

  The following table provides certain summary information concerning the
compensation incurred by the Company for its Chief Executive Officer and each of
the two other executive officers for the years ended December 31, 1998, 1997,
and 1996.

                          SUMMARY COMPENSATION TABLE

<TABLE> 
<CAPTION> 
                                                  LONG-TERM
                                                  ---------
                                                 COMPENSATION
                                                 ------------
                                                                                    
                                
                                                                                          
                                        ANNUAL COMPENSATION                     AWARDS             PAY OUTS           
                                   --------------------------------------------------------------------------                       

                                                             OTHER                                                 ALL
                                                             -----                                                 ---
                                                             ANNUAL     RESTRICTED   SECURITIES                   OTHER
                                                             ------     ----------   ----------                   -----
                                                             COMPEN-      STOCK      UNDERLYING      LTIP        COMPEN-
                                                             -------      -----      ----------      ----        -------        
NAME AND PRINCIPAL          YEAR   SALARY       BONUS(A)     SATION(B)   AWARD(S)     OPTIONS       PAYOUTS      SATION(C)
------------------          ----   ------       --------     ---------   --------     -------       -------      ---------
POSITION
--------
<S>                         <C>    <C>         <C>          <C>          <C>          <C>           <C>         <C> 
Stephen Adams               1998   $200,000(e)
Chairman(d)                 1997   $200,000(e)
                            1996   $150,000(e)
 
J. Kevin Gleason            1998   $414,843     $3,621,000                                                         $35,000
Chief Executive Officer     1997   $436,000                                                                        $34,750
                            1996   $385,000                                                                        $34,750

Abe Levine                  1998   $180,000                                                                        $18,923
Chief Financial Officer     1997   $180,000                                                                        $19,750
                            1996   $180,000     $  400,000                                                         $19,154
 
</TABLE>


     (a) All amounts represent accruals under deferred phantom stock agreements.

     (b) Less than the lesser of (i) 10% of total annual salary and bonus and
         (ii) $50,000.

     (c) Amounts for 1998, 1997, and 1996 include contributions to the accounts
         of Messrs. Gleason and Levine under the Company's nonqualified
         retirement plan of $30,000 and $15,000, respectively. All other
         amounts represent Company contributions to the Company's 401(k) plan.

     (d) The Company entered into an employment agreement with Mr. Adams
         providing for a salary of $200,000 per year and the reimbursement of
         business expenses.

     (e) Does not include reimbursement of company travel and entertainment
         expense advanced by Mr. Adams aggregating $105,298 in 1997 and
         $200,000 in 1996. Nothing was reimbursed to Mr. Adams in 1998.


EMPLOYMENT AGREEMENT

     The Company and Stephen Adams entered into an employment agreement
effective January 1, 1996. Under the employment agreement, Mr. Adams is employed
as Chairman of Adams Outdoor Advertising, Inc. until December 31, 2001 at a base
salary of $200,000 plus an annual cost of living increase.


AGREEMENTS WITH MANAGEMENT--INCENTIVE COMPENSATION UNDER PHANTOM STOCK
AGREEMENTS

     The Company has deferred phantom stock agreements with certain managers,
including each general manager with respect to the performance of his respective
market. The compensation is calculated using a multiple of the

                                      21
<PAGE>
 
operating profit of the general manager's respective division for the fiscal
year ending immediately prior to the determination date over the value of the
division at the time of agreement. The agreements provide for three equal annual
payments to the participants upon the determination date, which is defined as
termination of employment, death, disability, sale of the Company or the fifth
anniversary of the execution of the agreement. The Company incurred deferred
compensation expense related to the phantom stock agreements of $4.3 million,
$901,000, and $1.5 million, for the years ended December 31, 1998, 1997, and
1996 respectively.
 
     As of December 31, 1998, the Company has accrued the following amounts of
deferred compensation expense payable related to the phantom stock agreements:



                   NAME                                 AMOUNT
     --------------------------------            --------------------
                                                (DOLLARS IN THOUSANDS)

     Kevin Gleason................                              3,620
     Abe Levine...................                                667
     Others.......................                              1,999
                                                               ------
               Total..............                             $6,286
                                                               ======

  If amounts accrued as of December 31, 1998 as deferred compensation payable
related to the phantom stock agreements are paid as currently scheduled
(assuming no executive terminations, deaths or disabilities), such payments will
occur as follows:

<TABLE>
<S>                                    <C>     <C>    <C>    <C>    <C>    <C>    <C>    <C>
            NAME                        1999   2000   2001   2002   2003   2004   2005   TOTAL
     --------------------------------  ------  -----  -----  -----  -----  -----  -----  ------
                                                   (DOLLARS IN THOUSANDS)
     Kevin Gleason...................   $2,696 $  --  $ --   $308   $308   $308    $--  $3,620
     Abe Levine......................      667    --    --     --     --     --     --     667
     Others                                745   698  $146    169    107    107    $27   1,999
                                        ------  ----- -----  ----- -----  -----  -----  ------
     Total...........................   $4,108  $698  $146   $477   $415   $415    $27  $6,286
                                        ====== ===== =====  =====  =====  =====  =====  ======
</TABLE>
                                                                                

AGREEMENTS WITH MANAGEMENT INCENTIVE COMPENSATION UNDER NONQUALIFIED RETIREMENT
PLAN

     The Company also maintains a deferred compensation plan for each of Messrs.
Gleason, Levine and each of the area general managers. Under such plan, the
Company contributes $30,000 per year to the retirement account of Mr. Gleason
and $15,000 per year to the account of each of the other participants.  In
addition, Messrs. Gleason and Levine deferred a substantial portion of their
1998 and 1997 compensation into a similar plan. Deferred compensation payable as
of December 31, 1998 related to the nonqualified retirement plans was
approximately $1.9 million.


401(K) SAVINGS PLAN

     Company employees also participate in a deferred savings and profit sharing
plan (the ''401(k) Plan'') qualified under Section 401(a) and 401(k) of the
Internal Revenue Code (the ''Code''). All employees over age 21 who have
completed one year of service are eligible to participate in the 401(k) Plan.
Eligible employees may contribute to the 401(k) Plan up to 10% of their salary
subject to an annual maximum established under the Code, and the Company matches
these employee contributions at a rate of 50% up to the first 6% of the
employee's salary. Employees may make additional voluntary contributions.


DIRECTOR COMPENSATION

     Following the Refinancing, the Company pays directors who are not also
employees (Messrs. Pransky, Frith-Smith and Baltins) director fees of $4,500 per
quarter.

                                      22
<PAGE>
 
ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT

                          PRINCIPAL SECURITY HOLDERS

     The table below sets forth, the beneficial ownership interests in the
Company as of December 31, 1998.

<TABLE>
<CAPTION>
                                                      GENERAL       LIMITED      AGGREGATE
                                                     ---------     ---------     ---------
                  NAME                              PARTNERSHIP   PARTNERSHIP   PARTNERSHIP
---------------------------------------------       -----------   -----------   -----------
                                                      INTEREST      INTEREST     INTERESTS
                                                     ---------     ---------     ---------
     <S>                                            <C>           <C>           <C> 
     Adams Outdoor Advertising, Inc.(a)...........     0.01%         1.02%         1.03%
        1380 W. Paces Ferry Road, NW
        Suite 170, South Wing
        Atlanta, GA 30327......
 
     Stephen Adams................................     0.70         73.51         74.21
         2575 Vista Del Mar Drive
         Ventura, CA 93001
 
     Stephen M. Adams(b)..........................       --          6.19          6.19
         26529 Oliver Road
         Carmel, CA 93923
 
     Mark C. Adams(b).............................       --          6.19          6.19
        c/o Adams Publishing Corp.
        68860 Perez Road, Suite J
        Cathedral City, CA 92234
 
     Scott L. Adams(b)............................       --          6.19          6.19
         236 Mullen Avenue
         San Francisco, CA 94110
 
     Kent R. Adams(b).............................       --          6.19          6.19
         5017 Vincent Avenue So.
         Minneapolis, MN 55410
 
                                                       0.71%        99.29%       100.00%
</TABLE>

(a)  Stephen Adams holds 100% of the issued and outstanding shares of AOAI, the
     managing general partner of the Company, and, accordingly, may control the
     affairs of the Issuers.
(b)  Stephen M. Adams, Mark C. Adams, Scott L. Adams and Kent R. Adams are sons
     of Stephen Adams.


ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                             CERTAIN TRANSACTIONS

MANAGEMENT SERVICES ARRANGEMENT

     Under a management services arrangement with the Company, affiliates of Mr.
Adams provided management services, including in the areas of financial and
strategic planning, acquisition approval, executive compensation, budget review
and approval and financial performance review, to the Company prior to 1996.
Such agreement

                                      23
<PAGE>
 
included the services of Mr. Adams, who did not receive compensation for his
services directly from the Company prior to 1996. In 1992 and 1993, the Company
paid management services fees of $66,666 and $50,000, respectively. No amounts
were paid in 1994 and 1995. Effective January 1, 1996, the management services
arrangement was terminated.


OTHER CERTAIN TRANSACTIONS
 
     Stephen Adams, J. Kevin Gleason and Abe Levine own 46%, 12% and 12%,
respectively, of HSP Graphics (''HSP''), a printing company headquartered in
Canada. The Company pays the salary and expenses of the HSP salesmen who operate
in the Atlanta, GA area and HSP reimburses the Company for those expenses in
cash and services. At December 31, 1998, 1997 and 1996, the Company had accounts
receivable of $114, $227,991 and $208,669 respectively, outstanding from HSP.
The Company expensed $11,000, $84,000, and $54,000 for printing services
provided during 1998, 1997, and 1996, respectively.

     Andris A. Baltins is a member of the law firm of Kaplan, Strangis and
Kaplan, P.A., which provides legal services to the Company. Mr. Baltins, who is
a director of Adams Outdoor Advertising, Inc., the managing general partner of
the Company, and held $380,547 in principal amount of the zero coupon 10%
Subordinated Notes of the Company due January 2, 1997 which the Company retired
in 1996. Messrs. Adams, Gleason and Levine also held interests in such notes.
See ''Refinancing and Uses of Proceeds.''

     During 1998, the Company loaned $100,000 to J. Kevin Gleason, an officer of
the Company, which is to be repaid during 1999. These funds were used as a down
payment on a building leased to the Company. This amount is included in another
accounts receivable.

     During 1998, the Company entered into a building lease with J. Kevin
Gleason, an officer of the Company. The lease term is for 10 years and has been
classified as an operating lease. Rent expense of approximately $52,000 related
to this transaction has been included in direct advertising expense during the
year ended December 31, 1998. The Company has an option to purchase the building
at cost at anytime.

                                      24
<PAGE>
 
ITEM 14

EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Documents filed
          (1) Financial statements (included under Item 8)
 
          (2) Financial statement schedules
              S-1 Independent Public Accountants' Reports on Schedule
              S-2 Schedule II - Valuation and Qualifying Accounts

          (3) Exhibits
 
     (b)  Reports on Form 8-K
          The company filed no reports on form 8-K during the quarter ended
          December 31, 1997.

     (c)  Exhibits
          Included in Item 14 (a) (3) above.

     (d)  Financial Statements Schedules
          Included in Item 14 (a) (2) above.

Financial Statement Schedules
  -  Identify

Signature Page
  -  Power of Attorney

Exhibit Index (Item 601, Reg. S-K)
  -  Financial Data Schedules Item 601 (b) (27)

                                      25
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE


To:  Adams Outdoor Advertising Limited Partnership

We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheet of Adams Outdoor Advertising Limited Partnership as
of December 31, 1998 and the related consolidated statements of operations,
partners' equity (deficit), and cash flows for the year then ended, and have
issued our report thereon dated March 26, 1999.  Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole.  The accompanying Schedule II-Valuation and Qualifying Accounts is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements.  This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.



Arthur Andersen LLP

Atlanta, GA
March 26, 1999

                                      26
<PAGE>
 
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Adams Outdoor Advertising Limited Partnership:

     Under date of March 18, 1998, we reported on the consolidated balance
sheet of Adams Outdoor Advertising Limited Partnership as of December 31, 1997,
and the related consolidated statements of operations, changes in partners'
equity (deficit) and cash flows for each of the years in the two-year period
ended December 31, 1997, as contained in the annual report on Form 10-K for the
year 1998. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule 
based on our audits.

     In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.


                                    KPMG LLP

Atlanta, Georgia
March 18, 1998

                                      27
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                           Additions
                                                           ---------                 
                              Balance at        Charged to           Charged                                 Balance
                               beginning         costs and           to other          Deductions (b)        at end
       Description             of period         expenses          accounts (a)        --------------       of period
       -----------            ----------        ----------         ------------                             ---------   
<S>                           <C>               <C>                <C>                 <C>                  <C>
1998 Allowance for
 Doubtful Accounts             $700,429           287,494               __                 (339,823)         $648,101
                                                                                                          
                                                                                                          
1997 Allowance for                                                                                        
 Doubtful Accounts             $696,260           231,973               __                 (227,804)         $700,429
                                                                                                          
                                                                                                          
1996 Allowance for                                                                                        
 Doubtful Accounts             $546,123            57,387             169,740               (76,990)         $696,260
</TABLE>

(a) Purchased through acquisitions during 1996

(b) Write-offs, net of recoveries

                                      28
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                        ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP
                        By: Adams Outdoor Advertising, Inc., its general partner

                        By:   /s/ J. Kevin Gleason
                           ---------------------------------
                                   J. Kevin Gleason
                             President and Chief Executive Officer

                        ADAMS OUTDOOR ADVERTISING, INC.

                        By:   /s/ J. Kevin Gleason
                           ---------------------------------
                                   J. Kevin Gleason
                           President and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
 
Signature                                               Title                          Date
------------------------------------  ------------------------------------------  --------------
<S>                                   <C>                                         <C>
 
     /s/  J. Kevin Gleason            President, Chief Executive Officer          March 31, 1999
------------------------------------
           J. Kevin Gleason           and Director (Principal Executive Officer)
 
     /s/ Abe Levine                   Chief Financial Officer (Principal          March 31, 1999
------------------------------------
          Abe Levine                  Financial and Accounting Officer)
 
               *                      Chairman of the Board (Director)            March 31, 1999
------------------------------------
          Stephen Adams
 
               *                      Director                                    March 31, 1999
------------------------------------
          Andris A. Baltins
 
               *                      Director                                    March 31, 1999
------------------------------------
          David Frith-Smith
 
               *                      Director                                    March 31, 1999
------------------------------------
          George Pransky
 
* By:  /s/  J. Kevin Gleason
     ------------------------------------------
             J. Kevin Gleason
        (as attorney-in-fact)
</TABLE> 

  J. Kevin Gleason, pursuant to powers of attorney, executed by each of the
  officers and directors listed above whose name is marked by an "*" filed as an
  exhibit hereto to this Report, by signing his name hereto, does hereby sign
  and execute this report of Adams Outdoor Advertising, Inc. on behalf of each
  such officers and directors in the capacities in which the names of each
  appear.

                                      29
<PAGE>
 
POWER OF ATTORNEY
-----------------
                                  (FORM 10-K)

     KNOW ALL MEN BY THESE PRESENTS, that ADAMS OUTDOOR ADVERTISING, INC., a
Minnesota corporation (the "Company"), and each of the undersigned directors of
the Company, hereby constitutes and appoints J. Kevin Gleason and Abe Levine and
each of them (with full power to each of them to act alone) its/his/her true and
lawful attorney-in-fact and agent, for it/him/her and on its/him/her and in
its/his/her name, place and stead, in any and all capacities to sign, execute,
affix its/his/her seal thereto and file the Annual Report on Form 10-K of the
Company and Adams Outdoor Advertising Limited Partnership for the year ended
December 31, 1997 under the Securities Exchange Act of 1933, as amended, with
any amendment or amendments thereto, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority.

     There is hereby granted to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in respect of the foregoing as fully as it/he/she or
itself/himself/herself might or could do if personally present, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.

     This Power of Attorney may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument and any of the undersigned directors may execute
this Power of Attorney by signing any such counterpart.

     Adams Outdoor Advertising, Inc. has caused this Power of Attorney to be
executed in its name by its Chief Executive Officer on the 31st day of March,
1999

                         ADAMS OUTDOOR ADVERTISING, INC.


                         By   /s/ J. Kevin Gleason
                            ----------------------
                              J. Kevin Gleason
                              Chief Executive Officer
                              and President

                                      30
<PAGE>
 
The undersigned, directors of ADAMS OUTDOOR ADVERTISING, INC., have hereunto set
their hands as of the 31st day of March, 1999.



       /s/ Stephen Adams                      /s/ J. Kevin Gleason
  ------------------------------         -----------------------------
       Stephen Adams                          J. Kevin Gleason



       /s/ David Frith-Smith                  /s/ George Pransky
  ------------------------------         -----------------------------
       David Frith-Smith                      George Pransky



       /s/ Andris A. Baltins
  ------------------------------        
       Andris A. Baltins



                               D I R E C T O R S

                                      31
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES




                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS

FINANCIAL STATEMENTS

     Consolidated Balance Sheets--December 31, 1998 and 1997

     Consolidated Statements of Operations for the Years Ended December 31,
     1998, 1997, and 1996

     Consolidated Statements of Changes in Partners' Equity (Deficit) for the
     Years Ended December 31, 1998, 1997, and 1996

     Consolidated Statements of Cash Flows for the Years Ended December 31,
     1998, 1997, and 1996

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                        



To Adams Outdoor Advertising, Inc.:

We have audited the accompanying balance sheet of ADAMS OUTDOOR ADVERTISING,
INC. (a Minnesota corporation) as of December 31, 1998 and the related
statements of operations, shareholder's equity, 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 Adams Outdoor Advertising, Inc.
as of December 31, 1998 and the results of its operations and its cash flows for
the year ended December 31, 1998 in conformity with generally accepted
accounting principles.


ARTHUR ANDERSEN LLP



Atlanta, Georgia
March 26, 1999
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                        



To the Shareholders of
Adams Outdoor Advertising, Inc.:


We have audited the accompanying balance sheet of Adams Outdoor Advertising,
Inc. (the "Company") as of December 31, 1997 and the related statements of
operations, changes in shareholder's equity, and cash flows for each of the
years in the two-year period ended December 31, 1997.  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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and the results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.


                                    KPMG LLP



Atlanta, Georgia
March 18, 1998
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


                                BALANCE SHEETS

                          DECEMBER 31, 1998 AND 1997



                                     ASSETS
                                        
<TABLE>
<CAPTION>
                                                                                    1998         1997
                                                                                   ------       ------  
<S>                                                                                <C>          <C>
INVESTMENT (NOTE 2)                                                                $  40        $  40
                                                                                   ------       ------  

                                     STOCKHOLDER'S EQUITY

COMMITMENT AND CONTINGENCIES (NOTE 3)

SHAREHOLDER'S EQUITY:
 Preferred stock, $.001 par value; authorized 800,000 shares, no shares issued
  or outstanding                                                                   $   0        $   0
 
 Common stock, $.001 par value; authorized 200,000 shares, 10,000 shares issued
  and outstanding                                                                    100          100
 
 Additional paid-in capital                                                          900          900
 Common stock subscribed                                                            (960)        (960)
                                                                                   ------       ------  
       Total                                                                       $  40        $  40
                                                                                   ------       ------  
</TABLE>


     The accompanying notes are an integral part of these balance sheets.
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


                      STATEMENTS OF STOCKHOLDER'S EQUITY

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996




<TABLE>
<CAPTION>
                                                                 Additional    Common         Total
                                              Preferred  Common   Paid-in       Stock     Stockholder's
                                                Stock    Stock    Capital    Subscribed      Equity
                                              ---------  ------  ----------  ----------   ------------- 
<S>                                           <C>        <C>     <C>         <C>          <C>
BALANCE, December 31, 1995                        $0      $100      $900        $(960)          $40    
                                                                                                       
 Net income (loss)                                 0         0         0            0             0    
                                              ---------  ------  ----------  ----------   ------------- 
BALANCE, December 31, 1996                         0       100       900         (960)           40    
                                                                                                       
 Net income (loss)                                 0         0         0            0             0    
                                              ---------  ------  ----------  ----------   ------------- 
BALANCE, December 31, 1997                         0       100       900         (960)           40    
                                                                                                       
 Net income (loss)                                 0         0         0            0             0    
                                              ---------  ------  ----------  ----------   ------------- 
BALANCE, December 31, 1998                        $0      $100      $900        $(960)          $40    
                                              =========  ======  ==========  ==========   ============= 
</TABLE>



       The accompanying notes are an integral part of these statements.
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


                           STATEMENTS OF OPERATIONS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996




<TABLE>
<CAPTION>
                                                                             1998         1997        1996
                                                                             ----         ----        ---- 
<S>                                                                          <C>          <C>         <C>
REVENUES                                                                     $  0         $  0        $  0
                                                                                                        
EXPENSES                                                                        0            0           0
                                                                             ----         ----        ---- 
NET INCOME (LOSS)                                                            $  0         $  0        $  0
                                                                             ====         ====        ==== 
</TABLE>



       The accompanying notes are an integral part of these statements.
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


                           STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996




<TABLE>
<CAPTION>
                                                                             1998         1997        1996
                                                                             ----         ----        ---- 
<S>                                                                          <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES                                         $  0         $  0        $  0
                                                                                                        
CASH FLOWS FROM INVESTING ACTIVITIES                                            0            0           0
                                                                                                        
CASH FLOWS FROM FINANCING ACTIVITIES                                            0            0           0
                                                                             ----         ----        ---- 
NET CHANGE IN CASH                                                              0            0           0

CASH, beginning of year                                                         0            0           0
                                                                             ----         ----        ---- 
CASH, end of year                                                            $  0         $  0        $  0
                                                                             ====         ====        ==== 
</TABLE> 



       The accompanying notes are an integral part of these statements.
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


                         NOTES TO FINANCIAL STATEMENTS

                          DECEMBER 31, 1998 AND 1997


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     THE COMPANY

     Adams Outdoor Advertising, Inc. ("AOAI") was organized as a corporation
     under the Minnesota Statutes on December 12, 1985. AOAI is the managing
     general partner of Adams Outdoor Advertising Limited Partnership (the
     "Company"). AOAI is wholly owned by the individual general partner of the
     Company, who is also a limited partner in the Company. AOAI has nominal
     assets and does not conduct any operations, except for its activities as
     managing general partner of the Company.

     AOAI and its sole stockholder have agreed that all profits or losses
     allocable to the general partners will be allocated to the individual
     general partner, and none will be allocated to AOAI.

     INVESTMENT

     The investment balance consists of a general and limited partnership
     interest which are carried at cost, since the partnership interest is not
     readily marketable.

     INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases. Deferred tax assets and liabilities are measured using enacted
     tax rates expected to apply to taxable income in the years in which those
     temporary differences are expected to be recovered or settled. The effect
     on deferred tax assets and liabilities of a change in tax rates is
     recognized in income in the period that includes the enactment date.

     USE OF ESTIMATES

     The Company's consolidated financial statements are prepared in accordance
     with generally accepted accounting principles, which require management to
     make estimates and assumptions that affect the reported amounts of assets
     and liabilities and disclosures of contingent assets and liabilities at the
     date or the financial statements and the reported amount of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates.
<PAGE>
 
                                     -2- 

2.   INVESTMENT IN AFFILIATED PARTNERSHIP

     AOAI has a 1% aggregate partnership interest in the Company which consists
     of .01% general partnership interest and .99% limited partnership interest.
     Summary audited financial information for the investee Company as of and
     for the years ended December 31, 1998 and 1997 is presented as follows
     (dollars in thousands):

<TABLE>
<CAPTION>
                                                                    1998              1997          
                                                                  ---------        ---------        
          <S>                                                     <C>              <C>              
          Balance sheet information:                                                                
             Current assets                                       $  15,661        $  15,684        
             Current liabilities                                    (10,855)         (12,588)       
             Working capital                                          4,806            3,096        
             Property, plant, and equipment, net                     53,350           51,090        
             Intangible assets, net                                   9,107           10,450        
             Other assets                                                74              250        
             Long-term debt, less current installments             (132,727)        (131,034)       
             Deferred compensation, less current installments        (4,057)          (3,438)       
                                                                  ---------        ---------        
             Partners' deficit                                    $ (69,447)       $ (69,586)       
                                                                  =========        =========        
          Income statement information:                                                             
             Net outdoor advertising revenues                     $  64,569        $  57,285        
                                                                  =========        =========        
                                                                                                    
             Operating income                                     $  16,378        $  15,557        
                                                                  =========        =========        
                                                                                                    
             Net income                                           $   1,183        $     791        
                                                                  =========        =========        
</TABLE>

3.   EMPLOYMENT AGREEMENT WITH SOLE STOCKHOLDER

     Effective January 1, 1996, AOAI entered into an employment agreement with
     the sole stockholder as an executive, which provides a base salary and
     benefits, subject to increases based on the Consumer Price Index annually,
     plus reimbursement of business expenses. The agreement expires December 31,
     2001 unless terminated by AOAI or the sole stockholder and provides one
     year of severance pay, if terminated by AOAI under certain circumstances.
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP
                               AND SUBSIDIARIES


                       CONSOLIDATED FINANCIAL STATEMENTS
                    AS OF DECEMBER 31, 1998, 1997, AND 1996
                                 TOGETHER WITH
                               AUDITORS' REPORT
<PAGE>
 
                        ADAMS OUTDOOR ADVERTISING, INC.


         Financial Statements as of December 31, 1998, 1997, and 1996
                                 Together With
                               Auditors' Reports



<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Adams Outdoor Advertising
Limited Partnership:


We have audited the accompanying consolidated balance sheet of ADAMS OUTDOOR
ADVERTISING LIMITED PARTNERSHIP (a Minnesota limited partnership) AND
SUBSIDIARIES as of December 31, 1998 and the related consolidated statements of
operations, partners' equity (deficit), 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 Adams Outdoor Advertising
Limited Partnership as of December 31, 1998 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.


ARTHUR ANDERSEN LLP



Atlanta, Georgia
March 26, 1999
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT



To the Partners of
Adams Outdoor Advertising Limited Partnership:


We have audited the accompanying consolidated balance sheet of ADAMS OUTDOOR
ADVERTISING LIMITED PARTNERSHIP AND SUBSIDIARIES as of December 31, 1997 and the
related consolidated statements of operations, changes in partners' equity
(deficit), and cash flows for each of the years in the two-year period ended
December 31, 1997.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.


                                    KPMG LLP



Atlanta, Georgia
March 18, 1998
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS

                          DECEMBER 31, 1998 AND 1997



                                    ASSETS

<TABLE>
<CAPTION>
                                                                                                     1998           1997    
                                                                                                  -----------    -----------
<S>                                                                                               <C>            <C>        
CURRENT ASSETS:                                                                                                             
     Cash and cash equivalents                                                                    $ 1,686,788    $ 3,120,542
     Investments                                                                                    1,878,977      1,280,765
     Trade accounts receivable, less allowance for doubtful accounts of                                                     
       $648,101 and $700,429, respectively                                                          8,423,606      7,576,375
     Other accounts receivable (Note 3)                                                               129,059        316,485
     Inventories                                                                                       68,674        142,274
     Prepaid rent                                                                                   2,826,362      2,452,455
     Prepaid expenses                                                                                 647,103        794,911
                                                                                                  -----------    -----------
          Total current assets                                                                     15,660,569     15,683,807
                                                                                                                            
PROPERTY, PLANT, AND EQUIPMENT, NET                                                                53,350,148     51,090,177
                                                                                                                            
INTANGIBLE ASSETS, NET                                                                              9,107,911     10,449,973
                                                                                                                            
OTHER ASSETS                                                                                           74,076        250,203
                                                                                                  -----------    -----------
                                                                                                  $78,192,704    $77,474,160
                                                                                                  ===========    =========== 

                                    LIABILITIES AND PARTNERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
     Current installments of long-term debt                                                      $          0   $  4,000,000
     Accounts payable                                                                                 557,626        540,377
     Interest payable                                                                               3,606,150      4,042,392
     Accrued expenses and other liabilities                                                         2,583,609      2,673,505
     Deferred compensation                                                                          4,108,077      1,331,713
                                                                                                 ------------   ------------
          Total current liabilities                                                                10,855,462     12,587,987

LONG-TERM DEBT, LESS CURRENT INSTALLMENTS                                                         132,727,500    131,033,750

DEFERRED COMPENSATION                                                                               4,057,232      3,438,651
                                                                                                 ------------   ------------
          Total liabilities                                                                       147,640,194    147,060,388
                                                                                                 ------------   ------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)

PARTNERS' DEFICIT:
     General partners' deficit                                                                    (67,829,366)   (67,829,366)
     Limited partners' deficit                                                                     (1,618,124)    (1,756,862)
                                                                                                 ------------   ------------
          Total partners' deficit                                                                 (69,447,490)   (69,586,228)
                                                                                                 ------------   ------------
                                                                                                 $ 78,192,704   $ 77,474,160
                                                                                                 ============   ============
</TABLE>

  The accompanying notes are an integral part of these consolidated balance 
                                    sheets.
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF OPERATIONS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996




<TABLE>
<CAPTION>
                                                                  1998               1997                1996
                                                               -----------        -----------        -----------  
<S>                                                            <C>                <C>                <C>
GROSS REVENUES                                                 $71,591,716        $63,301,642        $52,421,172
  Less agency commissions                                        7,023,144          6,017,105          5,161,376
                                                               -----------        -----------        -----------
       Net outdoor advertising revenue                          64,568,572         57,284,537         47,259,796
                                                               -----------        -----------        ----------- 
OPERATING EXPENSES:
  Direct advertising expenses                                   32,096,318         29,089,188         22,411,959
  Corporate, general, and administrative                         3,903,136          3,589,189          2,404,834
  Depreciation and amortization                                  7,875,001          8,148,621          6,105,151
  Deferred compensation                                          4,315,971            900,876          1,451,031
                                                               -----------        -----------        -----------
       Total operating expenses                                 48,190,426         41,727,874         32,372,975
                                                               -----------        -----------        -----------
OPERATING INCOME                                                16,378,146         15,556,663         14,886,821
                                                               -----------        -----------        -----------
OTHER EXPENSES (INCOME):
  Interest expense                                              14,407,950         14,586,568         12,247,794
  Interest expense--related party                                        0             13,934            275,175
  Other expenses (income), net                                      78,827             42,517            (31,362)
  Loss on disposals of property and equipment, net                 377,853            122,287            860,706
                                                               -----------        -----------        ----------- 
       Total other expenses                                     14,864,630         14,765,306         13,352,313
                                                               -----------        -----------        -----------
INCOME BEFORE EXTRAORDINARY LOSS ON EARLY
 EXTINGUISHMENT OF DEBT                                          1,513,516            791,357          1,534,508 
                                                                                                                 
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT                 329,778                  0                  0
                                                               -----------        -----------        -----------
NET INCOME                                                     $ 1,183,738        $   791,357        $ 1,534,508
                                                               -----------        -----------        -----------
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CHANGES

                         IN PARTNERS' EQUITY (DEFICIT)

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996



<TABLE>
<CAPTION>
                                                                                   LIMITED
                                                                GENERAL           PARTNERS'            TOTAL
                                                               PARTNERS'            EQUITY           PARTNERS'
                                                               (DEFICIT)          (DEFICIT)          (DEFICIT)
                                                             -------------      ------------       -------------  
<S>                                                          <C>                <C>                <C>
BALANCE, December 31, 1995                                   $(67,829,366)      $ 1,000,000        $(66,829,366)
                                                             
  Net income                                                            0         1,534,508           1,534,508
  Distributions                                                         0        (3,149,620)         (3,149,620)
                                                             -------------      ------------       -------------  
BALANCE, December 31, 1996                                    (67,829,366)         (615,112)        (68,444,478)
                                                             
  Net income                                                            0           791,357             791,357
  Distributions                                                         0        (1,933,107)         (1,933,107)
                                                             -------------      ------------       -------------  
BALANCE, December 31, 1997                                    (67,829,366)       (1,756,862)        (69,586,228)
                                                             
  Net income                                                            0         1,183,738           1,183,738
  Distributions                                                         0        (1,045,000)         (1,045,000)
                                                             -------------      ------------       -------------  
BALANCE, December 31, 1998                                   $(67,829,366)      $(1,618,124)       $(69,447,490)
                                                             =============      ============       =============  
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996



<TABLE>
<CAPTION>
                                                                                     1998           1997            1996
                                                                                 ------------   ------------   ------------- 
<S>                                                                              <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                     $  1,183,738   $    791,357   $   1,534,508
  Adjustments to reconcile net income to net cash provided by operating
   activities:
         Extraordinary loss on early extinguishment of debt                           329,778              0               0
         Depreciation                                                               7,043,434      7,294,989       5,811,083
         Amortization of intangible assets                                          1,308,205      1,423,664       1,126,505
         Deferred compensation expense                                              4,315,971        900,876       1,451,031
         Payments for deferred compensation                                        (1,332,193)    (1,118,144)     (1,226,579)
         Loss on disposals of property and equipment, net                             377,853        122,287         860,706
         Change in unrealized gain on investments                                        (712)      (122,682)              0
         Barter (income) loss                                                         (24,729)        42,692          86,729
         Purchases of investments                                                    (183,604)    (2,545,125)       (315,000)
         Proceeds from sale of investments                                                  0      1,735,345               0
         Changes in assets and liabilities, net of effects from acquisitions
          of businesses:
              Accounts receivable                                                    (659,805)      (978,663)     (1,171,643)
              Inventories                                                              73,600         74,438          61,705
              Prepaid rent, expenses, and other assets                                (49,972)      (346,265)        339,399
              Accounts payable, accrued expenses, and other liabilities               (72,647)      (420,808)      1,374,950 
              Interest payable                                                       (436,242)       402,018       2,619,687
              Other liabilities--long-term                                                  0       (106,407)        (16,321)
                                                                                 ------------   ------------   ------------- 
                     Net cash provided by operating activities                     11,872,675      7,149,572      12,536,760
                                                                                 ------------   ------------   ------------- 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property, plant, and equipment                                     (10,144,346)    (7,645,961)     (4,419,452)
  Proceeds from sales of property, plant, and equipment                               485,088        184,416          45,017
  Acquisitions of businesses                                                                0              0     (24,300,464)
                                                                                 ------------   ------------   ------------- 
                     Net cash used in investing activities                         (9,659,258)    (7,461,545)    (28,674,899)
                                                                                 ------------   ------------   ------------- 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Debt financing costs                                                                (97,921)       (11,703)     (5,288,384)
  Advances from long-term debt                                                     19,910,007     12,037,500     145,725,354
  Payments on long-term debt                                                      (22,216,257)   (10,193,133)   (119,747,164)
  Premium on senior notes redemption                                                 (198,000)             0               0
  Distributions to partners                                                        (1,045,000)    (1,933,107)     (3,149,620)
                                                                                 ------------   ------------   ------------- 
                     Net cash (used in) provided by financing activities           (3,647,171)      (100,443)     17,540,186 
                                                                                 ------------   ------------   ------------- 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                               (1,433,754)      (412,416)      1,402,047 
                                                                                                                             
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                        3,120,542      3,532,958       2,130,911
                                                                                 ------------   ------------   ------------- 
CASH AND CASH EQUIVALENTS, END OF YEAR                                           $  1,686,788   $  3,120,542   $   3,532,958
                                                                                 ============   ============   ============= 
</TABLE>



 The accompanying notes are an integral part of these consolidated statements.
<PAGE>
 
                 ADAMS OUTDOOR ADVERTISING LIMITED PARTNERSHIP

                               AND SUBSIDIARIES


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       DECEMBER 31, 1998, 1997, AND 1996


1. ORGANIZATION AND NATURE OF OPERATIONS

   Adams Outdoor Advertising Limited Partnership ("Adams" or the "Company") was
   organized under the Minnesota Uniform Limited Partnership Act on December 12,
   1985 and will terminate on December 31, 2025 unless terminated sooner under
   the provisions of the partnership agreement.  The Company was organized for
   the purpose of acquiring and operating businesses engaged in the outdoor
   advertising industry.  The Company owns and operates outdoor advertising
   structures in 11 markets in the Midwest, Southeast, and Mid-Atlantic states.
   The managing general partner is Adams Outdoor Advertising, Inc.

   The partnership agreement was amended and restated on March 31, 1995 to
   convert and transfer 99% of the general partners' interest to limited
   partners' interests.  The partnership agreement was amended and restated on
   January 1, 1996 to, among other matters, eliminate classes of limited partner
   interests resulting in general partners' interests of 0.71% and limited
   partners' interests of 99.29%

   The partnership agreement provides that losses will be allocated 100% to the
   general partners.  Profits will be allocated to the general and limited
   partners in the same proportion, based on their aggregate interest in the
   Company, as they have received distributions of distributable cash (defined
   as annual cash gross receipts, less cash expenses and any amount set aside
   for reserves) for such calendar year.  In the event there are profits in a
   calendar year in which no distribution of distributable cash has been made,
   profits will be allocated 100% to the general partners.

   In the event of a sale, refinancing, or dissolution of the partnership, the
   proceeds available for distribution, after payment of all expenses and
   previously outstanding debt of the partnership, will be distributed first to
   the partners up to an amount equal to the respective partner's adjusted
   aggregate interest in the partnership.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   BASIS FOR PRESENTATION

   The consolidated financial statements include the financial statements of the
   Company and its wholly owned subsidiaries.  All significant intercompany
   balances and transactions have been eliminated in consolidation.
<PAGE>
 
                                      -2-

   USE OF ESTIMATES

   The Company's consolidated financial statements are prepared in accordance
   with generally accepted accounting principles, which require management to
   make estimates and assumptions that affect the reported amounts of assets and
   liabilities and disclosures of contingent assets and liabilities at the date
   of the financial statements and the reported amount of revenues and expenses
   during the reporting period.  Actual results could differ from those
   estimates.

   CASH EQUIVALENTS

   The Company considers all short-term, highly liquid investments purchased
   with an original maturity of three months or less to be cash equivalents.

   INVESTMENTS

   Investments consist primarily of corporate and U.S. government debt
   instruments and equity securities.  Securities are classified in one of three
   categories:  trading, available-for-sale, or held-to-maturity.  Management of
   the Company determines the appropriate classification of its investments at
   the time of acquisition and reevaluates such determination at each balance
   sheet date.

   The Company has classified all securities purchased and held during 1998 and
   1997 as trading securities, as they are intended to be sold in the near term.
   Trading securities are carried at fair value, with realized and unrealized
   gains and losses included in net income.

   INVENTORIES

   Inventories are valued at the lower of cost or market.  Cost is determined by
   using the first-in, first-out method.  Market approximates net realizable
   value.

   PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment are stated at cost, less accumulated
   depreciation.  Depreciation is computed using the straight-line method over
   the estimated useful lives of the assets, which are as follows:

          Buildings and equipment                       5 to 32 years
 
          Outdoor advertising structures               12 to 15 years
 
          Vehicles, machinery and       
          equipment, and office equipment                3 to 5 years


   INTANGIBLE ASSETS

   Intangible assets include financing costs, noncompete agreements, and
   goodwill.  Goodwill is being amortized using the straight-line method over
   periods of between 12 and 40 years.  The remaining intangible assets are
   recorded at cost and are amortized using the 
<PAGE>
 
                                      -3-

   straight-line method over the assets' estimated useful lives of two to five
   years for noncompete agreements and the terms of the related debt for
   financing costs. The Company assesses the recoverability of intangible assets
   based on expected future cash flows.

   INCOME TAXES

   The Company is not considered a taxable entity for federal and state income
   tax purposes.  Any taxable income or loss, tax credits, and certain other
   items are reported by the partners on their own tax returns in accordance
   with the partnership agreement.

   REVENUE RECOGNITION

   Revenues represent outdoor advertising services provided by the Company.  The
   Company recognizes revenue when rendered, usually on a monthly basis in
   accordance with contract terms, as advertising services are provided.

   BARTER TRANSACTIONS

   Barter transactions, which represent the exchange of advertising for goods or
   services, are recorded at the estimated fair value of the advertising
   provided and the products or services received.  Barter revenue is recognized
   when advertising services are rendered, and barter expense is recognized when
   the related products or services are received.

   IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

   The Company adopted the provisions of Statement of Financial Accounting
   Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
   Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996.
   This statement requires that long-lived assets and certain identifiable
   intangibles be reviewed for impairment whenever events or changes in
   circumstances indicate that the carrying amount of an asset may not be
   recoverable.  Recoverability of assets to be held and used is measured by a
   comparison of the carrying amount of an asset to future net cash flows
   expected to be generated by the asset.  If such assets are considered to be
   impaired, the impairment to be recognized is measured by the amount by which
   the carrying amount of the assets exceed the fair value of the assets.
   Assets to be disposed of are reported at the lower of the carrying amount or
   fair value less costs to sell.  Adoption of this statement resulted in the
   recognition of a loss during the year ended December 31, 1996 related to
   impairment of long-lived assets to be disposed of (Note 14).

   NEW ACCOUNTING STANDARDS

   The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise
   and Related Information".  This statement establishes standards for the way
   enterprises report information about operating segments in annual financial
   statements and requires that enterprises report selected information about
   operating segments in interim financial statements.  Adams operates in a
   single reportable segment in the outdoor advertising industry.
<PAGE>
 
                                      -4-

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
   "Accounting for Derivative Instruments and Hedging Activities." This
   statement which will be effective for the Company beginning January 1, 2000,
   establishes accounting and reporting standards requiring that every
   derivative instrument (including certain embedded in other contracts) be
   recorded in the balance sheet as either assets or liabilities measured at its
   fair value.  The statement requires that changes in the derivative's fair
   value be recognized currently in earnings unless specific hedge accounting
   criteria are met.  The Company has not yet quantified the impact of adopting
   SFAS No. 133 and has not determined the timing or method of its adoption,
   however it is not expected that adoption will have a material impact on
   earnings.

3. RELATED-PARTY TRANSACTIONS

   Certain partners and employees of the general partner have ownership in HSP
   Graphics ("HSP"), a printing operation headquartered in Canada.  The Company
   pays the salary and expenses of HSP employees, and HSP reimburses the Company
   for these expenses in cash or services.  At December 31, 1998 and 1997, the
   Company had accounts receivable of $114 and $227,991, respectively,
   outstanding related to this arrangement with HSP.  The Company expensed
   $11,000, $84,000, and $54,000 for printing services provided by HSP during
   1998, 1997, and 1996, respectively.

   During 1998, the Company loaned $100,000 to an officer of the Company which
   is to be repaid during 1999.  This amount is included in other accounts
   receivable.

   During 1998, the Company entered into a building lease with an officer of the
   Company.  The lease term is for ten years and has been classified as an
   operating lease.  Rent expense of approximately $52,000 related to this
   transaction has been included in direct advertising expense during the year
   ended December 31, 1998.

   During 1997, the Company entered an aircraft lease with a related party to
   the Company.  The lease term is for seven years and has been classified as an
   operating lease.  Lease and operating expenses of approximately $549,000 and
   $466,000 related to this transaction have been included in corporate general
   and administrative expense during the year ended December 31, 1998 and 1997,
   respectively.

   Pursuant to the refinancing discussed in Note 8, notes payable of $6,730,436
   to Central Advertising Company and $1,900,293 to Illinois Outdoor Advertising
   Company Limited Partnership were repaid in 1996, except for $231,379 payable
   to an unlocated noteholder which remains outstanding at December 31, 1998.
   Both entities are related to the Company through common ownership.

   Also pursuant to the refinancing discussed in Note 8, $11,389,165 in 9%
   subordinated notes and convertible notes payable to an affiliate of the
   general partner were repaid in 1996.  Related-party interest expense of
   $275,175 was recorded during the year ended December 31, 1996 related to
   these notes.
<PAGE>
 
                                      -5-

4. INVESTMENTS

The carrying and estimated fair values of investment securities at December 31,
1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                             1998
                                              ------------------------------------------------------------------ 
                                                                    GROSS            GROSS
                                                                  UNREALIZED        UNREALIZED        ESTIMATED
                                                                   HOLDING           HOLDING            FAIR
             TYPE OF EACH ISSUE                    COST             GAINS             LOSSES            VALUE
------------------------------------          ----------------   --------------   ---------------   ------------
<S>                                            <C>              <C>              <C>               <C>
Trading securities:
Cash and money market funds
                                                 $1,127,721         $       0          $     0        $1,127,721
U.S. Treasury obligations                            74,722             1,403                0            76,125
Equity securities                                   481,639           106,109           (6,592)          581,156
Fixed income debt securities
                                                     91,453             2,991             (469)           93,975
                                                 ----------         ---------         ---------       ----------           
                                                 $1,775,535          $110,503          $(7,061)       $1,878,977
                                                 ==========         =========         =========       ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                              1997
                                                    -------------------------------------------------------------   
                                                                     Gross            Gross
                                                                  Unrealized        Unrealized        Estimated
                                                                    Holding          Holding            Fair
             Type of Each Issue                     Cost             Gains            Losses            Value
----------------------------------------        -----------      -------------     -----------      ------------- 
<S>                                            <C>              <C>              <C>               <C>
Trading securities:
Overnight investments                            $  132,032         $      0         $      0        $  132,032
U.S. Treasury obligations                            73,139                0                0            73,139
Equity securities                                   793,543          150,147          (24,967)          918,723
Fixed income debt securities
                                                    136,403            3,128             (956)          138,575
Other                                                15,174            3,122                0            18,296
                                                 ----------         --------         --------        ---------- 
                                                 $1,150,291         $156,397         $(25,923)       $1,280,765
                                                 ==========         ========         =========       ==========
</TABLE>
 
<PAGE>
 
                                      -6-

5. PROPERTY, PLANT, AND EQUIPMENT

   Property, plant, and equipment consists of the following at December 31, 1998
   and 1997:

<TABLE>
<CAPTION>
                                                                         1998                1997
                                                                      ------------        ------------  
<S>                                                                   <C>                 <C>
Land                                                                  $  2,398,489        $  2,673,295
Buildings and improvements                                               4,185,364           3,929,319
Outdoor advertising structures                                         100,950,797          95,018,461
Vehicles                                                                 3,436,538           2,931,049
Machinery and equipment                                                    739,698             724,939
Office equipment                                                         4,065,258           2,895,530
Construction in progress                                                 1,459,417             824,196
                                                                      ------------        ------------ 
                                                                       117,235,561         108,996,789
Less accumulated depreciation                                           63,885,413          57,906,612
                                                                      ------------        ------------
                                                                      $ 53,350,148        $ 51,090,177
                                                                      ============        ============
</TABLE>
 
6. INTANGIBLE ASSETS

   Intangible assets consist of the following at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                              1998               1997
                                                          -----------        -----------   
<S>                                                       <C>                <C>
Goodwill                                                  $ 7,582,597        $ 7,582,597
Noncompete agreements                                       2,425,500          2,425,500
Financing costs                                             5,170,270          5,304,128
                                                           15,178,367         15,312,225
                                                          -----------        -----------   
Less accumulated amortization                               6,070,456          4,862,252
                                                          -----------        -----------  
                                                          $ 9,107,911        $10,449,973
                                                          ===========        =========== 
</TABLE>

 7. ACCRUED EXPENSES AND OTHER LIABILITIES

    Accrued expenses and other liabilities consist of the following at December
    31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                              1998             1997
                                                          -----------       ---------- 
<S>                                                       <C>               <C>
Accrued insurance                                         $  391,872        $  432,141
Accrued payroll                                              205,236           690,619
Other                                                      1,986,501         1,550,745
                                                          ----------        ----------
                                                          $2,583,609        $2,673,505
                                                          ==========        ==========   
</TABLE>
<PAGE>
 
                                      -7-

 8. LONG-TERM DEBT

   Long-term debt at December 31, 1998 and 1997 consists of the following:

<TABLE>
<CAPTION>
                                                                                  1998                  1997
                                                                              -------------         ------------  
     <S>                                                                      <C>                   <C>
     10.75% senior notes due March 12, 2006
                                                                              $101,000,000          $105,000,000
      Revolving credit facilities due December 31, 2001                         31,727,500            30,033,750
                                                                              ------------          ------------  
                                                                               132,727,500           135,033,750
 
     Less current installments                                                           0             4,000,000
                                                                              ------------          ------------
     Long-term debt, less current installments                                $132,727,500          $131,033,750
                                                                              ============          ============
</TABLE>

On March 12, 1996, the Company completed a refinancing (the "Refinancing") of
its outstanding debt. Pursuant to the Refinancing, substantially all of the
partnership's existing debt was repaid, $105 million of 10.75% senior notes due
2006 (the "Senior Notes") were issued, and a credit agreement (the "Credit
Agreement") was executed which provided for a revolving credit facility with
total availability of $15 million. On December 2, 1996, the Credit Agreement was
amended and restated to increase the availability on the revolving credit
facility from $15 million to $35 million for a fee of $387,500. On March 31,
1998, the Company entered into an additional $3 million senior unsecured credit
facility to increase the line of credit to $38 million. In September 1998,
proceeds from the senior unsecured facility were used to purchase $4 million of
the Company's Senior Notes on the open market at 105% of principal plus accrued
interest. As a result of the redemption, the Company recognized an extraordinary
loss of $329,778, which represented the redemption premium plus recognition of a
proportionate share of the associated deferred financing fees. In November 1998,
the senior unsecured credit facility was increased to $8 million.

Borrowings under the Credit Agreement bear interest at a rate equal to, at the
option of the Company, either (i) the base rate (which is defined as the higher
of the prime rate or the federal funds rate plus 0.5% or (ii) LIBOR, in each
case plus an applicable margin, as defined, determined by reference to the ratio
of total debt to cash flow of the Company. At December 31, 1998, the weighted-
average interest rate was 8.8% on outstanding borrowings, respectively.

The obligations of the Company under the Credit Agreement are secured primarily
by a first priority pledge of the stock of Adams Outdoor Advertising, Inc., the
corporate general partner, a first priority pledge of the Company interests, and
a first priority lien on all the assets of the Company, with the exception of
certain real estate assets which are subject to a negative pledge.

The Credit Agreement contains, among other things, covenants restricting the
ability of the Company to dispose of assets, make distributions to its partners,
create liens, make capital
<PAGE>
 
                                      -8-

expenditures, make certain investments or acquisitions, enter into transactions
with affiliates, and otherwise restrict certain activities. The Credit Agreement
also contains financial covenants related to minimum interest coverage, maximum
leverage ratio, and a minimum fixed-charge coverage ratio.

The 10.75% senior notes due 2006 were issued under an indenture dated March 12,
1996 (the "Indenture") among the Company and the trustee of the Notes. The Notes
are senior unsecured obligations of the Company ranking pari passu in right of
payment with all existing and future senior indebtedness of the Company and
senior in right of payment to all existing and future subordinated indebtedness
of the Company that by its terms is subordinated in right of payment to the
Notes. The Notes are effectively subordinated to all secured indebtedness of the
Company to the extent of the value of the assets securing such indebtedness.

The Notes mature on March 15, 2006 and bear interest at an annual rate of 10.75%
from the date of issuance until maturity. Interest is payable semiannually in
arrears on March 15 and September 15 to holders of record of the Notes.

The Notes are redeemable at the option of the Company, in whole or in part, at
any time on or after March 15, 2001 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the 12-
month period beginning on March 15 of each year as listed below:

<TABLE>
<CAPTION>
               Year:
               <S>                                <C>
               2001                               105.375%
               2002                               103.583
               2003                               101.792
               2004 and thereafter                100.000
</TABLE>

Also, up to 25% of the Notes are redeemable at the option of the Company in the
event of a public equity offering.

The Indenture contains, among other things, covenants restricting the ability of
the Company to incur additional indebtedness, make certain distributions, make
certain investments, change the status of company subsidiaries, create liens,
enter into transactions with affiliates, dispose of assets, enter into sale and
lease-back transactions, make payments for consents, enter into any additional
lines of business, and otherwise restrict certain activities.

At December 31, 1998, the fair value of the Company's long-term debt based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of similar remaining maturities was
approximately $140.3 million.
<PAGE>
 
                                      -9-

     
   Annual minimum maturities of long-term debt based upon amounts outstanding at
   December 31, 1998 are as follows:

<TABLE>
               <S>                         <C>
               1999                        $          0
               2000                           2,000,000
               2001                          29,727,500
               2002                                   0
               2003                                   0
               Thereafter                   101,000,000
                                           ------------
                                           $132,727,500
                                           ============
</TABLE>

9.  EMPLOYEE BENEFIT PLAN

    The Company has a 401(k) plan deferred savings and profit-sharing plan.
    Employees must be at least age 21 and have completed one year of service to
    participate in the plan. Employees may contribute up to 10% of their
    salaries, and the Company matches employee contributions at the rate of 50%
    up to 6% of the employee's salary. The Company's contributions to the plan
    were approximately $240,000, $188,000, and $166,000 in the years ended
    December 31, 1998, 1997, and 1996, respectively.

10. DEFERRED COMPENSATION BENEFITS

    PHANTOM STOCK AGREEMENTS

    The Company has deferred compensation benefits referred to as phantom stock
    agreements with certain management personnel. The compensation is calculated
    using a multiple of the operating profit of a division or the Company for
    the year ending immediately prior to the determination date over the base
    cost, which is the assigned value of the division or the Company, at the
    date of the agreement's execution. The agreements provide for three equal
    annual payments to the participants on the determination date, which is
    defined as termination, death, disability, the sale of the Company, or the
    fifth anniversary of the agreement's execution. The Company incurred
    deferred compensation expense related to these agreements of $4,098,014,
    $698,376, and $1,136,031 for the years ended December 31, 1998, 1997, and
    1996, respectively.

    NONQUALIFIED RETIREMENT PLANS

    The Company also maintains certain nonqualified retirement plans (the
    "Plans") to provide deferred compensation benefits for certain members of
    management. The Company has established trusts (the "Trusts") for
    contributions to provide sources of funds for liabilities under the Plans.
    The Trusts are revocable and constitute unfunded arrangements as their
    assets are subject to the claims of the Company's creditors in the event of
    insolvency, until such time as the obligations have been paid to plan
    participants in accordance with the Plans. Earnings of the trusts are
    allocated proportionately to participant accounts. During the years ended
    December 31, 1998, 1997, and 1996, the Company recorded deferred
    compensation expense of $217,501, $202,500, and $315,000 respectively, to
    these plans.
<PAGE>
 
                                     -10-

11. COMMITMENTS AND CONTINGENCIES

    OPERATING LEASE COMMITMENTS

    The Company leases real estate to erect signs in commercial and industrial
    areas along traffic routes in cities or close to populated urban areas. The
    partnership also leases certain vehicles used in its operations. These
    leases have terms ranging from one to ten years.

    Approximate future minimum lease payments under noncancelable operating
    leases with terms in excess of one year at December 31, 1998 are as follows:

<TABLE>
               <S>                    <C>
               1999                   $   4,404,357
               2000                       3,372,665
               2001                       2,597,828
               2002                       2,127,747
               2003                       3,169,800
               Thereafter                17,789,695
                                        -----------
                                        $33,462,092
                                        ===========
</TABLE> 

    Rent expense incurred under operating leases aggregated approximately
    $7,315,000 $7,735,000, and $6,042,000 for the years ended December 31, 1998,
    1997, and 1996, respectively.

    ZONING REGULATIONS

    In 1988, the city of Charlotte, North Carolina, adopted a comprehensive sign
    ordinance prohibiting the construction of virtually all new, off-premise
    outdoor advertising signs within the city limits and mandating that all
    nonconforming signs either be brought into compliance or be removed by
    February 1, 1998 at the owner's expense without payment of compensation.
    Through March 1998, the Company had received a total of 307 notices of
    violation ("NOVs"). The Company does not anticipate receiving any additional
    NOVs at this time. In 1988, the Company filed a lawsuit in the Superior
    Court of Mecklenburg County, North Carolina, challenging the
    constitutionality of the Charlotte sign ordinance. In 1998 the case was
    settled, and approximately 160 of the billboards in question must be removed
    at the Company's expense by December 5, 2002. This will result in a material
    adverse impact on the gross revenues and cash flow attributable to the
    Charlotte market, but, in the opinion of management, not on the financial
    condition of the Company as a whole.

    In other localities in which the Company operates, outdoor advertising is
    subject to restrictive and, in some cases, prohibitive, zoning regulations.
    Management expects federal, state, and local regulations to continue to be a
    significant factor in the operation of the Company's business.

    LITIGATION

    The Company is a party to a number of lawsuits and claims which it is
    vigorously defending. Such matters arise out of the normal course of
    business and relate to
<PAGE>
 
                                     -11-

    government regulations and other issues. Certain of these actions seek
    damages in significant amounts. While the results of litigation cannot be
    predicted with certainty, management believes, based on advice of Company
    counsel, the final outcome of such litigation will not have a material
    adverse effect on the consolidated financial statements of the Company.

    CONCENTRATION OF RISKS

    Approximately 10.3%, 10.5%, and 12.5% of the Company's net revenues for the
    years ended December 31, 1998, 1997, and 1996, respectively, were
    attributable to the tobacco products industry. In November 1998, the major
    U.S. tobacco companies (the "Tobacco Companies") reached an out of court
    settlement (the "Agreement") with 46 states, the District of Columbia, the
    Commonwealth of Puerto Rico and four other U.S. territories (the "Settling
    States"). The remaining four states had already reached similar settlements
    with the Tobacco Companies. The Agreement calls for the removal of tobacco
    advertising from out-of-home media, including billboards, along with signs
    and placards in arenas, stadiums, shopping malls and video game arcades by
    April 23, 1999. Additionally, the Agreement provides that, at the Settling
    States' option, the Tobacco Companies must, at their expense, substitute for
    tobacco advertising alternative advertising which discourages youth smoking.
    That alternative advertising must remain in place for the duration of the
    Tobacco Companies' out-of-home media advertising contracts which existed as
    of the date of the Agreement.

    The elimination of tobacco advertising as called for by the Agreement will
    cause a reduction in direct revenues from Tobacco Companies and may
    simultaneously increase the available space on the existing inventory of
    billboards in the outdoor advertising industry. Although the extent of the
    future impact on operations is not known, the Company has been successful
    thus far in replacing tobacco advertising in its Minneapolis market where
    settlement was reached prior to the Agreement. While this is positive, the
    Company can give no assurance that the further cutbacks in tobacco
    advertising during 1999 will not have an adverse effect on operations for
    1999 or beyond.

12. SUPPLEMENTAL CASH FLOW INFORMATION

    The following summarizes supplemental cash paid and noncash activities for
    the years ended December 31, 1998, 1997, and 1996:

<TABLE>
<CAPTION>
                                                                   1998               1997               1996
                                                               ------------       ------------       ------------
<S>                                                            <C>                <C>                <C>
Supplemental disclosure of cash paid during the year
 for interest                                                   $14,367,555        $13,639,516         $9,095,866
                                                               ------------       ------------       ------------
</TABLE>


13. ACQUISITIONS

    During 1996, the Company completed acquisitions of two outdoor advertising
    operations. Both acquisitions were accounted for using the purchase method
    of accounting and,
<PAGE>
 
                                     -12-

    accordingly, the purchase price was allocated to the assets purchased and
    the liabilities assumed based on their fair values at the dates of
    acquisition. Both acquisitions were funded through borrowings.

    On October 25, 1996, the Company executed a purchase agreement for the
    Northeast Pennsylvania division ("NEPA") by acquiring all of the outstanding
    shares of PA Outdoor, Inc., for $6,765,000 in cash, and by acquiring
    selected assets and liabilities of Matthew Outdoor Advertising Acquisition
    Co., L.P. for $1,450,000 in cash. The Company also paid $100,000 for
    noncompete agreements which were amortized over two years, and incurred
    $243,000 in transaction costs.

    On November 18, 1996, the Company acquired selected assets and liabilities
    of Morgan Newsome Monroe, Inc. ("MNM") for $14,029,000 in cash. The Company
    also paid $1,650,000 for noncompete agreements which were amortized over
    three years, and incurred $64,000 in transaction costs.

    The net purchase price of the acquisitions was allocated as follows:

<TABLE>
<CAPTION>
                                                     NEPA               MNM
                                                 ----------        ----------- 
<S>                                              <C>               <C>
Working capital                                  $  158,000        $   629,000
Property, plant, and equipment                    8,300,000         13,464,000
Other assets                                        100,000          1,650,000
                                                 ----------        -----------
Purchase price                                   $8,558,000        $15,743,000
                                                 ----------        ----------- 
</TABLE>

    The following unaudited pro forma information presents a summary of the
    results of operations of the Company, NEPA, and MNM as if the acquisitions
    had occurred at the beginning of 1996, with pro forma adjustments to give
    effect to additional depreciation based on the fair market value of the
    property, plant, and equipment acquired; interest expense on acquisition
    debt; and the amortization of intangibles arising from the transactions. The
    pro forma financial information is not necessarily indicative of the results
    of operations as they would have resulted if the transactions had been
    effected on the assumed dates.

<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                           DECEMBER 31,
                                                              1996  
                                                           ------------
                                                           (Unaudited)
<S>                                                        <C>
Net outdoor advertising revenue                            $53,342,000
                                                           -----------    
Operating income                                           $14,843,000
                                                           -----------
Net loss                                                   $  (462,000)
                                                           -----------
</TABLE>
<PAGE>
 
                                     -13-

14. DISPOSAL OF EQUIPMENT

    In June 1996, the Company invested $662,098 in assets to provide in-store
    advertising equipment. These assets were utilized from June through December
    1996, resulting in $179,864 in operating expenses in excess of revenue. In
    December 1996, management determined that the asset value had been impaired
    and approved a plan of disposal to be completed in January 1997. A loss
    equal to the carrying value of the assets of $662,098 was recognized in 1996
    and has been included in the consolidated statement of operations as loss on
    disposal of property and equipment, net.
<PAGE>
 
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>

Exhibit No.           Description
-----------           -----------
<S>                   <C> 
     3.1              Articles of Incorporation of Adams Outdoor Advertising, Inc. ("AOAI") incorporated by
                      reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No.
                      333-03338) (the "Form S-4")
     3.2              By-laws of AOAI incorporated by reference to Exhibit 3.2 to the Form S-4
     3.3              Limited Partnership Agreement of Adams Outdoor Advertising Limited Partnership (the
                      "Company") incorporated by reference to Exhibit 3.3 to the Form S-4
     4.1              Indenture dated as of March 12, 1996 among the Company, AOAI and United States Trust
                      Company, as Trustee (the "Indenture") incorporated by reference to Exhibit 4.1 to the Form
                      S-4
     4.2              Form of Note incorporated by reference to Exhibit 4.3 to the Form S-4
    10.1              Securities Purchase Agreement dated as of March 12, 1996 by and among the Company, AOAI and
                      the Initial Purchaser referred to therein incorporated by reference to Exhibit 10.1 to the
                      Form S-4
    10.2              Employment Agreement between AOAI and Stephen Adams incorporated by reference to Exhibit
                      10.2 to the Form S-4
    10.3              Agreement between Kevin Gleason and the Company
    10.4              Phantom Stock Agreement between the Company and Abe Levine incorporated by reference to
                      Exhibit 10.4 to the Form S-4
    10.5              Nonqualified Retirement Plan for Key Employees incorporated by reference to Exhibit 10.5 to
                      the Form S-4
    10.6              Amended and Restated Credit Agreement dated December 2, 1996 incorporated by reference to
                      Exhibit 10.6 to the Form S-4
    10.7              Phantom Stock Agreement between the Company and Kevin Gleason
    24                Powers of Attorney
    27                Financial Data Schedule
</TABLE>

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