<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

                           SPECIAL FINANCIAL REPORT

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997.________________________________________

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                        Commission file number 333-28489
                                               ---------

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

           Delaware                                      38-3286430
--------------------------------------------------------------------------------
  (State or other jurisdiction of                     (I.R.S. Employer
   incorporation or organization)                    Identification No.)

 512 Taylor Street, Corinth, Mississippi                    38834
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code     (601) 286-3334
                                                   -----------------------------

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

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

     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      No  X  (2)
                                              ----    ----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    [X]

     As of October 30, 1997, all voting stock of the Registrant was held by
affiliates of the Registrant.

     The number of shares of the Registrant's common stock outstanding as of
October 30, 1997 was 12,075.

                  Documents incorporated by reference:  None

        Exhibit Index appears on page ___________ of __________ pages.

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

(1)  This Special Financial Report on Form 10-K is being filed pursuant to Rule
     15d-2 under the Securities Exchange Act of 1934.  Pursuant to such rule,
     this report contains only the certified financial statements for the
     Registrant's  fiscal year ended June 30, 1997.

(2)  The registrant has been subject to such filing requirements for less
     than 90 days.

                                       1
<PAGE>
 
                                    PART I

ITEM 1.  BUSINESS

         Not applicable.


ITEM 2.  PROPERTIES

         Not applicable.


ITEM 3.  LEGAL PROCEEDINGS

         Not applicable.


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

         Not applicable.



                                      2
<PAGE>
 
                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

         Not applicable.
 

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         Not applicable.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         OUTDOOR COMMUNICATIONS, INC.

                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (1)
<TABLE> 
<S>                                                                       <C> 
Independent Auditors' Report ..................................................
Consolidated Balance Sheets ...................................................
Consolidated Statements of Operations .........................................
Consolidated Statements of Stockholders' Deficit ..............................
Consolidated Statements of Cash Flows .........................................
Notes to Consolidated Financial Statements ....................................
</TABLE> 
------------------------

(1)   All schedules have been omitted because they are not required, not
      applicable or are included in Notes to Consolidated Financial Statements.

                                       3
<PAGE>
 
                         Independent Auditors' Report
                         ----------------------------



The Board of Directors and Stockholders
Outdoor Communications, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Outdoor
Communications, Inc. (formerly known as OCI Holdings Corp.) and subsidiaries as
of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the year ended June 30,
1997 and the period April 4, 1996 to June 30, 1996. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Outdoor
Communications, Inc. as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the year ended June 30, 1997 and the period
April 4, 1996 to June 30, 1996, in conformity with generally accepted accounting
principles.



                                             /s/ KPMG Peat Marwick LLP


East Lansing, Michigan
September 18, 1997

                                       4
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                          Consolidated Balance Sheets
                             June 30, 1997 and 1996

<TABLE>
<CAPTION>
 
 
                                                          1997          1996
                                                     ------------    ----------
<S>                                                   <C>            <C>
         Assets (notes 5 and 8)
         ------
 
Current assets:
  Cash and cash equivalents                           $ 1,712,827     1,259,441
  Trade accounts receivable, less allowance 
    for doubtful accounts of $317,914 in 1997 
    and $273,110 in 1996                                7,253,391     5,050,490
  Refundable income taxes                                 616,100       185,893
  Prepaid rent expense                                  1,805,431     1,077,830
  Other assets                                            978,023       771,979
  Deferred income taxes (note 9)                          438,967       276,703
                                                     ------------    ----------
 
         Total current assets                          12,804,739     8,622,336
                                                     ------------    ----------
 
Property and equipment, net (note 3)                   55,786,503    37,765,591
Intangible assets, less accumulated 
  amortization (note 4)                                72,239,682    45,155,192
Deferred financing costs (note 5)                       4,240,033     3,169,224
Other assets                                              605,899       116,638
                                                     ------------    ----------
 

         Total assets                                $145,676,856    94,828,981
                                                     ============    ==========
 
</TABLE>
                                                                     (Continued)
                                       
                                       5
<PAGE>
 
<TABLE>
<CAPTION>
 
 
                                               1997          1996
                                          --------------  -----------
<S>                                       <C>             <C>
   Liabilities and Stockholders' Deficit
   -------------------------------------
 
Current liabilities:
   Current installments of long-term    
    debt (notes 5 and 7)                   $  5,876,875    4,750,000
   Obligation under non-compete 
    agreement                                         -      100,000
   Trade accounts payable                       760,257      770,147
   Income taxes payable                         615,418      179,822
   Accrued salaries, wages and benefits       1,187,104      708,252
   Accrued interest                             541,895    1,038,833
   Other accrued expenses                       491,848      620,318
   Deferred advertising revenues and    
    non-compete income                          405,500      303,512
                                           ------------   ----------
 
         Total current liabilities            9,878,897    8,470,884
                                           ------------   ----------
 
Long-term debt (note 19):
   Credit facility, excluding current        
    installments (notes 5 and 18)           115,650,000   57,750,000
   Subordinated debt (notes 6 and 11)        22,425,000   22,100,000
   Notes payable--stockholders (note 7)               -    5,876,875
                                           ------------   ----------
 
         Total long-term debt               138,075,000   85,726,875
 
Accrued interest (notes 6 and 11)             1,671,666      262,488
Deferred non-compete income, less       
 current portion                                 26,667      106,667
Deferred income taxes (note 9)                4,070,180    5,163,547
                                           ------------   ----------
 
                                            153,722,410   99,730,461
                                           ------------   ----------
 
Stockholders' deficit 
         (notes 10, 11 and 19):
   Class A common stock, $0.01 par value.
    Authorized 10,000 shares; issued and
    outstanding 8,385.72 in 1997 and 
    8,210.72 shares in 1996                          84           82
   Class B common stock, $.01 par value. 
    Authorized 10,000 shares; issued and     
    outstanding 3,689.28 shares                      37           37
   Additional paid-in capital                 3,811,475    3,636,477
   Accumulated deficit                      (11,857,150)  (8,538,076)
                                           ------------   ----------
 
         Total stockholders' deficit         (8,045,554)  (4,901,480)
                                           ------------   ----------
 
Commitments and contingencies
         (notes 10, 11, 12 and 13)
 
         Total liabilities and     
               stockholders' deficit       $145,676,856   94,828,981
                                           ============   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                     Consolidated Statements of Operations
                      For the year ended June 30, 1997 and
                   the period April 4, 1996 to June 30, 1996

<TABLE>
<CAPTION>
 
 
                                             1997          1996
                                         -------------  -----------
 
<S>                                      <C>            <C>
Gross revenues                           $ 49,169,290    9,535,542
Less agency commissions                     4,665,764      987,032
                                         ------------   ----------
 
  Net revenues                             44,503,526    8,548,510
                                         ------------   ----------
 
Operating expenses:
 Direct operating expenses (note 12)       15,106,559    2,753,970
 Selling, general, and administrative      12,030,361    2,308,313
 Depreciation and amortization              9,821,294    1,801,892
                                         ------------   ----------
 
   Total operating expenses                36,958,214    6,864,175
                                         ------------   ----------
 
   Operating income                         7,545,312    1,684,335
 
 Interest expense                         (11,623,563)  (1,953,993)
 Loss on disposal of equipment               (458,541)     (67,328)
 Other income, net                            194,306       64,494
                                         ------------   ----------
 
   Loss before income tax benefit          (4,342,486)    (272,492)
 
Income tax benefit (note 9)                (1,023,412)     (10,814)
                                         ------------   ----------
 
   Net loss                              $ (3,319,074)    (261,678)
                                         ============   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                Consolidated Statements of Stockholders' Deficit
                      For the year ended June 30, 1997 and
                   the period April 4, 1996 to June 30, 1996

<TABLE>
<CAPTION>
 
 
                                           Series A   Class A   Class B  Additional                     Total
                                          Preferred    Common   Common     Paid-in    Accumulated   Stockholders'
                                            Stock      Stock     Stock     Capital      Deficit        Deficit
                                          ----------  --------  -------  -----------  ------------  --------------
<S>                                       <C>         <C>       <C>      <C>          <C>           <C>
Balances at April 3, 1996                      $ 90        10         -   1,235,326    (8,276,398)     (7,040,972)
Class A common shares issued for cash             -        35         -   3,536,895             -       3,536,930
Class B common shares issued for cash             -         -         2     189,270             -         189,272
Merger with OCI of Michigan                       -        19         -         (19)            -               -
Redemption of OCI Michigan stock                (90)      (10)        -  (7,589,932)            -      (7,590,032)
Class A common shares issued for        
  MCC stock                                       -        28         -   2,764,972             -       2,765,000
Class B common shares issued for cash             -         -        35   3,499,965             -       3,500,000
Net loss                                          -         -         -           -      (261,678)       (261,678)
                                          ---------       ---   -------  ----------   -----------      ----------
                                        
Balances at June 30, 1996                         -        82        37   3,636,477    (8,538,076)     (4,901,480)
                                        
Class A common shares issued for cash             -         2         -     174,998             -         175,000
Net loss                                          -         -         -           -    (3,319,074)     (3,319,074)
                                          ---------       ---   -------  ----------   -----------      ----------
                                        
Balances at June 30, 1997                 $       -        84        37   3,811,475   (11,857,150)     (8,045,554)
                                          =========       ===   =======  ==========   ===========      ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      8
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                      For the year ended June 30, 1997 and
                   the period April 4, 1996 to June 30, 1996

<TABLE>
<CAPTION>
 
 
                                              1997           1996
                                              ----           ----
<S>                                       <C>            <C>
Cash flows from operating activities:
  Net loss                                $ (3,319,074)     (261,678)
  Adjustments to reconcile net loss to 
        net cash provided by (used in)             
        operating activities:             
     Allowance for doubtful accounts           317,964        48,265
     Depreciation of equipment               5,069,744       903,191
     Amortization of intangible assets       5,441,136     1,026,557
     Loss on disposal of equipment             458,541        67,328
     Deferred income taxes                  (1,255,631)     (112,776)
  Changes in assets and liabilities, net 
        of effects from purchase of 
        company, which increase 
        (decrease) cash flows:                       
     Trade accounts receivable              (1,083,210)   (1,084,980)
     Refundable income taxes                  (430,207)      (81,182)
     Prepaid rent expense                     (303,145)     (116,876)
     Other assets                             (240,413)      394,681
     Trade accounts payable                    (27,528)       79,701
     Income taxes payable                      435,596       179,822
     Accrued expenses                        1,112,794    (5,069,984)
     Deferred advertising revenues and 
        non-compete income                     (78,828)     (142,665)
                                          ------------   -----------
                Net cash provided by     
                  (used in) operating     
                  activities                 6,097,739    (4,170,596)
                                          ------------   -----------
  Cash flows from investing activities:
     Purchase of AOA Holding, L.L.C.                 -   (34,132,908)
     Purchase of Georgia Outdoor 
        Advertising, Inc.                            -   (11,650,000)
     Purchase of Mass Communications 
        Corp. warrants, common and
        preferred stock                              -      (767,850)
     Purchase of Skoglund Commun-
        ications, Inc. and Skoglund 
        Communications of St. Cloud, 
        Inc.                               (21,246,850)            -
     Purchase of Outdoor West of 
        Tennessee                          (11,802,444)            -
     Purchase of Summey Outdoor 
        Advertising, Inc.                   (5,145,000)            -
     Purchase of other businesses          (13,639,159)            -
     Capital expenditures                   (4,338,483)     (597,849)
     Proceeds from sale of property 
        and equipment                           36,617         2,625
     Deferred acquisition costs             (1,318,458)     (452,814)
                                          ------------   -----------
                Net cash used in         
                  investing activities     (57,453,777)  (47,598,796)
                                          ------------   ----------- 
  Cash flows from financing activities:
     Proceeds from issuance of long-
        term debt                           54,750,000    80,465,000
     Repayment of long-term debt            (1,600,000)  (23,950,000)
     Deferred financing costs               (1,740,576)   (3,281,537)
     Proceeds from issuance of      
        subordinated notes                     325,000             -
     Proceeds from issuance of common 
        stock                                  175,000     7,226,202
     Redemption of OCI Corp. of 
        Michigan common and preferred 
        stock                                        -    (7,590,032)
     Payments on obligation under 
        non-compete agreement                 (100,000)     (100,000)
                                          ------------   -----------
                Net cash provided by     
                  financing activities      51,809,424    52,769,633
                                          ------------   ----------- 
Net increase in cash and cash 
     equivalents                               453,386     1,000,241
Cash and cash equivalents at beginning 
     of the period                           1,259,441       259,200
                                          ------------   -----------
Cash and cash equivalents at end of 
     the period                           $  1,712,827     1,259,441
                                          ============   ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       9
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                             June 30, 1997 and 1996



(1)  Organization and Acquisition of Assets
     --------------------------------------

     After the close of business on April 3, 1996, the stockholders of OCI Corp.
     of Michigan (OCIM) and Mass Communications Corp. (MCC) (collectively, the
     companies) entered into a plan of reorganization (the Reorganization Plan)
     to restructure and merge the companies. Pursuant to the Reorganization
     Plan, the stockholders agreed to sell their entire interests in the common
     and preferred stock of the companies. In conjunction with the
     Reorganization Plan, OCI Holdings Corp. (Holdings) was incorporated for the
     purpose of effecting the reorganization and merger. Holdings is a holding
     company with no assets or operations other than its investment in its
     subsidiaries.

     Under the Reorganization Plan, a series of planned transactions were
     executed in the following order: (1) certain outside investors of OCIM (the
     Investors) purchased 24.67 shares and 60 shares of OCIM's common and
     preferred stock, respectively, from the minority shareholders of OCIM for
     $1,908,798; (2) the Investors then exchanged these same shares, together
     with $14,191,202 in cash, for 5,410.73 and 3,869.28 shares of Holdings'
     Class A and Class B common stock, respectively, and $10,465,000 of
     subordinated debt (see note 6); and (3) the remaining 75.33 shares and 840
     shares of OCIM's common and preferred stock, respectively, were purchased
     by Holdings for $7,508,367, which resulted in Holdings being the sole
     stockholder in OCIM's common and preferred stock.

     As a result of the above transactions, OCIM became a wholly-owned
     subsidiary of Holdings. As such, the closing balance sheet of OCIM at April
     3, 1996, adjusted to reflect the above transactions, became the opening
     balance sheet of Holdings.

     Immediately following the execution of the Reorganization Plan transactions
     listed above, the stockholders of MCC exchanged 7,731.01 shares of common
     stock and 308.78 shares of preferred stock and sold 5,128.99 shares of
     common stock and 691.22 shares of preferred stock for an aggregate value of
     $25,747,927. This transaction resulted in MCC becoming a wholly owned
     subsidiary of Holdings. The acquisition has been accounted for using the
     purchase method of accounting and, accordingly, the purchase price has been
     allocated to the assets purchased and liabilities assumed based upon the
     fair value at the date of acquisition as follows:
<TABLE>
<CAPTION>
 
               <S>                        <C>
               Adjusted working capital   $  1,450,063
               Goodwill                      8,741,590
               Property and equipment       11,529,274
               Customer list                 4,027,000
                                          ------------
                                            
                                          $ 25,747,927
                                          ============
</TABLE>

                                      10
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(1)  Organization and Acquisition of Assets, Continued
     -------------------------------------------------

     The details of the acquisition for the fair value of assets acquired and
     liabilities assumed are as follows: liabilities assumed of $10,750,000;
     subordinated debt issued to the MCC shareholders in the amount of
     $11,011,875; 2,764.99 shares of OCI Holdings Inc. common stock issued to
     MCC shareholders with a value of $2,765,000; and cash paid in the amount of
     $1,221,052 equaling the purchase price of $25,747,927.

     Georgia Acquisition
     -------------------

     Simultaneous to the Reorganization Plan, Outdoor Communications, Inc.,
     (since renamed OCI(S) Corp.) a subsidiary of MCC, completed the purchase of
     the business operations and certain assets of Georgia Outdoor Advertising,
     Inc. (GOA), pursuant to an Asset Purchase Agreement dated March 8, 1996,
     for cash of $11,650,000. The acquisition has been accounted for using the
     purchase method of accounting and, accordingly, the purchase price has been
     allocated to the net assets based upon their fair values at the date of
     acquisition as follows:

<TABLE>
               <S>                        <C>
               Adjusted working capital   $    415,864
               Goodwill                      2,968,896
               Property and equipment        2,282,240
               Non-compete agreement           700,000
               Customer list                 5,283,000
                                          ------------
                                            
               Cash purchase price        $ 11,650,000
                                          ============
</TABLE>

     Effective June 30, 1997, OCI Holdings Corp. was renamed Outdoor
     Communications, Inc. (OCI). Simultaneously, New South Holdings Corp. and
     MCC were merged into OCI and MCC's subsidiary, Outdoor Communications, Inc.
     was renamed OCI (S) Corp. (OCIS). Also during 1997, OCI Corp. of Michigan
     was renamed OCI (N) Corp. (OCIN). As a result of these transactions, the
     Company now has two wholly owned subsidiaries, OCI (N) Corp. and OCI (S)
     Corp.

     Outdoor Communications, Inc. and subsidiaries (the Company) is a leading
     outdoor advertising company in the Midwest and Southeast Regions of the
     United States. The Company owns and operates outdoor advertising display
     faces in 12 states throughout these regions. The Company sells outdoor
     advertising space to national and local advertisers.

                                      11
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(2)  Summary of Significant Accounting Policies
     ------------------------------------------

     The accounting policies of the Company, as summarized below, conform with
     generally accepted accounting principles and reflect practices appropriate
     to the business in which it operates.

     (a)   Principles of Consolidation
           ---------------------------

           The consolidated financial statements include the financial
           statements of Outdoor Communications, Inc. and its wholly owned
           subsidiaries, OCI (N) Corp. and OCI (S) Corp. All significant
           intercompany balances and transactions have been eliminated in
           consolidation.

     (b)   Cash Equivalents
           ----------------

           Cash equivalents consist of repurchase agreements and money market
           funds. For purposes of the consolidated statement of cash flows, the
           Company considers all highly liquid debt instruments with maturities
           of three months or less at the time of purchase to be cash
           equivalents.

     (c)   Property and Equipment
           -----------------------

           Property and equipment are stated at cost. Depreciation on plant and
           equipment is computed using the straight-line method over the
           estimated useful lives of the assets.

     (d)   Intangible Assets
           -----------------

           Intangible assets include goodwill, non-compete agreements and
           customer lists. Goodwill, which represents the excess of purchase
           price over fair value of net assets acquired on their dates of
           acquisition, is amortized on a straight-line basis over the expected
           periods to be benefited, ranging from 20 to 25 years. The non-compete
           agreements are amortized over the terms of the respective agreements,
           which range from 4 to 10 years. Customer lists resulting from
           acquisitions are amortized on the straight-line method over 8 years.

           The Company assesses the recoverability of all long-lived intangible
           assets by determining whether the amortization of the intangible
           assets over their remaining lives can be recovered through
           undiscounted future operating cash flows of the acquired operation.
           The amount of impairment, if any, is measured based on projected
           discounted future operating cash flows using a discount rate
           reflecting the Company's average cost of funds.

                                      12
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(2)  Summary of Significant Accounting Policies, Continued
     -----------------------------------------------------

     (e)   Deferred Financing Costs
           ------------------------

           Financing costs incurred as a result of obtaining long-term debt are
           recorded as deferred financing costs and are amortized on a straight-
           line basis over the term of the related debt (see note 5) and
           reflected as interest expense in the accompanying consolidated
           statements of operations.

     (f)   Employee Benefits
           -----------------

           The Company is self-insured for its employee health care plan. The
           liability for self-insurance reflects the cost for the uninsured
           portion of unpaid claims at year end. The liability is based on
           estimates for claims reported prior to year end, using reported claim
           information, and estimates for incurred but not reported, based on
           historical results of the Company's plan, as well as certain industry
           information.

     (g)   Retirement Program
           ------------------

           OCIN provides a defined contribution 401(k) plan, which covers all of
           its full-time employees with one or more years of service. Eligible
           employees can contribute up to 12% of their compensation through
           payroll deductions. OCIN contributes an amount equal to 50% of each
           employee's contribution up to 3% of the employee's total
           compensation.

     (h)   Revenue Recognition
           -------------------

           The Company recognizes revenue from advertising contracts on an
           accrual basis ratably over the term of the contracts, which range
           from 1 to 12 months, as advertising services are provided.
           Advertising revenues from retail consumer products, hospitality, and
           automotive industry constitute approximately 34% of gross revenues.
           No other industry is the source of 10% or more of gross revenues.

     (i)   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 and operating loss and tax credit
           carryforwards. 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.

                                      13
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(2)  Summary of Significant Accounting Policies, Continued
     -----------------------------------------------------

     (j)   Other Assets
           ------------

           Other assets consist principally of inventory and the cash surrender
           value of officer life insurance.

     (k)   Use of Estimates
           ----------------

           Management of the Company has made a number of estimates and
           assumptions relating to the reporting of assets and liabilities and
           the disclosure of contingent assets and liabilities to prepare these
           financial statements in conformity with generally accepted accounting
           principles. Actual results could differ from those estimates.

     (l)   Financial Instruments
           ---------------------

           The Company utilizes hedged interest rate swap agreements. The
           interest rate swap agreements involves the exchange of fixed- and
           floating-rate interest payments periodically over the life of the
           agreement without the exchange of the underlying principal amounts.
           The differential to be paid or received, on a quarterly basis, is
           accrued as interest rates change and is recognized as an adjustment
           to interest expense.

     (m)   Earnings Per Share
           ------------------

           An earnings per share calculation has not been presented because the
           Company is closely held by a private investor group and, accordingly,
           earnings per share is not required or meaningful.

     (n)   Reclassifications
           -----------------

           Certain 1996 financial statement amounts have been reclassified to
           conform to the 1997 presentation.

                                      14
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued

 
(3)  Property and Equipment
     ----------------------

     Major categories of property, plant, and equipment at June 30, 1997 and
     1996 were as follows:

<TABLE>
<CAPTION>
                                         Estimated               
                                        Life (Years)        1997         1996
                                        ------------        ----         ----
    <S>                                 <C>             <C>           <C>
    Land                                      --       $  1,610,126    1,204,494
    Building and improvements               10-25         1,469,852      564,274
    Advertising structures                   8-15        57,910,710   38,309,049
    Leasehold improvements                   2-20           872,674      832,203
    Equipment                                3-10         4,317,355    2,737,091
    Construction in progress                  --            102,666       41,256
                                                       ------------   ----------
                                                         66,283,383   43,688,367
    Less accumulated depreciation                        10,496,880    5,922,776
                                                       ------------   ----------
             Net property and equipment                $ 55,786,503   37,765,591
                                                       ============   ==========
</TABLE> 
(4)  Intangible Assets
     -----------------
 
     Intangible assets at June 30, 1997 and 1996 consist of the following:
 
<TABLE> 
<CAPTION> 

                                         Estimated
                                        Life (Years)        1997         1996
                                        ------------        ----         ----
    <S>                                 <C>            <C>            <C> 
    Covenants not to compete                 4-10      $  8,495,667    3,935,667
    Goodwill                                20-25        46,619,981   29,756,723
    Customer lists                            8          26,833,154   16,386,000
                                                       ------------   ----------
                                                         81,948,802   50,078,390
    Less accumulated amortization                         9,709,120    4,923,198
                                                       ------------   ----------
                                                         
                                                       $ 72,239,682   45,155,192
                                                       ============   ==========
</TABLE>

(5)  Credit Facility
     ---------------

     The Company entered into a credit agreement (the "Credit Facility") with
     Chase Manhattan Bank, N.A. (Chase) and a syndicate consisting of various
     other financial institutions (collectively called the "Bank") on the close
     of business on April 3, 1996. The Credit Facility consists of a Term Loan A
     Commitment for $40 million, Term Loan B Commitment for $20 million, (the
     "Term Loans") and a Revolving Loan Commitment (the "Revolver") of $30
     million (collectively the "Borrowings"). The Credit Facility was amended at
     October 31, 1996 and the term loan B commitment and Revolver were increased
     to $40 million and $60 million, respectively. The Term Loans are due June
     30, 2003. Collateral includes a first lien on all tangible and intangible
     property of the Company, assignment of all leases, and a guaranty by OCI
     and all of its subsidiaries.

                                      15
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(5)  Credit Facility, Continued
     --------------------------

     The Credit Facility enables the Company to borrow funds at a rate equal to
     3% plus the London Interbank Offered Rate (LIBOR) or 1.75% over the Bank's
     prime lending rate. The Credit Facility also enables the Company to realize
     a lower interest rate if its leverage ratio meets certain levels as
     stipulated in the Credit Facility. At June 30, 1997, the interest rate was
     8.5%. Accrued interest is payable in quarterly installments on March 31,
     June 30, September 30, and December 31. The Credit Facility also requires
     payment of a commitment fee of 1/2 of 1% per annum on the daily average
     aggregate unutilized commitment from the Bank. Accrued commitment fees are
     due quarterly on March 31, June 30, September 30, and December 31.

     Available borrowings under the Revolver are permanently reduced on the last
     day of each fiscal quarter beginning September 30, 1997 by $1,250,000,
     thereby reducing the availability to zero on June 30, 2003. At June 30,
     1997, the Company had borrowed $35,650,000 and $17,473,125 of the Revolver
     was available for additional borrowings by the Company.

     The Credit Facility contains certain warranties and affirmative covenants
     that must be complied with on a continuing basis. In addition, the Credit
     Facility contains certain restrictive covenants which, among other things,
     restrict the Company from incurring additional debt and liens on assets,
     limits the amount of capital expenditures during any fiscal year, and
     prohibits the consolidation, merger or sale of assets, or issuance of
     common stock except as permitted by the Credit Facility. The Credit
     Facility also requires the Company to maintain certain financial ratios. At
     June 30, 1997 and 1996, the Company was in compliance with all such
     covenants.

     The Company has the right to prepay the Borrowings in whole or in part,
     without premium or penalty, as stipulated in the Credit Facility. In
     August, 1997, the Credit Facility was replaced with a New Credit Facility
     and Public Note Offering (see note 18). As such, the portion of long-term
     debt outstanding at June 30, 1997 under the Credit Facility has been
     classified as long-term in the accompanying consolidated balance sheet.
     Under the New Credit Facility and Public Note Offering, there are no
     principle payments due in the next five years. Additionally, the Company
     will recognize an extraordinary loss of approximately $4,200,000 in the
     first quarter of fiscal year 1998 as a result of the refinancing (note 19).

                                      16
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(6)  Subordinated Debt
     ------------------

     The Company entered into a Securities Purchase Agreement (the "Agreement")
     after the close of business on April 3, 1996 with certain management
     investors and outside investors. In connection with the reorganization
     discussed in note 1, the Company issued its 10% subordinated notes
     ("notes") due December 31, 2003. The subordinated notes are comprised of
     two series; Series A 10% subordinated notes in the amount of $5,525,000 in
     1997 and $5,200,000 in 1996, and Series B 10% subordinated notes in the
     amount of $16,900,000 in 1997 and 1996.

     Accrued interest on the outstanding principal balance of the notes is
     payable at a rate of 10% per annum, computed on the basis of a 365 day
     year, and is payable annually on March 31, commencing in 1997. The
     Agreement allows the Company to only pay 46% of the accrued and unpaid
     interest on an annual basis. The remaining 54% is deferred and bears
     interest at a rate of 10% per annum and is due in accordance with the terms
     of the Agreement, but in any event no later than December 31, 2003. Accrued
     interest at June 30, 1997 and 1996 amounted to $1,911,584 and $489,370,
     respectively.

     The Agreement contains certain warranties and affirmative covenants that
     must be complied with on a continuing basis. The Agreement also contains
     certain restrictive covenants which, among other things, restricts the
     Company from entering into transactions with affiliates outside the
     ordinary course of business, consummating a sale of the Company, or
     engaging in any new lines of business. At June 30, 1997 and 1996, the
     Company was in compliance with all such covenants.

     See note 11 regarding the exchange of subordinated debt and accrued
     interest for Series A Preferred Stock of the Company and preferred
     interests in a newly formed non-operating subsidiary, OCIH LLC (OCIH). See
     note 18 regarding the Company's Public Note Offering on August 12, 1997,
     and note 19 for pro forma effects of this transaction.

(7)  Notes Payable--Stockholders
     ---------------------------

     On the close of business on April 3, 1996, New South Holdings Corp., a
     wholly owned subsidiary of Holdings, entered into written agreements with
     the Company's chairman and president, borrowing in total $5,876,875. The
     entire principal balance is due in full on April 3, 1998. The notes bear
     interest at a rate which fluctuates quarterly based on the interest rate
     per the Credit Agreement less the sum of the applicable eurodollar margin
     (as defined in the Credit Agreement) and 1/8 of 1%. The interest rate at
     June 30, 1997 was 5.41%. Accrued interest on the outstanding principal
     balance of the notes is payable quarterly, commencing June 30, 1996. The
     notes are secured by a Letter of Credit issued by The Chase Manhattan Bank,
     N.A.

                                      17
<PAGE>
 
                         OUTDOOR COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(8) Fair Value of Financial Instruments
    -----------------------------------

    The following disclosure of the estimated fair value of the Company's
    financial instruments is made in accordance with the requirements of FASB
    Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
    ("Statement 107"). Statement 107 defines the fair value of a financial
    instrument as the amount at which the instrument could be exchanged in a
    current transaction between willing parties.

    The carrying values of cash and cash equivalents, trade accounts receivable,
    due from affiliated entity, trade accounts payable, accrued expenses, and
    obligations under non-compete agreements approximate fair values due to the
    short-term maturities of these instruments. Interest rate swaps, long-term
    debt instruments and notes payable stockholders are estimated to approximate
    fair values as rates are tied to short-term indices. The subordinated debt
    bears interest at a rate which approximates market for unsecured debt.
 
(9) Income Taxes
    ------------

    Income tax expense (benefit) attributable to loss before income tax expense
    for the periods ended June 30 consists of:

<TABLE>
<CAPTION>
 
                              Current    Deferred       Total
                              -------    --------       -----   
   <S>                        <C>       <C>          <C>
     1997
     ----
   Federal                    $ 92,805  (1,189,910)  (1,097,105)
   State and local             139,414     (65,721)      73,693
                              --------  ----------   ----------
 
                              $232,219  (1,255,631)  (1,023,412)
                              ========  ==========   ==========
 
     1996
     ----
   Federal                    $ 81,962     (72,889)       9,073
   State and local              20,000     (39,887)     (19,887)
                              --------  ----------   ----------
 
               Total          $101,962    (112,776)     (10,814)
                              ========  ==========   ==========

</TABLE>

                                      18
<PAGE>
 
                         OUTDOOR COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(9)  Income Taxes, Continued
     -----------------------

     Income tax expense differed from the amounts computed by applying the
     federal income tax rate of 34% for the periods ended June 30 to income
     before income tax expense as a result of the following:

<TABLE>
<CAPTION>
 
                                                             1997                   1996
                                                             ----                   ----
<S>                                                      <C>                      <C> 
Computed "expected" tax expense (benefit)                $(1,476,446)             (91,677)
Increase (reduction) in income taxes resulting from:
  State and local income taxes, net of federal 
     income tax expense                                       (6,887)             (15,891)
  Non-deductible expenses                                     29,467                6,599
  Nondeductible goodwill                                     175,346               44,242
  Adjustment of prior period accrual                         121,833               74,292
  Other, net                                                 151,275               11,621
  Change in the beginning-of-the-year balance of the        
     valuation allowance for deferred tax assets 
     allocated to income tax expense                         (18,000)             (40,000)
                                                         -----------            ---------

                                                         $(1,023,412)             (10,814)
                                                         ===========            ========= 

</TABLE>

     The tax effect of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at each
     June 30, is presented below:

<TABLE>
<CAPTION>
 
                                                             1997                   1996
                                                             ----                   ----
<S>                                                      <C>                      <C>
Deferred tax assets:
  Net operating loss carryforwards                       $   283,268              320,576
  Alternative minimum tax credit carryforwards               182,973               60,606
  Investment tax credit carryforwards                         12,949               12,949
  Deferred revenue, principally related to                                              
    advertising leases                                        72,787               72,944
  Accrued expenses, principally related to 
    compensated absences, health care claims and 
    sales discounts                                          281,031              158,346
 
  Deferred noncompete income                                  36,267               63,466
  Other                                                      119,707               45,413
                                                         -----------           ----------
                                                                                        
        Total gross deferred tax assets                      988,982              734,300
 
  Less valuation allowance                                  (142,000)            (160,000)
                                                         -----------           ---------- 
 
        Net deferred tax assets                              846,982              574,300
                                                         -----------           ----------
 
Deferred tax liabilities:
  Property and equipment, principally due to
    differences in financial statement carrying 
    amounts and tax basis                                 (3,403,385)          (3,952,655)
 
  Intangible assets, principally due to differences 
    in length of amortization period                      (1,074,810)          (1,508,489)   
                                                         -----------           ----------
 
        Total gross deferred tax liabilities              (4,478,195)          (5,461,144)
                                                         -----------           ---------- 
        Net deferred tax liabilities                     $(3,631,213)          (4,886,844)
                                                         ===========           ========== 

</TABLE>

                                      19
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued

 
 
(9)    Income Taxes, Continued
       -----------------------

       The above deferred tax assets and liabilities are presented in the June
       30, 1997 and 1996 balance sheets as follows:

<TABLE>
<CAPTION>
 
                                                  1997         1996
                                                  ----         ----
       <S>                                    <C>           <C>
       Current assets                         $   438,967      276,703
       Non-current liabilities                 (4,070,180)  (5,163,547)
                                              -----------   ----------
 
              Net deferred tax liabilities    $(3,631,213)  (4,886,844)
                                              ===========   ==========

</TABLE>

       The net change in the total valuation allowance for the year ended June
       30, 1997 was a decrease of $18,000 and for the period ended June 30, 1996
       was a decrease of $40,000.

       In assessing the realizability of deferred tax assets, management
       considers whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon the generation of future taxable
       income during the periods in which those temporary differences become
       deductible. Management considers the scheduled reversals of deferred
       taxes, projected future taxable income, and tax planning strategies in
       making this assessment. In order to fully realize the deferred tax
       assets, the Company will need to generate future taxable income of
       approximately $833,000 for OCIN prior to the expiration of the net
       operating loss carryforwards in 2010. Based upon the level of historical
       taxable income and projections for future taxable income over the periods
       which the deferred tax assets are deductible, management believes it is
       more likely than not that the Company will realize the benefits of these
       deductible differences, net of the existing valuation allowance at June
       30, 1997 and 1996. The amount of the deferred tax assets considered
       realizable, however, could be reduced in the near term if estimates of
       future taxable income during the carryforward period are reduced.

       At June 30, 1997, the Company had net operating loss carryforwards for
       federal income tax purposes of approximately $833,000, all of which were
       incurred prior to the restructuring of the ownership of OCIN, with
       Holdings becoming the common parent. As a result of the restructuring,
       future utilization of the net operating loss carryforwards is limited
       under Internal Revenue Code Section 382 to approximately $487,000
       annually for OCIN. Additionally, these net operating loss carryforwards
       can only be utilized to offset future taxable income of OCIN, if any,
       through the year 2010.

       The Company also has an alternative minimum tax credit carryforward of
       $182,973, which is available to reduce future regular income taxes, if
       any, over an indefinite period. In addition, the Company has an
       investment tax credit carryforward of $12,949, which is available to
       reduce future regular income taxes, if any, through 2001.

                                       20
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(10)  Stockholders' Equity
      --------------------

      All general voting power is vested in the holders of Class A common stock.
      The holders of Class B common stock are not entitled to vote at any
      stockholders' meetings. Any share of Class B common stock can be
      converted, at the option of the holder, into Class A common stock at the
      rate of one share of Class A common stock for each share of Class B common
      stock, subject to certain approvals.

      Also, any share of Class A common stock can be converted, at the option of
      the holder, into Class B common stock at the rate of one share of Class B
      common stock for each share of Class A common stock, subject to and upon
      compliance with the provisions of the Certificate of Incorporation of OCI
      Holdings Corp.

      Dividends or distributions of common stock shall be payable on shares of
      Class A and B common stock, share and share alike.

      In the event of liquidation, the holders of Class A and B common stock
      shall be entitled to share ratably in the net assets of the Company after
      payment of debts and other liabilities.

      The Corporation shall not take any action (e.g., redeem, purchase, or
      acquire) affecting outstanding shares of common stock if after giving
      effect to such action any one, as defined, stockholder would own more than
      24.95% of Class A common stock.

(11)  Preferred Stock
      ----------------

      In July 1997, the Company entered into an agreement, effective June 30,
      1997, with the Series A and B subordinated debt holders to exchange the
      notes and accrued and unpaid interest through June 30, 1997 for Series A
      preferred stock (the Debt Conversion).

      The Board of Directors has authorized 5,000,000 shares of preferred stock,
      par value $.01 per share, of which 300,000 shares shall be designated
      Series A (Series A Preferred Stock) and 4,700,000 shares shall be
      undesignated (Undesignated Preferred Stock). Upon the closing of the
      Public Note Offering on August 12, 1997, approximately 240,967 shares of
      Series A Preferred Stock were issued in exchange for subordinated debt and
      the related unpaid and accrued interest through June 30, 1997 totaling
      $17,290,000 and $1,332,093, respectively, resulting in a corresponding
      increase in stockholders' equity of $18,622,093. Additionally, $5,135,000
      of subordinated debt and $348,616 of unpaid and accrued interest through
      June 30, 1997 were assigned by the respective note holders to OCIH in
      exchange for all of the preferred interests of OCIH. See note 19 for pro
      forma effect of this transaction.

      As discussed in Note 10, all general voting power is vested in holders of
      Class A common stock. Shares of Series A Preferred Stock shall not be
      included in determining the number of shares entitled to vote.

                                      21
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(11)  Preferred Stock, Continued
      --------------------------

      No dividends will be declared or paid on the common stock during any year
      unless the full amount of accrued dividends on the Series A Preferred
      Stock has been paid. Upon declaration, the holders of the Series A
      Preferred Stock are entitled to cumulative cash dividends of $10 per
      annum, per share.

      In the event of liquidation or dissolution of the Company, the holders of
      the preferred stock are entitled to receive a preferential amount equal to
      $100 per share of the issued and outstanding preferred stock and a further
      preferential amount equal to all declared and unpaid dividends thereon.
      This liquidation value will be paid before the payment or distribution of
      any assets of the Company to the holders of the common stock.

(12)  Leases
      -------

      The Company leases substantially all of the land presently used as sites
      for advertising panels under various terms. The leases are classified as
      operating leases. These leases generally contain renewal options ranging
      from 1 to 15 years and require the Company to pay all executory costs,
      such as maintenance and insurance. Rental expense for operating leases
      amounted to approximately $5,825,000 for the year ended June 30, 1997 and
      $931,000 for the period April 4, 1996 to June 30, 1996.

      Future minimum lease payments under noncancelable operating leases with
      non-related parties (with initial or remaining lease terms in excess of
      one year) as of June 30, 1997 are:

<TABLE>
<CAPTION>
 
           Year ending June 30:
                  <S>                            <C>
                   1998                          $ 4,482,000
                   1999                            3,425,000
                   2000                            2,678,000      
                   2001                            1,954,000      
                   2002                            1,449,000      
                                                 -----------
 
                                                 $13,988,000
                                                 ===========

</TABLE>

(13)  Employee Health Care Plan
      -------------------------

      Under the Company's self insurance plan for employee health care, eligible
      participants receive payment or reimbursement of all or a portion of
      eligible participants medical expenses, after deductibles and co-payments,
      up to a lifetime aggregate benefit of $1 million. Eligible participants
      (and their dependents) include active full-time employees. The plan is
      primarily funded by the Company, with contributions from participants for
      a portion of dependent's coverage, as required under the health care plan.

                                      22
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(13) Employee Health Care Plan, Continued
     ------------------------------------

     The plan has obtained aggregate excess of loss coverage of $955,000 in
     excess of $45,000 per eligible participant. The Company incurred
     approximately $99,000 and $11,600 for such coverage for the year ended June
     30, 1997 and for the period April 4, 1996 to June 30, 1996, respectively.
     Additionally, the Company incurred approximately $480,000 and $180,000 in
     expense for self insured health care claims for the years ended June 30,
     1997 and for the period April 4, 1996 to June 30, 1996, respectively.

(14) Retirement Program
     ------------------

     Retirement program expense with respect to OCIN's defined contribution
     401(k) plan approximated $62,000 and $11,000 for the year ended June 30,
     1997 and for the period April 4, 1996 to June 30, 1996, respectively.

(15) Supplemental Cash Flow Information
     -----------------------------------

     Non cash investing and financing activities for the year ended June 30,
     1997 and for the period April 4, 1996 to June 30, 1996:

<TABLE>
<CAPTION>
 
                                       1997           1996
                                       ----           ----
     <S>                           <C>             <C> 
     Cash paid for income taxes    $    80,000         3,322
     Cash paid for interest         11,846,217     6,881,000*

</TABLE>

     *$6,531,384 pertained to the interest paid on the junior and senior
     subordinated debt and senior debt existing prior to the close of business
     on April 3, 1996.

     Amortization of deferred financing fees in the amount of $667,838 and
     $127,856 in 1997 and 1996, respectively, has been classified as interest
     expense.

     On April 4, 1996, the Company issued 2,764.99 shares of its common stock
     valued at $2,765,000 and series A subordinated notes in the amount of
     $5,135,000 for the purchase of 7,371.01 common shares and 308.78 preferred
     shares of MCC. Also, the Company issued subordinated notes in the amount
     $5,876,875 for the purchase of 5,128.99 common shares and 562.5 preferred
     shares of Mass Communications Corp.

<TABLE>
     <S>                                                 <C>         
     Details of acquisition:                                         
        Fair value of assets acquired                    $  25,747,927
        Liabilities assumed                               (10,750,000)
        Subordinated debt issued                          (11,011,875)
        Stock issued                                       (2,765,000)
                                                         ------------
        Cash paid                                           1,221,052
        Less cash acquired                                    453,202
                                                         ------------
                                                                     
           Net cash paid for acquisition                 $    767,850
                                                         ============ 

</TABLE>

                                      23
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(16)  Financial Instruments
      ---------------------

      On May 30, 1996, the Company entered into three-year interest swap
      agreements, expiring on June 30, 1999, with First Union National Bank of
      North Carolina (First Union) and Chase to manage its interest rate
      exposure. Interest rate exchange transactions generally involve the
      exchange of fixed and floating-rate interest payment obligations without
      the exchange of the underlying principal amounts. Entering into interest
      rate exchange agreements involves the risk of dealing with counterparties
      and their ability to meet the terms of the contracts. Notional principal
      amounts are used to express the volume of these transactions. The floating
      interest rate on the interest swap agreement is based on three month U.S.
      dollar LIBOR. The Chase agreement was terminated on December 30, 1996 and
      replaced with a new three year swap agreement. The fixed-for-floating
      interest rate swap agreements as of June 30, 1997 are summarized as
      follows:

<TABLE>
<CAPTION>
                                               Chase      First Union
                                               -----      -----------
      <S>                                  <C>            <C>
      Notional principal amount            $25,395,825    $15,000,000
      Fixed rate paid                            6.25%          6.34%
      Floating rate                              5.75%       5.76172%

</TABLE>

      Subsequent to June 30, 1997, the Company paid approximately $238,000 to
      buy out the swap agreements.

(17)  Acquisitions
      ------------

      On April 30, 1996, Holdings completed the purchase of certain assets and
      assumed certain liabilities of AOA Acquisition, L.L.C. (AOA), pursuant to
      an Asset Sale Agreement dated March 19, 1996, for cash of $34,132,908. The
      acquisition has been accounted for using the purchase method of accounting
      and, accordingly, the purchase price has been allocated to the assets
      purchased and the liabilities assumed based upon the fair value at the
      date of acquisition. The excess of the purchase price over the fair values
      of the net assets acquired was $10,084,666 and has been recorded as
      goodwill.

      The net purchase price was allocated as follows:

<TABLE>
      <S>                                                 <C>
      Adjusted working capital                            $ 1,959,432
      Goodwill                                             10,084,666
      Property and equipment                               15,012,810
      Customer list                                         7,076,000
                                                          -----------
 
             Purchase price                               $34,132,908
                                                          ===========
 
</TABLE>

                                      24
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(17)  Acquisitions, Continued
      -----------------------

      On October 31, 1996, the Company acquired substantially all of the assets
      and business operations of Skoglund Communications, Inc. and Skoglund
      Communications of St. Cloud, Inc. for a cash payment of $21,246,850. As a
      result of this transaction, the Company acquired display faces in
      Minnesota and Wisconsin. This acquisition has been accounted for by the
      purchase method and, accordingly, the purchase price has been allocated to
      the assets purchased and the liabilities assumed based upon the fair value
      at the date of acquisition as follows:

<TABLE>
<CAPTION>
 
      <S>                                                    <C>
      Adjusted working capital                               $ 1,336,989
      Goodwill                                                 7,953,899 
      Property and equipment                                   7,537,470
      Customer list                                            4,418,492
                                                             -----------
 
      Cash purchase price                                    $21,246,850
                                                             ===========

</TABLE>

      On March 31, 1997, the Company acquired substantially all of the assets
      and business operations of Outdoor West of Tennessee (Outdoor West) for a
      cash payment of $11,802,444. As a result of this acquisition, the Company
      acquired display faces in Tennessee and a right of first refusal to
      purchase Outdoor West, Inc. of Georgia, an affiliate of Outdoor West. This
      purchase has been accounted for by the purchase method and, accordingly,
      the purchase price has been allocated to the assets purchased and the
      liabilities assumed based upon the fair value at the date of acquisition
      as follows:

<TABLE>
<CAPTION>
 
      <S>                                                    <C>
      Adjusted working capital                               $   475,564
      Goodwill                                                 1,545,334
      Property and equipment                                   4,621,720
      Non-compete agreement                                    2,600,000
      Customer list                                            2,559,826
                                                             -----------
 
      Cash purchase price                                    $11,802,444
                                                             ===========
</TABLE>

      On May 1, 1997, the Company acquired substantially all of the assets and
      business operations of Summey Outdoor Advertising, Inc. for a cash payment
      of $5,145,000. As a result of this acquisition, the Company acquired
      display faces in North Carolina and South Carolina. This purchase has been
      accounted for by the purchase method and, accordingly, the purchase price
      has been allocated to the assets purchased and liabilities assumed based
      upon the fair value at the date of acquisition as follows:

<TABLE>
<CAPTION>
 
      <S>                                                     <C>
      Adjusted working capital                                $  236,169
      Goodwill                                                   950,680
      Property and equipment                                   2,168,760
      Non-compete agreement                                    1,000,000
      Customer list                                              789,391
                                                              ----------
 
      Cash purchase price                                     $5,145,000
                                                              ==========

</TABLE>

                                      25
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(17) Acquisitions, Continued
     -----------------------

     In addition to the acquisitions described above, the Company has
     consummated numerous smaller acquisitions within the past twelve months for
     aggregate cash payments totaling $13,639,159. These purchases have been
     accounted for by the purchase method and, accordingly, the purchase price
     has been allocated to the assets purchased and the liabilities assumed
     based upon the fair value at the date of acquisition as follows:

<TABLE>
     <S>                                                   <C>       
     Goodwill                                              $ 5,095,973
     Property and equipment                                  4,919,380
     Non-compete agreement                                   2,663,806
     Customer list                                             960,000
                                                           -----------
 
     Cash purchase price                                   $13,639,159
                                                           ===========

</TABLE>

     The consolidated financial statements include the operating results of all
     of the above businesses from their respective dates of acquisition.

(18) Initial Public Offering and New Credit Facility
     -----------------------------------------------

     On August 12, 1997, the Company completed a Public Note Offering (the
     Offering) of $105 million aggregate principle amount of 9.25% subordinated
     notes due August 15, 2007 (the Notes). Net proceeds of the Offering, after
     deduction of associated expenses, were approximately $100.3 million.
     Accrued interest on the Notes is payable in semi-annual installments on
     each February 15 and August 15, commencing February 15, 1998. The Notes are
     redeemable at the Company's option, in whole or in part, at any time on or
     after August 15, 2002 in accordance with a prepayment premium as described
     in the note agreement. Other prepayments may occur prior to August 15, 2000
     based on certain limitations as described in the note agreement.

     The Notes are fully and unconditionally guaranteed, on a senior
     subordinated basis, as to payment of principal, premium, if any, and
     interest, jointly and severally by all of the Company's direct and indirect
     subsidiaries. Separate financial statements of the Company's subsidiaries
     have not been presented because (a) such guarantor subsidiaries have
     jointly and severally guaranteed the notes on a full and unconditional
     basis, (b) the aggregate assets, liabilities, earnings and equity of the
     guarantor subsidiaries are substantially equivalent to the assets,
     liabilities, earnings and equity of the parent on a consolidated basis and
     (c) that the Company has not presented separate financial statements and
     other disclosures concerning the subsidiary guarantors because management
     has determined that such information is not material to investors.

     The Company abandoned plans for an initial public offering of its common
     stock during July 1997. As a result, the Company will recognize expense of
     approximately $268,000 in the first quarter of fiscal year 1998, due to the
     write off of costs incurred related to the abandoned offering.

                                      26
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(18) Initial Public Offering and New Credit Facility, Continued
     ----------------------------------------------------------

     Simultaneous to the Offering, the Company entered into a new $150 million
     senior credit facility (New Credit Facility) with The Chase Manhattan Bank
     and a syndicate consisting of various other financial institutions
     (collectively, the New Bank). The New Credit Facility consists of a
     Revolving Loan Commitment (the New Revolver) of $110 million and a Term
     Loan Commitment for $40 million (collectively the New Borrowings). The New
     Revolver matures on December 21, 2004 and the Term Loan Commitment matures
     on June 30, 2005. The New Credit Facility provides for annual reductions in
     the New Revolver and amortization of the term loan facility. Collateral
     includes a first lien on all tangible and intangible property of the
     Company, assignment of all leases, and a guaranty by OCI, OCIN, and OCIS.

     The New Credit Facility enables the Company to borrow funds at a rate equal
     to 2.25% plus LIBOR or 1.0% over the New Bank's base rate, as defined. The
     New Credit Facility also enables the Company to realize a lower interest
     rate if its leverage ratio meets certain levels as stipulated in the Credit
     Facility. At August 15, 1997, date of the initial borrowing, the interest
     rate was 9.5%. Accrued interest is payable in quarterly installments on
     March 31, June 30, September 30, and December 31. The Credit Facility also
     requires payment of a commitment fee of 0.375% per annum, which may be
     reduced based on the Company's leverage ratio, on the daily average
     aggregate unutilized commitment from the Bank. Accrued commitment fees are
     due quarterly on March 31, June 30, September 30, and December 31.

     The New Credit Facility contains certain warranties and affirmative
     covenants that must be complied with on a continuing basis. In addition,
     the New Credit Facility contains certain restrictive covenants which, among
     other things, restrict the Company from incurring additional debt and liens
     on assets, limits the amount of capital expenditures during any fiscal
     year, and prohibits the consolidation, merger or sale of assets, or
     issuance of common stock except as permitted by the New Credit Facility.
     The New Credit Facility also requires the Company to maintain certain
     financial ratios.

     Under the terms of the Credit Facility, the Subsidiary Guarantors are
     restricted in their ability to make distributions to the Company to
     distributions necessary to enable the Company to make interest payments due
     under the Credit Facility and make federal income tax payments. The
     Indenture provides that the Company will not, and will not permit any of
     the Subsidiary Guarantors to, directly or indirectly, create or otherwise
     cause or suffer to exist or become effective any consensual encumbrance or
     restriction of any kind on the ability of the Subsidiary Guarantors to make
     distributions to the Company with certain limited exceptions including the
     restrictions under the Credit Facility described in the preceding sentence.

     Initial borrowings under the New Credit Facility totaled $16.5 million,
     which were drawn from the New Revolver. The Company has the right to prepay
     the Borrowings in whole or in part, without premium or penalty, as
     stipulated in the New Credit Facility. See note 19 for proforma effects of
     the above transactions.

                                      27
<PAGE>
 
                          OUTDOOR COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
             Notes to Consolidated Financial Statements, Continued



(19)   Pro Forma Effects of Subsequent Events
       --------------------------------------

       The following table presents the capitalization of the Company as of June
       30, 1997 as reported and on an unaudited pro forma basis giving effect to
       the Debt Conversion, Offering, New Credit Facility, and abandonment of
       the common stock offering as if the transactions had occurred on that
       date:

<TABLE>
<CAPTION>
 
                                                                                       June 30, 1997
                                                                               -----------------------------
                                                                                 As Reported     Pro Forma
                                                                                 -----------     ---------
                                                                                                 (unaudited)
       <S>                                                                       <C>             <C>
       Long-term debt, including current installments:
         Credit facility                                                        $ 115,650,000          -
         New credit facility                                                             -       16,500,000
         9.25% senior subordinated notes due August 15, 2007                             -      105,000,000
         Subordinated debt, including accrued interest                             24,336,584          -
         Notes payable - stockholders                                               5,876,875     5,876,875
                                                                                -------------   ----------- 

                Total long-term debt                                              145,863,459   127,376,875
 
       Preferred interests of a subsidiary                                               -        5,483,615
                                                                                -------------   ----------- 
       Stockholders' equity (deficit):
         Class A preferred stock                                                         -            1,861
         Class A common stock                                                              84            84
         Class B common stock                                                              37            37
         Additional paid-in capital                                                 3,811,475    22,431,707
         Accumulated deficit                                                      (11,857,150)  (16,365,183)
                                                                                -------------   ----------- 
 
                Total stockholders' equity (deficit)                               (8,045,554)    6,068,506
                                                                                -------------   ----------- 
                Total capitalization                                            $ 137,817,905   138,928,996
                                                                                =============   ===========

</TABLE> 

                                      28
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                      29
<PAGE>
 
                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Not applicable.


ITEM 11. EXECUTIVE COMPENSATION

         Not applicable.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Not applicable.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Not applicable.


                                      30
<PAGE>
 
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1)  Index of Financial Statements.  The following financial statements
             -----------------------------
appear in response to Item 8 of this Report:


           Independent Auditors' Report

           Consolidated Balance Sheets

           Consolidated Statements of Operations

           Consolidated Statements of Stockholders' Deficit

           Consolidated Statements of Cash Flows

           Notes to Consolidated Financial Statements

     (a)(2)  Index of Financial Statement Schedules.  All financial statement
             --------------------------------------
schedules have been omitted because they are not required, not applicable or are
included in Notes to Consolidated to Financial Statements.

     (b)  Reports on Form 8-K.  During the period from April 4, 1996 to June 30,
          -------------------
1997 the Company filed no reports on Form 8-K with the Securities and Exchange
Commission.

     (c)  Exhibits.
          -------- 

     The following exhibits are filed as a part of this report:

             24.1  Powers of Attorney (included on the signature page hereto)
             27.1  Financial Data Schedule

                                      31
<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.

                                            OUTDOOR COMMUNICATIONS, INC.


Dated: November 3, 1997                     /s/  John C Stanley IV
                                            ------------------------------------
                                            By:  John C Stanley IV
                                                 Chairman and Chief Executive 
                                                  Officer

                              POWERS OF ATTORNEY


     KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Outdoor Communications, Inc. hereby severally constitute John C
Stanley IV, our true and lawful attorney with full power to him to sign for us
and in our names in the capacities indicated below, the Special Financial Report
under cover of Form 10-K filed herewith and any and all amendments to said
Special Financial Report, and generally to do all such things in our names and
in our capacities as officers and directors to enable Outdoor Communications,
Inc. to comply with the provisions of the Securities Act of 1934, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, to said
Special Financial Report and any and all amendments thereto.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE> 
<S>                          <C>                                <C>  
 
/s/  John C Stanley IV       Director, Chief Executive          November 3, 1997
---------------------------  Officer and Chairman (Principal
John C Stanley IV            Executive Officer)
 
/s/ A.B. Isbell              Director, Chief Operating          November 3, 1997
---------------------------  Officer and President
A. B. Isbell

/s/ Richard W. Ebersole      Treasurer and Chief Financial      November 3, 1997
---------------------------  Officer (Principal Financial
Richard W. Ebersole          Officer and Principal Accounting
                             Officer)
 
 
/s/Douglas W. Ferris, Jr.    Director                           November 3, 1997
---------------------------
Douglas W. Ferris, Jr.
 
 
/s/ Stephen F. Gormley       Director                           November 3, 1997
---------------------------
Stephen F. Gormley
 
 
/s/ John G. Hayes            Director                           November 3, 1997
---------------------------
John G. Hayes
 
 
/s/ Brian J. Richmand        Director                           November 3, 1997
---------------------------
Brian J. Richmand
 
</TABLE> 
                                      32
<PAGE>
 
                                 EXHIBIT INDEX


     Exhibit No.    Description

     24.1           Powers of Attorney (included on the signature page hereto)

     27.1           Financial Data Schedule


                                      33