<PAGE>   1

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

                                   FORM 10-K
                            ------------------------

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

        FOR THE TRANSITION PERIOD FROM                TO

                         COMMISSION FILE NUMBER 1-10321

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

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

           1301 FIFTH AVENUE, SUITE 4000
                SEATTLE, WASHINGTON                                        98101
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                           (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 624-2888

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                TITLE OF EACH CLASS                        NAME OF EXCHANGE ON WHICH REGISTERED
                -------------------                        ------------------------------------
<S>                                                 <C>
                   COMMON STOCK                                NEW YORK STOCK EXCHANGE, INC.
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      N/A
                                (TITLE OF CLASS)

     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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                Yes [X]  No [ ]

     Indicate by check mark 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 the 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.  [ ]

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 1, 2001 was $206,706,929.

     The number of shares outstanding of each of the registrant's classes of
common stock as of March 1, 2001 was:

<TABLE>
<CAPTION>
                  TITLE OF CLASS                               NUMBER OF SHARES OUTSTANDING
                  --------------                               ----------------------------
<S>                                                 <C>
           COMMON STOCK, $.01 PAR VALUE                              24,020,548 SHARES
       CLASS B COMMON STOCK, $.01 PAR VALUE                          11,039,588 SHARES
</TABLE>

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 3, 2001, are incorporated by reference under Part
III of this Report.

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<PAGE>   2

                                     PART I

ITEM 1 -- BUSINESS

GENERAL INFORMATION

     The Ackerley Group, Inc. was founded in 1975 as a Washington corporation.
In 1978, we were reincorporated under Delaware law. We are a diversified media
and entertainment company which engages in four principal businesses: outdoor
media, television broadcasting, radio broadcasting, and interactive media. Our
outdoor media, television broadcasting, radio broadcasting, and interactive
media segments accounted for approximately 40%, 48%, 12%, and 0%, respectively,
of our net revenue for the year ended December 31, 2000. On January 11, 2001, we
signed an agreement to sell our Seattle SuperSonics NBA franchise, along with
our interests in the Seattle Storm WNBA team and our Full House Sports &
Entertainment division, for approximately $200.0 million. We expect the sale,
which is pending approval of the NBA Board of Governors, to close before April
15, 2001. Accordingly, our sports & entertainment segment is now reported for
financial purposes as "discontinued operations."

     - Outdoor Media. We engage in outdoor advertising in Massachusetts, New
       York, and New Jersey and the Pacific Northwest. We have 6,039 outdoor
       displays in our primary markets of Boston-Worcester, Massachusetts;
       Seattle-Tacoma, Washington; and Portland, Oregon. We believe that we have
       leading positions in the primary markets in which we operate, based upon
       the number of outdoor advertising displays.

     - Television Broadcasting. We engage in television broadcasting in New
       York, California, Oregon, Washington, and Alaska. We own sixteen
       television stations and program two additional television stations under
       time brokerage or local marketing agreements ("LMAs"). Consistent with
       our strategy of local news leadership, ten of the sixteen
       network-affiliated television stations we own or program ranked first or
       second in their designated market areas ("DMAs"), in terms of local news
       ratings points delivered, according to the November 2000 Nielsen Station
       Index.

     - Radio Broadcasting. We own and operate four radio stations in the
       Seattle-Tacoma, Washington market. We also provide sales and other
       services for KFNK(FM), another station in the Seattle-Tacoma market,
       pursuant to a joint sales agreement with the owner of that station.
       KUBE(FM) is the highest ranked FM station in the market in its target
       demographic of adults 18 to 34 years old and is third overall in the
       market in terms of share of its market service area ("MSA"), according to
       the Fall 2000 Arbitron Radio Market Report; KJR(AM) is the only sports
       talk station in the market.

     - Interactive Media. We own and operate local market news and information
       Web sites in California and New York that are built through strategic
       partnerships with local media companies that provide promotional power,
       reliable news and information content and intimate knowledge of the local
       marketplace. We currently operate two portal sites:
       www.iknowbakersfield.com in Bakersfield, California and
       www.iknowrochester.com in Rochester, New York. These operations, known as
       the iKnow Network(TM), combine the live, multimedia aspects of television
       and radio with the depth of news and community information of newspapers.

BUSINESS STRATEGY

     Our primary strategy is to develop and acquire media assets that enable us
to offer advertisers a choice of media outlets for distributing their marketing
messages. To this end, we have assembled a diverse portfolio of media assets. We
believe our businesses are linked by a common goal of increasing the number of
advertising impressions made, regardless of whether the impression is made via
radio, television, outdoor media display, or web page. Following disposal of our
sports & entertainment operations (which is described in greater detail in Note
4 to the Consolidated Financial Statements), we intend to evolve as a media
company focused on these segments and pursuing our core competencies.

     We seek to grow by investing in the expansion of our existing operations
through additions and upgrades to our facilities and programming. We also look
to grow through opportunistic acquisitions in our existing

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business lines and by exploring new synergistic business ventures and
investments. We target markets where we see an opportunity to improve market
share, take advantage of regional efficiencies, and develop our television
stations into local news franchises.

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

     Maintain and Develop Leadership Positions in Markets Served. We seek to be
a leader in each of our markets. We believe that we own the most outdoor
advertising display faces in each of the primary geographic markets in which we
operate, based on the Traffic Audit Bureau's most recent Summary of Audited
Markets, issued in August 2000. Ten of the sixteen network-affiliated television
stations we own or program ranked first or second in their DMAs, in terms of
local news ratings points delivered, according to the November 2000 Nielsen
Station Index. Our four radio stations include KUBE(FM), which is the highest
ranked FM station in the Seattle-Tacoma market in its target demographic of
adults 18 to 34 years old and is third overall in the market in terms of share
of its MSA, according to the Fall 2000 Arbitron Radio Market Report, and
KJR(AM), the only sports talk station in the market. We believe this market
leadership enables us to provide advertisers a cost-effective means of
delivering a quality message to their target audiences.

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

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

     Experienced Management; Decentralized Management Structure. We believe that
our efficient management structure and the experience of our management team
enable us to respond effectively to competitive challenges across our markets
and our business segments. We have granted the management of our operating units
the authority and autonomy necessary to run each unit as a business and to
respond to changes in each market environment. Experienced local managers
enhance our ability to respond to local challenges rapidly and effectively. The
average experience of our nine division managers in their respective industries
is approximately 18 years. These local managers are supported and guided by an
experienced and cohesive executive team. Our five executive officers
collectively have an aggregate of 90 years of experience in the various
industries in which we are involved.

     Barry A. Ackerley, one of our founders and our current Chairman and Chief
Executive Officer, has been actively involved with this company since our
inception in 1975. Early in our history, Mr. Ackerley recognized the synergies
that could be achieved through ownership of outdoor advertising and television
and radio broadcasting assets. With this vision, Mr. Ackerley led our expansion
from outdoor advertising into television

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and radio broadcasting and sports and entertainment well before the current
trend toward consolidation among these industries.

OUTDOOR MEDIA

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

     Industry Overview. During the nineteenth century, companies began to lease
out space on wooden boards for advertising messages, or "bills." Today, outdoor
advertising extends nationwide, providing advertisers with a relatively low-cost
means of reaching large audiences. Outdoor advertising is used by large national
advertisers as part of multi-media and other advertising campaigns, as well as
by local and regional advertisers seeking to reach local and regional markets.

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

     Outdoor advertising companies generally establish and publish "rate cards"
periodically, typically once a year, which list monthly rates for bulletins,
posters, and junior posters. Rates are based, in part, on surveys made by
independent traffic audits that determine a given display's exposure to the
public. Actual rates charged to customers are subject to negotiation.
Advertising contracts relating to bulletins, posters, and junior posters usually
have terms of one year or less.

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

     Operations. We operate primarily in the markets of Seattle-Tacoma,
Washington; Portland, Oregon; and Boston-Worcester, Massachusetts. In 2000, we
expanded our operations into the New York, New York market. Until we sold our
Florida outdoor advertising business in January 2000, we also operated in Miami,
Fort Lauderdale, West Palm Beach and Fort Pierce, Florida. Based on the Traffic
Audit Bureau's Summary of Audited Markets issued in August 2000, we had more
outdoor advertising displays in each of our primary markets than any other
outdoor advertising company.

     We believe that our presence in large markets, the geographic diversity of
our operations, and our emphasis on local advertisers within each of our markets
lend stability to our revenue base, reduce our reliance on any particular
regional economy or advertiser, and mitigate the effects of fluctuations in
national advertising expenditures. However, because of zoning and other
regulatory limitations on the development of new outdoor advertising displays,
we anticipate that future growth in our outdoor advertising business will result
primarily through diversification of our customer base, creative marketing,
upgrading our existing structures, increased rates, and increased demand brought
about by advertisers who have not historically used outdoor media, such as
internet-related companies.

     Our outdoor advertising operations involve the sale of space on advertising
display faces. They also include, in many cases, the design of advertisements
and the construction of outdoor structures that carry those displays. Our
principal outdoor advertising display is the billboard, of which there are three
standard sizes:

     - Bulletins: Bulletins are generally 14 feet high and 48 feet wide.
       Generally, bulletins are covered with a single sheet of vinyl, called
       "Superflex," on which an image has been printed by computer. The

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       Superflex is then transported to the site of the billboard and mounted to
       the face of the display. To attract more attention, panels may extend
       beyond the linear edges of the display face and may include
       three-dimensional embellishments. Bulletins are usually located near
       major highways for maximum impact. Space is usually sold to advertisers
       for periods of four to twelve months.

     - Posters: The most common type of billboard, posters are generally 12 feet
       high by 25 feet wide. Lithographed or silk-screened paper sheets are
       typically supplied by the advertiser and arrive prepasted and packaged in
       airtight bags. They are applied like wallpaper to the face of the
       display. Posters are usually located on major traffic arteries. Space is
       usually sold to advertisers for periods of one to twelve months.

     - Junior posters: Junior posters are generally 6 feet high by 12 feet wide.
       These displays are prepared and mounted in the same manner as posters.
       Most junior posters, because of their smaller size, are concentrated on
       city streets and are targeted to pedestrian traffic. Space on junior
       posters usually is sold to advertisers for periods of one to twelve
       months.

     We have 944 bulletins, 4,735 posters, and 360 junior posters. The following
chart itemizes markets we served and their designated market area (DMA) rank:

<TABLE>
<CAPTION>
                                                   DMA                              JUNIOR
                    MARKET                       RANK(1)    BULLETINS    POSTERS    POSTERS
                    ------                       -------    ---------    -------    -------
<S>                                              <C>        <C>          <C>        <C>
Seattle-Tacoma(2)..............................    12          249        1,691       279
Portland(2)....................................    23          266        1,047         0
Boston-Worcester...............................     6(3)       429        1,997        81
New York, New York.............................     1           44           --        --
</TABLE>

---------------
(1) Source: Television & Cable Factbook, 2000 Edition. DMA rank is a measure of
    market size in the United States based on population as reported by the
    Nielsen Rating Service.

(2) In the first quarter of 2000, we purchased outdoor advertising assets in the
    Portland Metro and Salem, Oregon areas (which for operating purposes we deem
    to be part of the Portland market) and Bellingham, Washington (which for
    operating purposes we deem to be part of the Seattle-Tacoma market). See
    "-- Acquisitions."

(3) Reflects DMA rank for the Boston market.

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

     Sales and Marketing. We sell advertising space directly to advertisers and
also sell to advertising agencies and specialized media buying services. These
agencies charge us a commission for their services. In recent years, we have
focused increasingly on selling directly to local and regional advertisers.

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

     Regulation. Outdoor advertising displays are subject to governmental
regulation at the federal, state, and local levels. These regulations, in some
cases, limit the height, size, location, and operation of outdoor displays and,
in some circumstances, regulate the content of the advertising copy displayed on
outdoor displays. Certain jurisdictions have recently proposed or enacted
regulations restricting or banning outdoor advertising

                                        4
<PAGE>   6

of tobacco or liquor. Likewise, regulations in certain jurisdictions prohibit
the construction of new outdoor displays or the replacement, relocation,
enlargement, or upgrading of existing structures.

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

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

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

     Our policy, when a governmental entity seeks to remove one of our outdoor
advertising displays, is to actively resist unless adequate compensation is
paid. Although we have been successful in the past in challenging circumstances
in which our displays have been subject to removal, we cannot predict whether we
will be successful in the future and what effect, if any, such regulations may
have on our operations. In addition, we are unable to predict what additional
regulations may be imposed on outdoor advertising in the future. Legislation
regulating the content of billboard advertisements has been introduced in the
U.S. Congress from time to time in the past.

     Sale of Florida Outdoor Advertising Operations. On January 5, 2000, we sold
substantially all of the assets of our Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida outdoor billboard operations to Eller Media Company,
a subsidiary of Clear Channel Communications, Inc., for approximately $300.0
million in cash, plus the assumption of certain liabilities. We recognized a
gain on the transaction of approximately $269.3 million.

     Acquisitions. In 2000, we acquired the following outdoor advertising
companies:

     - On January 31, 2000, we purchased substantially all of the assets of an
       outdoor advertising company in Bellingham, Washington, for approximately
       $2.9 million.

     - On March 1, 2000, we purchased the assets of an outdoor advertising
       company serving portions of Washington and Oregon for approximately $14.6
       million.

     - On March 31, 2000, we purchased substantially all of the assets of an
       outdoor advertising company in New Jersey and New York City for
       approximately $19.8 million.

     - On June 13, 2000, we purchased the assets of an outdoor advertising
       company in Oregon, for approximately $4.0 million.

     - On November 13, 2000, we purchased an outdoor advertising structure in
       New Jersey for $5.0 million.

TELEVISION BROADCASTING

     Our television broadcasting operations involve the sale of advertising time
to a broad range of national, regional, and local advertisers. We own and/or
program eighteen television stations in markets that offer a large and affluent
population base that is attractive to many advertisers.

     Industry Overview. Television stations in the United States are either
"very high frequency" or "VHF" stations, transmitting on channels 2 through 13,
or "ultra high frequency" or "UHF" stations, transmitting on channels 14 through
69. Broadcast licenses are issued by the Federal Communications Commission
("FCC").

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Television station revenue comes primarily from local, regional and national
advertising. Revenue also comes, to a lesser extent, from network compensation
and from studio rental and commercial production activities.

     Advertising rates are based upon (1) a program's popularity among the
viewers whom an advertiser wishes to attract, (2) the number of advertisers
competing for the available time, (3) the size and demographic makeup of the
market, and (4) the availability of alternative advertising media in the market
area. The size of a television station's audience is measured and reported by
independent rating service surveys.

     Affiliation with a major network (e.g., ABC, NBC, CBS, or FOX) can have a
significant impact on a station's revenue, expenses and operations. A typical
affiliate receives a significant portion of its daily programming from a
network. Networks provide programming, and in some cases cash payments, to the
affiliate in exchange for a substantial majority of the advertising time during
network programs. The network sells this advertising time and retains the
revenues. A small portion of inventory contained within network programming is
sold by the local affiliates who retain the corresponding revenue.

     Operations. We currently own sixteen television stations and program two
stations under time brokerage or local marketing agreements ("LMAs"). The
following table sets forth information about our portfolio of television
stations and the markets in which they operate.

<TABLE>
<CAPTION>
                                                                                                                   NO. OF
                                                                                                                 COMMERCIAL
                                                                                           PROPOSED      DMA     TV STATIONS
                                             DATE ACQUIRED OR     NETWORK        NTSC      DIGITAL     MARKET     RANKED IN
           MARKET             CALL LETTERS      AFFILIATED      AFFILIATION   CHANNEL(1)   CHANNEL     RANK(2)    MARKET(3)
           ------             ------------   ----------------   -----------   ----------   --------    -------   -----------
<S>                           <C>            <C>                <C>           <C>          <C>         <C>       <C>
NEW YORK
Syracuse, New York
  (owned)...................    WIXT             May 1982          ABC             9         17           80     3 VHF
                                                                                                                 3 UHF
Rochester, New York
  (owned)...................    WOKR            April 1999         ABC            13         59           74     3 VHF
                                                                                                                 1 UHF
Binghamton, New York
  (owned)...................    WIVT           July 1997(4)        ABC            34          4          156     1 VHF
                                                                                                                 2 UHF
Binghamton, New York
  (owned)...................   WBGH-CA       February 2000(5)      NBC             8         --(6)       154     1 VHF
                                                                                                                 2 UHF
Utica, New York (owned).....    WUTR           June 1997(7)        ABC            20         30          168     1 VHF
                                                                                                                 2 UHF
Elmira, New York (LMA)......    WETM         February 2000(8)      NBC            18          2          171     3 UHF
Watertown, New York
  (owned)...................    WWTI             June 2000         ABC            50         21          176     1 VHF
                                                                                                                 1 UHF
CENTRAL COAST
Fresno-Visalia, California
  (owned)...................    KGPE            August 2000        CBS            47         34           54     10 UHF
Santa Barbara-Santa
  Maria-San Luis Obispo,
  California (owned)........    KCOY          January 1999(9)      CBS            12         19          117     3 VHF
Santa Barbara-Santa
  Maria-San Luis Obispo,
  California (owned)........   KKFX-CA         May 2000(10)        FOX            24         --(6)       117     3 VHF
Bakersfield, California
  (owned)...................    KGET           October 1983        NBC            17         25          130     4 UHF (12)
NORTH COAST
Monterey-Salinas, California
  (owned)...................    KION          April 1999(10)       CBS            46         32          118     1 VHF
                                                                                                                 3 UHF (11)
Monterey-Salinas, California
  (LMA).....................    KCBA           June 1986(13)       FOX            35         13          118     1 VHF
                                                                                                                 3 UHF (11)
Eugene, Oregon (owned)......    KMTR         December 1998(14)     NBC            16         17          122     2 VHF
                                                                                                                 3 UHF
Eureka, California
  (owned)...................    KVIQ           July 1998(15)       CBS             6         17          191     2 VHF
                                                                                                                 2 UHF
Santa Rosa, California
  (owned)...................    KFTY            April 1996        None            50         54         -(16)    6 VHF
                                                                                                                 12 UHF
</TABLE>

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<PAGE>   8

<TABLE>
<CAPTION>
                                                                                                                   NO. OF
                                                                                                                 COMMERCIAL
                                                                                           PROPOSED      DMA     TV STATIONS
                                             DATE ACQUIRED OR     NETWORK        NTSC      DIGITAL     MARKET     RANKED IN
           MARKET             CALL LETTERS      AFFILIATED      AFFILIATION   CHANNEL(1)   CHANNEL     RANK(2)    MARKET(3)
           ------             ------------   ----------------   -----------   ----------   --------    -------   -----------
<S>                           <C>            <C>                <C>           <C>          <C>         <C>       <C>
PACIFIC NORTHWEST
Fairbanks, Alaska (owned)...    KTVF            August 1999      NBC/UPN          11         26          203     4 VHF
Vancouver, British Columbia
  and portions of Seattle,
  Washington (owned)........    KVOS             June 1985        None            12         35         -(17)    -(17)
</TABLE>

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

 (2) Source: November 2000 Nielsen Station Index.

 (3) Source: November 2000 Nielsen Station Index. The number of stations listed
     does not include digital television stations, public broadcasting stations,
     satellite stations, low-power stations, or translators that rebroadcast
     signals from distant stations, and also may not include smaller television
     stations whose rankings fall below reporting thresholds.

 (4) We acquired WIVT in August 1998. Pending closing of the transaction, we
     programmed the station under an LMA with the previous owner. The date in
     this column reflects the date the LMA was entered into.

 (5) In February 2000, we acquired substantially all of the assets of WBGH,
     other than the FCC license, which we acquired on May 1, 2000. Pending FCC
     approval of the transfer of the FCC license to us, we programmed the
     station under an LMA with the FCC licensee. The date in this column
     reflects the date the LMA was entered into.

 (6) Low power stations have not been assigned proposed digital channels. We
     have applied for Class A status from the FCC for WBGH and have been granted
     Class A status for KKFX.

 (7) We acquired WUTR in January 2000. Pending closing of the transaction, we
     programmed the station under an LMA with the previous owner. The date in
     this column reflects the date the LMA was entered into.

 (8) We do not own WETM but program the station under an LMA with the current
     owner of the station. The date in this column reflects the date the LMA was
     entered into. See "-- Acquisitions and Local Marketing Agreements."

 (9) In May 1999, we exchanged the assets of KKTV, our former television station
     in Colorado Springs, Colorado for the assets of KCOY and a cash payment.
     Pending closing of the transaction, we programmed KCOY under an LMA with
     the previous owner. The date in this column reflects the date that the LMA
     was entered into.

(10) We acquired KION in January 2000. Pending closing of the transaction, we
     programmed the station under an LMA with the previous owner. The date in
     this column reflects the date the LMA was entered into.

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

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

(13) In January 2000, we sold substantially all the assets of KCBA. We program
     15% of the station's weekly broadcast hours and provide sales and other
     services under an LMA with the purchaser. The date in this column reflects
     the date we originally acquired the station.

(14) We acquired KMTR in March 1999. Pending closing of the transaction, we
     programmed the station under an LMA with the previous owner. The date in
     this column reflects the date the LMA was entered into. The acquisition
     includes the assets of two satellite stations, KMTX (Roseburg, Oregon) and
     KMTZ (Coos Bay, Oregon), and one low power station, KMOR-LP (Eugene,
     Oregon).

                                        7
<PAGE>   9

(15) We acquired KVIQ in January 1999. Pending closing of the transaction, we
     programmed the station under an LMA with the previous owner. The date in
     this column reflects the date this LMA was entered into.

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

(17) KVOS, located in Bellingham, Washington, serves primarily the Vancouver,
     British Columbia market (located in size, according to the Nielsen Rating
     Service as of February 2000, between the markets of Denver, Colorado and
     Sacramento-Stockton-Modesto, California, which have DMA rankings of 18 and
     19, respectively, and a portion of the Seattle, Washington market (DMA rank
     12) and the Whatcom County, Washington market. The station's primary
     competition consists of five Canadian stations. The Canadian Radio and
     Television Commission granted license approval for an additional commercial
     station in Victoria and a religious station in Vancouver recently. It is
     likely that these stations will be operational by September 2001. DMA
     rankings are from the Television & Cable Factbook, 2000 Edition.

     Programming. Our network-affiliated television stations operate under
standard contracts. These standard contracts are automatically renewed for
successive terms unless we or the network exercises cancellation rights. The
networks offer our network-affiliated stations a variety of programs. Our
network-affiliated stations have a right of first refusal to broadcast network
programs before those programs can be offered to any other television station in
the same market.

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

     KVOS(TV), which does not have a network affiliation, is located in
Bellingham, Washington and serves primarily the market of Vancouver, British
Columbia, Canada. Canadian regulations require Canadian cable television
operators to delete the signals of U.S.-based stations broadcasting network
programs in regularly scheduled time slots and to replace them with the signals
of the Canadian-based network affiliates broadcasting at the same time. By
broadcasting non-network programming, and by securing exclusive programming
rights for the Vancouver/Victoria Market, KVOS (TV) is not blacked out on
Canadian cable systems.

     Acquisitions and Local Marketing Agreements. We seek to acquire television
broadcast stations generally in DMA markets ranking from 50 to 175. We also
enter into time brokerage or local marketing agreements ("LMAs") with owners of
television stations. Under those agreements, we provide programming and sales
services and make monthly payments to station owners in exchange for the right
to receive revenues from advertising and, in some cases, network compensation.
Over the past year, we have acquired, or entered into LMAs to provide
programming services to, the following stations:

     - On January 12, 2000, we sold substantially all of the assets of KCBA(TV),
       the FOX affiliate licensed to Monterey, California, for approximately
       $11.0 million, and entered into an LMA with the purchaser to provide
       programming and sales services. We recorded a gain on the transaction of
       $8.8 million. Concurrent with this sale, we purchased substantially all
       of the assets of KION(TV), the CBS affiliate licensed to Salinas,
       California, for approximately $7.7 million, subject to certain
       reductions. From April 24, 1996 until closing of the transaction, we
       provided programming and sales services under an LMA with the previous
       owner.

     - On January 20, 2000, we purchased substantially all of the assets of
       WUTR(TV), the ABC affiliate licensed to Utica, New York, for
       approximately $7.9 million. From June 30, 1997 until closing of the
       transaction, we provided programming and sales services under an LMA with
       the previous owner.

     - On February 1, 2000, we entered into an LMA with Smith Television of New
       York, Inc. ("STNY") to provide programming and sales services to
       WETM(TV), the NBC affiliate licensed to Elmira, New York. We also
       purchased a non-voting minority equity interest in STNY for approximately
       $17.0
                                        8
<PAGE>   10

       million. Beginning in August 2003, STNY may require us to exchange our
       interest in STNY, plus $11.0 million in cash, for all of the assets of
       WETM(TV). Under certain circumstances, we may have an option to purchase
       all or a controlling interest in STNY.

     - On February 1, 2000, we purchased substantially all of the assets, other
       than the FCC license, of WBGH-CA, a Class A low-power NBC affiliate
       licensed to Binghamton, New York for approximately $9.0 million. From
       that date until closing of the FCC license transfer, we provided
       programming and sales service under an LMA with the previous owner.

     - On June 1, 2000, we purchased substantially all of the assets and certain
       liabilities of WWTI, the ABC affiliate licensed to Watertown, New York,
       for a purchase price of approximately $6.0 million.

     - On May 9, 2000, we purchased substantially all of the assets and certain
       liabilities of Class A low power television station KKFX-CA, the FOX
       affiliate licensed to San Luis Obispo, California, for a purchase price
       of approximately $15.4 million.

     - On August 1, 2000, we purchased the membership interests of Fisher
       Broadcasting of Fresno, LLC, which owned all of the assets of television
       station KGPE, a CBS affiliate licensed to Fresno, California, for a
       purchase price of approximately $60.0 million.

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

     During 2000, local spot or schedule advertising, which is sold by our
personnel at each broadcast station, accounted for approximately 44% of our
television stations' total revenue. National spot or schedule advertising, which
is sold primarily through national sales representative firms on a
commission-only basis, accounted for approximately 48% of our television
stations' total revenue.

     In certain cases, we also receive revenue from our network affiliations.
The networks pay us an hourly rate that is tied to the number of network
programs that our television stations broadcast. Hourly rates are established in
our agreements with the networks and are subject to change by the networks. We
have the right, however, to terminate a network agreement if the network effects
a decrease in hourly rates. Overall, network compensation revenue was not a
significant portion of our television stations' total revenue for 2000.

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

     Maintenance of our competitive positions in our broadcast markets generally
depends upon the management experience of each station's managers, the station's
authorized broadcasting power, the station's assigned frequency, the station's
network affiliation, the station's access to non-network programming, the
audience's identification with the station and its acceptance of the station's
programming, and the strength of the local competition.

     In addition, our television stations compete for both audience and
advertising with cable television and other news and entertainment media serving
the same markets. Cable television systems, which operate generally on a
subscriber-payment basis, compete by carrying television signals from outside
the broadcast market and by distributing programming originated exclusively for
cable systems. Historically, cable operators have not competed with local
broadcast stations for a share of the local news audience. If they do, however,
the increased competition for local news audiences could have an adverse effect
on our advertising revenue.

                                        9
<PAGE>   11

     We also face competition from high-powered direct broadcast satellite
services which transmit programming directly to homes equipped with special
receiving antennas or to cable television systems for transmission to their
subscribers. In addition, our television stations compete with other forms of
home entertainment, such as home videotape and video disc players. Moreover, the
television industry is continually faced with technological change and
innovation, the possible rise in popularity of competing entertainment and
communications media, and changes in labor conditions and government
regulations.

     We believe that the advertising revenues generated by our television
stations are significantly influenced by rankings of their local news programs
in their respective markets. Of the sixteen network-affiliated television
stations we currently own or program, ten rank first or second in their
respective geographic markets in local news ratings points delivered, according
to the November 2000 Nielsen Station Index.

RADIO BROADCASTING

     Our radio broadcasting operations involve the sale of air time to a broad
range of national, regional, and local advertisers. In addition, we earn revenue
from the sale of sponsorships to a variety of events, such as concerts. We own
and operate four radio stations and provide sales and other services to a fifth
radio station in the Seattle-Tacoma area.

     Industry Overview. Radio stations in the United States operate either on
the "amplitude modulation" ("AM") band, comprising 107 different frequencies
located between 540 and 1700 kilohertz ("KHz") in the low frequency band of the
electromagnetic spectrum, or the "frequency modulation" ("FM") band, comprising
approximately 100 different frequencies located between 88 and 108 megahertz
("MHz") in the very high frequency band of the electromagnetic spectrum. FM
radio stations have captured a high percentage of the listening audience, in
part because of the public's perception that stereo broadcasting, which until
recently was only available on FM radio stations, provides enhanced sound
quality.

     Our radio stations derive most of their revenue from local, regional, and
national advertising and, to a lesser extent, from network compensation. In
2000, approximately 67% of our radio broadcasting revenue was derived from local
advertising generated by the stations' local sales staffs. National sales, on
the other hand, are usually generated by national independent sales
representatives acting as agents for the stations. The representatives obtain
advertising from national advertising agencies and receive commissions based on
a percentage of gross advertising revenue generated. The principal costs
incurred in the operation of radio stations are salaries, programming, promotion
and advertising, sports broadcasting rights fees, rental of premises for
studios, costs of transmitting equipment, and music license royalty fees.

     Operations. We own four radio stations, which consist of KHHO(AM) in
Tacoma, Washington and KJR(AM), KBTB(FM) and KUBE(FM) in Seattle, Washington. We
also provide sales and other services to KFNK(FM) in Eatonville, Washington.

                                        10
<PAGE>   12

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

<TABLE>
<CAPTION>
                                                                         NO. OF
                                                                       COMMERCIAL      RADIO STATION FORMAT AND
                                                      MSA MARKET     RADIO STATIONS      PRIMARY DEMOGRAPHIC
    MARKET       CALL LETTERS      DATE ACQUIRED       RANK(1)        IN MARKET(1)              TARGET
    ------       ------------    -----------------  --------------   --------------    ------------------------
<S>              <C>             <C>                <C>              <C>               <C>
Seattle-Tacoma,   KJR(AM)           May 1984(2)           14             11 AM            Sports Talk; Men
Washington.....                                                                               25-54(3)
                  KBTB(FM)        October 1987(2)                        19 FM         Rhythmic Oldies Women
                                                                                               25-54
                  KUBE(FM)         July 1994(4)                                        Rhythmic Contemporary
                                                                                        Hits; Persons 18-34
                  KHHO(AM)          March 1998                                              Sports Talk;
                                                                                             Men 24-54
                  KFNK(FM)       September 1999(5)                                          Alternative;
                                                                                             Men 18-24
</TABLE>

---------------
(1) Source: Fall 2000 Arbitron Radio Market Report. Metro Service Area ("MSA")
    market rank is based on population as reported upon by The Arbitron Company.

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

(3) KJR (AM) will continue as the Seattle SuperSonics' flagship radio station
    after the sale of our sports & entertainment operations through at least the
    end of the current NBA season.

(4) The date shown in the column reflects the date on which the Partnership
    acquired the station.

(5) The date shown in the column reflects the date on which we entered into an
    agreement to provide sales and other services.

     Acquisitions and Dispositions. Over the past year, we have not entered into
any transactions.

     Sales and Marketing. Most of our radio broadcasting revenue comes from the
sale of air time to local advertisers. Each station's advertising rates depend
upon, among other things, (1) the station's ability to attract audiences in its
target demographic group, and (2) the number of stations competing in the market
area. The size of a radio station's audience is measured by independent rating
service surveys.

     Much like our television broadcasting stations, the radio stations sell
local spot or schedule advertising. During 2000, such advertising accounted for
approximately 67% of the radio stations' revenue. In contrast, approximately 27%
of the radio stations' 2000 revenue was received from national spot or schedule
advertising, which is sold primarily through national sales representative firms
on a commission-only basis. The remaining revenue consisted of tower rentals and
production fees.

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

     A radio station's ability to maintain its competitive position in a market
is dependent upon a number of factors, including (1) the station's rank within
the market, (2) transmitter power, (3) assigned frequency, (4) audience
characteristics, (5) audience acceptance of the station's local programming, and
(6) the number and types of other stations in the market area.

     Radio stations frequently change their broadcasting formats and radio
personalities in order to seize a larger percentage of the market. Thus, our
radio stations' ratings are regularly affected by changing formats.

                                        11
<PAGE>   13

TELEVISION AND RADIO BROADCASTING REGULATION

     General. Our television and radio operations are heavily regulated under
the Communications Act of 1934 and other federal laws. The Communications Act,
for instance, limits the number of broadcast properties that we may acquire and
operate. It also restricts ownership of broadcasting properties by foreign
individuals and foreign companies.

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

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

     Ownership. FCC rules limit the number and type of broadcasting properties
that we may own in the same geographic market. Thus, in a particular geographic
market, we cannot own the following combinations: more than one television
station (with certain exceptions); a cable system and a television station; or a
radio station and a daily newspaper. In addition, there are limitations which
vary according to the size of the market, on the number of radio stations that
we may own in a market.

     In addition, the Communications Act and FCC rules prohibit aliens from
owning of record or voting more than one-fifth of the capital stock of a
corporation holding a radio or television station license or more than
one-fourth of the capital stock of a corporation holding the stock of a
broadcast licensee. Our Bylaws provide that none of our shares of capital stock
may be issued or transferred to any person where such issuance or transfer will
result in a violation of the Communications Act or any regulations promulgated
thereunder, and that any purported transfer in violation of those restrictions
is void.

     Local Marketing Agreements. Prior to November 16, 1999, FCC rules
prohibited the common ownership of two television stations in a single market.
Under rules effective November 16, 1999, common ownership of two television
stations (commonly known as a duopoly) in one market became permissible in
certain limited circumstances. The new rules also permit a television station
owner to program up to 15% of the weekly broadcast hours of another station in
the same market pursuant to agreements known as time brokerage agreements or
local marketing agreements ("LMAs"), provided that the licensee of the other
station maintains ultimate control and responsibility for the programming and
operations of the station and compliance with applicable FCC rules and policies.
Currently there are no television duopolies in any of our markets.

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

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

     If a broadcaster chooses must-carry rights, then the cable operator will
probably will be required to carry the local broadcaster's signal. Must-carry
rights are not absolute, however, and their exercise depends on

                                        12
<PAGE>   14

variables such as the number of activated channels on, and the location and size
of, the cable system, and the amount of duplicative programming on the broadcast
station which duplicates the programming of another broadcast station with
must-carry rights.

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

     All of the television stations that we own or program have, in the majority
of cases, chosen retransmission consent rights, rather than must-carry rights,
within their respective markets.

     Digital Television. The Telecommunications Act requires the FCC to oversee
the transition from current analog television broadcasting to Digital Television
("DTV") broadcasting. During the transition period, the FCC will issue one
digital broadcast license to each existing television licensee that files a
license application. Network affiliates in larger broadcast markets were
required to begin DTV broadcasts during 1999. Our stations are required to
complete construction of their digital transmission facilities by May 1, 2002.
We currently estimate the cost to convert to DTV will be approximately $6 to $10
million. All of the full power television stations that we own or program have
received construction permits from the FCC for their DTV facilities. The
stations will then be allowed to broadcast two signals using two channels, one
digital and one analog, during the transition period, which will extend until
December 31, 2006. At the end of the transition period, broadcasters will be
required to choose whether they will continue broadcasting on the digital or the
analog channel, and to return the other channel to the FCC.

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

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

     - impose spectrum use or other fees upon broadcasters;

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

     - restrict or prohibit broadcast advertising of alcoholic beverages;

     - change broadcast technical requirements; and

     - expand the operating hours of daytime-only stations.

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

     Low Power FM. The FCC has adopted rules creating a new, low power FM (LPFM)
radio service, which may create new competition in the radio industry. The new
LPFM service is limited to non-commercial operation. The LPFM service will
consist of two classes of LPFM radio stations with maximum power levels of 10
watts and 100 watts. The 10 watt stations will reach an area with a radius of
between one and two miles; the 100 watt stations will reach an area with a
radius of approximately three and a half miles. These LPFM stations will operate
throughout the FM band. There can be no assurance that the development and
introduction of LPFM service will not have an adverse effect on the radio
broadcast industry.

     Digital Audio Broadcasting. The radio broadcasting industry is subject to
competition from new media technologies that are being developed or introduced,
including the delivery of audio programming by digital

                                        13
<PAGE>   15

audio broadcasting ("DAB"). The FCC has issued licenses for two companies to
provide DAB service by satellite which will deliver multiple new audio
programming formats to local and national audiences. This new capability will
provide an additional source of competition in our markets. Historically, the
radio broadcasting industry has grown in terms of total revenues despite the
introduction of new technologies for the delivery of entertainment and
information, such as television broadcasting, cable television, audio tapes and
compact disks. There can be no assurance, however, that the development or
introduction in the future of any new media technology will not have an adverse
effect on the radio broadcast industry. We are unable to predict the effect such
technologies will have on our broadcasting operations.

     Equal Employment Opportunity Rules. On January 20, 2000, the FCC adopted
new Equal Employment Opportunity ("EEO") rules in response to the D.C. Circuit
Court of Appeals decision in 1998 in Lutheran Church Missouri Synod v.
FCC(Lutheran Church), which held that certain aspects of the FCC's previous
broadcast EEO outreach requirements were unconstitutional. On January 16, 2001,
the Appeals Court found certain of these rules unlawful. On January 31, 2001,
the FCC suspended its EEO Rules. The FCC has petitioned the court for a
rehearing.

     Satellite Home Viewer Improvements Act. The Satellite Home Viewer
Improvement Act of 1999 ("SHVIA"), signed into law on November 29, 1999, permits
satellite companies to provide local broadcast TV signals to all subscribers who
reside in a particular DMA. This ability to provide local broadcast channels is
commonly referred to as "local into local" service. The SHVIA also permits
satellite companies to provide "distant" network broadcast stations to eligible
satellite subscribers. A distant network signal is a signal from a market other
than the local market. To be eligible to receive a distant network signal, a
television viewing household must be an unserved household unable to receive a
local network signal, as determined pursuant to criteria established by the FCC.
The SHVIA generally seeks to place satellite carriers on an equal footing with
local cable television operators when it comes to the availability of broadcast
programming, and thus gives consumers more and better choices in selecting a
multichannel video program distributor (MVPD), such as cable or satellite
service. Local-into-local service is not available in any of our television
markets, however, and distant network signals are generally available only to a
limited number of unserved television households which cannot receive our
broadcast television signal using a conventional rooftop antenna. There can be
no assurance that satellite delivered television programming will not have an
adverse effect on our broadcasting operations.

     Low Power Television Stations. The Community Broadcasters Protection Act
was signed into law on November 29, 1999. This law gives many low power
television ("LPTV") stations the opportunity to achieve primary status.
Presently, LPTV stations are secondary, meaning that they are not protected from
interference from full power stations and are subject to being displaced by
applications to construct new or to modify existing full power stations. LPTV
stations that qualify will now be entitled to receive protection from all other
stations in their service area. This class of low power stations will now be
known as "Class A". Our stations KKFX and WBGH are Class A stations. There can
be no assurance that the development and introduction of a new class of low
power stations will not have an adverse effect on the broadcasting operations of
our full-power stations.

     Purchase and Sale Transactions. The FCC must approve applications to
transfer or assign control of a broadcast license. In connection with the
application to acquire a broadcasting license, the FCC considers factors
generally similar to those discussed under "Renewal of Broadcasting Licenses"
below. In addition, the filing by third parties of petitions to deny, informal
objections or comments to a proposed transaction can result in significant
delays to, as well as denial of, FCC action on a particular application.

     Renewal of Broadcasting Licenses. Our broadcasting operations' success
depends upon our ability to renew our broadcasting licenses, and the ability of
the station owners to renew the licenses for the stations we operate under LMAs.
Television and radio licenses (including renewals) currently are issued for
terms of eight years.

     In considering whether to renew a license, the FCC considers several
factors, including the licensee's compliance with the FCC's children's
television rules, the FCC's equal employment opportunity rules, and the FCC's
radio frequency rules. The FCC also considers the Communications Act's
limitations on license
                                        14
<PAGE>   16

ownership by foreign individuals and foreign companies, and rules limiting
common ownership of broadcast, cable and newspaper properties. The FCC also
considers the licensee's general character, including the character of persons
holding interests in the licensee. In addition, the FCC considers complaints
from the public concerning the license holder, and applications from third
parties to acquire an existing license.

     The FCC usually renews a license holder's broadcasting license. Because the
FCC may not grant renewal, however, we have no assurance that any of our
broadcasting licenses will be renewed, especially if third parties challenge our
renewal applications or file competing applications to acquire our licenses.

     None of our primary broadcasting licenses, or broadcasting licenses owned
by the owners of television stations we program under LMAs, are subject to
renewal within the next two years. There are no pending challenges or competing
applications with respect to any of our broadcasting licenses.

INTERACTIVE MEDIA

     We believe our interactive media operations currently provide more in-depth
local news and information than any other Web site covering the markets of
Bakersfield, California, and Rochester, New York. Our operations, known as the
iKnow Network(TM), combines the live, multimedia aspects of television and radio
with the depth of news and community information of newspapers. We believe this
philosophy of independent partner-built Web sites will make the iKnow Network a
powerful source for local news and information as well as creating a platform
that maximizes the Internet's potential as a unique media outlet.

INDUSTRY OVERVIEW

     Due to changes in traditional media over the past five years, broadcasters
and publishers have struggled with how to stake a profitable claim in the
Internet territory. At the heart of this struggle is the conflict between
tradition and the new media model required to succeed on the Internet.

     "Getting onto the Internet," has been a common battle cry as traditional
media companies have moved en-masse to mirror their broadcast and print formats
on-line. This strategy has been marginally successful as revealed in a June 2000
study by the Pew Research Center for the People and the Press. This study
concluded that more that 30% of Internet users go on-line weekly to receive
their news, and about half of those users frequent the Internet on a daily basis
for their news and information needs. While these statistics are promising,
traditional media companies have been largely unsuccessful in attracting the
lion's share of the Internet audience.

     The Internet news and information experience is unlike its more traditional
counterparts. Unlimited, on-demand, 24 X 7 multimedia content is rapidly
becoming the experience most users expect. Surprisingly, local newspapers and
city guides are achieving greater success than television station Web sites,
according to a recent Frank Magid Associates (FMA) study. The study reveals that
local broadcast Web sites have fewer users, raise less money and devote fewer
employees to running these sites than their print-based counterparts.

     Online media is one of the most challenging areas for Internet ventures and
content based Web sites have encountered some difficulty because they have had
to invest in original content and spend large sums of money on marketing to
attract national audiences. Also, startups must overcome the unwillingness of
consumers to pay for Web content and therefore must become profitable through
the sale of advertising on their Web sites.

     Despite the growth of local site competition, out-of-market competitors
lack a significant advantage owned by every local TV station, radio station or
newspaper -- the intimate knowledge of the marketplace. The strength of the
iKnow Network strategy rests in its local partnership model. By combining the
news and information reporting resources of the local iKnow Network partners, we
believe that we create a distinct advantage over other Web sites. The iKnow
Network's existing ad sales, editorial and promotional staff have first-hand
knowledge of the community and possess established relationships at the local
market level which we believe increases the potential for success.

                                        15
<PAGE>   17

     Operations. Through separate joint venture arrangements with local media
partners, we manage the iKnow Network operations in the markets of Bakersfield,
California, and Rochester, New York.

<TABLE>
<CAPTION>
             MARKET                          URL                LAUNCH DATE     DMA
             ------                ------------------------    -------------    ---
<S>                                <C>                         <C>              <C>
Rochester, NY....................  www.iKnowRochester.com      March 1997(1)    77
Bakersfield, CA..................  www.iKnowBakersfield.com    November 2000    130
</TABLE>

---------------
(1) Originally launched as RochesterToday.com, relaunched in March 2001 as
    iKnowRochester.com.

     Sales and Marketing. We sell advertising through banner ads, classified
ads, business directory subscriptions, and Web sponsorships directly to local
businesses.

     Competition. We compete directly with other local web sites and indirectly
with other types of advertising media companies, including television,
newspapers, magazines, outdoor advertising, transit advertising, yellow page
directories, direct mail, local cable systems, and satellite broadcasting
systems. As a general matter, competition is confined to defined geographic
markets.

SPORTS & ENTERTAINMENT

     On December 8, 2000, the Company executed a letter of intent to sell
substantially all of the assets of its sports & entertainment operations to The
Basketball Club of Seattle LLC for approximately $200.0 million in cash and the
assumption of certain liabilities. These operations consist principally of the
Seattle SuperSonics National Basketball Association franchise, operating rights
to the Seattle Storm, a Woman's National Basketball Association franchise, and
Full House Sports & Entertainment, the Company's sports marketing business. A
definitive purchase agreement was signed on January 11, 2001 and the transaction
is expected to close by April 15, 2001. We expect to recognize a pre-tax gain on
the transaction of between approximately $150.0 million and $160.0 million. If
the closing is delayed beyond April 15, 2001, the actual gain may differ
materially from this estimate.

     In addition, the Company is seeking to sell separately its Boeing 727
aircraft used by the Seattle Supersonics for transportation to and from away
games. The sale of the aircraft is anticipated to be for cash or a combination
of cash and assumption of debt associated with the aircraft and is anticipated
to be completed by approximately the end of the second quarter of 2001. There is
no assurance, however, that a sale of the aircraft will occur within this
timeframe.

EMPLOYEES

     As of December 31, 2000, we employed 1,735 full-time persons. The following
table sets forth a breakdown of employment in each of our operating segments and
our corporate offices for that date:

<TABLE>
<CAPTION>
         OPERATING SEGMENT/CORPORATE OFFICE            PERSONS EMPLOYED
         ----------------------------------            ----------------
<S>                                                    <C>
Outdoor Media........................................         272
Television Broadcasting..............................       1,165
Radio Broadcasting...................................         106
Interactive Media....................................          13
Sports & Entertainment(1)............................          98
Corporate Offices....................................          81
</TABLE>

---------------
(1) On January 11, 2001 we entered into an agreement to sell our sports &
    entertainment business, which is now reported for financial purposes as
    "discontinued operations."

     Approximately 393 of our employees are represented by unions under 16
collective bargaining agreements. Collective bargaining agreements covering
approximately 1% of our employees are terminable during 2001. We believe that
these collective bargaining agreements will be renegotiated or automatically
extended and that any renegotiation will not materially adversely affect our
operations.

                                        16
<PAGE>   18

RESTRICTIONS ON OUR OPERATIONS

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

     Our operations are subject to restrictions imposed by (1) a credit
agreement with various lending banks, dated January 22, 1999, as amended (the
"1999 Credit Agreement"), and (2) an indenture (the "Indenture"), dated December
14, 1998, respecting our 9% Senior Subordinated Notes due 2009 (the "9% Senior
Subordinated Notes"). Some of those provisions restrict our ability to:

     - apply cash flow in excess of certain levels or proceeds from our sale of
       capital stock, debt securities or certain asset dispositions;

     - incur additional indebtedness;

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

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

     - enter into sale and leaseback transactions;

     - incur or permit to exist certain liens;

     - sell assets;

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

     - in the case of our subsidiaries (other than unrestricted subsidiaries),
       create or permit to exist dividend or payment restrictions with respect
       to The Ackerley Group, Inc.;

     - engage in transactions with affiliates;

     - enter into new lines of business; and

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

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

     The 1999 Credit Agreement also requires, subject to certain exceptions,
that we apply 50% of the net cash proceeds (as defined in the 1999 Credit
Agreement) received by us from the sale of our capital stock, 100% of the net
cash proceeds received by us from the sale of our debt securities, 100% of the
net cash proceeds received by us from certain asset dispositions, and, under
certain circumstances, up to 50% of our excess cash flow (as defined in the 1999
Credit Agreement) to repay borrowings under the 1999 Credit Agreement. It
further provides that the amount of borrowings available under the 1999 Credit
Agreement will be permanently reduced by the amount of such repayments.

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

                                        17
<PAGE>   19

     Additional information concerning the 1999 Credit Agreement and the
Indenture is set forth in Note 8 to the Consolidated Financial Statements.

FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS

     Financial information concerning each of our business segments is set forth
in Note 16 to the Consolidated Financial Statements.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

     The following risk factors and other information included in this report
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business,
financial condition, and operating results could be materially adversely
affected.

     - Our television broadcasting segment typically enjoys significant revenues
       from political advertising in even numbered years. In 2000, we received
       over $12 million of revenue from political advertising that may not be
       replaced by other advertising categories in 2001. Our liquidity may be
       impacted negatively to the extent such political revenue is not replaced
       by other advertising categories in 2001.

     - National advertising may decrease as a result of the slowing national
       economy. Our liquidity may be impacted negatively depending on the
       magnitude of this trend, its duration, and our ability to offset
       decreased national sales with increased local sales.

     - We enjoyed a significant increase in revenues from the dot-com
       advertising category in 2000, primarily in our outdoor media segment.
       However, thus far in 2001 we are seeing a decline in revenue from this
       sector compared to 2000 levels. If this trend continues throughout 2001,
       our liquidity may be impacted negatively to the extent we are unable to
       offset such a decline by increasing revenue from other advertising
       categories.

     - As more fully described below, and in Note 4 to the Consolidated
       Financial Statements, we have entered into an agreement to sell our
       sports & entertainment operations. We are incurring losses from our
       sports & entertainment operations which will continue until the
       transaction closes. We expect the transaction will close by April 15,
       2001. However, should the closing be delayed we would incur greater
       losses which would negatively impact our liquidity. In addition, we would
       be required to obtain waivers of compliance with certain covenants of our
       1999 Credit Agreement and might need to seek additional sources of
       financing.

LEVERAGE; RESTRICTIONS UNDER DEBT INSTRUMENTS; COVENANT COMPLIANCE

     Financial Leverage. As of March 1, 2001, we had approximately $415.1
million of outstanding indebtedness. We may continue to acquire additional
outdoor media and television and radio broadcasting businesses, subject to the
availability of required financing. We may assume the indebtedness of businesses
that we acquire. We may also make acquisitions or capital expenditures that are
financed with the proceeds from borrowings. As a result of such acquisitions,
our outstanding indebtedness and interest expense will increase, perhaps
substantially. Likewise, further acquisitions will likely increase our
depreciation and amortization expenses, perhaps substantially.

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

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

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

                                        18
<PAGE>   20

     - EBITDA (defined as net revenue less operating and restructuring expenses
       before amortization, depreciation, interest, net gain on dispositions of
       assets, litigation, stock compensation expenses, and equity in losses of
       affiliates) available for purposes other than payment of principal and
       interest on indebtedness may be reduced;

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

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

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

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

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

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

     Restrictions Imposed by Debt Instruments. We are subject to a number of
significant operating and financial restrictions and are required to maintain
specified financial ratios, which restrict our operations. See "-- Restrictions
on Our Operations." Our ability to comply with such covenants and financial
ratios may be affected by events beyond our control.

     Covenant Compliance. In the past, we have from time to time obtained
amendments or waivers to certain provisions of our debt instruments, including
the 1999 Credit Agreement, in order to remain in compliance with the financial
covenants thereunder. We are currently operating under waivers to compliance
with certain covenants, including our leverage ratio, senior leverage ratio,
interest coverage ratio, and fixed charge coverage ratio. There can be no
assurance that we will not be required to seek additional waivers or amendments
under our debt instruments in the future. Specifically, we will be required to
seek additional waivers if the pending sale of our sports & entertainment
operations does not close by April 15, 2001. Any failure to obtain a necessary
amendment or waiver could result in a default under the relevant debt
instrument. A default by us under our senior debt instruments could result in an
acceleration of indebtedness under the senior debt instruments and other loan
documents. If the indebtedness under any of these debt instruments were
accelerated, there can be no assurance that we would be able to repay such
indebtedness.

REGULATION OF OUTDOOR ADVERTISING

     Outdoor advertising displays are subject to governmental regulation at the
federal, state, and local levels. These regulations, in some cases, limit the
height, size, location, and operation of outdoor displays and, in some
circumstances, regulate the content of the advertising copy displayed on outdoor
displays. Changes in laws and regulations affecting outdoor advertising at any
level of government may have a material adverse effect on our business,
financial condition, or results of operations. See "-- Outdoor Media -- Outdoor
Advertising -- Regulation."

TELEVISION AND RADIO BROADCASTING

     Government Regulation of Broadcasting Industry. Pursuant to the
Communications Act, the domestic broadcasting industry is subject to extensive
federal regulation. In addition, our television station, KVOS, which is located
in Bellingham, Washington and broadcasts into Vancouver, British Columbia, is
regulated and affected by Canadian law. The restrictions and obligations imposed
by these laws and regulations, including their amendment, interpretation, or
enforcement, could have a material adverse effect on our business, financial
condition, or results of operations. See "-- Television and Radio Broadcasting
Regulation."
                                        19
<PAGE>   21

     Renewal of Broadcasting Licenses. Our business will continue to be
dependent upon acquiring and maintaining broadcasting licenses issued by the
FCC. Such licenses are currently issued for a term of eight years. Historically,
we have been able to renew our broadcast licenses on a regular basis. However,
we cannot guarantee that pending or future applications to acquire or renew
broadcasting licenses will be approved, or will not include conditions or
qualifications adversely affecting our operations, any of which could have a
material adverse effect on us. Moreover, governmental regulations and policies
may change over time and we cannot guarantee that such changes would not have a
material adverse impact on our business, financial condition, or results of
operations. See "-- Television and Radio Broadcasting Regulation -- Renewal of
Broadcasting Licenses."

     Approval of Purchase and Sale Transactions. In connection with purchase and
sales transactions, we are required to seek FCC approval. We cannot guarantee
that the FCC will approve our applications. Failure to obtain FCC approval to
transfer broadcasting licenses in connection with such transactions could
adversely affect our business, financial condition, or results of operations.
See "-- Television and Radio Broadcasting Regulation -- Purchase and Sale
Transactions."

     KJR (AM) Transmission Facilities. One of our radio stations, KJR(AM), is
currently licensed to broadcast from transmission facilities located on property
leased from the Port of Seattle, currently on a month-to-month basis. In March
2001, the facilities were damaged during an earthquake. We had previously
planned to transfer operations of KJR(AM) from the Port of Seattle location to a
newly constructed tower in Tacoma, Washington. In March 2001, the FCC granted
our application for special temporary authority to operate from our new site.
See "Item 2 -- Properties." We subsequently filed an application with the FCC to
permanently license KJR's new facilities in March 2001. While we expect that
such application will be granted by the FCC, there can be no assurance that the
FCC will grant our application.

COMPETITION

     Our four business segments are in highly competitive industries. Our
broadcasting and outdoor media businesses compete for audiences and advertising
revenue with other broadcasting stations and outdoor media advertising
companies, as well as with other media forms. Such other media forms may include
newspapers, magazines, transit advertising, yellow page directories, direct
mail, local cable systems, satellite broadcasting systems and other local Web
sites. Audience ratings and market shares are subject to many variables. Any
change, and any adverse change in a particular market, could have a material
adverse effect on our business, financial condition, or results of operations.
Changes which could have an adverse effect on us include economic conditions,
both general and local; shifts in population and other demographics; the level
of competition for advertising dollars; a station's market rank; broadcasting
power, assigned frequency, network affiliation, and audience identification;
fluctuations in operating costs; technological changes and innovations; changes
in labor conditions; and changes in governmental regulations and policies and
actions of federal regulatory bodies. There can be no assurance that we will be
able to maintain or increase our current audience ratings and advertising
revenue. In this respect, the entrance of a new television station in the
Vancouver, British Columbia market in October 1997 has adversely affected the
financial performance of our television station in Bellingham, Washington
(KVOS).

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

     The interactive media segment is also highly competitive. There do not
exist significant barriers to entry for interactive media companies. We focus
our interactive media operations primarily on the local television markets that
we serve. We do not presently experience significant competition from other
interactive media companies that operate on an international or national level.
There can be no assurance that this competitive situation will not change in the
future.

                                        20
<PAGE>   22

DEPENDENCE ON MANAGEMENT

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

VOTING CONTROL BY PRINCIPAL STOCKHOLDER

     Each share of Common Stock has one vote per share and each share of Class B
Common Stock has ten votes per share. As of March 1, 2001, Barry A. Ackerley,
our Chairman of the Board and Chief Executive Officer, beneficially owned
approximately 38% of the outstanding shares of Common Stock and approximately
99% of the outstanding shares of Class B Common Stock, giving him approximately
88% of the combined voting power of our voting securities. See "Item
12 -- Security Ownership of Certain Beneficial Owners and Management."

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

RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF COMMON STOCK

     Our Bylaws contain certain restrictions on the transfer of our capital
stock in order to comply with the prohibitions on foreign ownership of radio and
television stations contained in the Communications Act of 1934 and FCC rules.
See "-- Television and Radio Broadcasting Regulation -- Ownership." These
restrictions in our Bylaws, as well as certain related provisions in our
Certificate of Incorporation, may adversely affect the ability of investors to
acquire, hold, or otherwise transfer our Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

     As of March 1, 2001, 9,136,369 shares of Common Stock and 16,003,856 shares
of Class B Common Stock were held by officers and directors who are considered
to be our "affiliates" for purposes of Rule 144 under the Securities Act. As
noted above, each share of Class B Common Stock is convertible by the holder at
any time into one share of Common Stock. Our affiliates may sell these shares in
the public market subject to the volume and other limitations (other than the
holding Period limitations, which have been satisfied) of Rule 144 under the
Securities Act. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price of the Common Stock from time to time. Sales of substantial amounts
of Common Stock in the public market (including Common Stock issued upon
conversion of Class B Common Stock), or the perception that such sales could
occur, could have a material adverse effect on prevailing market prices for the
Common Stock.

ITEM 2 -- PROPERTIES

     Our principal executive offices are located at 1301 Fifth Avenue, Suite
4000, Seattle, Washington 98101. We lease the offices, which consist of
approximately 16,800 square feet, pursuant to a lease that expires in 2006.

                                        21
<PAGE>   23

     The following table sets forth certain information regarding our facilities
as of December 31, 2000:

<TABLE>
<CAPTION>
                                                                     APPROXIMATE
                                                                    SQUARE FOOTAGE   APPROXIMATE SQUARE
                  LOCATION                     NATURE OF FACILITY       OWNED          FOOTAGE LEASED
                  --------                     ------------------   --------------   ------------------
<S>                                            <C>                  <C>              <C>
OUTDOOR MEDIA
  Seattle, Washington (Outdoor
     Advertising)............................        Plant              24,966              1,185
  Portland, Oregon (Outdoor Advertising).....        Plant              10,923                570
  Boston, Massachusetts (Outdoor
     Advertising)............................        Plant              31,882              3,825
TELEVISION BROADCASTING
  Syracuse, New York (WIXT)..................  Station Operations       40,000                 --
  Rochester, New York (WOKR).................  Station Operations       35,427                 --
  Binghamton, New York (WIVT, WBGH)..........  Station Operations       10,819                 --
  Utica, New York (WUTR).....................  Station Operations       12,148                 --
  Watertown, New York (WWTI).................  Station Operations           --             10,000
  Elmira, New York (WETM)(1).................  Station Operations       20,606                 --
  Santa Barbara -- Santa Maria -- San Luis
     Obispo, California (KCOY, KKFX).........  Station Operations       13,000                 --
  Salinas -- Monterey, California (KCBA(1),
     KION)...................................  Station Operations       47,841                 --
  Bakersfield, California (KGET).............  Station Operations       30,450                 --
  Fresno, California (KGPE)..................  Station Operations        6,500                 --
  Eugene, Oregon (KMTR)......................  Station Operations        9,230              3,000
  Eureka, California (KVIQ)..................  Station Operations       10,162              1,200
  Santa Rosa, California (KFTY)..............  Station Operations       13,000                 --
  Bellingham, Washington (KVOS)..............  Station Operations       13,130             11,889
  Fairbanks, Alaska (KTVF)...................  Station Operations           --             10,732
RADIO BROADCASTING
  Seattle, Washington (KJR(AM), KBTB(FM),
     KUBE(FM))...............................  Station Operations           --             42,816
  Tacoma, Washington (KHHO(AM))..............  Station Operations           --              2,075
INTERACTIVE MEDIA(2).........................          --                   --                 --
SPORTS & ENTERTAINMENT(3)
  Seattle, Washington........................  Office & Operating       30,000             27,246
                                                   Facilities
OTHER
  Seattle, Washington (Corporate Offices)....       Offices                 --             16,814
  National Sales Offices in New York, Los
     Angeles, Chicago, and San Francisco.....       Offices                 --              9,164
</TABLE>

---------------
(1) As of December 31, 2000, we programmed these stations under LMAs.
    Accordingly, this table reflects data for the properties which are owned or
    leased by the station owners for whom we program the stations.

(2) Our interactive media operations utilizes equipment within our existing
    facilities and currently do not have separate designated facilities.

(3) On January 11, 2001, we entered into an agreement to sell our sports &
    entertainment operations.

     In general, we believe that our facilities are adequate for our present
business and that additional space is generally available for expansion without
significant delay. In 2000, we paid aggregate annual rentals on office space and
operating facilities of approximately $5.7 million.

     KJR(AM) is licensed to broadcast from transmission facilities located on
property leased from the Port of Seattle, currently on a month-to-month basis.
In March 2001, the facilities at the Port of Seattle were damaged during an
earthquake. We had previously planned to transfer operation of KJR(AM) from the
Port

                                        22
<PAGE>   24

of Seattle location to a newly constructed tower in Tacoma, Washington. On May
5, 1998 the FCC issued a construction permit granting us authority to construct
the new transmission facilities. Construction of the new site was substantially
completed in February 2000, and testing of the facilities was substantially
completed in February 2001. In March 2001, the FCC granted our application for
special temporary authority to operate from our new site. We subsequently filed
an application with the FCC to permanently license KJR's new facilities in March
2001.

     At December 31, 2000, we owned 203 vehicles and leased 200 vehicles of
various types for use in our operations. We own a variety of broadcast-related
equipment, including broadcast towers, transmitters, generators, microwave
systems and audio and video equipment used in our broadcasting business. We
presently lease, under private carrier agreements, a Gulfstream jet and a Lear
jet. The Gulfstream jet is used for executive travel between our facilities and
we are currently in the process of disposing of the Lear jet. We also lease a
high definition mobile television broadcasting unit which is used to provide
broadcast and production services for our television stations and outside
parties. Finally, we own a Boeing 727 jet that we use for travel involving the
Seattle SuperSonics. However, in conjunction with the sale of our sports &
entertainment operations, as discussed in Note 4 to the Consolidated Financial
Statements, we are currently seeking to sell this asset.

     We believe that all of our buildings and equipment are adequately insured
in accordance with industry practice.

ITEM 3 -- LEGAL PROCEEDINGS

     We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation and matters affecting the
operation of broadcasting facilities.

     Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales
manager for television station WIXT, Syracuse, New York filed a complaint in the
U.S. District Court for the Northern District of New York against The Ackerley
Group, Inc., WIXT and the current and former general managers of WIXT. The
complaint sought unspecified damages and injunctive relief for discrimination on
the basis of gender and disability, as well as unlawful retaliation, under both
state and federal law. In September 2000, the Court granted defendant's Motion
for Summary Judgment as to all federal claims and dismissed plaintiff's state
law claims without prejudice. Plaintiff appealed that decision to the second
Circuit, which is expected to hear argument sometime in the Spring of 2001.
Plaintiff has re-filed her state law claims in state court, but is not expected
to press those claims until the Court of Appeals rules.

     RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a
supplier of outdoor advertising in Massachusetts, filed a complaint in the U.S.
District Court for the District of Massachusetts (the "Court") alleging that we
have unlawfully monopolized the Boston-area billboard market in violation of the
Sherman Antitrust Act, engaged in unlawful restraint of trade in violation of
the Sherman Antitrust Act, and committed unfair trade practices in violation of
Massachusetts state law. The plaintiff sought in excess of $20.0 million in
damages. On May 22, 1998, the Court, in a ruling from the bench, dismissed count
2 of plaintiff's complaint, which alleged that the existence of leases between
us and landowners restricted the landowners' ability to lease that same space to
the plaintiff in violation of the Sherman Antitrust Act. On October 3, 2000, the
Court granted our motion for summary judgment on the remaining counts of the
Complaint. On October 26, 2000, RSA Media filed a Notice of Appeal with the
United States Court of Appeals for the First Circuit. Under the Scheduling Order
established by the First Circuit, substantive briefing will not commence until
later in 2001.

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

     No matters were submitted to a vote of security holders in the fourth
quarter of 2000.

                                        23
<PAGE>   25

                      EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers are:

<TABLE>
<CAPTION>
                 NAME                   AGE                    POSITION
                 ----                   ---                    --------
<S>                                     <C>   <C>
Barry A. Ackerley.....................  66    Chairman and Chief Executive Officer
Gail A. Ackerley......................  63    Co-Chairman and Co-Chief Executive Officer
Christopher H. Ackerley...............  31    Co-President
Denis M. Curley.......................  53    Co-President and Secretary
Kevin E. Hylton.......................  44    Senior Vice President, Chief Financial
                                              Officer, and Assistant Secretary
</TABLE>

     Mr. Barry A. Ackerley, one of our founders, has been the Chief Executive
Officer and a director of The Ackerley Group and its predecessor and subsidiary
companies since 1975. He currently serves as our Chairman.

     Ms. Gail A. Ackerley was elected to our Board of Directors in May 1995, and
became Co-Chairman in September 1996. She served as one of our Co-Presidents
from November 1997 to February 15, 2000. Ms. Ackerley has served as our Chairman
of Ackerley Corporate Giving since 1986, supervising our charitable activities,
and also serves as Chairman of the Seattle Storm.

     Mr. Christopher H. Ackerley was named Co-President on February 15, 2000,
with principal responsibility for overseeing our marketing, investor relations,
information technology, and technology-venture investments. He joined The
Ackerley Group in 1995, and was elected Vice President for Marketing and
Development in May 1998. He also served as Executive Vice President, Operations
and Development from December 1998 until his election as Co-President.

     Mr. Denis M. Curley, who joined us in December 1984, was elected as Chief
Operating Officer on February 15, 2000, and as one of our Co-Presidents in
November 1997. Previously, he served as Executive Vice President from March 1995
until his election as one of our Co-Presidents. Before then, he served as Senior
Vice President from January 1990 through the date of his election as Executive
Vice President. He has served as our Chief Financial Officer since May 1988. Mr.
Curley also presently serves as our Secretary and Treasurer.

     Mr. Kevin E. Hylton was named Senior Vice President and Chief Financial
Officer on June 5, 2000. Prior to joining us he served as Director of Finance
for Nordstrom, Inc. from March 1999 to April 2000. From December 1987 to July
1998, he was Vice President and Corporate Controller for Westin Hotels and
Resorts.

     Barry A. Ackerley and Gail A. Ackerley are husband and wife. Christopher H.
Ackerley is their son. There are no other family relationships among any of our
executive officers. All officers serve at the pleasure of our Board of
Directors.

                                    PART II

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

     As of March 1, 2001, 35,060,136 shares of our common stock were issued and
outstanding, of which 24,020,548 shares were Common Stock and 11,039,588 shares
were Class B Common Stock. The Common Stock was held by 509 shareholders of
record; the Class B Common Stock was held by 26 shareholders of record.

     Our Board of Directors declared a cash dividend of $.02 per share in each
of 1999 and 2000. Our Board of Directors determined not to declare a dividend in
2001. Payment of any future dividends is at the discretion of the Board of
Directors and depends on a number of conditions. Among other things, dividend
payments depend upon our results of operations and financial condition, capital
requirements and general economic conditions. The terms of our senior debt
impose certain limits upon our ability to pay dividends and make

                                        24
<PAGE>   26

other distributions. In addition, we are subject to the General Corporation Law
of Delaware, which restricts our ability to pay dividends in certain
circumstances.

COMMON STOCK

     Our Common Stock is listed and trades on the New York Stock Exchange under
the symbol "AK."

     The table below sets forth the high and low sales prices of our Common
Stock for each full quarterly period in the two most recent fiscal years
according to the New York Stock Exchange.

<TABLE>
<CAPTION>
           2000               HIGH      LOW                     1999               HIGH      LOW
           ----              ------    ------                   ----              ------    ------
<S>                          <C>       <C>           <C>                          <C>       <C>
First Quarter..............  $19.53    $12.36        First Quarter..............  $19.22    $16.47
Second Quarter.............  $15.06    $10.94        Second Quarter.............  $19.97    $16.60
Third Quarter..............  $14.13    $ 9.69        Third Quarter..............  $19.22    $11.11
Fourth Quarter.............  $11.63    $ 7.88        Fourth Quarter.............  $18.47    $11.36
</TABLE>

     On March 1, 2001, the high and low sales prices of our Common Stock,
according to the New York Stock Exchange, were $14.00 and $13.75, respectively.

CLASS B COMMON STOCK

     Our Class B Common Stock is not publicly traded. Persons owning shares of
our Class B Common Stock may trade such shares only as permitted by our
Certificate of Incorporation, which imposes restrictions on such transfer. Thus,
there is no trading market for shares of our Class B Common Stock.



                                        25
<PAGE>   27

ITEM 6 -- SELECTED FINANCIAL DATA

     The table below sets forth selected consolidated financial data regarding
our operations. The information in the table has been derived from audited
Consolidated Financial Statements.

     You should read the information in the table in conjunction with the
sections titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements (and Notes)
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                            ---------------------------------------------------------
                                                              2000           1999          1998        1997        1996
                                                            ---------      --------      --------    --------    --------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>              <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue...................................................  $ 263,305      $243,130      $235,516    $229,828    $205,049
Agency commissions and discounts..........................     38,741        35,547        34,015      32,085      29,398
                                                            ---------      --------      --------    --------    --------
Net revenue...............................................    224,564       207,583       201,501     197,743     175,651
Expenses (other income):
  Operating expenses......................................    181,644       157,065       150,911     142,089     125,137
  Restructuring expenses..................................       (178)        1,125            --          --          --
  Depreciation and amortization expense...................     39,161        26,042        14,078      13,184      14,255
  Interest expense........................................     25,795        32,959        22,792      24,209      22,514
  Net gain on dispositions of assets......................   (277,650)(1)   (28,999)(1)   (33,524)(1)      --          --
  Stock compensation expense..............................        100           559           452       9,344          --
  Equity in losses of affiliates..........................        801           174            --          --          --
  Litigation expense (adjustment).........................         --            --            --      (5,000)(2)      --
                                                            ---------      --------      --------    --------    --------
        Total expenses (other income).....................    (30,327)      188,925       154,709     183,826     161,906
                                                            ---------      --------      --------    --------    --------
Income from continuing operations before income taxes and
  extraordinary item......................................    254,891        18,658        46,792      13,917      13,745
Income tax expense (benefit)..............................     96,284         7,917        18,576     (19,168)      2,007
                                                            ---------        --------    --------    --------    --------
Income from continuing operations before extraordinary
  item....................................................    158,607        10,741        28,216      33,085      11,738
Income (loss) from discontinued operations, net of taxes
  (3).....................................................     (9,707)       (2,778)       (4,693)       (156)      4,391
                                                            ---------      --------      --------    --------    --------
Income before extraordinary item..........................    148,900         7,963        23,523      32,929      16,129
Extraordinary item -- loss on debt extinguishment, net of
  taxes...................................................         --        (1,373)       (4,346)         --        (355)
                                                            ---------      --------      --------    --------    --------
Net income applicable to common shares....................  $ 148,900      $  6,590      $ 19,177    $ 32,929    $ 15,774
                                                            =========      ========      ========    ========    ========
Per common share:
    Income from continuing operations before extraordinary
      item................................................  $    4.54      $    .33      $    .89    $   1.05    $    .38
    Discontinued operations...............................       (.28)         (.09)         (.14)         --         .14
    Extraordinary item....................................         --          (.04)         (.14)         --        (.01)
                                                            ---------      --------      --------    --------    --------
    Net income............................................  $    4.26      $    .20      $    .61    $   1.05    $    .51
                                                            =========      ========      ========    ========    ========
    Common shares used in per share computation...........     34,994        32,932        31,627      31,345      31,166
Per common share -- assuming dilution:
    Income before extraordinary item......................  $    4.52      $    .32      $    .88    $   1.04    $    .37
    Discontinued operations...............................       (.28)         (.08)         (.14)         --         .14
    Extraordinary item....................................         --          (.04)         (.14)         --        (.01)
                                                            ---------      --------      --------    --------    --------
    Net income............................................  $    4.24      $    .20      $    .60    $   1.04    $    .50
                                                            =========      ========      ========    ========    ========
    Common shares used in per share
      computation -- assuming dilution....................     35,122        33,110        31,883      31,652      31,760
Dividends.................................................  $     .02      $    .02      $    .02    $    .02    $    .02
                                                            =========      ========      ========    ========    ========
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
Working capital...........................................  $  15,108      $ 21,704      $ 15,706    $ 12,019    $ 11,154
Total assets..............................................    667,307       528,436       316,126     266,385     224,912
Total long-term debt......................................    385,439       403,761       266,999     213,294     229,350
Total debt................................................    394,671       414,593       270,100     229,424     235,141
Stockholders' equity (deficiency).........................    175,980        27,289       (25,841)    (44,909)    (83,839)
</TABLE>

---------------
(1) See Note 3 to the Consolidated Financial Statements.

(2) See Note 14 to the Consolidated Financial Statements.

(3) See Note 4 to the Consolidated Financial Statements

                                        26
<PAGE>   28

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

FORWARD-LOOKING STATEMENTS

     Statements appearing in this section, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this report,
which are not historical in nature (including the discussions of the effects of
recent acquisitions and dispositions, business transactions, and similar
information), are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. We caution our shareholders and
potential investors that any forward-looking statements or projections set forth
in this section and elsewhere in the annual report are subject to risks and
uncertainties which may cause actual results to differ materially from those
projected. After the date of this Annual Report, we will not make any public
announcements updating any forward-looking statement contained in this report.

     Important factors that could cause the results to differ materially from
those expressed in this section or elsewhere in the annual report include:

     - material adverse changes in general economic conditions, including
       changes in inflation and interest rates, changes in demand for
       advertising nationally or in the local markets that we serve, including
       cyclical aspects such as political advertising;

     - recessionary influences in the regional markets that we serve;

     - changes in laws and regulations affecting the outdoor advertising and
       television and radio broadcasting businesses, including changes in the
       FCC's treatment of local marketing agreements and related matters, and
       the possible inability to obtain FCC consent to proposed or pending
       acquisitions or dispositions of broadcasting stations;

     - competitive factors in the outdoor advertising, television broadcasting,
       radio broadcasting, and interactive media businesses;

     - expiration or non-renewal of broadcasting licenses and local marketing
       agreements;

     - labor matters, changes in labor costs, loss of key employees, including
       key broadcasting employees, renegotiation of labor contracts, and risk of
       work stoppages or strikes;

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

     - material changes to accounting standards.

OVERVIEW

     We reported net income of $148.9 million in 2000, compared to $6.6 million
in 1999. Our net income for 2000 includes a net gain on dispositions of assets
of $277.7 million and a loss from discontinued operations of $9.7 million. By
contrast, our 1999 net income includes a net gain on dispositions of assets of
$29.0 million and a loss from discontinued operations of $2.8 million. Net
revenue in 2000 increased by $17.0 million, or 8%, from 1999, and our EBITDA (as
defined below) decreased by $6.3 million, or 13%.

     During 2000, we sold our Florida outdoor advertising operations and
acquired five outdoor advertising companies. In addition, we acquired two
television stations for which we previously provided programming and sales
services under local marketing agreements, acquired four other television
stations, and entered into a local marketing agreement for an additional
station.

     In January 2001, we entered into an agreement to sell our sports &
entertainment operations pursuant to a letter of intent signed on December 8,
2000. Accordingly, our sports & entertainment operations are reflected in our
financial statements as a discontinued operation for all periods presented. This
transaction is more fully discussed in Note 4 to the Consolidated Financial
Statements.

     In the third quarter of 2000, our interactive media segment commenced
operations. Currently, this segment consists of the iKnow Network, a group of
independent local news and information portal sites created through partnerships
between our interactive media group, our local television stations, and other
local

                                        27
<PAGE>   29

media companies. At December 31, 2000, our portal sites in Bakersfield,
California and Rochester, New York were operational.

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

RESULTS OF OPERATIONS

     The following tables set forth certain historical financial and operating
data for each of the three years in the period ended December 31, 2000,
including net revenue, operating expenses, and Segment Operating Cash Flow
information by segment:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                -----------------------------------------------------------------
                                       2000                   1999                   1998
                                -------------------    -------------------    -------------------
                                            AS % OF                AS % OF                AS % OF
                                              NET                    NET                    NET
                                 AMOUNT     REVENUE     AMOUNT     REVENUE     AMOUNT     REVENUE
                                --------    -------    --------    -------    --------    -------
                                                     (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>        <C>         <C>        <C>         <C>
Net revenue...................  $224,564     100.0%    $207,583     100.0%    $201,501     100.0%
Segment operating expenses....   157,674      70.2      142,048      68.4      136,420      67.7
Corporate overhead............    23,792      10.6       16,142       7.8       14,491       7.2
                                --------               --------               --------
          Total operating
            expenses..........   181,466      80.8      158,190      76.2      150,911      74.9
                                --------               --------               --------
EBITDA........................    43,098      19.2       49,393      23.8       50,590      25.1
Other expenses and (income):
  Depreciation and
     amortization expenses....    39,161      17.4       26,042      12.5       14,078       7.0
  Interest expense............    25,795      11.5       32,959      15.9       22,792      11.3
  Net gain on dispositions of
     assets...................  (277,650)   (123.6)     (28,999)    (14.0)     (33,524)    (16.6)
  Stock compensation
     expense..................       100        --          559       0.3          452       0.2
  Equity in losses of
     affiliates...............       801       0.4          174       0.1           --        --
                                --------               --------               --------
          Total other expenses
            and (income)......  (211,793)    (94.3)      30,735      14.8        3,798       1.9
Income from continuing
  operations before income
  taxes and extraordinary
  item........................   254,891     113.5       18,658       9.0       46,792      23.2
Income tax expense............    96,284      42.9        7,917       3.8       18,576       9.2
                                --------               --------               --------
Income from continuing
  operations before
  extraordinary item..........   158,607      70.6       10,741       5.2       28,216      14.0
Loss from discontinued
  operations, net of taxes....    (9,707)     (4.3)      (2,778)     (1.4)      (4,693)     (2.3)
                                --------               --------               --------
Income before extraordinary
  item........................   148,900      66.3        7,963       3.8       23,523      11.7
Extraordinary item, net of
  taxes.......................        --        --       (1,373)     (0.6)      (4,346)     (2.2)
                                --------               --------               --------
Net income....................  $148,900      66.3     $  6,590       3.2     $ 19,177       9.5
                                ========               ========               ========
</TABLE>

                                        28
<PAGE>   30

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Net revenue:
  Outdoor media............................................  $ 89,309    $ 98,751    $108,560
  Television broadcasting..................................   107,615      81,669      68,467
  Radio broadcasting.......................................    27,589      27,163      24,474
  Interactive media........................................        51          --          --
                                                             --------    --------    --------
          Total net revenue................................  $224,564    $207,583    $201,501
                                                             ========    ========    ========
Segment operating expenses:
  Outdoor media............................................  $ 51,364    $ 56,877    $ 65,605
  Television broadcasting..................................    86,841      69,608      55,996
  Radio broadcasting.......................................    19,018      15,563      14,819
  Interactive media........................................       451          --          --
                                                             --------    --------    --------
          Total segment operating expenses.................  $157,674    $142,048    $136,420
                                                             ========    ========    ========
Segment operating cash flow and EBITDA:
  Outdoor media............................................  $ 37,945    $ 41,874    $ 42,955
  Television broadcasting..................................    20,774      12,061      12,471
  Radio broadcasting.......................................     8,571      11,600       9,655
  Interactive media........................................      (400)         --          --
                                                             --------    --------    --------
          Total Segment Operating Cash Flow................    66,890      65,535      65,081
  Corporate overhead.......................................   (23,792)    (16,142)    (14,491)
                                                             --------    --------    --------
          EBITDA...........................................  $ 43,098    $ 49,393    $ 50,590
                                                             ========    ========    ========
Change in net revenue from prior periods:
  Outdoor media............................................      (9.6)%      (9.0)%      (4.1)%
  Television broadcasting..................................      31.8        19.3         7.6
  Radio broadcasting.......................................       1.6        11.0        16.7
  Interactive media........................................        NA          NA          NA
          Change in total net revenue......................       8.2         3.0        (1.9)
Segment operating expenses as a % of net revenue:
  Outdoor media............................................      57.5%       57.6%       60.4%
  Television broadcasting..................................      80.7        85.2        81.8
  Radio broadcasting.......................................      68.9        57.3        60.5
  Interactive media........................................     884.3          --          --
          Total segment operating expenses as a % of total
            net revenue:...................................      70.2        68.4        67.7
Segment operating cash flow as a % of net revenue:
  Outdoor media............................................      42.5%       42.4%       39.6%
  Television broadcasting..................................      19.3        14.8        18.2
  Radio broadcasting.......................................      31.1        42.7        39.5
  Interactive media........................................    (784.3)         --          --
     Segment Operating Cash Flow as a % of total net
       revenue.............................................      29.8        31.6        32.3
EBITDA as a % of total net revenue.........................      19.2        23.8        25.1
</TABLE>

2000 COMPARED WITH 1999

     Net Revenue. Our 2000 net revenue was $224.6 million. This represented an
increase of $17.0 million, or 8%, compared to $207.6 million in 1999. Changes in
net revenue were as follows:

     - Outdoor Media. Net revenue from our outdoor media segment decreased by
       $9.5 million, or 10%, from 1999. This decrease was primarily due to the
       absence of our Florida outdoor advertising

                                        29
<PAGE>   31

       operations, which we sold in January 2000. Excluding our Florida outdoor
       advertising operations, net revenue from our outdoor media segment
       increased by $16.4 million, or 23%, from 1999. This increase mainly
       resulted from growth in national and local sales in the Boston and
       Northwest markets. We completed the expansion of our national sales
       organization during 1999, which contributed to our national sales growth.
       Within this segment, dot com advertising increased 148% to $12.1 million
       in 2000.

     - Television Broadcasting. Net revenue from our television broadcasting
       segment increased by $25.9 million, or 32%, from 1999. This increase was
       mainly due mainly to the addition of stations WETM, WBGH, WWTI, KGPE, and
       KKFX in 2000; stations WOKR and KTVF in 1999; and the exchange of station
       KKTV for KCOY in 1999. Excluding these transactions, net revenue from our
       television broadcasting segment increased by $5.3 million, or 9%, from
       1999. This increase was due primarily to political advertising revenue,
       which totaled approximately $12.0 million ($10.1 million excluding
       acquired stations) in 2000.

     - Radio Broadcasting. Net revenue from our radio broadcasting segment
       increased by $0.4 million, or 2%, from 1999. Revenue growth was
       negatively impacted by the format change with one of our FM stations.

     Segment Operating Expenses. Segment operating expenses (which exclude
corporate overhead) were $157.7 million. This represented an increase of $15.7
million, or 11%, compared to $142.0 million in 1999. Changes in segment
operating expenses were as follows:

     - Outdoor Media. Operating expenses from our outdoor media segment
       decreased by $5.5 million, or 10%, from 1999. This decrease was due
       primarily to the absence of our Florida outdoor advertising operations,
       which we sold in January 2000. Excluding our Florida outdoor advertising
       operations, operating expenses from our outdoor media segment increased
       by $11.7 million, or 30%, from 1999. This increase was primarily due to
       the acquisition of five outdoor media companies, higher lease costs,
       increased employment-related expenses, and increased expenses related to
       the expansion of our national sales force.

     - Television Broadcasting. Operating expenses from our television
       broadcasting segment increased by $17.2 million, or 25%, from 1999. This
       increase was due mainly to the addition of stations WETM, WBGH, WWTI,
       KGPE, and KKFX in 2000; stations WOKR and KTVF in 1999; and the exchange
       of station KKTV for KCOY in 1999. Our 1999 operating expenses included a
       restructuring charge of $1.1 million recognized in connection with our
       ongoing implementation of Digital CentralCasting. This restructuring
       charge consisted primarily of costs associated with employee staff
       reductions, contract terminations, legal, and other costs associated
       directly with the restructuring. Excluding these transactions, operating
       expenses from our television broadcasting segment increased by $2.4
       million, or 4%, from 1999. This increase was primarily due to higher
       program, promotion, and production expenses relating to the expansion of
       our local news.

     - Radio Broadcasting. Operating expenses from our radio broadcasting
       segment increased by $3.5 million, or 22%, from 1999. This increase was
       primarily due to higher expenses associated with increased sales activity
       and the expense associated with the previously noted format change with
       one of our FM stations.

     Corporate Overhead Expenses. Our corporate overhead expenses were $23.8
million in 2000. This represented an increase of $7.7 million, or 47%, from
1999. Approximately $3.3 million of this increase was due to costs associated
with the celebration of our 25th anniversary and the operating and estimated
disposal costs of a company aircraft. The remainder of the increase was due
primarily to increased travel costs, expansion of corporate staff to support our
growth from our acquisitions, and greater utilization of outside services.

     EBITDA. Our EBITDA was $43.1 million in 2000. This represented a decrease
of $6.3 million, or 13%, compared to $49.4 million in 1999. The decrease in
Segment Operating Cash Flow from our outdoor media and radio broadcasting
segments, and the increase in corporate overhead expenses, was partially offset
by the
                                        30
<PAGE>   32

increase in Segment Operating Cash Flow from our television broadcasting
segment. EBITDA as a percentage of total net revenue decreased to 19% in 2000
compared to 24% in 1999.

     Depreciation and Amortization Expenses. Our depreciation and amortization
expenses were $39.2 million in 2000. This represented an increase of $13.2
million, or 51%, compared to $26.0 million in 1999. This increase resulted
primarily from depreciation and amortization expenses relating to our business
acquisitions during 2000. In addition, depreciation expense increased as a
result of our investment in a new operating facility for our radio broadcasting,
sports & entertainment (discontinued operations), and corporate technology
operations, and our investment in the Digital CentralCasting and ParkerVision
systems for our television broadcasting segment.

     Interest Expense. Our interest expense was $25.8 million in 2000. This
represented a decrease of $7.2 million, or 22%, from $33.0 million in 1999. This
decrease was due to lower average debt balances during 2000 resulting from the
application of proceeds from the sale of our Florida outdoor advertising
operations.

     Stock Compensation Expense. We recognized stock compensation expense of
$0.1 million in 2000 compared to $0.6 million in 1999. The 1999 expense
primarily related to the amendments of certain stock option agreements.

     Net Gain on Dispositions of Assets. We recognized a net gain on disposition
of assets of $277.7 million. This gain consisted of a $269.3 million gain from
the sale of our Florida outdoor advertising operations, an $8.8 million gain
from the sale of station KCBA, and a $0.4 million loss on disposal of certain
assets of our radio broadcasting segment resulting from it's relocation to a new
facility. The net gain of $29.0 million in 1999 resulted from a $28.6 million
gain from the exchange of the assets of television station KKTV for the assets
of television station KCOY, a $1.6 million gain relating to the sale of our
airport advertising operations, and a $1.2 million loss on the sale of a radio
broadcasting tower.

     Income Tax Expense. We recognized income tax expense of $96.3 million based
on our income from continuing operations before extraordinary item of $254.9
million in 2000 compared to $7.9 million based on our income from continuing
operations before extraordinary item of $18.7 million in 1999. The effective tax
rate in 2000 was 38% compared to 42% in 1999.

     Loss From Discontinued Operations. Our loss from discontinued operations
was $9.7 million net of taxes for 2000 compared to $2.8 million in 1999. This
increase was due primarily to increased operating expenses, particularly for
SuperSonics player compensation and other team costs, which outpaced the growth
in net revenue.

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

     Net Income. Our net income was $148.9 million in 2000. This represented an
increase of $142.3 million from $6.6 million in 1999.

1999 COMPARED WITH 1998

     Net Revenue. Our 1999 net revenue was $207.6 million. This represented an
increase of $6.1 million, or 3%, compared to $201.5 million in 1998. Changes in
net revenue were as follows:

     - Outdoor Media. Our 1999 net revenue from our outdoor media segment
       decreased by $9.8 million, or 9%, from 1998. This decrease was primarily
       due to the absence of our airport advertising operations, which we sold
       in June 1998. Excluding our airport advertising operations, our 1999 net
       revenue from our outdoor media segment increased by $6.4 million, or 7%,
       from 1998. This increase mainly resulted from an increase in both
       national and local sales.

     - Television Broadcasting. Our 1999 net revenue from our television
       broadcasting segment increased by $13.2 million, or 19%, from 1998. This
       increase was mainly due to the exchange of station KKTV for

                                        31
<PAGE>   33

       station KCOY in January 1999 and the addition of stations KVIQ in July
       1998, KMTR in December 1998, WOKR in April 1999, and KTFV in August 1999.
       Excluding these transactions, our 1999 net revenue from our television
       broadcasting segment decreased by $3.2 million, or 6%, from 1998. This
       decrease was primarily due to the lack of political advertising during
       1999, partially offset by increased national and local sales.

     - Radio Broadcasting. Our 1999 net revenue from our radio broadcasting
       segment increased by $2.7 million, or 11%, from 1998. This increase was
       primarily due to an increase in both national and local sales.

     Segment Operating Expenses. Our 1999 segment operating expenses (which
exclude corporate overhead) were $142.0 million. This represented an increase of
$5.6 million, or 4%, compared to $136.4 million in 1998. Changes in segment
operating expenses were as follows:

     - Outdoor Media. Our 1999 operating expenses from our outdoor media segment
       decreased by $8.7 million, or 13%, from 1998. This decrease was primarily
       due to the absence of our airport advertising operations, which we sold
       in June 1998. Excluding our airport advertising operations, our 1999
       operating expenses from our outdoor media segment increased by $6.1
       million, or 12%, from 1998. This increase was primarily due to higher
       lease costs, increased employment-related expenses, and increased
       expenses related to the expansion of our national sales force.

     - Television Broadcasting. Our 1999 operating expenses from our television
       broadcasting segment increased by $13.6 million, or 24%, from 1998. This
       increase was mainly due to the exchange of station KKTV for station KCOY
       in January 1999 and the addition of stations KVIQ in July 1998, KMTR in
       December 1998, WOKR in April 1999, and KTVF in August 1999. This increase
       was also due to a restructuring charge of $1.1 million recognized in
       connection with our ongoing implementation of Digital CentralCasting(TM).
       This restructuring charge consisted primarily of costs associated with
       employee staff reductions. See further discussion in Note 14 to the
       Consolidated Financial Statements. Excluding these transactions, our 1999
       operating expenses from our television broadcasting segment increased by
       $0.8 million, or 2%, from 1998. This increase was primarily due to higher
       program, promotion, and production expenses relating to the expansion of
       local news.

     - Radio Broadcasting. Our 1999 operating expenses from our radio
       broadcasting segment increased by $0.8 million, or 5%, from 1998. This
       increase was primarily due to higher expenses relating to increased sales
       activity.

      Corporate Overhead Expenses. Our corporate overhead expenses were $16.1
      million in 1999. This represented an increase of $1.7 million, or 11%,
      from 1998. This increase was primarily a result of increased marketing
      costs, increased travel costs, and higher utilization of outside services.

     EBITDA. Our EBITDA was $49.4 million in 1999. This represented a decrease
of $1.2 million, or 2%, compared to $50.6 million in 1998. The increase in
Segment Operating Cash Flow from our radio broadcasting segment was partially
offset by the decrease in Segment Operating Cash Flow from our outdoor media and
television broadcasting segments and the increase in corporate overhead
expenses. EBITDA as a percentage of total net revenue decreased to 24% in 1999
compared to 25% in 1998.

     Depreciation and Amortization Expenses. Our depreciation and amortization
expenses were $26.0 million in 1999. This represented an increase of $11.9
million, or 84%, compared to $14.1 million in 1998. This increase primarily
resulted from depreciation and amortization expenses relating to our business
acquisitions during 1999.

     Interest Expense. Our interest expense was $33.0 million in 1999. This
represented an increase of $10.2 million, or 45%, from 1998. This increase was
primarily due to higher average debt balances during 1999 reflecting the
financing of our various acquisitions.

     Stock Compensation Expense. We recognized stock compensation expense of
$0.6 million in 1999 compared to $0.5 million in 1998. These expenses primarily
related to the amendment of certain stock option agreements.
                                        32
<PAGE>   34

     Net Gain on Dispositions of Assets. We recognized a net gain on disposition
of assets of $29.0 million. This gain consisted primarily of a $28.6 million
gain from the exchange of the assets of television station KKTV for the assets
of television station KCOY, a $1.6 million gain relating to the sale of our
airport advertising operations, and a $1.2 million loss on the sale of a radio
broadcasting tower. In 1998, we recognized a $33.5 million gain on disposition
of assets primarily relating to the sale of our airport advertising operations
in June 1998.

     Income Tax Expense. We recognized income tax expense of $7.9 million based
on our income from continuing operations before extraordinary item of $18.7
million in 1999 compared to $18.6 million based on our income from continuing
operations before extraordinary item of $46.8 million in 1998. The effective tax
rate was 42% in 1999 compared to 40% in 1998.

     Loss From Discontinued Operations. Our loss from discontinued operations
was $2.8 million net of taxes for 1999 compared to $4.7 million for 1998. This
decrease was due primarily to the impact of the NBA lockout. Two full months of
the NBA season were cancelled in 1998 whereas only one month was cancelled in
1999, resulting in greater losses in 1998 compared to 1999.

     Extraordinary Item. In 1999, we replaced our existing 1998 Credit Agreement
with a new $325.0 million credit agreement and redeemed our $20.0 million 10.48%
Senior Subordinated Notes. These transactions resulted in an aggregate charge of
$1.4 million, net of taxes, primarily consisting of the write-off of deferred
financing costs and prepayment fees. In 1998, we redeemed our 10.75% Senior
Secured Notes with proceeds under the 1998 Credit Agreement. This transaction
resulted in a charge of $4.3 million, net of taxes, consisting of the write-off
of deferred financing costs and prepayment fees.

     Net Income. Our net income was $6.6 million in 1999. This represented a
decrease of $12.6 million, or 66%, from $19.2 million in 1998.

LIQUIDITY AND CAPITAL RESOURCES

     Cash used in operating activities was $78.3 million in 2000 compared to
$0.2 million in 1999. However, cash paid for income taxes was $70.7 million in
2000 compared to only $0.7 million in 1999. The higher 2000 amount is due mainly
to income taxes associated with the net gain on dispositions of assets of $277.7
million, which resulted primarily from the sale of our Florida outdoor
advertising operations. In addition, our cash flow from operating activities was
impacted negatively by the loss from our discontinued sports & entertainment
operations. On a pre-tax basis, this loss amounted to $15.6 million in 2000
compared to $4.8 million in 1999. Finally, in the first quarter of 2000 we paid
$7.5 million in damages in connection with a lawsuit, as more fully described in
Note 14 to the Consolidated Financial Statements.

     Our working capital decreased to $15.1 million at December 31, 2000 from
$21.7 million at December 31, 1999. This decrease was due primarily to the
decrease in deferred tax assets, consisting principally of net operating loss,
alternative minimum tax credit, and charitable contribution carryforwards. The
gain on the sale of our Florida outdoor advertising operations enabled us to
utilize these carryforwards in 2000. For the periods presented, we financed our
working capital needs primarily from cash provided by operating activities and
bank borrowings.

     Capital expenditures were $41.4 million in 2000, compared to $29.1 million
in 1999. Capital expenditures in 2000 were primarily for the expansion of our
radio broadcasting, corporate technology group, and sports & entertainment
(discontinued operations) operating facilities in Seattle, broadcasting
equipment in connection with the implementation of Digital CentralCasting and
ParkerVision, computer equipment, and outdoor advertising signs. We anticipate
that 2001 capital expenditures will be between $15.0 and $25.0 million. These
amounts will consist mainly of broadcasting equipment to complete our Digital
CentralCasting and ParkerVision implementations and the expansion of our outdoor
advertising operating facilities in Portland, Oregon. This forward-looking
statement is, however, subject to the qualification set forth under "Forward-
Looking Statements" above.

     During 2000, we purchased five outdoor advertising companies for $46.3
million and six television stations for $112.3 million. We also invested $17.0
million in a company that operates several television stations in
                                        33
<PAGE>   35

New York. These transactions, which resulted in significant amounts of goodwill
and other intangible assets, are more fully described in Notes 1 and 3 to the
Consolidated Financial Statements.

     For the periods presented, our long-term liquidity needs have been
principally for acquisitions, capital expenditures, and refinancing our
indebtedness. We have financed these needs through proceeds from the sale of our
airport advertising operations in 1998, proceeds from the sale of our Florida
outdoor advertising operations in 2000, proceeds from the issuance of common
stock in 1999, proceeds from the sale of subordinated debt securities in 1998
and 1999, and bank borrowings.

     Following is a summary of our financing activities and debt structure:

     On January 22, 1999, we replaced the $300.0 million 1998 Credit Agreement
with the new $325.0 million 1999 Credit Agreement, consisting of a $150.0
million term loan facility (the "Term Loan") and a $175.0 million revolving
credit facility (the "Revolver"), which includes up to $10.0 million in standby
letters of credit. This transaction resulted in a charge of approximately $0.6
million, net of taxes, consisting of the write-off of deferred financing costs.

     On January 5, 2000, we applied proceeds from the sale of our Florida
outdoor advertising operations (as discussed in Note 3 to the Consolidated
Financial Statements) to fully repay outstanding borrowings under our 1999
Credit Agreement, consisting of $43.0 million under the Revolver and $150.0
million under the Term Loan. In connection with the transaction, we amended the
1999 Credit Agreement to waive, on a one-time basis, the mandatory requirement
to apply 100% of net proceeds from asset dispositions to permanently repay
borrowings under the Revolver and to provide for a new commitment amount under
the Revolver of approximately $147.9 million. Additionally, we amended the 1999
Credit Agreement to provide for a delayed-draw term loan facility of
approximately $126.8 million (the "2000 Term Loan") allowing us to borrow,
through no more than two separate borrowings, the maximum amount available under
the 2000 Term Loan. On September 15, 2000 we borrowed $54.0 million under the
2000 Term Loan to acquire television station KGPE(TV).

     To accommodate recent acquisitions, particularly KGPE(TV), and the
anticipated timing of the sale of our sports & entertainment operations (as
discussed in Note 4 to the Consolidated Financial Statements), we amended the
1999 Credit Agreement to provide waivers of compliance with, and to change the
requirements of, certain restrictive covenants effective for the period June 30,
2000 through April 15, 2001. We anticipate that we will be in compliance with
these covenants upon closing of the sale of our sports & entertainment
operations. Proceeds from the sale will be used to substantially repay amounts
outstanding under the 1999 Credit Agreement. In connection with these
amendments, the total available borrowings under the 2000 Term Loan were reduced
to $59.0 million and total borrowings available under the Revolver were
increased to $167.9 million.

     As of December 31, 2000, we had outstanding $51.3 million of the Term Loan
and $125.0 million of the Revolver. Principal repayments under the Term Loan are
due quarterly through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal repayments of outstanding amounts
in excess of the commitment levels, through December 31, 2005.

     Under the 1999 Credit Agreement, we can choose to have interest calculated
at rates based on either a base rate or LIBOR plus defined margins which vary
based on our total leverage ratio. As of December 31, 2000, the weighted average
interest rate of borrowings under the 1999 Credit Agreement was approximately
10.1%.

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

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

                                        34
<PAGE>   36

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

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

     On August 6, 1999, we issued 3,000,000 shares of common stock at a price of
$15.25 per share pursuant to an underwritten public offering. Our net proceeds
were approximately $42.9 million, which were used primarily to repay borrowings
outstanding under the Revolver. On September 7, 1999, we received approximately
$3.6 million in net proceeds from the issuance of 250,000 shares of common stock
upon the exercise of the underwriters' overallotment option, which were also
used to repay borrowings under the Revolver. Subject to the terms of the 1999
Credit Agreement, we are entitled to make further borrowings under the Revolver.

     Following are items that may impact our liquidity in 2001:

     - Our television broadcasting segment typically enjoys significant revenues
       from political advertising in even numbered years. In 2000, we received
       over $12 million of revenue from political advertising that may not be
       replaced by other advertising categories in 2001. Our liquidity may be
       impacted negatively to the extent such political revenue is not replaced
       by other advertising categories in 2001.

     - National advertising may decrease as a result of the slowing national
       economy. Our liquidity may be impacted negatively depending on the
       magnitude of this trend, its duration, and our ability to offset
       decreased national sales with increased local sales.

     - We enjoyed a significant increase in revenues from the dot-com
       advertising category in 2000, primarily in our outdoor media segment.
       However, thus far in 2001 we are seeing a decline in revenue from this
       sector compared to 2000 levels. If this trend continues throughout 2001,
       our liquidity may be impacted negatively to the extent we are unable to
       offset such a decline by increasing revenue from other advertising
       categories.

     - As more fully described below, and in Note 4 to the Consolidated
       Financial Statements, we have entered into an agreement to sell our
       sports & entertainment operations. We are incurring losses from our
       sports & entertainment operations which will continue until the
       transaction closes. We expect the transaction will close by April 15,
       2001. However, should the closing be delayed we would incur greater
       losses which would negatively impact our liquidity. In addition, we would
       be required to obtain waivers of compliance with certain covenants of our
       1999 Credit Agreement and might need to seek additional sources of
       financing.

SUBSEQUENT EVENTS

     In January 2001, we signed an agreement to sell substantially all of our
assets of our sports & entertainment operations, including our NBA SuperSonics
franchise, our interests in the WNBA Seattle Storm, and substantially all of the
assets of our Full House Sports & Entertainment division for approximately
$200.0 million in cash, plus the assumption of certain liabilities. We
anticipate the sale, which is subject to NBA Board of Governors approval, to
close by April 15, 2001. Following closing, we expect to recognize a pre-tax
gain on the transaction of between approximately $150.0 to $160.0 million.
Concurrent with the transaction, we will apply net proceeds from the sale to
substantially repay outstanding borrowings under the 1999 Credit Agreement. This
transaction is more fully described in Note 4 to the Consolidated Financial
Statements.

                                        35
<PAGE>   37

QUARTERLY VARIATIONS

     Our results of operations may vary from quarter to quarter due in part to
the timing of acquisitions or dispositions and to seasonal variations in the
operations of the television broadcasting and radio broadcasting segments. In
particular, our net revenue and EBITDA historically have been affected
positively by increased advertising activity in the second and fourth quarters.

TAXES

     Due to the gain on the sale of our Florida outdoor advertising operations,
our federal net operating loss, alternative minimum tax credit, and charitable
contribution carryforwards will be fully utilized in our 2000 federal tax
return.

INFLATION

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

NEW ACCOUNTING STANDARD

     FASB statement 133, Accounting for Derivative Instruments and Hedging
Activities, (as amended by statements 137 and 138), standardizes the accounting
for derivative instruments. As required, we have adopted the statement effective
January 1, 2001. However, because we had no derivative instruments at December
31, 2000, there was no impact on our Consolidated Financial Statements from the
adoption of this statement.

ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our interest income and expense are most sensitive to changes in the
general level of interest rates. In this regard, changes in LIBOR and U.S.
interest rates affect the interest earned on our cash equivalents as well as
interest paid on our debt. To mitigate the impact of fluctuations in interest
rates, we generally maintain a portion of our debt as fixed rate in nature
either by borrowing on a long-term basis or entering into interest rate swap
transactions.

     The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, which consist of interest rate swaps and debt obligations for
the year ended December 31, 1999, and debt obligations for the year ended
December 31, 2000. There were no interest rate swaps outstanding at December 31,
2000. For debt obligations, the table presents principal cash flows and related
weighted average interest rates by maturity dates. For interest rate swaps, the

                                        36
<PAGE>   38

table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts.

                           INTEREST RATE SENSITIVITY
                PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
                          AVERAGE INTEREST (SWAP) RATE
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                         FAIR
                                                                                                                        VALUE
                                               2001     2002      2003      2004      2005     THEREAFTER    TOTAL     12/31/00
                   2000:                      ------   -------   -------   -------   -------   ----------   --------   --------
<S>                                           <C>      <C>       <C>       <C>       <C>       <C>          <C>        <C>
Long-term debt, including current portion
  Fixed rate................................      --        --        --        --        --    $200,000    $200,000   $176,000
  Average interest rate.....................      --        --        --        --        --        9.00%
  Variable rate.............................  $5,400   $29,588   $40,375   $50,468   $50,469          --    $176,300   $176,300
  Average interest rate.....................     (a)       (a)       (a)       (a)       (a)          --
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                         FAIR
                                                                                                                         VALUE
                                              2000      2001      2002      2003      2004     THEREAFTER    TOTAL     12/31/99
                   1999:                     ------   --------   -------   -------   -------   ----------   --------   ---------
<S>                                          <C>      <C>        <C>       <C>       <C>       <C>          <C>        <C>
Long-term debt, including current portion
  Fixed rate...............................      --         --        --        --        --    $200,000    $200,000   $194,000
  Average interest rate....................      --         --        --        --        --        9.00%
  Variable rate............................  $7,500   $ 19,300   $31,100   $38,600   $48,250    $ 48,250    $193,000   $193,000
  Average interest rate....................     (a)        (a)       (a)       (a)       (a)         (a)
Interest rate swaps
Pay fixed/receive variable.................      --   $130,000        --        --        --          --    $130,000   $  4,892
Average pay rate...........................      --       4.60%       --        --        --          --
Average receive rate.......................      --       6.20%       --        --        --          --
</TABLE>

---------------
(a) The interest rate is based on a base rate or LIBOR plus defined margins
    which vary based on our total leverage ratio.

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information called for by this item is included in Item 14, pages F-1
through F-22

ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     For information concerning our directors and certain executive officers,
see the sections entitled "Item 1 -- Election of Directors" and "Management
Information" in our definitive Proxy Statement dated March 30, 2001, which is
incorporated into this section by reference and "Executive Officers of the
Registrant" under Part I of this report.

ITEM 11 -- EXECUTIVE COMPENSATION

     For information concerning executive compensation, see the sections
entitled "Item 1 -- Election of Directors" and "Management Information" in our
definitive Proxy Statement dated March 30, 2001, which information is
incorporated into this section by reference.

                                        37
<PAGE>   39

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of March 1, 2001, Barry A. Ackerley and Gabelli Funds, Inc. were the
only persons, to our knowledge, owning beneficially more than 5% of the
outstanding shares of Common Stock and Class B Common Stock. For information
concerning these shareholders' holdings as well as the security ownership of
management, see the section entitled "Management Information -- Share Ownership"
in our definitive Proxy Statement dated March 30, 2001, which information is
incorporated into this section by reference.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     For information concerning certain relationships and related transactions,
see the Section entitled "Management Information -- Certain Relationships and
Related Transactions" in our definitive Proxy Statement dated March 30, 2001,
which information is incorporated into this section by reference.

                                        38
<PAGE>   40

                                    PART IV

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

     (a)(1) and (2) Financial Statements and Schedules.

        The following documents are being filed as part of this Report:

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               PAGE
                                                              NUMBER
                                                              ------
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-1
Consolidated balance sheets as of December 31, 2000 and
  1999......................................................  F-2
Consolidated statements of income for the years ended
  December 31, 2000, 1999 and 1998..........................  F-3
Consolidated statements of stockholders' equity (deficiency)
  for the years ended December 31, 2000, 1999 and 1998......  F-4
Consolidated statements of cash flows for the years ended
  December 31, 2000, 1999 and 1998..........................  F-5
Notes to Consolidated Financial Statements..................  F-6
</TABLE>

     Schedules are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the Consolidated Financial
Statements or notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.

     (3) Exhibits:

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                               EXHIBIT
    -------                              -------
    <S>        <C>
     3.1       Fourth Restated Certificate of Incorporation.(1)
     3.2       Amended and Restated Bylaws.
    10.1       Credit Agreement dated January 22, 1999, by and among The
               Ackerley Group, Inc., certain lenders named therein, and
               First Union National Bank, Fleet Bank, N.A., Union Bank of
               California, N.A., KeyBank National Association, and Bank of
               Montreal, Chicago Branch, as agents.(2)
    10.2       First Amendment to Credit Agreement, dated as of June 11,
               1999, among The Ackerley Group, Inc., certain lenders named
               therein, and First Union National Bank, Fleet Bank, N.A.,
               Union Bank of California, N.A. and KeyBank National
               Association, as agents.(3)
    10.3       Second Amendment to Credit Agreement, dated as of September
               10, 1999, among The Ackerley Group, Inc., certain lenders
               named therein, and First Union National Bank, Fleet Bank,
               N.A., Union Bank of California, N.A. and KeyBank National
               Association, as agents.(3)
    10.4       Third Amendment to Credit Agreement, dated as of January 7,
               2000, among The Ackerley Group, Inc., certain lenders named
               therein, and First Union National Bank, Fleet Bank, N.A.,
               Union Bank of California, N.A. and KeyBank National
               Association, as agents.(3)
    10.5       Fourth Amendment to Credit Agreement, dated as of February
               11, 2000, among The Ackerley Group, Inc., certain lenders
               named therein, and First Union National Bank, Fleet Bank,
               N.A., Union Bank of California, N.A. and KeyBank National
               Association, as agents.(3)
    10.6       Fifth Amendment to Credit Agreement dated as of July 31,
               2000, among The Ackerley Group, Inc., certain lenders named
               therein, and First Union National Bank, Fleet Bank, N.A.,
               Union Bank of California, N.A. and KeyBank National
               Association, as agents.
</TABLE>

                                        39
<PAGE>   41

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                               EXHIBIT
    -------                              -------
    <S>        <C>
    10.7       Sixth Amendment to Credit Agreement dated as of December 15,
               2000, among The Ackerley Group, Inc., certain lenders named
               therein, and First Union National Bank, Fleet Bank, N.A.,
               Union Bank of California, N.A. and KeyBank National
               Association, as agents.
    10.8       Seventh Amendment to Credit Agreement dated as of February
               28, 2001, among The Ackerley Group, Inc., certain lenders
               named therein, and First Union National Bank, Fleet Bank,
               N.A., Union Bank of California, N.A. and KeyBank National
               Association, as agents.
    10.9       Security Agreement dated January 22, 1999 between The
               Ackerley Group, Inc. and First Union National Bank, as
               administrative agent.(2)
    10.10      Pledge Agreement dated January 22, 1999 between The Ackerley
               Group, Inc. and First Union National Bank, as administrative
               agent.(2)
    10.11      Indenture dated December 14, 1998 between The Ackerley
               Group, Inc. and The Bank of New York, as Trustee, relating
               to the 9% Senior Subordinated Notes due 2009.(4)
    10.12      First Supplemental Indenture dated as of April 8, 1999
               between The Ackerley Group, Inc., the guarantors named
               therein, and The Bank of New York, as Trustee.(3)
    10.13      Employees Stock Option Plan, as amended and restated on May
               11, 1999.(5)
    10.14      Nonemployee -- Director's Equity Compensation Plan, as
               amended and restated on March 12, 1997.
    10.15      Employee Stock Purchase Plan.(6)
    10.16      Premises Use and Occupancy Agreement between The City of
               Seattle and SSI Sports, Inc. dated March 2, 1994.(7)
    10.17      Purchase and Sale Agreement between Sky Sites, Inc. and
               Ackerley Airport Advertising, Inc., dated as of May 19,
               1998.(8)
    10.18      Asset Purchase Agreement dated as of November 10, 1999
               between AK Media, Inc. and Eller Media Company.(9)
    10.19      Amendment No. 1 to Asset Purchase Agreement dated as of
               December 28, 1999 between AK Media, Inc., AK Florida, Inc.
               and Eller Media Company.(10)
    10.20      Purchase Agreement dated as of May 8, 2000 between AK Media
               Group, Inc., Fisher Broadcasting Inc. and Fisher
               Broadcasting -- Fresno, L.L.C.
    10.21      Asset Purchase Agreement dated as of January 11, 2001
               between The Ackerley Group, Inc., Ackerley Media Group,
               Inc., SSI, Inc., and T.C. Aviation, Inc., as seller, and The
               Basketball Club of Seattle, LLC, as buyer.
    21         Subsidiaries of The Ackerley Group.
    23         Consent of Independent Auditors.
    24         Powers of Attorney.
</TABLE>

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

(2) Incorporated by reference to Exhibits 10.1, 10.2, and 10.3, respectively, to
    Amendment No. 1 to The Ackerley Group's Registration Statement on Form S-4
    (Registration No. 333-71583), filed March 10, 1999.

(3) Incorporated by reference to Exhibits 10.2, 10.3, 10.4, 10.5 and 10.9,
    respectively, to The Ackerley Group's Annual Report on Form 10-K for the
    year ended December 31, 1999.

(4) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's
    Registration Statement on Form S-4 (Registration No. 333-71583), filed
    February 2, 1999.

                                        40
<PAGE>   42

(5) Incorporated by reference to Exhibit 10 to The Ackerley Group's Quarterly
    Report on Form 10-Q for the quarter ended March 31, 1999.

(6) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's
    Registration Statement on Form S-8, filed on December 27, 1999.

(7) Incorporated by reference to Exhibit 10.22 to The Ackerley Group's 1994
    Annual Report of Form 10-K.

(8) Incorporated by reference to Exhibit 10 to The Ackerley Group's Current
    Report on Form 8-K, filed on July 15, 1998.

(9) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, to The
    Ackerley Group's Current Report on Form 8-K, filed on January 12, 2000.

     (b) Reports on Form 8-K.

        Current Report on Form 8-K, filed December 21, 2000, reporting the
        Company's Sixth Amendment to its Credit Agreement with senior bank
        lenders.

     (c) Exhibits required by Item 601 of Regulation S-K are being filed
herewith.

        See Item 14(a)(3) above.

     (d) Financial statements required by Regulation S-X are being filed
herewith.

        See Item 14(a)(1) and (2) above.

                                        41
<PAGE>   43

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Ackerley Group has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 28th
day of March, 2001.

                                          THE ACKERLEY GROUP, INC.

                                          By: /s/ KEVIN E. HYLTON
                                            ------------------------------------
                                            Kevin E. Hylton, Senior Vice
                                              President,
                                            Chief Financial Officer and
                                              Assistant
                                            Secretary

     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 Ackerley
Group and in the capacities on the 28th day of March, 2001.

<TABLE>
<CAPTION>
        A Majority of the Board of Directors:          Principal Executive Officer:
<S>                                                    <C>

/s/ BARRY A. ACKERLEY*                                 By: /s/ BARRY A. ACKERLEY*
-----------------------------------------------------      -------------------------------------------------
Barry A. Ackerley, Chairman                                Barry A. Ackerley, Chairman and Chief Executive
                                                           Officer

/s/ GAIL A. ACKERLEY*                                  Principal Financial Officer:
-----------------------------------------------------
Gail A. Ackerley, Co-Chairman

/s/ CHRISTOPHER H. ACKERLEY*                           /s/ KEVIN E. HYLTON
-----------------------------------------------------   ----------------------------------------------------
Christopher H. Ackerley, Director                       Kevin E. Hylton, Senior Vice President, Chief
                                                        Financial Officer and Assistant Secretary

/s/ EDWARD G ACKERLEY*                                 Principal Accounting Officer:
-----------------------------------------------------
Edward G. Ackerley, Director

/s/ DEBORAH L. BEVIER*                                 /s/ SEAN TALLARICO
-----------------------------------------------------   ----------------------------------------------------
Deborah L. Bevier, Director                             Sean Tallarico, Group Controller

/s/ CHRIS W. BIRKELAND*
-----------------------------------------------------
Chris W. Birkeland, Director

/s/ KIMBERLEY A. CLEWORTH*
-----------------------------------------------------
Kimberley A. Cleworth, Director

/s/ KEITH D. GRINSTEIN*
-----------------------------------------------------
Keith D. Grinstein, Director

/s/ MICHAEL T. LENNON*
-----------------------------------------------------
Michael T. Lennon, Director

/s/ MICHEL C. THIELEN*
-----------------------------------------------------
Michel C. Thielen, Director

*By: /s/ KEVIN E. HYLTON
     ------------------------------------------------
     Kevin E. Hylton, Attorney-in-Fact
</TABLE>

                                        42
<PAGE>   44

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
The Ackerley Group, Inc.

     We have audited the accompanying consolidated balance sheets of The
Ackerley Group, Inc. (the Company) as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity (deficiency),
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally
accepted in the United States. 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 consolidated financial position of the Company at
December 31, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

                                          /s/ Ernst & Young LLP

Seattle, Washington
February 9, 2001

                                       F-1
<PAGE>   45

                            THE ACKERLEY GROUP, INC.

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)                          --------    --------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $  4,687    $  2,808
  Accounts receivable, net of allowance (2000 -- $1,903,
     1999 -- $1,865)........................................    60,742      61,133
  Current portion of broadcast rights.......................     9,023       6,752
  Prepaid expenses..........................................    14,345      15,777
  Deferred tax asset........................................     1,619      13,819
  Other current assets......................................     6,879       3,607
                                                              --------    --------
          Total current assets..............................    97,295     103,896
Property and equipment, net.................................   170,473     142,851
Goodwill, net...............................................   210,961     219,478
Other intangibles, net......................................   142,171      22,899
Investment in affiliates....................................    19,896         832
Other assets................................................    26,511      38,480
                                                              --------    --------
          Total assets......................................  $667,307    $528,436
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  7,426    $  6,827
  Accrued interest..........................................     8,950      10,936
  Accrued wages and commissions.............................     6,398       5,475
  Other accrued liabilities.................................    21,595      10,902
  Deferred revenue..........................................    19,022      21,067
  Current portion of broadcasting obligations...............     9,564       8,242
  Current portion of long-term debt.........................     9,232      10,832
  Litigation accrual........................................        --       7,911
                                                              --------    --------
          Total current liabilities.........................    82,187      82,192
Long-term debt, less current portion........................   385,439     403,761
Other long-term liabilities.................................    23,701      15,194
                                                              --------    --------
          Total liabilities.................................   491,327     501,147
Commitments and contingencies
Stockholders' equity
  Common stock, par value $.01 per share -- authorized
     50,000,000 shares; issued 2000 -- 25,342,929 and
     1999 -- 25,251,419 shares; and outstanding
     2000 -- 23,967,983 and 1999 -- 23,876,473 shares.......       253         252
  Class B common stock, par value $.01 per
     share -- authorized 11,406,510 shares; issued and
     outstanding 2000 -- 11,051,200 and 1999 -- 11,088,730
     shares.................................................       111         111
  Capital in excess of par value............................    57,967      57,478
  Retained earnings (deficit)...............................   127,738     (20,463)
  Less common stock in treasury, at cost (1,374,946
     shares)................................................   (10,089)    (10,089)
                                                              --------    --------
          Total stockholders' equity........................   175,980      27,289
                                                              --------    --------
          Total liabilities and stockholders' equity........  $667,307    $528,436
                                                              ========    ========
</TABLE>

                             See accompanying notes
                                       F-2
<PAGE>   46

                            THE ACKERLEY GROUP, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2000         1999        1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                    ---------    --------    --------
<S>                                                         <C>          <C>         <C>
Revenue...................................................  $ 263,305    $243,130    $235,516
Less agency commissions and discounts.....................     38,741      35,547      34,015
                                                            ---------    --------    --------
Net revenue...............................................    224,564     207,583     201,501
Expenses (other income):
  Operating expenses......................................    181,644     157,065     150,911
  Restructuring expenses..................................       (178)      1,125          --
  Amortization expense....................................     23,713      14,175       4,709
  Depreciation expense....................................     15,448      11,867       9,369
  Interest expense........................................     25,795      32,959      22,792
  Net gain on dispositions of assets......................   (277,650)    (28,999)    (33,524)
  Stock compensation expense..............................        100         559         452
  Equity in losses of affiliates..........................        801         174          --
                                                            ---------    --------    --------
          Total expenses (other income)...................    (30,327)    188,925     154,709
Income from continuing operations before income taxes and
  extraordinary item......................................    254,891      18,658      46,792
Income tax expense........................................     96,284       7,917      18,576
                                                            ---------    --------    --------
Income from continuing operations before extraordinary
  item....................................................    158,607      10,741      28,216
Loss from discontinued operations, net of taxes
  2000 -- $5,892, 1999 -- $2,054, and 1998 -- $3,089......     (9,707)     (2,778)     (4,693)
                                                            ---------    --------    --------
Income before extraordinary item..........................    148,900       7,963      23,523
Extraordinary item: loss on debt extinguishment, net of
  taxes 1999 -- $842 and 1998 -- $2,491...................         --      (1,373)     (4,346)
                                                            ---------    --------    --------
Net income................................................  $ 148,900    $  6,590    $ 19,177
                                                            =========    ========    ========
Earnings per common share:
Income from continuing operations, before extraordinary
  item....................................................  $    4.54    $   0.33    $   0.89
Discontinued operations...................................       (.28)       (.09)       (.14)
Extraordinary item: loss on debt extinguishment...........         --        (.04)       (.14)
                                                            ---------    --------    --------
Net income................................................  $    4.26    $    .20    $    .61
                                                            =========    ========    ========
Earnings per common share -- assuming dilution:
Income from continuing operations, before extraordinary
  item....................................................  $    4.52    $   0.32    $   0.88
Discontinued operations...................................       (.28)       (.08)       (.14)
Extraordinary item: loss on debt extinguishment...........         --        (.04)       (.14)
                                                            ---------    --------    --------
Net income -- assuming dilution...........................  $    4.24    $    .20    $    .60
                                                            =========    ========    ========
Weighted average number of shares.........................     34,994      32,932      31,627
Weighted average number of shares -- assuming dilution....     35,122      33,110      31,883
</TABLE>

                             See accompanying notes
                                       F-3
<PAGE>   47

                            THE ACKERLEY GROUP, INC.

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
                                                                      CLASS B                                   COMMON
                                             COMMON STOCK          COMMON STOCK       CAPITAL IN   RETAINED    STOCK IN
                                          -------------------   -------------------   EXCESS OF    EARNINGS    TREASURY
                                            SHARES     AMOUNT     SHARES     AMOUNT   PAR VALUE    (DEFICIT)   (AT COST)    TOTAL
(IN THOUSANDS, EXCEPT SHARE INFORMATION)  ----------   ------   ----------   ------   ----------   ---------   ---------   --------
<S>                                       <C>          <C>      <C>          <C>      <C>          <C>         <C>         <C>
Balance, January 1, 1998..............    21,855,398    $218    11,053,510    $111     $ 9,816     $(44,965)   $(10,089)   $(44,909)
Stock compensation, exercise of stock
  options and stock conversions.......        95,982       1        (2,280)     --         523           --          --         524
Cash dividend, $0.02 per share........            --      --            --      --          --         (633)         --        (633)
Net income............................            --      --            --      --          --       19,177          --      19,177
                                          ----------    ----    ----------    ----     -------     --------    --------    --------
Balance, December 31, 1998............    21,951,380     219    11,051,230     111      10,339      (26,421)    (10,089)    (25,841)
Stock compensation, exercise of stock
  options and stock conversions.......        50,039      --        37,500      --         693           --          --         693
Stock issued at $15.25 per share, net
  of stock issuance costs of $3,084...     3,250,000      33            --      --      46,446           --          --      46,479
Cash dividend, $0.02 per share........            --      --            --      --          --         (632)         --        (632)
Net income............................            --      --            --      --          --        6,590          --       6,590
                                          ----------    ----    ----------    ----     -------     --------    --------    --------
Balance, December 31, 1999............    25,251,419     252    11,088,730     111      57,478      (20,463)    (10,089)     27,289
Stock compensation, exercise of stock
  options and stock conversions.......        52,455       1       (37,530)     --          76           --          --          77
Stock issued at $10.58 per share under
  Employee Stock Purchase Plan........        39,055      --            --      --         413           --          --         413
Cash dividend, $0.02 per share........            --      --            --      --          --         (699)         --        (699)
Net income............................            --      --            --      --          --      148,900          --     148,900
                                          ----------    ----    ----------    ----     -------     --------    --------    --------
Balance, December 31, 2000............    25,342,929    $253    11,051,200    $111     $57,967     $127,738    $(10,089)   $175,980
                                          ==========    ====    ==========    ====     =======     ========    ========    ========
</TABLE>

                             See accompanying notes
                                       F-4
<PAGE>   48

                            THE ACKERLEY GROUP, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                          -----------------------------------
                                                            2000         1999         1998
                                                          ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>
(IN THOUSANDS)
Cash flows from operating activities:
  Net income............................................  $ 148,900    $   6,590    $  19,177
  Adjustment to reconcile net income to net cash
     provided (used in) by operating activities:
     Depreciation and amortization......................     41,695       28,348       16,574
     Equity in losses of affiliates.....................        801           --           --
     Net gain on dispositions of assets.................   (276,849)     (28,999)     (33,524)
     Amortization of broadcast rights...................      9,935       11,094       10,283
     Deferred tax expense...............................     19,938        5,453       15,130
     Stock compensation expense.........................        100          559          452
     Loss on debt extinguishment, net of taxes..........         --        1,373         (394)
     Amortization of deferred financing costs...........      1,972        1,648          713
     Income from barter transactions....................     (1,022)      (1,785)      (1,645)
     Amortization of deferred gain on termination of
       interest rate swap agreements....................     (1,087)        (371)          --
  Change in assets and liabilities:
     Accounts receivable................................     (1,853)     (13,184)       7,760
     Prepaid expenses...................................     (3,165)      (5,353)       1,958
     Other current assets and other assets..............     (2,485)       1,413       (3,545)
     Accounts payable, accrued interest, and accrued
       wages and commissions............................       (825)      13,154       (7,239)
     Other accrued liabilities and other long-term
       liabilities......................................      6,507       (2,560)      (3,282)
     Litigation accrual.................................     (7,911)          --           --
     Deferred revenues..................................     (2,045)      (6,669)       3,879
     Current portion of broadcast obligations...........    (10,855)     (10,878)     (11,453)
                                                          ---------    ---------    ---------
          Net cash provided by (used in) operating
            activities..................................    (78,249)        (167)      14,844
Cash flows from investing activities:
  Proceeds from disposition of assets...................    306,986       13,933       41,531
  Payments for acquisitions.............................   (147,173)    (166,625)     (55,759)
  Capital expenditures..................................    (41,360)     (29,114)     (32,719)
  Payments for investments..............................    (19,925)      (5,000)          --
                                                          ---------    ---------    ---------
          Net cash provided by (used in) investing
            activities..................................     98,528     (186,806)     (46,947)
Cash flows from financing activities:
  Borrowings under credit agreements....................    194,000      309,063      461,100
  Repayments under credit agreements....................   (210,704)    (163,704)    (419,588)
  Payments under capital lease obligations..............     (3,106)        (903)        (765)
  Note redemption prepayment fees.......................         --       (1,208)          --
  Dividends paid........................................       (699)        (632)        (633)
  Payments of deferred financing costs..................       (487)      (6,083)      (7,109)
  Net proceeds from stock issuance......................        447       46,613           72
  Proceeds from termination of interest rate swap
     agreements.........................................      2,149        2,005           --
                                                          ---------    ---------    ---------
          Net cash provided by (used in) financing
            activities..................................    (18,400)     185,151       33,077
                                                          ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents....      1,879       (1,822)         974
Cash and cash equivalents at beginning of period........      2,808        4,630        3,656
                                                          ---------    ---------    ---------
Cash and cash equivalents at end of period..............  $   4,687    $   2,808    $   4,630
                                                          =========    =========    =========
Supplemental cash flow information:
  Interest paid, net of capitalized interest............  $  27,072    $  22,073    $  27,697
  Income taxes paid.....................................     70,669          670        1,069
  Noncash transactions:
     Broadcast rights acquired and broadcast obligations
       assumed..........................................  $  12,732    $   7,531    $   8,828
     Property and equipment acquired through barter.....        330          969        1,234
     Exchange of television station assets..............         --       24,000           --
</TABLE>

                             See accompanying notes
                                       F-5
<PAGE>   49

                            THE ACKERLEY GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) Organization -- The Ackerley Group, Inc. and its subsidiaries (the
"Company") is a diversified media and entertainment company that engages in four
principal business segments: (i) outdoor media, (ii) television broadcasting;
(iii) radio broadcasting; and (iv) interactive media. The Company currently
conducts its outdoor media advertising operations principally in the markets of
Seattle-Tacoma, Washington; Portland, Oregon; and Boston-Worcester,
Massachusetts and New York, New York. In New York, California, Oregon,
Washington, and Alaska, the Company currently owns sixteen television stations
and provides programming and sales services to two television stations. The
Company currently owns two AM and two FM radio stations and provides sales and
other services to a third FM radio station in the Seattle-Tacoma market. The
interactive media segment commenced in the second half of 2000. It consists of
the iKnow Network, a group of local news and information portal sites. At
December 31, 2000, the portal sites in Bakersfield, California and Rochester,
New York were operational.

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

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

     (d) Barter transactions -- The Company also accepts nonmonetary
compensation, such as goods and services, for its advertising space or time.
These barter transactions are recorded at the estimated fair value of the asset
or service received. Revenue is recognized when the advertising is provided and
assets or expenses are recorded when assets are received or services are used.
Goods and services due to the Company in excess of advertising provided are
recorded in other current assets. Advertising to be provided in excess of goods
and services received are recorded in other accrued liabilities. Barter revenue
was $4.3 million, $5.0 million, and $4.5 million in 2000, 1999, and 1998,
respectively. Barter expenses were $3.3 million, $3.1 million, and $2.8 million
in 2000, 1999, and 1998, respectively.

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

     (f) Intangible assets -- Intangible assets are carried at cost and
amortized principally on the straight-line method over estimated useful lives.
Goodwill represents the cost of acquired businesses in excess of amounts
assigned to certain tangible and intangible assets at the dates of acquisition.
Long-lived assets (including related goodwill and other intangible assets) are
reviewed on a regular basis for the existence of facts or circumstances that may
suggest impairment. If such impairment is identified, the impairment loss will
be measured by comparing the estimated future undiscounted cash flows to the
asset's carrying value.

     (g) Broadcast rights and obligations -- Television films and syndication
rights acquired under license agreements (broadcast rights) and the related
obligations incurred are recorded as assets and liabilities for the gross amount
of the contract at the time the rights are available for broadcasting. Broadcast
rights are amortized on an accelerated basis over the contract period or the
estimated number of showings, whichever
                                       F-6
<PAGE>   50
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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

     (i) Earnings per share -- Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution that could occur if options and rights to
purchase common stock were exercised.

     The dilutive effects of the weighted-average number of shares representing
options and rights included in the calculation of diluted earnings per share
were 128,431 shares, 177,587 shares, and 256,079 shares in 2000, 1999, and 1998,
respectively. There were no differences between net income amounts used to
calculate basic and diluted earnings per share for any of the periods presented.

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

     (k) Concentration of credit risk and financial instruments -- The Company
sells advertising to local and national companies throughout the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
credit losses. The Company invests its excess cash in short-term investments
with major banks. The carrying value of financial instruments, which include
cash, receivables, payables, and senior debt, approximates fair value at
December 31, 2000. The trading price of our Senior-Subordinated Notes, based on
quoted market prices, was 88% at December 31, 2000.

     The Company uses periodically interest rate swap agreements to modify the
interest rate characteristics of its long-term debt. Each interest rate swap
agreement is designated with all or a portion of the principal balance and term
of a specific debt obligation. These agreements generally involve the exchange
of floating for fixed-rate payment obligations over the life of the agreement
without an exchange of underlying principal amount. The differential to be paid
or received is accrued as interest rates change and is recognized as an
adjustment to interest expense related to the debt. The related net amount
payable to or receivable from counterparties is included in accrued interest.
The fair values of the swap agreements and changes in their fair value as a
result of changes in market interest rates are not recognized in the financial
statements. Gains and losses on termination of interest rate swap agreements are
deferred and amortized as an adjustment to interest expense related to the debt
over the remaining term of the original contract life of the terminated swap
agreement.

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

     (m) Reclassifications -- Certain prior years' amounts have been
reclassified to conform to the 2000 presentation.

                                       F-7
<PAGE>   51
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 2. NEW ACCOUNTING STANDARD

     FASB statement 133, Accounting for Derivative Instruments and Hedging
Activities (as amended by statements 137 and 138), standardizes the accounting
for derivative instruments. As required, the Company has adopted the statement
effective January 1, 2001. However, because the Company had no derivative
instruments at December 31, 2000, there was no impact on the Consolidated
Financial Statements from the adoption of this statement.

 3. ACQUISITIONS AND DISPOSITIONS

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

     Sale of Airport Advertising Operations. On June 30, 1998, the Company sold
substantially all of the assets of its airport advertising operations to Sky
Sites, Inc., a subsidiary of Havas, S.A., pursuant to an agreement dated May 19,
1998. The sale price consisted of a base cash price of $40.0 million, received
on the closing date of the transaction, and an additional cash receipt of
approximately $2.8 million, of which $1.2 million was received in December 1998
and the remainder was received in January 1999. The pre-tax gain recognized from
this transaction was approximately $33.5 million in 1998 and approximately $1.6
million in 1999.

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

     Acquisition of KMTR(TV). On March 16, 1999, the Company purchased
substantially all of the assets of KMTR(TV), the NBC affiliate licensed to
Eugene, Oregon, together with two satellite stations licensed to Roseburg and
Coos Bay, Oregon, and a low power station licensed to Eugene. The purchase price
was approximately $26.0 million. From December 1, 1998 until closing of the
transaction, the Company provided programming and sales services under a local
marketing agreement with the previous owner. The Company recorded net tangible
assets with estimated fair values aggregating $3.0 million and goodwill of $23.0
million in connection with the transaction.

     Acquisition of WOKR(TV). On April 12, 1999, the Company purchased
substantially all of the assets of WOKR(TV), the ABC affiliate licensed to
Rochester, New York, for approximately $128.2 million. In September 1998, the
Company paid $12.5 million of the purchase price into an escrow account, with
the balance paid at closing. The Company initially recorded net tangible assets
with estimated fair values aggregating $10.4 million and goodwill of $117.8
million in connection with the transaction. In 2000, the Company finalized the
allocation of the purchase price with the end result that the Company recorded
net tangible assets of $10.4 million, goodwill of $59.3 million, and other
intangible assets, consisting principally of an FCC license and network
affiliation agreement, of $58.5 million. The effect on net income from the
adjustment to amortization expense was not material.

                                       F-8
<PAGE>   52
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes, on an unaudited pro forma basis, the
consolidated results of operations of the Company for the year ended December
31, 1999 and 1998, giving pro forma effect to the acquisition of WOKR(TV) as if
the acquisition had been made at the beginning of the periods presented. These
pro forma consolidated statements do not necessarily reflect the results of
operations which would have occurred had such an acquisition taken place as of
the beginning of each period indicated (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED
                                                            DECEMBER 31,
                                                       ----------------------
                                                         1999         1998
                                                       ---------    ---------
<S>                                                    <C>          <C>
Net revenue..........................................  $ 211,481    $ 219,791
Operating expenses...................................   (159,617)    (165,933)
Income from continuing operations before
  extraordinary item.................................     10,856       30,134
Net income...........................................      6,705       21,095
Net income per common share..........................        .20          .67
Net income per common share, assuming dilution.......        .20          .66
</TABLE>

     Exchange of KKTV(TV) for KCOY(TV). On May 1, 1999, the Company exchanged
substantially all of the assets plus certain liabilities of KKTV(TV), the CBS
affiliate licensed to Colorado Springs, Colorado, for substantially all of the
assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to Santa
Maria, California. In conjunction with the transaction, the Company received a
cash payment of approximately $9.0 million. The Company recorded net tangible
assets with estimated fair values aggregating $7.2 million, intangible assets of
$16.8 million, and a gain of $28.6 million in the second quarter of 1999.
Pending closing of the transaction, the Company programmed KCOY(TV) and the
previous owner of KCOY(TV) programmed KKTV(TV) under local marketing agreements.

     Investment in KFNK(FM). On September 13, 1999, the Company entered into a
joint sales agreement with the owner of radio station KFNK(FM) in Eatonville,
Washington. Under the agreement, the Company pays the owner a monthly fee for
the right to sell advertising on the station. In connection with the
transaction, the Company paid $4.0 million under a put and call agreement
whereby the Company may elect, or be required by the owner, to purchase the
station's assets any time after November 2002. The gross purchase price of the
station's assets, which is primarily based on the station's ratings at the time
of the sale, ranges from $4.5 million to $11.7 million. The gross purchase price
would be reduced by the Company's $4.0 million payment under the put and call
agreement plus accrued interest.

     Sale of Florida Outdoor Advertising Operations. On January 5, 2000, the
Company sold substantially all of the assets of its outdoor advertising
operations serving the Miami-Fort Lauderdale and West Palm Beach-Fort Pierce,
Florida markets to Eller Media Company, a subsidiary of Clear Channel
Communications, Inc. for approximately $300.0 million in cash, plus the
assumption of certain liabilities. The Company recognized a gain on the
transaction of $269.3 million.

     Sale of KCBA(TV) and Acquisition of KION(TV). On January 12, 2000, the
Company sold substantially all of the assets of KCBA(TV), the FOX affiliate
licensed to Monterey, California, for approximately $11.0 million and entered
into a local marketing agreement with the purchaser to provide programming and
sales services. The Company recorded a gain on the sale of KCBA(TV) of
approximately $8.8 million. Concurrent with this sale, the Company exercised its
option to purchase substantially all the assets of KION(TV), the CBS affiliate
licensed to Salinas, California. The Company paid approximately $6.3 million in
1996 and 1997 for the option, plus the purchase price for the station's assets
of approximately $7.7 million. The Company recorded net tangible assets with
estimated fair values aggregating $1.9 million, goodwill of $4.8 million, and
other intangible assets, consisting principally of an FCC license and network
affiliation agreement, of $7.3 million in connection with the transaction. From
April 24, 1996 until closing of the

                                       F-9
<PAGE>   53
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

transaction, the Company provided programming and sales services under a local
marketing agreement with the previous owner.

     Acquisition of Outdoor Advertising Company in Washington and Oregon. On
January 13, 2000, the Company entered into agreements to purchase substantially
all of the assets of an outdoor advertising company serving portions of
Washington and Oregon for approximately $14.6 million plus the assumption of
certain liabilities. The Company paid $7.5 million of the purchase price on
February 1, 2000 and the remaining balance on March 1, 2000. The Company
recorded net tangible assets with estimated fair values aggregating $2.9 million
and goodwill of $11.7 million in connection with the transaction.

     Investment in WETM(TV). On February 1, 2000, the Company entered into a
local marketing agreement with Smith Television of New York, Inc. ("STNY") to
provide programming and sales services to WETM(TV), the NBC affiliate licensed
to Elmira, New York. The Company also purchased a minority non-voting equity
interest in STNY for approximately $17.0 million. Beginning in August 2003, STNY
may require the Company to exchange the interest in STNY, plus $11.0 million in
cash, for all the assets of WETM(TV). Under certain circumstances, the Company
may have an option to purchase all or a controlling interest in STNY.

     Acquisition of Outdoor Advertising Company in New Jersey and New York
City. On March 31, 2000, the Company acquired substantially all of the assets of
an outdoor advertising company in New Jersey and New York City for approximately
$19.8 million. The Company recorded net tangible assets with fair values
aggregating $4.9 million and goodwill of $14.9 million in connection with the
transaction.

     Acquisition of KKFX-CA. On May 9, 2000, the Company purchased substantially
all of the assets of a low-power television station KKFX-CA, the FOX affiliate
licensed to the Santa Barbara-Santa Maria-San Luis Obispo, California market for
approximately $15.4 million. From April 1, 2000 until closing of the
transaction, the Company provided programming and sales services under a local
marketing agreement with the previous owner. The Company recorded net tangible
assets with fair values aggregating $0.4 million, goodwill of $6.0 million and
other intangible assets, consisting principally of an FCC license and network
affiliation agreement, of $9.0 million in connection with the transaction.

     Acquisition of KGPE(TV). On August 1, 2000, the Company purchased the
membership interests of Fisher Broadcasting -- Fresno, LLC, which owned
television station KGPE(TV), the CBS affiliate licensed to Fresno, California,
for approximately $60.0 million. The Company recorded net tangible assets with
estimated fair values aggregating $5.9 million, goodwill of $13.3 million, and
other intangible assets, consisting principally of an FCC license and network
affiliation agreement, of $40.8 million in connection with the transaction.

     Other Acquisitions. In addition to the acquisitions described above, the
Company purchased one television station in 1998, two stations in 1999, three
stations in 2000, and three outdoor advertising companies in 2000. The aggregate
purchase price and estimated fair values of the assets for these transactions
were as follows (in millions):

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                        2000      1999     1998
                                                       ------    ------    -----
<S>                                                    <C>       <C>       <C>
Net tangible assets..................................  $ 5.9     $ 2.3     $1.2
Goodwill.............................................   12.4       9.9      7.8
Other intangible assets..............................   16.5        --       --
                                                       -----     -----     ----
                                                       $34.8     $12.2     $9.0
                                                       =====     =====     ====
</TABLE>

                                       F-10
<PAGE>   54
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 4. DISCONTINUED OPERATIONS

     On December 8, 2000, the Company executed a letter of intent to sell
substantially all of the assets of its sports & entertainment operations to The
Basketball Club of Seattle LLC for approximately $200.0 million in cash and the
assumption of certain liabilities. These operations consist principally of the
Seattle SuperSonics National Basketball Association franchise, operating rights
to the Seattle Storm, a Woman's National Basketball Association franchise, and
Full House Sports & Entertainment, the Company's sports marketing business. A
definitive purchase agreement was signed on January 11, 2001 and the transaction
is expected to close by April 15, 2001. In addition, the Company is seeking to
sell separately its Boeing 727 aircraft used by the Seattle Supersonics for
transportation to and from away games. The sale of the aircraft is anticipated
to be for cash or a combination of cash and assumption of debt associated with
the aircraft and is anticipated to be completed by approximately the end of the
second quarter of 2001.

     The loss from operations of the sports & entertainment operations from
December 8 through December 31, 2000 was approximately $2.9 million, which
included net revenue of approximately $8.4 million. This loss from operations is
recorded in other current assets pending closing of the sale, at which time it
will be recognized as a reduction of the net gain anticipated from the
transaction. Net revenue included in discontinued operations was $67.5 million,
$70.6 million, and $55.1 million for 2000, 1999, and 1998, respectively.

     At December 31, 2000, assets of the sports & entertainment operations to be
sold, including the aircraft, consisted primarily of property and equipment
amounting to approximately $35.3 million. The remaining assets of the Sports &
Entertainment operations at December 31, 2000 consist principally of
receivables, prepaid expenses, and intangible assets. Liabilities at December
31, 2000 consisted primarily of a capital lease obligation and long-term debt
amounting to approximately $15.2 million.

     Interest expense included in discontinued operations is comprised of
interest on obligations related to the assets to be sold as well as interest
allocated to the sports & entertainment operations. Such interest is allocated
based on the Company's incremental borrowing rate applied to the initial
acquisition price of the Seattle SuperSonics franchise. Total interest expense
included in discontinued operations was approximately $2.2 million, $2.7
million, and $2.3 million for 2000, 1999, and 1998, respectively.

 5. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

     As of December 31, 2000 and 1999, accounts receivable includes employee
receivables of $0.5 million and $0.7 million, respectively.

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

<TABLE>
<CAPTION>
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Balance at beginning of year..........................  $ 1,865    $ 1,435    $ 1,498
Additions charged to operating expense................    2,155      1,611      1,023
Write-offs of receivables, net of recoveries..........   (2,117)    (1,181)    (1,086)
                                                        -------    -------    -------
Balance at end of year................................  $ 1,903    $ 1,865    $ 1,435
                                                        =======    =======    =======
</TABLE>

                                       F-11
<PAGE>   55
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 6. PROPERTY AND EQUIPMENT

     At December 31, 2000 and 1999, property and equipment consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                         ESTIMATED USEFUL
                                                   2000        1999        LIFE (YEARS)
                                                 --------    --------    ----------------
<S>                                              <C>         <C>         <C>
Land...........................................  $  8,741    $  9,735
Advertising structures.........................    53,716      79,171         6 - 20
Broadcast equipment............................    70,300      57,841         6 - 20
Building and improvements......................    57,546      50,310         3 - 40
Office furniture and equipment.................    42,667      32,341         5 - 10
Transportation and other equipment.............    28,764      31,870          5 - 6
Equipment under capital leases.................     8,008       8,008             10
Construction in progress.......................    22,032      11,680
                                                 --------    --------
                                                  291,774     280,956
Less accumulated depreciation..................   121,301     138,105
                                                 --------    --------
                                                 $170,473    $142,851
                                                 ========    ========
</TABLE>

 7. INTANGIBLE ASSETS

     At December 31, 2000 and 1999, intangible assets consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                         ESTIMATED USEFUL
                                                   2000        1999        LIFE (YEARS)
                                                 --------    --------    ----------------
<S>                                              <C>         <C>         <C>
Goodwill.......................................  $248,222    $245,033        15 - 40
Broadcasting licenses..........................    58,453      19,487        15 - 30
Network affiliation agreements.................    91,881       4,278        15 - 30
Favorable leases and contracts.................     4,797      17,422        20 - 40
Other..........................................     4,323       3,112         5 - 30
                                                 --------    --------
                                                  407,676     289,332
Less accumulated amortization..................    54,544      46,955
                                                 --------    --------
                                                 $353,132    $242,377
                                                 ========    ========
</TABLE>

     The increase in intangible assets in 2000 is primarily due to the
acquisitions discussed in Note 3.

 8. DEBT

  Credit Agreements

     On January 28, 1998, the Company replaced the 1996 Credit Agreement with a
$265.0 million credit agreement (the "1998 Credit Agreement") and in October
1998 used borrowings to redeem its $120.0 million 10.75% Senior Secured Notes.
This resulted in a charge of approximately $4.3 million, net of applicable taxes
of $2.5 million, consisting of prepayment fees and the write-off of deferred
financing costs.

                                       F-12
<PAGE>   56
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     On January 22, 1999, the Company replaced the 1998 Credit Agreement with a
new $325.0 million credit agreement (the "1999 Credit Agreement"), consisting of
a $150.0 million term loan facility (the "Term Loan") and a $175.0 million
revolving credit facility (the "Revolver"), which includes up to $10.0 million
in standby letters of credit. The transaction resulted in a charge of
approximately $0.6 million, net of applicable taxes of $0.4 million, consisting
of the write-off of deferred financing costs.

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

     The Company can choose to have interest calculated at rates based on either
a base rate or LIBOR plus defined margins which vary based on the Company's
total leverage ratio. The commitment fees under the Revolver and Term Loan are
payable quarterly at a rate based on the Company's total leverage ratio. At
December 31, 2000, the weighted average interest rate of borrowings under the
1999 Credit Agreement was approximately 10.1%.

     On January 5, 2000, the Company applied proceeds from the sale of its
Florida outdoor advertising operations (as discussed in Note 3) to fully repay
outstanding borrowings under the 1999 Credit Agreement, consisting of $43.0
million under the Revolver and $150.0 million under the Term Loan. In connection
with the transaction, the Company amended the 1999 Credit Agreement to waive, on
a one-time basis, the mandatory requirement to apply 100% of net proceeds from
asset dispositions to permanently repay borrowings under the Revolver and to
provide for a new commitment amount under the Revolver of approximately $147.9
million. Additionally, the Company amended the 1999 Credit Agreement to provide
for a delayed-draw term loan facility of approximately $126.8 million (the "2000
Term Loan") allowing the Company to borrow, through no more than two separate
borrowings, the maximum amount available under the 2000 Term Loan. On September
15, 2000 the Company borrowed $54.0 million under the 2000 Term Loan to acquire
KGPE(TV).

     To accommodate recent acquisitions, particularly KGPE(TV), and the
anticipated timing of the sale of the Company's sports & entertainment
operations (Note 4), the Company amended the 1999 Credit Agreement to provide
waivers of compliance with, and to change the requirements of, certain
restrictive covenants effective for the period June 30, 2000 through April 15,
2001. The Company anticipates that it will be in compliance with these covenants
upon closing of the sale of the sports & entertainment operations. Proceeds from
the sale will be used to substantially repay amounts outstanding under the 1999
Credit Agreement. In connection with these amendments, the total available
borrowings under the 2000 Term Loan were reduced to $59.0 million and total
borrowings available under the Revolver were increased to $167.9 million.

     At December 31, 2000 and 1999, outstanding standby letter of credit
agreements totaled $1.3 million and $1.1 million, respectively.

  Senior Subordinated Notes

     On December 14, 1998, the Company issued 9% Senior Subordinated Notes due
2009 (the "9% Senior Subordinated Notes") in the aggregate principal amount of
$175.0 million. These notes bear interest at 9% which is payable semi-annually
in January and July. Principal is payable in full in January 2009. These notes
were issued under an indenture which allows for an aggregate principal amount of
up to $250.0 million and on February 24, 1999, the Company issued additional
notes in the aggregate amount of $25.0 million. In connection with the
transaction, the Company recorded a premium of $1.1 million, which is being
amortized over the remaining term of the notes. At December 31, 2000, the total
aggregate amount of 9% Senior Subordinated Notes issued and outstanding was
$200.0 million.

                                       F-13
<PAGE>   57
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     On March 15, 1999, the Company redeemed its $20.0 million outstanding
principal of the 10.48% Senior Subordinated Notes due 2000 with borrowings under
the Revolver. This transaction resulted in a charge of approximately $0.8
million, net of applicable taxes of $0.5 million, consisting of prepayment fees
and the write-off of deferred financing costs.

  Other

     On August 6, 1999, the Company received proceeds of $2.0 million upon the
termination of an interest rate swap agreement with a notional principal amount
of $70.0 million. On December 8, 2000, the Company received proceeds of $2.1
million upon the termination of its three remaining interest rate swap
agreements with notional principal amounts aggregating $130.0 million. In
connection with these transactions, the gains on the termination of these
agreements have been deferred and are being amortized as an adjustment to
interest expense over the remaining terms of the original contract lives, which
expire in October, 2001.

     Other debt consists of a capital lease obligation for equipment that will
be assumed by the buyer upon closing of the sale of the sports & entertainment
operations (Note 4), obligations under deferred compensation agreements, and
notes payable related to the acquisition of an aircraft for the Seattle
SuperSonics.

     At December 31, 2000 and 1999, long-term debt consisted of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Credit agreements...........................................  $176,300    $193,000
Senior subordinated notes...................................   200,953     201,027
Notes payable for Seattle SuperSonics aircraft..............    11,508      13,532
Capital lease obligation (net of imputed interest of $370 in
  2000 and $648 in 1999)....................................     3,736       4,782
Deferred compensation agreements............................     2,174       2,252
                                                              --------    --------
                                                               394,671     414,593
Less amounts classified as current..........................     9,232      10,832
                                                              --------    --------
                                                              $385,439    $403,761
                                                              ========    ========
</TABLE>

     Approximately $0.2 million and $0.8 million of interest was capitalized in
2000 and 1998, respectively. There was no capitalized interest in 1999.

     Future aggregate annual payments of long-term debt for the years ending
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                          CREDIT
                                         AGREEMENT    CAPITAL LEASE     OTHER
                                         AND NOTES     OBLIGATION       DEBT       TOTAL
                                         ---------    -------------    -------    --------
<S>                                      <C>          <C>              <C>        <C>
2001...................................  $  5,480        $  944        $ 2,808    $  9,232
2002...................................    29,676         1,094          2,605      33,375
2003...................................    40,470         1,698          2,881      45,049
2004...................................    50,572            --          1,335      51,907
2005...................................    50,581            --          1,192      51,773
Later years............................   200,474            --          2,861     203,335
                                         --------        ------        -------    --------
Total..................................  $377,253        $3,736        $13,682    $394,671
                                         ========        ======        =======    ========
</TABLE>

     Substantially all of the outstanding stock and material assets of the
Company's subsidiaries are pledged as collateral under the 1999 Credit
Agreement. In addition, the 1999 Credit Agreement and the indenture under the 9%
Senior Subordinated Notes restrict, among other things, the Company's
borrowings, dividend

                                       F-14
<PAGE>   58
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

payments, stock repurchases, sales or transfers of assets and contain certain
other restrictive covenants which require the Company to maintain certain debt
coverage and other financial ratios.

 9. INCOME TAXES

     Significant components of income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000       1999      1998
                                                         -------    ------    -------
<S>                                                      <C>        <C>       <C>
Current:
  Federal..............................................  $72,072    $  554    $   464
  State................................................    2,974        --        (36)
                                                         -------    ------    -------
                                                          75,046       554        428
Deferred:
  Federal..............................................   18,437     6,846     16,905
  State................................................    2,801       517      1,243
                                                         -------    ------    -------
                                                          21,238     7,363     18,148
                                                         -------    ------    -------
Income tax expense.....................................  $96,284    $7,917    $18,576
                                                         =======    ======    =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                          2000       1999      1998
                                                         -------    ------    -------
<S>                                                      <C>        <C>       <C>
Tax at U.S. statutory rate.............................  $89,292    $6,530    $16,377
Non-deductible expenses................................    1,138       659        831
State taxes and other..................................    5,854       728      1,368
                                                         -------    ------    -------
Income tax expense.....................................  $96,284    $7,917    $18,576
                                                         =======    ======    =======
</TABLE>

     At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17.7 million and alternative
minimum tax credit carryforwards of approximately $2.8 million. Due to the gain
on the sale of the Florida outdoor advertising operations in 2000, all of the
net operating loss carryforwards and alternative minimum tax credit
carryforwards will be utilized on the 2000 tax return.

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At

                                       F-15
<PAGE>   59
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2000 and 1999 significant components of the Company's deferred tax
assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            2000       1999
                                                          --------    -------
<S>                                                       <C>         <C>
Deferred tax assets:
Net operating loss carryforwards........................  $     --    $ 6,329
Litigation accrual......................................        --      3,006
Tax credit carryforwards................................        --      2,750
Capital lease obligation................................     1,355      1,817
Deferred compensation agreements........................       788        855
Other...................................................     3,855      3,723
                                                          --------    -------
Total deferred tax assets...............................     5,998     18,480
Deferred tax liabilities:
Basis difference in depreciable assets..................    12,040      8,328
Basis difference in intangible assets...................     5,734      5,707
Other...................................................     1,074         --
                                                          --------    -------
Total deferred tax liabilities..........................    18,848     14,035
                                                          --------    -------
Net deferred tax asset (liability)......................  $(12,850)   $ 4,445
                                                          ========    =======
</TABLE>

10. EMPLOYEE BENEFIT PLAN

     The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees, who may contribute
from 1% to 15% of their compensation up to a limit imposed by the Internal
Revenue Code. The Company matches participating employee contributions up to 4%
of their compensation and may also make an additional voluntary contribution to
the plan. The Company's contributions totaled $1.8 million in 2000, $1.3 million
in 1999, and $1.4 million in 1998.

11. STOCKHOLDERS' EQUITY

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

     During the third quarter of 1999, the Company issued 3,250,000 shares of
common stock at $15.25 per share pursuant to an underwritten public offering. In
conjunction with the transaction, the Company received net proceeds of
approximately $46.5 million.

     The Company had various stock purchase agreements to sell shares of its
common stock and Class B common stock to key employees and officers at fair
market value. These agreements expired in 1999. The agreements provided for
distribution of one share of Class B common stock at no extra cost to the holder
for each share of common stock at the time the shares were purchased. In 1998,
15,000 shares of common stock and 15,000 shares of Class B common stock were
purchased under these agreements. In 1999, the remaining 37,500 shares of common
stock and 37,500 shares of Class B common stock were purchased under these
agreements.

     The Company's Nonemployee-Directors' Equity Compensation Plan (the
"Directors' Plan") was approved by the Board of Directors in 1995 and the
stockholders of the Company in 1996. The Directors Plan's purpose is to allow
nonemployee directors to elect to receive directors' fees in the form of common
stock instead of cash. There are 100,000 shares of common stock authorized under
the Directors' Plan.

                                       F-16
<PAGE>   60
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     At December 31, 2000, the Company had an aggregate of 13,562,858 shares of
common stock reserved for future issuance, consisting of 11,051,200 shares
reserved for conversion of Class B common stock, 1,460,945 reserved for issuance
under the 2000 Employee Stock Purchase Plan, 970,250 shares reserved under the
Fourth Amended and Restated Employees Stock Option Plan, and 78,264 shares
reserved under the Directors' Plan.

12. STOCK OPTION PLAN

     The Company's Employees Stock Option Plan (the "Plan") was approved by the
Board of Directors and the stockholders of the Company in 1983. In 1994, the
Plan was amended to extend the term of the Plan and to increase the amount of
common stock reserved for issuance to 1,000,000 shares. On May 11, 1999, the
Company amended the Plan to increase the amount of common stock reserved for
issuance to 1,500,000 shares. As of December 31, 2000, there were 308,250 shares
of common stock available for future grants under the Plan.

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

     In 2000, 1999 and 1998, the Company recognized stock compensation expense
of $0.1 million, $0.6 million and $0.5 million, respectively. The 1999 and 1998
amounts are higher primarily due to the amendment of certain stock option
agreements.

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

<TABLE>
<CAPTION>
                                                2000                  1999                  1998
                                         -------------------   -------------------   ------------------
                                                    WEIGHTED              WEIGHTED             WEIGHTED
                                                    AVERAGE               AVERAGE              AVERAGE
                                                    EXERCISE              EXERCISE             EXERCISE
                                         OPTIONS     PRICE     OPTIONS     PRICE     OPTIONS    PRICE
                                         --------   --------   --------   --------   -------   --------
<S>                                      <C>        <C>        <C>        <C>        <C>       <C>
Options outstanding at beginning of
  year.................................   460,000    $11.95     260,000    $ 5.69    320,600    $4.75
Granted................................   212,000     16.69     210,000     19.50         --       --
Exercised..............................   (10,000)     3.44     (10,000)     7.63    (60,600)    0.69
                                         --------              --------              -------
Options outstanding at end of year.....   662,000    $13.60     460,000    $11.95    260,000    $5.69
Exercisable at end of year.............   110,000    $ 3.44          --        --     10,000    $7.63
Weighted average fair value of options
  granted during year..................  $   8.07              $  12.05                   --
</TABLE>

     Exercise prices for options outstanding at December 31, 2000 ranged from
$3.44 to $19.50. A summary of options outstanding as of December 31, 2000 is as
follows:

<TABLE>
<CAPTION>
                               WEIGHTED-AVERAGE
                                  REMAINING         WEIGHTED-
   RANGE OF        OPTIONS     CONTRACTUAL LIFE      AVERAGE
EXERCISE PRICE   OUTSTANDING       (YEARS)        EXERCISE PRICE   EXERCISABLE
--------------   -----------   ----------------   --------------   -----------
<S>              <C>           <C>                <C>              <C>
$ 0.00 - $ 3.44..   110,000          4.1              $3.44          110,000
$ 3.45 - $ 7.63..   130,000          5.0               7.63               --
$ 7.64 - $16.69..   212,000          9.1              16.69               --
$16.70 - $19.50..   210,000          8.5              19.50               --
                   -------                                           -------
$ 0.00 - $19.50..   662,000          7.3              13.60          110,000
                   =======                                           =======
</TABLE>

     As required by Financial Accounting Standards Board Statement No. 123, the
pro forma information regarding net income and earnings per share has been
calculated as if the Company had accounted for its

                                       F-17
<PAGE>   61
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

employee stock options under the fair value method of that statement. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000 and 1999, respectively (there were no grants
in 1998) and dividend yield of 0%; expected volatility of 29% and 52%; risk-free
interest rate of 6.6% and 5.7%; and a weighted-average expected life of the
options of 7.5 years.

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

<TABLE>
<CAPTION>
                                                          2000       1999      1998
                                                        --------    ------    -------
<S>                                                     <C>         <C>       <C>
Pro forma net income..................................  $147,933    $6,103    $18,971
Pro forma net income per common share.................  $   4.23    $ 0.19    $  0.60
Pro forma net income per common share -- assuming
  dilution............................................  $   4.21    $ 0.18    $  0.60
</TABLE>

     The pro forma amounts above may not be representative of the pro forma
effect on reported net income in future years because options vest over several
years, additional options may be granted each year, and assumptions can change.

13. COMMITMENTS AND CONTINGENCIES

     The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its operations, including such
matters as contract and lease disputes and complaints alleging employment
discrimination. In addition, the Company participates in various governmental
and administrative proceedings relating to, among other things, condemnation of
outdoor advertising structures without payment of just compensation and matters
affecting the operation of broadcasting facilities. The Company believes that
the outcome of any such pending claims or proceedings individually or in the
aggregate, will not have a material adverse effect upon its business or
financial condition, except for the matters discussed in Note 14.

     The Company has employment contracts with certain employees, including
basketball coaches and players of the Seattle SuperSonics, extending beyond
December 31, 2000. Most of these contracts require that payments continue to be
made if the individual should be unable to perform because of death or
disability. The contracts related to the Seattle SuperSonics will be assumed by
the buyer upon closing of the sale of the sports & entertainment operations
(Note 4). Future minimum obligations under these contracts for the years ending
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                        SEATTLE SUPERSONICS      OTHER
                                             CONTRACTS         CONTRACTS     TOTAL
                                        -------------------    ---------    --------
<S>                                     <C>                    <C>          <C>
2001..................................       $ 38,706           $ 5,764     $ 44,470
2002..................................         30,800             3,581       34,381
2003..................................         25,463             2,588       28,051
2004..................................         16,729             1,800       18,529
2005..................................         13,714               150       13,864
Later years...........................         10,868               154       11,022
                                             --------           -------     --------
                                             $136,280           $14,037     $150,317
                                             ========           =======     ========
</TABLE>

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

                                       F-18
<PAGE>   62
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company is required to make future minimum payments for equipment and
facilities under non-cancelable operating lease agreements and broadcast
agreements which expire in more than one year for the years ending December 31
as follows (in thousands):

<TABLE>
<CAPTION>
                                          EQUIPMENT/FACILITIES    BROADCAST OBLIGATIONS
                                          --------------------    ---------------------
<S>                                       <C>                     <C>
2001....................................          7,821                   10,904
2002....................................          6,630                    4,293
2003....................................          5,639                    1,271
2004....................................          5,152                      806
2005....................................          4,700                      546
Later years.............................         15,312                       20
                                                -------                  -------
                                                $45,254                  $17,840
                                                =======                  =======
</TABLE>

     Included in the operating leases is a lease for a high-definition mobile
television broadcast unit which contains renewal and purchase options in 2002,
2003 and 2004, and a purchase option in 2005. In the event the Company elects
not to exercise a renewal option, the Company must guarantee a minimum residual
value to the lessor.

     Rent expense for operating leases aggregated $9.1 million in 2000, $5.8
million in 1999, and $5.2 million in 1998. Broadcasting film and programming
expense aggregated $11.4 million in 2000, $11.2 million in 1999, and $10.4
million in 1998.

     The Company incurred transportation costs under an operating lease
agreement of $1.3 million in 1998 to a company controlled by the Company's major
stockholder. There were no such amounts in 2000 or 1999. Principal amounts
outstanding on loans to the Company's major stockholder was approximately $0.1
million at December 31, 2000. There were no outstanding amounts at December 31,
1999.

14. LITIGATION ACCRUAL

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

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

     On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing, which was held on April 23, 1999. On
June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. The Company petitioned for review of this decision by
the U.S. Supreme Court, which was denied without comment by the Court on January
18, 2000. Accordingly, the Company paid awarded damages, accrued interest
thereon, and plaintiff attorney's fees, of approximately $7.5 million in the
first quarter of 2000.

                                       F-19
<PAGE>   63
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. TELEVISION BROADCASTING GROUP RESTRUCTURING

     On April 6, 1999, the Company announced the launch of Digital
CentralCasting(TM), a digital broadcasting system which allows the Company to
consolidate back-office functions such as operations, programming, advertising
scheduling, and accounting for all of the television stations within a regional
group at one station. To implement this strategy, the Company organized 16 of
the television stations it owns and/or programs into the following three
regional station groups: New York (WIXT, WOKR, WIVT, WBGH-CA, WUTR, WETM, and
WWTI), Central California (KCOY, KKFX-CA, KGPE, and KGET), and North Coast
(KCBA, KION, KMTR, KVIQ, and KFTY).

     The Company expects to complete the implementation of Digital
CentralCasting(TM) for all of its television station groups in the first quarter
of 2001. The Company recorded a $1.1 million restructuring charge in the second
quarter of 1999 relating to the implementation of Digital CentralCasting(TM).
This restructuring charge consisted primarily of costs associated with employee
staff reductions, contract terminations, legal, and other costs associated
directly with the restructuring. As of December 31, 2000, termination benefits
of approximately $0.4 million, representing approximately 44 employees, had been
paid and charged to the restructuring accrual. Forty-five total employees are
estimated to be terminated in connection with the restructuring.

16. INDUSTRY SEGMENT INFORMATION

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

     Selected financial information for these segments for the years ended
December 31, 2000, 1999 and 1998 is presented as follows (in thousands):

<TABLE>
<CAPTION>
                                           OUTDOOR     TELEVISION       RADIO       INTERACTIVE
                                            MEDIA     BROADCASTING   BROADCASTING      MEDIA        TOTAL
                                           --------   ------------   ------------   -----------   ---------
<S>                                        <C>        <C>            <C>            <C>           <C>
2000
Net revenue..............................  $ 89,309     $107,615       $ 27,589       $   51      $ 224,564
Segment operating expenses...............   (51,364)     (86,841)       (19,018)        (451)      (157,674)
                                           --------     --------       --------       ------      ---------
Segment Operating Cash Flow..............  $ 37,945     $ 20,774       $  8,571       $ (400)     $  66,890
                                           ========     ========       ========       ======      =========
Segment assets...........................  $109,294     $392,230       $ 62,684       $1,156      $ 565,364
Capital expenditures.....................  $  4,235     $ 17,535       $  7,461       $  978      $  30,209
1999
Net revenue..............................  $ 98,751     $ 81,669       $ 27,163       $   --      $ 207,583
Segment operating expenses...............   (56,877)     (69,608)       (15,563)          --       (142,048)
                                           --------     --------       --------       ------      ---------
Segment Operating Cash Flow..............  $ 41,874     $ 12,061       $ 11,600       $   --      $  65,535
                                           ========     ========       ========       ======      =========
Segment assets...........................  $ 92,911     $273,072       $ 59,873       $   --      $ 425,856
Capital expenditures.....................  $  7,346     $  7,765       $  3,780       $   --      $  18,891
1998
Net revenue..............................  $108,560     $ 68,467       $ 24,474       $   --      $ 201,501
Segment operating expenses...............   (65,605)     (55,996)       (14,819)          --       (136,420)
                                           --------     --------       --------       ------      ---------
Segment Operating Cash Flow..............  $ 42,955     $ 12,471       $  9,655       $   --         65,081
                                           ========     ========       ========       ======      =========
Segment assets...........................  $ 75,113     $ 87,308       $ 59,650       $   --      $ 222,071
Capital expenditures.....................  $  6,986     $  4,415       $  1,389       $   --      $  12,790
</TABLE>

                                       F-20
<PAGE>   64
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     A reconciliation from the segment information to the consolidated balances
for Segment Operating Cash Flow, segment assets, and segment capital
expenditures is set forth below (in thousands):

<TABLE>
<CAPTION>
                                                           2000       1999       1998
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Segment Operating Cash Flow............................  $ 66,890   $ 65,535   $ 65,081
Corporate overhead.....................................   (23,792)   (16,142)   (14,491)
                                                         --------   --------   --------
EBITDA.................................................    43,098     49,393     50,590
Depreciation and amortization..........................   (39,161)   (26,042)   (14,078)
Interest expense.......................................   (25,795)   (32,959)   (22,792)
Net gain on dispositions of assets.....................   227,650     28,999     33,524
Stock compensation expense.............................      (100)      (559)      (452)
Equity in losses of affiliates.........................      (801)      (174)        --
                                                         --------   --------   --------
Income from continuing operations before income taxes
  and extraordinary item...............................  $254,891   $ 18,658   $ 46,792
                                                         ========   ========   ========
Segment assets.........................................  $565,364   $425,856   $222,071
Corporate assets.......................................    34,996     40,551     45,899
Assets of discontinued operations......................    66,947     62,029     48,156
                                                         --------   --------   --------
Consolidated total assets..............................  $667,307   $528,436   $316,126
                                                         ========   ========   ========
Segment capital expenditures...........................  $ 30,209   $ 18,891   $ 12,790
Corporate capital expenditures.........................     7,548      4,545      3,082
Capital expenditures of discontinued operations........     3,601      5,678     16,847
                                                         --------   --------   --------
Consolidated capital expenditures......................  $ 41,358   $ 29,114   $ 32,719
                                                         ========   ========   ========
</TABLE>

17. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

     The Company's results of operations may vary from quarter to quarter due in
part to the timing of acquisitions and to seasonal variations in the operations
of the outdoor media and television broadcasting segments. In particular, the
Company's net revenue and EBITDA historically have been affected positively by
increased advertising activity in the second and fourth quarters.

     The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 2000 and 1999 (in thousands, except
per share amounts). Net revenue, EBITDA, and income

                                       F-21
<PAGE>   65
                            THE ACKERLEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(loss) from continuing operations have been adjusted from amounts reported
previously to reflect the accounting for the sports & entertainment operations
as a discontinued operation.

<TABLE>
<CAPTION>
                                                      FIRST      SECOND      THIRD     FOURTH
                                                     QUARTER     QUARTER    QUARTER    QUARTER
                                                     --------    -------    -------    -------
<S>                                                  <C>         <C>        <C>        <C>
2000
Net revenue........................................  $ 46,769    $60,226    $57,296    $60,273
EBITDA.............................................     6,480     14,354     10,963     11,301
Income (loss) from continuing operations...........   164,677(1)    (131)(1)  (3,494)   (2,445)(1)
Income (loss) from discontinued operations.........       574     (2,107)    (2,744)    (5,430)
Net income (loss)..................................   165,251     (2,238)    (6,238)    (7,875)
Net income (loss) per share........................      4.73       (.06)      (.18)      (.22)
Net income (loss) per share -- assuming dilution...      4.72       (.06)      (.18)      (.22)
1999
Net revenue........................................  $ 41,462    $54,108    $54,046    $57,967
EBITDA.............................................     4,950     13,701     14,323     16,419
Income (loss) from continuing operations before
  extraordinary item...............................    (3,575)    16,418(1)  (1,311)      (791)
Income (loss) from discontinued operations.........     1,027       (846)    (2,431)      (528)
Extraordinary loss.................................    (1,373)(2)      --        --         --
Net income (loss)..................................    (3,921)    15,572     (3,742)    (1,319)
Net income (loss) per share........................      (.12)       .49       (.11)      (.04)
Net income (loss) per share -- assuming dilution...      (.12)       .49       (.11)      (.04)
</TABLE>

---------------
(1) Includes net gain on dispositions of assets, as discussed in Note 3.

(2) Represents loss on debt extinguishment, as discussed in Note 8.

                                       F-22