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

                                    FORM 10-K

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934
                   For the fiscal year ended December 31 1997
                                       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)

           Delaware                                             91-1043807
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)


      1301 Fifth Avenue, Suite 4000
           Seattle, Washington                                     98101
(Address of principal executive offices)                        (Zip code)

Registrant's telephone number, including area code: (206) 624-2888

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                         Name of exchange on which registered

   Common Stock                                 New York Stock Exchange, Inc.

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 [ ]  No [X]

     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 13, 1998 was $214,153,782.

     The number of shares  outstanding  of each of the  registrant's  classes of
common stock as of March 13, 1998 was:

           Title of Class                           Number of Shares Outstanding
    Common Stock, $.01 Par Value                          20,572,213 shares
Class B Common Stock, $.01 Par Value                      11,053,270 shares

              DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the  Proxy  Statement  relating  to  the  Annual  Meeting  of
Shareholders to be held on May 4, 1998, are incorporated by reference under Part
III of this Report.



<PAGE>


                                     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, through our operating subsidiaries,  engages in
three principal businesses:

     o    Out-of-Home  Media.  Through our  out-of-home  division,  AK Media, we
          engage in  outdoor  advertising  in  Florida,  Massachusetts,  and the
          Pacific Northwest and airport advertising in approximately 80 airports
          across the United States.

     o    Broadcasting.  We engage in television and radio  broadcasting  in the
          states of California,  Colorado, New York, and Washington, through our
          direct and indirect interests in ten broadcast  stations,  and through
          time brokerage agreements with three other broadcast stations.

     o    Sports & Entertainment. Our sports and entertainment division includes
          ownership  of the Seattle  SuperSonics,  a franchise  of the  National
          Basketball  Association  ("NBA").  In  addition,  we  engage in sports
          marketing  and  promotion  of the  SuperSonics  through our Full House
          Sports & Entertainment division.

Business Strategy

     Our primary strategy is to continue to grow our company by investing in the
expansion  of our  existing  operations  through  additions  and upgrades to our
facilities  and   programming.   We  also  look  to  grow  our  company  through
opportunistic  acquisitions in our existing  business lines and by exploring new
synergistic  business  ventures.  In  addition,  we  continue  to  invest in our
communication  and  information   technology   infrastructures  to  enhance  our
competitive  position.  Our strategies for our three principal businesses are as
follows:

     Out-of-Home  Media.  Our  primary  strategy  is to  continue to upgrade the
     quality of our outdoor advertising signs and airport displays. We will also
     seek to acquire  additional  displays through  acquisitions in our existing
     and  new  geographic  markets.  Our  goal  is to  maintain  the  historical
     operating  margins of our  out-of-home  media business while  continuing to
     focus on increasing sales through,  among other things,  the development of
     new revenue categories and aggressive pricing.

     Broadcasting.  We  continue  to focus  on  gaining  share  in our  existing
     television  broadcasting markets by expanding the local news programming of
     our network affiliated stations.  We have focused on local news programming
     because of its


                                       1
<PAGE>


     relatively high viewership  level,  its general appeal to advertisers,  and
     the  effects  of  viewership  habits  both  prior to and  after  each  news
     telecast. This is intended to allow us to leverage the success of our local
     news  programming  to expand the viewership of our other  programming.  Our
     investments  in  local  news   programming  are  intended  to  enhance  our
     competitive  position and to improve our operating margins.  In addition to
     our focus on local news programming,  we continue to examine  opportunities
     to  acquire  strategically-positioned  television  stations,  generally  in
     Designated  Market Area ("DMA")  markets  ranking from 50 to 200. DMA rank,
     the standard  market  measure used by the media  industry,  is a measure of
     market size in the United  States based on  population  as reported upon by
     the Nielsen Rating  Service.  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.

     Sports & Entertainment.  The Seattle SuperSonics are the cornerstone of our
     sports  and  entertainment  operations.  Our  primary  goal is to produce a
     quality  product.  This product not only refers to having a successful team
     but also  considers the  entertainment  value of events taking place during
     the course of a SuperSonics game and the quality of service provided to our
     customers.  These  efforts  are  coordinated  by our  Full  House  Sports &
     Entertainment  division  which  leverages our expertise in our  out-of-home
     media and  broadcasting  businesses  to enhance  our sports  marketing  and
     promotion  of the Seattle  SuperSonics.  In  addition,  Full House Sports &
     Entertainment is expanding the non-traditional  marketing  opportunities it
     provides for team sponsors through a variety of community programs.

OUT-OF-HOME MEDIA

     Our out-of-home  media business segment sells  advertising space on outdoor
displays  and on displays  located in airport  terminals.  National  advertisers
generally  categorize  outdoor and airport  advertising as  "out-of-home  media"
because, unlike radio and television  broadcasting,  newspapers,  and magazines,
such advertising is disseminated outside the home.

Outdoor Advertising

     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.

     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


                                       2
<PAGE>


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.

     We believe that outdoor  advertising has other advantages for certain types
of  advertisers.  For example,  we believe  that  restaurants,  motels,  service
stations,   and  similar  businesses  find  outdoor   advertising   particularly
attractive.  Additionally,  repeated viewings by people traveling the same route
make outdoor advertising  especially  suitable for companies,  such as financial
services companies, insurance companies, soft drink manufacturers, and radio and
television stations, that sell their products by promoting a particular image.

     While outdoor advertising has been a stable source of revenue 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
telecommunications companies.

     Operations.  We operate  primarily  in the  greater  metropolitan  areas of
Seattle  and  Tacoma,  Washington;   Portland,  Oregon;  Boston  and  Worcester,
Massachusetts;  and Miami,  Fort  Lauderdale and West Palm Beach,  Florida.  For
purposes of  defining  our  out-of-home  markets,  we  consider  Seattle/Tacoma,
Boston/Worcester and Miami/Fort  Lauderdale each to be single markets.  Based on
the Traffic Audit  Bureau's  Summary of Audited  Markets  issued in May 1996, AK
Media had more outdoor  advertising  displays in each of these  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, increased demand brought
about by creative marketing, and increased rates.

     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:


                                       3
<PAGE>


     o    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
          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.

     o    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.

     o    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.

     At December 31, 1997,  we had 1,363  bulletins,  6,122  posters,  and 1,353
junior  posters.  The following  chart  itemizes  markets we serve and their DMA
rank:

                                           DMA                          Junior
          Market                          Rank(1)  Bulletins  Posters   Posters
          ------                          -------  ---------  -------   -------
Northwest:
         Seattle/Tacoma ................    12        213      1,666       315
         Portland ......................    24        146      1,130         0
Boston:
         Boston/Worcester ..............     6        294      1,881        83
Florida:
         Miami/Fort Lauderdale .........    16        515      1,087       955
         West Palm Beach ...............    44        195        358         0

----------
(1) Source: Stations Volume of the Television-Cable Fact Book, 1997 Edition.

     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.


                                       4
<PAGE>


     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.

     A broad  cross-section  of  advertisers  utilize  our  outdoor  advertising
displays,  including tobacco, food and beverage,  financial service,  automotive
and retail  companies.  We have actively  sought to reduce the percentage of our
revenue  attributable to tobacco  products and to any individual  company.  As a
result of these efforts,  tobacco advertisers  accounted for approximately 5% of
our  total  consolidated  revenue  in 1997,  and no  single  outdoor  advertiser
accounted for more than 3% of our total  consolidated  revenue in that year. See
"Regulation" below.

     Competition.   We  compete  directly  with  other  out-of-home  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 (meaning the cost per 1,000  impressions)  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.

     We  believe  that our  outdoor  advertising  division  is the leader in the
geographic  markets  where it  operates.  We believe  that AK Media has the most
outdoor  advertising  structures in each of the  geographic  markets in which it
operates,  based on the Traffic Audit Bureau's Summary of Audited Markets issued
in May 1996.

     Regulation.  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.

     Advertising  for  tobacco  products  has  increasingly  been the subject of
regulation.  In that  regard,  we  voluntarily  agreed  with  the  King  County,
Washington  government to eliminate all tobacco  advertising  on our  billboards
effective  January 1, 1998. In addition,  in a recent  tobacco  settlement,  the
State of Florida eliminated all tobacco advertising on billboards throughout the
state.

     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.


                                       5
<PAGE>


Airport Advertising

     Industry  Overview.   Almost  all  airports  in  the  United  States  grant
franchises  for  advertising  services.  According to Audits & Surveys,  January
1995, airport advertising is particularly  attractive to advertisers targeting a
relatively  affluent  audience  with  travel-related  needs.  The  U.S.  airport
advertising  business was dominated by seven  competitors,  of which our airport
advertising  business  was the  largest  by a  significant  margin  based on the
passenger  traffic  in  airports  served,  according  to the ACI North  American
Traffic  Report  of  December   1996.  We  engage  in  airport   advertising  at
approximately 80 airports across the United States. See "Competition" below.

     Franchise Agreements.  In order to sell advertising in airports, an airport
advertising  company  must  execute a  franchise  agreement  with local  airport
authorities.  Franchise  agreements  essentially  authorize airport  advertising
companies to install, maintain and sell advertising space on advertising display
units in an  airport's  terminal.  Many  airport  authorities  have  established
advertising  guidelines for the location and content of  advertising  materials.
Some airport  authorities  retain the right to approve all advertising  displays
prior to their installation.

     Airport franchise  agreements are individually  negotiated with authorities
managing  airport  facilities,  usually a county,  city,  or other  governmental
authority.  In some  instances,  the  airport  advertising  company  enters into
agreements with individual  airlines  maintaining  separate terminal  facilities
under terms similar to those negotiated with the relevant airport authority. The
franchise  agreements typically have an initial term of three to five years, and
require the payment of a  concession  fee to the  airport  authority  based on a
negotiated  percentage  of  revenue  derived  from  advertising  in the  airport
facility.  Many  franchise  agreements  also require  guaranteed  minimum annual
payments  to be made in the  event the fees  otherwise  payable  to the  airport
authority are less than such minimum amount. Typically, at the conclusion of the
initial  franchise term, the franchise is either extended for an additional term
or  indefinitely,  on an at-will  basis,  or subjected to a competitive  bidding
process.

     Operations.  As previously  indicated,  according to the ACI North American
Traffic  Report of  December  1996,  we are the  largest  owner and  operator of
airport advertising  displays in the United States. At December 31, 1997, we had
approximately  3,900  advertising  display  units in  approximately  80  airport
terminals  throughout the United States,  including  principal  airports serving
Washington, D.C., Miami, Houston, St. Louis, and Seattle.

     Airport   advertising  display  units  generally  consist  of  freestanding
displays  (usually  4 x 4 feet in size,  with  some 8 x 8 feet or 10 x 20 feet),
interior-lighted  units  (usually 3 x 5 feet),  and multiple  display  hotel and
motel  reservation   boards  with  direct  telephone  lines  to  the  advertised
facilities. With the permission of the governing authority, we may install other
types of  display  units at an  airport.  We sell  advertising  space on airport
advertising display units for periods ranging from one month to one year.

     Sales and  Marketing.  We sell  airport  advertising  space to national and
local  advertisers at rates based on passenger  traffic surveyed at the relevant
airport.  We sell advertising space on


                                       6
<PAGE>


our  advertising  display  units  directly  to  advertisers,  and  also  sell to
advertising  agencies and specialized  media buying services acting on behalf of
advertisers.   A  broad   cross-section  of  advertisers   utilize  our  airport
advertising  services,  including hotels,  motels,  automobile rental companies,
media and  telecommunication  companies,  and financial services companies.  Our
largest  airport  advertising  customer  accounted for less than 1% of our total
consolidated revenue in 1997.

     Competition.  We compete directly for airport franchises with other airport
advertising  companies,  and indirectly  with other types of  advertising  media
companies,   including  television,   radio,  newspapers,   magazines,   outdoor
advertising,  transit advertising,  yellow page directories,  direct mail, local
cable systems, and satellite broadcast systems.  Substantial  competition exists
among all advertising media on a "cost-per-rating-point" basis (meaning the cost
per 1,000  impressions)  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.

     Airport advertising  franchises are typically awarded following competitive
bidding.  Factors  considered in the bidding  process  include the amount of any
guaranteed  minimum  payment  offered by the  bidder,  the  percentage  of gross
revenue  to be paid to the  airport  authority,  the  bidder's  ability  to meet
specialized needs and the airport  authorities'  other  specifications,  and the
bidder's reputation and experience.

     We believe  that our  position  as an industry  leader,  our history in the
business,  our reputation for quality service and reliability,  and the size and
expertise of our sales force generally provides us with a competitive  advantage
in airport advertising.  Our airport advertising division operates in 52% of the
top 50  airports  and in 53% of the top 100  airports in the United  States,  as
reflected in ACI North  American  Traffic  Report of December  1996 (which ranks
airports  based on  passenger  traffic).  In  contrast,  our nearest  competitor
provided airport  advertising  services in 18% of the top 50 airports and in 26%
of the top 100 airports in the United States.

BROADCASTING

     Our broadcasting  operations  involve the sale of air time to a broad range
of  national,  regional,  and local  advertisers.  We operate  nine  stations in
markets that offer a large and affluent  population  base that is  attractive to
many advertisers.

Television

     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").  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.


                                       7
<PAGE>


     Advertising  rates  are based  upon (i) a  program's  popularity  among the
viewers whom an  advertiser  wishes to attract,  (ii) the number of  advertisers
competing for the available time,  (iii) the size and demographic  makeup of the
market, and (iv) 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) has a
significant  impact on a station's revenue,  expenses and operations.  A typical
affiliate  receives  the  majority  of its  daily  programming  from a  network.
Networks provide programming,  together with 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.

     Operations.  We currently operate nine television  stations  throughout the
United  States.  We  operate  three of these  stations  through  time  brokerage
agreements  with the owners;  the  remainder  are  company-owned  stations.  The
following table sets forth  information with respect to our television  stations
and the markets in which they operate.

<TABLE>
<CAPTION>
                                                                                              No. of
                                                     Date                                   Commercial
                                                   Acquired                     DMA         TV Stations
                                      Call           or           Network      Market        Ranked in
Market                               Letters      Affiliated    Affiliation    Rank(1)        Market(2)       Frequency(3)
------                               -------      ----------    -----------    -------       ----------      ------------
<S>                                 <C>           <C>               <C>         <C>            <C>               <C>
Syracuse, New York................    WIXT         May 1982         ABC          68            3 VHF             VHF
                                                                                               2 UHF(4)

Binghamton, New York..............    WIVT        July 1997         ABC         152            1 VHF             UHF
                                    (formerly        (5)                                       2 UHF
                                      WMGC)

Utica, New York...................    WUTR        June 1997         ABC         166            1 VHF             UHF
                                                     (6)                                       2 UHF


Colorado Springs/Pueblo, Colorado.    KKTV         January          CBS          96            3 VHF             VHF
                                                    1983                                       1 UHF(7)

Bakersfield, California...........    KGET         October          NBC         132            4 UHF(8)          UHF
                                                    1983

Vancouver, British Columbia and
portions of  Seattle, Washington
(station located in Bellingham,
Washington).......................    KVOS        June 1985         None         (9)            (9)              VHF

Salinas/Monterey, California......    KCBA        June 1986         FOX         122            2 VHF             UHF
                                      KION        April 1996        CBS                        3 UHF(11)         UHF
                                    (formerly        (10)
                                      KCCN)

Santa Rosa, California............    KFTY        April 1996        None          5            5 VHF             UHF
                                                                                              11 UHF
</TABLE>

----------
(1)  Source:  Stations  Volume of the Television  Cable Fact Book, 1997 Edition.
     Market size is based on population.
(2)  Source:  Stations  Volume of the Television  Cable Fact Book, 1997 Edition.
     The  number  of  stations  listed  does  not  include  public  broadcasting
     stations,  satellite stations or translators which rebroadcast signals from
     distant  stations,  and also may not include  smaller  television  stations
     whose rankings fall below reporting thresholds.


                                       8
<PAGE>


(3)  Technical factors, such as station power, antenna location,  and height and
     topography  of the  area,  determine  the  geographic  market  served  by a
     television  station.  In general,  a UHF station  requires greater power or
     antenna height to cover the same area as a VHF station.
(4)  Two  additional  UHF channels have been  allocated in the Syracuse  market;
     however,  there has been no  construction  activity to date with respect to
     these channels.
(5)  We have entered into a purchase agreement for WIVT (formerly WMGC). Pending
     approval of this acquisition by the FCC, we are operating the station under
     a time brokerage  agreement with the current owner. The date in this column
     reflects the date the time  brokerage  agreement was entered  into.  See "-
     Acquisitions and Time Brokerage Agreements" below.
(6)  We do not own WUTR but operate the station under a time brokerage agreement
     with the current owners. The date in this column reflects the date the time
     brokerage  agreement  was  entered  into.  See  "-  Acquisitions  and  Time
     Brokerage Agreements" below.
(7)  Two   additional   UHF  channels  have  been   allocated  in  the  Colorado
     Springs/Pueblo market;  however, there has been no construction activity to
     date with respect to these channels.
(8)  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.
(9)  KVOS serves  primarily the Vancouver,  British  Columbia market (located in
     size,  according  to the  Nielsen  Rating  Service,  between the markets of
     Denver, Colorado and Pittsburgh,  Pennsylvania,  which have DMA rankings of
     18 and 19, respectively),  and a portion of the Seattle,  Washington market
     (DMA rank 12) and the Whatcom  County,  Washington  market.  The  station's
     primary competition consists of 5 Canadian stations.
(10) We do not own KION but operate the station under a time brokerage agreement
     with the current owner.  The date in this column reflects the date the time
     brokerage  agreement  was  entered  into.  See  "-  Acquisitions  and  Time
     Brokerage Agreements" below.
(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.

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

     Acquisitions and Time Brokerage  Agreements.  We seek to acquire television
broadcast  stations  generally  in DMA markets  ranking  from 50 to 200. We also
enter into time brokerage


                                       9
<PAGE>


agreements  with  owners of  television  stations.  Under those  agreements,  we
provide  programming  and sales  services and make  monthly  payments to station
owners in exchange for the right to receive  revenues from network  compensation
and  advertising  sold by the  stations.  Over the  past  three  years,  we have
acquired,  or entered into time brokerage  agreements to operate,  the following
stations:

     o On April 2, 1996 we  purchased  the assets of  television  station  KFTY,
licensed to Santa Rosa, California, for approximately $7.8 million.

     o On April 24, 1996, we entered into a time brokerage agreement with Harron
Television of Monterey,  the owner of television  station KION  (formerly  KCCN)
licensed to Monterey,  California. In conjunction with the transaction,  we paid
Harron  Television  approximately  $5.6  million for an option to  purchase  the
station's assets and guaranteed debt of Harron  Television in the amount of $3.7
million at December  31,  1997.  We may exercise the option at any time prior to
April 17, 1999 by delivering notice and without any additional  payments.  Under
current FCC rules,  however, we cannot acquire KION and continue to own KCBA. If
we do not  exercise our option,  this time  brokerage  agreement  will expire in
April 1999.

     o On June 30, 1997, we entered into a time  brokerage  agreement with Utica
Television  Partners,  L.L.C.,  the owner of television station WUTR licensed to
Utica,  New York. In conjunction  with that  transaction  and in exchange for an
option to purchase the station's  assets, we guaranteed debt of Utica Television
Partners in the amount of $7.5 million at December 31, 1997. We may exercise the
option at any time prior to May 26,  2006 by  delivering  notice and without any
additional  payments.  Under current FCC rules,  however, we cannot acquire WUTR
and continue to own WIXT. If we do not exercise our option,  this time brokerage
agreement will expire in May 2006.

     o On July 28, 1997, we entered into a purchase  agreement with US Broadcast
Group,  L.L.C. and US Broadcast Group,  L.P.I, owners of television station WIVT
(formerly WMGC), licensed to Binghamton,  New York, to acquire all the station's
assets for $9.0 million and began  operating the station pending closing under a
time  brokerage  agreement.  Our  acquisition  of this station is subject to FCC
approval,  which we have requested.  The time brokerage agreement  terminates on
July 28,  1998,  subject  to  automatic  extension  until such time as either we
acquire the  station or the  purchase  agreement  terminates.  Either  party may
terminate the purchase agreement if closing has not occurred by August 1998.

     Smith Broadcasting of New York, Inc., licensee of television stations WKTV,
Utica, New York and WETM-TV,  Elmira,  New York, and low-power  station WBGH-LP,
Binghamton,  New York,  filed a Petition to Deny our application to acquire WIVT
with the FCC. We believe  that the  Petition  to Deny is without  merit and have
filed an  Opposition  to the Petition to Deny with the FCC.  While we anticipate
receiving FCC consent to the  transaction  and closing the  acquisition in 1998,
there can be no assurance that FCC consent will be forthcoming.


                                       10
<PAGE>


     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  1997,  local  spot or  schedule  advertising,  which is sold by our
personnel at each  broadcast  station,  accounted for  approximately  43% of our
television stations' total revenue. National spot or schedule advertising, which
is  sold   primarily   through   national  sales   representative   firms  on  a
commission-only  basis,  accounted  for  approximately  53%  of  our  television
stations' total revenue.

     We also receive revenue from our network affiliations.  The networks pay us
an  hourly  rate  that  is tied to the  number  of  network  programs  that  our
television  stations  broadcast.  Hourly rates are established in our agreements
with the networks and are subject to change by the networks.  We have the right,
however,  to terminate a network  agreement if the network effects a decrease in
hourly  rates.  Overall,  network  compensation  revenue  was not a  significant
portion of our television stations' total revenue for 1997.

     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 (meaning the cost per 1,000 impressions) 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.

     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.


                                       11
<PAGE>


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.  Three of the four  network-affiliated  television
stations we own rank number one in their respective  geographic markets in local
news ratings  points  (ratio of the number of viewers of a station's  local news
program to total  viewers)  delivered,  according to the  November  1997 Nielsen
Station Index.

Radio

     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
1997, approximately 72% 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 one radio station (KHHO (AM) in Tacoma,  Washington) and
hold an interest in New Century Seattle Partners,  L.P.  ("Partnership"),  which
owns and  operates  three  radio  stations  (KJR (AM),  KJR-FM and KUBE (FM)) in
Seattle,  Washington.  Century  Management,  Inc.,  the  sole  general  partner,
controls the operations of the Partnership's three stations.

     In  February  1998,  the  Partnership   redeemed  the  limited  partnership
interests of two limited partners, and satisfied certain other obligations,  for
$18.0 million. We are now the sole limited partner.  The Partnership has entered
into an agreement  to redeem the general  partner's  interest for  approximately
$17.7 million,  following  which we will be the sole owner of KJR (AM),  KJR-FM,
and KUBE  (FM).  The  redemption  requires  approval  of the FCC,  which we have
requested.  We currently anticipate receiving the FCC's consent and closing this
transaction in 1998.


                                       12
<PAGE>


     The  following  table sets forth  certain  information  with respect to the
radio stations KJR (AM), KJR-FM, KUBE (FM), and KHHO (AM):

<TABLE>
<CAPTION>

                                                                                                          Radio Station
                                                                 Radio                      No. of          Format and
                                                                Station        MSA        Commercial         Primary
                                                                 Power       Market     Radio Stations     Demographic
           Market              Call Letters   Date Acquired     (Watts)      Rank(1)     in Market(1)         Target
           ------              ------------   -------------     -------      -------     ------------         ------
<S>                              <C>           <C>             <C>             <C>           <C>          <C>
Seattle/Tacoma, Washington       KJR (AM)        May 1984         5,000        13            11 AM         Sports Talk;
                                                   (2)                                                      Men 25-54
                                                                                                               (3)

                                 KJR-FM        October 1987     100,000                      20 FM        Classic Hits;
                                    (4)            (2)                                                     Adults 25-54

                                 KUBE (FM)      July 1994       100,000                                        Top 40
                                                   (5)                                                    Contemporary Hit
                                                                                                               Radio;
                                                                                                           Persons 18-34

                                 KHHO (AM)      March 1998       10,000                                     Sports Talk;
                                                                (daytime)                                    Men 24-54
                                                                  1,000
                                                               (nighttime)
</TABLE>

----------
(1)  Source: Arbitron Report, Fall 1997 Edition. Metro Service Area (MSA) market
     rank is based on population.
(2)  Reflects the dates on which we first acquired the stations.  We contributed
     the station's  assets to the  Partnership in 1994. The station is currently
     owned by the Partnership.
(3)  KJR (AM) serves as the Seattle SuperSonics' flagship radio station.
(4)  Formerly KLTX (FM).
(5)  This station is currently owned by the  Partnership.  The date shown in the
     column reflects the date on which the Partnership acquired the station from
     Cook Inlet, Inc.

     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,  (i) the station's ability to attract audiences in its
target  demographic  group,  and (ii) 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 1997, such advertising accounted for
approximately 72% of the radio stations' revenue. In contrast, approximately 25%
of the radio  stations' 1997 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 (meaning the cost per 1,000  impressions)  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.


                                       13
<PAGE>


     A radio station's ability to maintain its competitive  position in a market
is dependent  upon a number of factors,  including (i) the station's rank within
the market,  (ii) transmitter  power,  (iii) assigned  frequency,  (iv) audience
characteristics, (v) audience acceptance of the station's local programming, and
(vi) 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.

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,  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 sells advertising time in Canada at
a discounted rate. In addition,  Canadian law limits KVOS's ability to broadcast
certain programming. See "- Television - Operations" above.

     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; a cable system and a television station; or a radio station and a daily
newspaper.  In addition,  there are  limitations on the number of radio stations
that we may own in a market which vary according to the size of the market.

     Time Brokerage Agreements.  Currently, the FCC's Duopoly Rule precludes the
common ownership of more than one television  station in a market. The FCC does,
however, permit a television station owner to program significant amounts of the
broadcast  time of another  station in the same  market  under a time  brokerage
agreement,  as long as the licensee of that station  maintains  ultimate control
and  responsibility  for the  programming  and  operations  of the  station  and
compliance with applicable FCC rules and policies.

     In connection  with a review of its current  overall  television  ownership
rules,  the FCC is  considering  whether to eliminate or amend the Duopoly Rule,
and whether to treat the  programming of more than 15% of a station's  broadcast
time under a time brokerage  agreement as


                                       14
<PAGE>


outright  ownership  of that  station in  counting  the number of  stations  the
programmer  owns. The FCC has indicated  that if it ultimately  decides to treat
time brokerage agreements as equivalent to ownership, it will either grandfather
before a specific  date such  agreements  or provide a brief  period of time for
station owners to comply with the new rules.

     We program significant amounts of the broadcast time of television stations
KION in Monterey,  California  and WUTR in Utica,  New York under time brokerage
agreements. The television Duopoly Rule currently prevents us from acquiring the
licenses  of KION and WUTR  because we own  stations in the same  markets.  As a
result,  if the FCC were to decide that the programmer  under a television  time
brokerage agreement should be treated as owning the programmed  station,  and if
it does not change its television Duopoly Rule to permit common ownership of two
stations  in the same  market,  we could be  required  either  (i) to  modify or
terminate a time brokerage agreement that is not grandfathered,  or (ii) to sell
the station in the market where we also have a time brokerage agreement that has
not been  grandfathered.  We cannot  predict  whether the FCC will change  these
rules or the impact such changes may have on our broadcasting operations.

     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.

     Affirmative  Action. FCC rules require us to develop and implement programs
designed  to promote  equal  employment  opportunities.  We must  submit  annual
reports to the FCC documenting our compliance with those rules.

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

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

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


                                       15
<PAGE>


     The four  network-affiliated  stations (KKTV,  KCBA, KGET and WIXT) that we
own have chosen  retransmission  consent rights,  rather than must-carry rights,
within their respective  markets.  These stations have granted consents to their
local  cable  operators  for  the  rebroadcast  of  their  signals.   The  three
network-affiliated  stations  that we operate  under time  brokerage  agreements
(KION,  WUTR,  WIVT) have chosen  retransmission  consent  rights  within  their
respective markets.

     Digital  Television.  In recent years,  developments in advanced television
technology have enabled  broadcasters to deliver sharper television pictures and
sound  to  viewers.  This  new  technology,  sometimes  referred  to as  digital
television or "DTV," will require  broadcasters to transmit programming on a new
digital  signal.  In  addition,  DTV would  require  viewers to purchase new DTV
televisions or adapters, in order to view digital programming.

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

     DTV will impose additional costs on our television broadcasting operations,
due to increased  equipment and operating costs. In addition,  conversion to DTV
may reduce our  television  stations'  geographical  coverage area. On the other
hand,  our  television  operations  may  receive  higher  revenues  due to their
conversion  to DTV.  Thus,  we cannot  assess  DTV's  impact  on our  television
operations.

     FCC Rule Changes.  Communications laws and FCC rules are subject to change.
These changes may adversely affect our broadcasting operations. 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:

     o    Impose spectrum use or other fees upon broadcasters.


                                       16
<PAGE>


     o    Amend the FCC's  equal  employment  opportunity  rules and other rules
          relating  to  minority  and  female  employment  in  the  broadcasting
          industry.

     o    Revise  rules  governing  political  broadcasting,  which may  require
          stations to provide free advertising time to political candidates.

     o    Permit  expanded  use of FM  translator  stations  or the  creation of
          microradio stations.

     o    Restrict or prohibit broadcast advertising of alcoholic beverages.

     o    Change broadcast technical requirements.

     o    Auction the right to use radio and television broadcast spectrum.

     o    Expand the operating hours of daytime-only stations.

     o    Revise its television ownership and attribution rules.

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

     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 time
brokerage  agreements.   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 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.

     The  following  chart lists our  broadcasting  licenses,  and  broadcasting
licenses owned by the  Partnership  and by the owners of television  stations we
operate under time brokerage agreements, which are subject to renewal within the
next two years:


                                       17
<PAGE>


             Broadcasting License                    Expiration Date
             --------------------                    ---------------
               KJR-FM                                   2/1/98 (1)
               KUBE (FM)                                2/1/98 (1)
               KKTV                                       4/1/98
               KCBA                                      12/1/98
               KION (2)                                  12/1/98
               KGET                                      12/1/98
               KFTY                                      12/1/98
               KVOS                                       3/1/99
               WIXT                                       6/1/99
               WITV (2)                                   6/1/99
               WUTR (2)                                   6/1/99

----------
(1)  Renewal applications for these stations are currently pending with the FCC.
(2)  We do not own these  stations,  but we operate these  stations  pursuant to
     time  brokerage  agreements.  See  "  Television  -  Acquisitons  and  Time
     Brokerage Agreements" above.

     No challenges or competing applications have been filed with respect to any
of the  broadcasting  licenses  set forth in the  above  table for which we have
filed renewal  applications,  except for an informal objection to KUBE's license
renewal  application.  An application for license renewal is normally filed four
months before a license's expiration.

SPORTS & ENTERTAINMENT

     Our  sports  and  entertainment  business  consists  of  ownership  of  our
professional sports franchise, the Seattle SuperSonics, and our sports marketing
business, Full House Sports & Entertainment.

     We also own the Seattle  SeaDogs,  a franchise  of the  Continental  Indoor
Soccer  League and the 1997 League  Champions.  The  Continental  Indoor  Soccer
League,  however,  terminated  its  business  activities  at the end of the 1997
indoor soccer season for financial reasons.

Seattle SuperSonics

     The SuperSonics  franchise is one of 29 members of the National  Basketball
Association, or "NBA." NBA teams play a regular season schedule of 82 games from
November through April, in addition to several preseason exhibition games. Based
on their regular season records,  16 teams qualify for post-season  play,  which
culminates  in  the  NBA  championship.   The  SuperSonics  have  qualified  for
post-season  play  in  each of the  last  four  years,  and  played  for the NBA
championship in 1996.

     Industry Overview. We are a member of the NBA by virtue of our ownership of
the SuperSonics  franchise.  Thus, we share in profits generated by the NBA as a
whole,  and share


                                       18
<PAGE>


joint and several liability for the NBA's debts and other obligations.  Revenues
shared  equally by NBA members  include  profits  from  television  broadcasting
agreements,  merchandising,  the  award  of  new  NBA  franchises,  and  related
activities.

     As a member of the NBA, we must abide by the NBA's Constitution and Bylaws,
NBA  rules,  and  by  the  NBA  Board  of  Governors'  implementation  of  those
regulations.  The Board of Governors  consists of  representatives  appointed by
each NBA member.  The Board of Governors,  in turn,  elects a Commissioner.  The
Commissioner and the Board arbitrate  disputes between  franchises,  assure that
the conduct of franchises,  players, and officials is in accordance with the NBA
Constitution  and  Bylaws,  review and  authorize  player  transactions  between
franchises and impose  sanctions  (including  fines and suspensions) on members,
players, and officials who are found to have breached NBA rules. The sale of any
NBA  franchise is subject to the  approval of a majority of the NBA's  franchise
owners.

     Operations.  The  NBA  granted  Seattle  an  NBA  franchise  in  1966.  The
SuperSonics,  throughout their history,  have played in the Seattle/Tacoma area.
In  November  1995,  the team  began  using the Key Arena,  a newly  constructed
17,100-seat events facility, under a 15-year lease with the City of Seattle.

     We  acquired  the  SuperSonics  in  1983.  The  SuperSonics  franchise,  as
permitted by the NBA's  Constitution and Bylaws, is authorized to operate for an
indefinite  term of years,  so long as we maintain  our NBA  membership  in good
standing.

     Currently, the SuperSonics maintain a full roster of 12 active players. The
minimum  roster  under NBA rules is 11  players.  The  SuperSonics  acquire  new
players  primarily  through the college  draft,  by signing  veteran free agents
uncommitted  to another  NBA  franchise,  or by  trading  players  with  another
franchise. NBA rules limit the aggregate annual salaries payable by each team to
its  players.  In addition,  the  SuperSonics'  operations  are subject to a NBA
collective bargaining agreement, which is discussed under "Employees" below.

     Sales and Marketing.  Our revenues from the  SuperSonics  come from (i) our
own  activities,   such  as  ticket  sales,  merchandising,   concessions,   and
multi-media  advertising  packages  that  include  local  television  and  radio
broadcast advertising (called sponsorship  packages),  and (ii) our share of NBA
revenues, such as network broadcasting rights,  merchandising,  and the granting
of new NBA franchises to new cities.

     A major  source of  revenue  is ticket  sales for home  games.  We  receive
substantially  all of the revenue from  SuperSonics  ticket sales.  Revenue from
ticket sales depends highly on the  SuperSonics  win/loss  record.  Average paid
attendance  per game  increased  from 13,846 for the 1994-95  regular  season to
15,277 for the 1995-96  regular  season,  and to 15,632 for the 1996-97  regular
season. Average paid attendance per game for the 1997-98 regular season (through
March 13,  1998)  decreased  to 15,411.  We believe  that growth in average paid
attendance  since the  1994-95  season was  mainly  due to the  team's  improved
win/loss record and the team's move to the new Key Arena.


                                       19
<PAGE>


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

     We share equally with the other NBA franchises in revenues generated by the
NBA as a whole. A large portion of these revenues consist of broadcast  licenses
granted to networks.  Such  broadcast  rights have  increased  significantly  in
recent years and are expected to become a more significant  portion of total NBA
revenue, primarily due to the growth of cable television. In the spring of 1993,
the NBA  entered  into new  contracts  with NBC and  TBS/TNT  providing  for the
television  broadcast of certain league games through the 1997-98 season.  These
contracts  provide for  minimum  total  payments  to the NBA over the  four-year
contract  period of $1.1 billion.  Recently,  the NBA renewed its contracts with
NBC and TBS/TNT  through  the  2001-2002  season.  These  contracts  provide for
minimum  total  payments to the NBA over the four-year  contract  period of $2.6
billion.  See "Management's  Discussion and Analysis of Financial  Condition and
Results of Operation."

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

EMPLOYEES

     As of December 31, 1997, we employed 1,322 full-time persons. The following
table sets forth a breakdown of employment in each of our operating segments and
our corporate offices:

      Operating Segment/Corporate Office                 Persons Employed
      ----------------------------------                 ----------------
              Out-of-Home Media                                 365

                 Broadcasting                                   809

            Sports & Entertainment                              105

               Corporate Offices                                 43

     Approximately  280 of our  employees  are  represented  by unions  under 13
collective  bargaining  agreements.  Collective  bargaining  agreements covering
approximately  6% of our employees are terminable  during 1998. We believe that,
except as  discussed  below,  these  collective  bargaining  agreements  will be
renegotiated  or  automatically  extended  and that any  renegotiation  will not
materially adversely affect our operations.


                                       20
<PAGE>


     On March 23,  1998,  the NBA Board of  Governors  voted to reopen the NBA's
collective   bargaining   agreement   with  the  National   Basketball   Players
Association.  As a result,  the current  agreement will expire on June 30, 1998.
While  the  desire  is to reach a new  agreement  before  June  30,  there is no
assurance  that  the  parties  will do so.  If the  parties  fail to reach a new
agreement before the start of the 1998-1999 season,  there is a risk that all or
a portion of that season could be cancelled.

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  (i) a  Credit
Agreement  with  various   lending  banks,   dated  January  28,  1998  ("Credit
Agreement"), (ii) an Indenture ("Indenture"),  dated October 7, 1993, respecting
our 10 3/4% Senior  Secured Notes Due 2003 ("Senior  Notes"),  and (iii) various
Note  Agreements,  dated  December 20, 1988 and  December 1, 1989,  with certain
insurance  company  lenders  relating to our 11.20% Senior  Subordinated  Notes,
Series  B, Due  December  15,  1998 and  10.48%  Senior  Subordinated  Notes Due
December 15, 2000 ("Subordinated  Notes"). Some of those provisions restrict our
ability to:

     o    Assume new debt and make advances, and to repay outstanding debt.

     o    Guaranty obligations.

     o    Acquire securities or assets of other businesses.

     o    Create liens on our properties.

     o    Dispose of assets.

     o    Make certain investments and capital expenditures.

     o    Repurchase shares of our Common Stock and Class B Common Stock.

     o    Declare and pay  dividends or make  distributions  on our Common Stock
          and Class B Common Stock.

     o    Change our lines of business.

     o    Enter into transactions with our affiliates.

     o    Issue securities of our subsidiaries.

     In  addition,  we are  required to  maintain  specified  financial  ratios,
including a maximum  leverage ratio,  minimum  interest ratio, and minimum fixed
charge coverage ratio. The Credit Agreement also provides that it is an event of
default  thereunder if the Ackerley  family (as


                                       21
<PAGE>


defined) owns less than a 51% of the outstanding voting stock of our company. In
addition,  upon the  occurrence  of a  change  of  control  (as  defined  in the
Indenture),  the  holders  of the  Senior  Notes have the right to require us to
repurchase the Senior Notes.

     We have pledged the stock of all our subsidiaries to secure our obligations
under the Credit  Agreement and  Indenture.  In the event of a default under the
Credit  Agreement or Senior Notes, the bank lenders or the holders of the Senior
Notes,  as the case may be, 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 Credit
Agreement,  the Indenture or the Subordinated Notes could result in acceleration
of indebtedness outstanding under other debt instruments.

     In  addition,  the  Partnership  has  pledged  all of its  assets to secure
borrowings  under its $35.0 million credit  agreement.  That agreement  contains
restrictions on the  Partnership's  operations and financial ratios  maintenance
requirements  similar to those outlined  above.  In the event of a default under
such agreement, the lenders could demand immediate repayment of the principal of
and interest on all such  borrowings  and could force a sale of all or a portion
of the  Partnership's  assets to satisfy its obligations,  subject to applicable
FCC restrictions.

     Additional information  concerning the Credit Agreement,  Senior Notes, and
Subordinated Notes is set forth in Note 7 to the Notes to Consolidated Financial
Statements.

Financial Information Regarding Business Segments

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

                               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.

     The following table sets forth certain information regarding our facilities
as of December 31, 1997:


                                       22
<PAGE>


<TABLE>
<CAPTION>
                                                                              Approximate       Approximate
                                                                                 Square       Square Footage
Location                                              Nature of Facility     Footage Owned        Leased
--------                                              ------------------     -------------        ------
<S>                                                   <C>                       <C>               <C>
Out-of-Home Media
    Seattle, Washington (Outdoor Advertising)                Plant               35,889            1,185
    Boston Massachusetts (Outdoor Advertising)               Plant               31,882            5,700
    Miami, Florida (Outdoor Advertising)                     Plant              242,980               --
    Multiple locations (Airport Advertising)                Offices                  --           18,820

Broadcasting
    Syracuse, New York (WIXT)                         Station Operations         25,000               --
    Binghamton, New York (WIVT) (1)                   Station Operations         21,638               --
    Utica, New York (WUTR) (1)                        Station Operations         12,148               --
    Colorado Springs, Colorado (KKTV)                 Station Operations         31,100              753
    Bakersfield, California (KGET)                    Station Operations         30,450               --
    Bellingham, Washington (KVOS)                     Station Operations         13,130           11,856
    Salinas/Monterey,  California  (KCBA and KION)    Station Operations         30,000           20,841
    (1)
    Santa Rosa, California (KFTY)                     Station Operations         13,000              700
    Portland, Oregon                                   Antenna Facility           3,500               --
    Seattle, Washington (KJR(AM), KJR(FM),            Station Operations             --           16,082
    KUBE(FM)) (2)
    Tacoma, Washington (KHHO (AM))                    Station Operations             --            4,252


Sports & Entertainment
    Seattle, Washington                               Office & Operating         30,000           27,246
                                                          Facilities

Other
    Seattle, Washington (Corporate Offices)                 Offices                  --           16,814
    New York, New York (National Sales Offices)             Offices                  --           11,359
    Los  Angeles,   California   (National   Sales          Offices                  --            1,841
    Offices)
</TABLE>

----------
(1)  We operate these  stations under time  brokerage  agreements.  Accordingly,
     this table  reflects data for the  properties  which are owned or leased by
     the station owners for whom we operate the stations.

(2)  The Partnership owns these stations.

     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 1997, we paid aggregate annual rentals on office space and
operating facilities of approximately $1.8 million.

     KJR (AM) broadcasts from transmission facilities located on property leased
from the Port of Seattle,  currently on a month-to-month basis. We have filed an
application  with the FCC to co-locate KJR (AM)'s  transmission  facilities with
KHHO's  facilities in Tacoma,  Washington.  We are negotiating  with the Port of
Seattle to  continue  broadcasting  from the present  tower  location or from an
alternative site until KJR can broadcast from the KHHO site.  However, we do not
expect  that KJR  will be able to  broadcast  from  the  KHHO  site for at least
another two to four years,  and , to date, we have been unable to locate another
suitable broadcast site for KJR. We are exploring our legal options in the event
that the Port  attempts to eject us from our current  site before we are able to
use the new site.

     Effective  October 1, 1995, we entered into a  fifteen-year  lease with the
City of Seattle for the new Key Arena,  a 17,100-seat  events  facility.  It was
first  occupied and used by the  SuperSonics  in November 1995, the beginning of
the 1995-1996 season. The SeaDogs used the Key Arena in 1996 and 1997.


                                       23

<PAGE>


     At  December  31,  1997,  we owned 296  vehicles  and leased 87 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 a private carrier  agreement,  a Learjet that is used for
executive travel between our facilities. In February 1998, we purchased a Boeing
727 jet aircraft to replace the BAC 1-11 that we previously leased, which we use
for travel involving the SuperSonics.

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

                           ITEM 3 - LEGAL PROCEEDINGS

     General.  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,  disputes
regarding airport franchises and matters affecting the operation of broadcasting
facilities.  We  believe  that  the  outcome  of  any  such  pending  claims  or
proceedings,  individually or in the aggregate, will not have a material adverse
effect  upon  our  business  or  financial  condition,  except  for the  matters
disclosed below.

     Lambert v.  Ackerley.  In December 1994 six former  employees of one of our
subsidiaries  filed a complaint in King County  Superior  Court against  Seattle
SuperSonics,  Inc. and Full House Sports &  Entertainment,  Inc.,  both of which
were wholly-owned subsidiaries,  and two of the subsidiaries' officers, Barry A.
Ackerley and William N. Ackerley.  The complaint  alleged various  violations of
applicable  wage and  hour  laws  and  breaches  of  employment  contracts.  The
plaintiffs sought unspecified damages and injunctive relief.

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

     On  February  29,  1996,  the jury  rendered  a  verdict  finding  that the
defendants had wrongfully terminated the plaintiffs' employment under Washington
law and U.S.  federal laws, and awarded  compensatory  damages of  approximately
$1.0 million for the plaintiffs and punitive  damages  against the defendants of
$12.0  million.  Following  post-trial  motions,  the court reduced the punitive
damages award to  $4,182,000,  comprised in part of  $1,394,000  against each of
Barry A. Ackerley and William N. Ackerley,  and $1,394,000 against the corporate
defendants collectively.


                                       24
<PAGE>


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

     Doe v. KION.  In December  1997,  complaints  were filed in the  California
Superior Court, County of Monterey,  against AK Media Group, Inc., our principal
operating  subsidiary,  and various employees of KION TV, Monterey,  California.
The complaints seek unspecified  damages for intentional and negligent  invasion
of privacy,  intentional  and negligent  infliction of emotional  distress,  and
negligence  arising  from  KION's  news  coverage  of  the  prosecutions  of two
defendants  charged with crimes involving minors.  The plaintiffs in the present
civil cases are the two minor victims of these crimes.

     Civil proceedings are currently  pending in the California  Superior Court,
County of Monterey.  The parties have agreed in  principal  to  consolidate  the
cases for purposes of discovery and pre-trial matters.  We have filed a demurrer
to all causes of action and a special motion to strike under  California Code of
Civil Procedure Section 425.16.  Hearings  regarding these motions are scheduled
to be held in May 1998.

                         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 1997.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers are:


          Name              Age        Position
          ----              ---        --------

      Barry A. Ackerley     63      Chairman and Chief Executive Officer
      Gail A. Ackerley      60      Co-Chairman and Co-President
      William N. Ackerley   37      Co-President and Chief Operating Officer
      Denis M. Curley       50      Co-President and Chief Financial Officer,
                                    Secretary and Treasurer
      Keith W. Ritzmann     45      Senior Vice President and Chief Information
                                    Officer, Assistant Secretary and Controller

     Mr. Barry A. Ackerley, one of our founders, assumed the responsibilities of
President and Chief  Operating  Officer  following the  resignation of Donald E.
Carter  effective March 1991 and until the appointment of William N. Ackerley as
Senior Vice President and Chief Operating  Officer  effective April 1991. He has
been  the  Chief  Executive  Officer  and a  director  of the  Company  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. She
became   Co-Chairman  in  September   1996,  and  was  elected  as  one  of  our
Co-Presidents  in November


                                       25

<PAGE>


1997. Ms. Ackerley has served as our Chairman of Ackerley Corporate Giving since
1986, supervising our charitable activities.

     Mr. William N. Ackerley was elected President in August 1993. He has served
as Chief  Operating  Officer  since 1991  during  which  time he also  served as
General Manager of Ackerley  Communications  of the Northwest,  Inc. (from March
through July 1993) and as General  Manager of KJR Radio,  Inc.  (from  September
through  November  1991). He has been with our company since 1986 and has served
in the  following  capacities:  from March 1986 through  October  1988,  as Vice
President of the Seattle SuperSonics, Inc., in front office administration; from
October 1988 to September  1989,  as Vice  President of our company,  working on
special projects; and from September 1989 to April 1991, as Project Manager with
our subsidiary,  The New Seattle Arena, Inc., responsible for the development of
a proposed sports arena.

     Mr. Denis M. Curley,  who joined us in December 1984, was elected 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. Keith W. Ritzmann was named Senior Vice President and Chief Information
Officer in January 1998. Before then, he served as a Vice President from January
1990  through  the  date of his  election  as  Senior  Vice  President.  He also
presently serves as our Assistant Secretary and Controller.

     Barry A.  Ackerley and Gail A.  Ackerley  are husband and wife.  William N.
Ackerley is their son. There are no other family  relationships among any of our
directors  and  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

     On October 15, 1996, we effected a two-for-one  stock split.  All share and
per share data in this report have been restated to reflect the split.

     As of March 13, 1998, 31,625,483 shares of our common stock were issued and
outstanding,  of which 20,572,213 shares were Common Stock and 11,053,270 shares
were Class B Common  Stock.  The Common  Stock was held by 589  shareholders  of
record; the Class B Common Stock was held by 30 shareholders of record.

     Our Board of Directors  declared a cash  dividend of $.02 per share in each
of 1996 and 1997. Recently, the Board declared a cash dividend of $.02 per share
payable on April 15, 1998 to shareholders  of record on March 25, 1998.  Payment
of any future  dividends  is at the  discretion  of the Board of  Directors  and
depends on a number of conditions.  Among other


                                       26

<PAGE>


things,  dividend  payments  depend upon our results of operations and financial
condition,  capital  requirements  and general economic  conditions.  The Credit
Agreement,  the Subordinated Notes, and the Indenture impose certain limits upon
our ability to pay dividends and make 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

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

     The table below sets forth the high and low sales prices  (adjusted for the
Company's  October 1996 stock split) of our Common Stock for each full quarterly
period in the two most recent  fiscal  years  according  to the  American  Stock
Exchange  (AMEX),  except for the period December 15 through  December 31 in the
1997 fourth quarter, which reflect New York Stock Exchange (NYSE) sale prices.

1997              High         Low        1996             High        Low
----              ----         ---        ----             ----        ---
First Quarter     $13 3/4      $10 5/8    First Quarter    $10 1/4     $ 7 5/8
Second Quarter    $13 7/8      $10        Second Quarter   $13 15/16   $ 9 7/8
Third Quarter     $18 1/2      $11        Third Quarter    $16 15/16   $10 1/2
Fourth Quarter    $18 1/8      $14        Fourth Quarter   $14         $10 7/8

     On March 13,  1998,  the high and low sales  prices  of our  Common  Stock,
according to the NYSE, were $20 15/16 and 20 5/16 , respectively.

Class B Common Stock

     Our Class B Common  Stock,  which we initially  issued in June 1987, 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.


                                       27

<PAGE>


                        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 the 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 End December 31,
                                                                 (In thousands except per share data)
                                            -------------------------------------------------------------------------------
                                              1997               1996            1995               1994            1993
                                            ---------          ---------       ---------          ---------       ---------
<S>                                         <C>                <C>             <C>                <C>             <C>
 Consolidated Statement of
      Operations Data:
 Revenue                                    $ 306,169          $ 279,662       $ 235,820          $ 211,728       $ 192,958
      Less agency commissions and
      discounts                               (34,994)           (32,364)        (28,423)           (25,626)        (22,341)
                                            ---------          ---------       ---------          ---------       ---------
 Net revenue                                  271,175            247,298         207,397            186,102         170,617
 Expenses
      Operating expenses                      210,752            186,954         156,343            142,812         132,316
      Disposition of assets                      --                 --              --               (2,506)            759
      Depreciation and amortization            16,103             16,996          13,243             10,883          12,018
      Interest expense                         26,219             24,461          25,010             25,909          22,431
      Litigation expense (credit)              (5,000)(1)           --            14,200(1)            --              --
      Stock compensation expense                9,344 (2)           --              --                 --              --
                                            ---------          ---------       ---------          ---------       ---------
         Total expenses                       257,418            228,411         208,796            177,098         167,524
                                            ---------          ---------       ---------          ---------       ---------
 Income (loss) before income taxes
      and extraordinary item                   13,757             18,887          (1,399)             9,004           3,093
 Income tax (benefit) expense                 (19,172)(3)          2,758           1,515                 73             133
                                            ---------          ---------       ---------          ---------       ---------
 Income (loss) before extraordinary            32,929             16,129          (2,914)             8,931           2,960
      item
 Extraordinary item - loss on
      extinguishment of debt in
      1996, 1994 and 1993                        --                 (355)           --               (2,099)           (625)
                                            ---------          ---------       ---------          ---------       ---------
 Net income (loss) applicable to
      common shares                         $  32,929          $  15,774       $  (2,914)         $   6,832       $   2,335
                                            =========          =========       =========          =========       =========
 Per common share:
      Income (loss) before
      extraordinary item                    $    1.05          $     .52       $    (.09)         $     .29       $     .10
      Extraordinary item                         --                 (.01)           --                 (.07)           (.02)
                                            ---------          ---------       ---------          ---------       ---------
      Net income (loss)                     $    1.05          $     .51       $    (.09)         $     .22       $     .08
                                            =========          =========       =========          =========       =========
      Common shares used in per
      share computation                        31,345             31,166          31,052             30,929          30,855
 Per common share - assuming
      dilution:
      Income (loss) before
      extraordinary item                    $    1.04          $     .51       $    (.09)         $     .28       $     .09
      Extraordinary item                         --                 (.01)           --                 (.06)           (.02)
                                            ---------          ---------       ---------          ---------       ---------
      Net income (loss)                     $    1.04          $     .50       $    (.09)         $     .22       $     .07
                                            =========          =========       =========          =========       =========
      Common shares used in per
      share computation - assuming             31,652             31,760          31,052             31,483          31,204
      dilution
 Dividends                                  $     .02          $     .02       $    .015          $    --         $    --
                                            =========          =========       =========          =========       =========
 Consolidated Balance Sheet Data
  (at end of period):
 Working capital                            $  12,019          $  11,154       $  15,110          $  16,783       $   7,970
 Total assets                                 266,385            224,912         189,882            170,783         160,491
 Total long-term debt                         213,294            229,350         215,328            225,613         213,165
 Total debt                                   229,424            235,141         220,147            228,646         224,080
 Stockholder's deficiency                     (44,909)           (83,839)        (99,093)           (95,958)       (102,852)
</TABLE>

------------
(1)  See Note 13 to the Consolidated Financial Statements.
(2)  See Note 11 to the Consolidated Financial Statements.
(3)  See Note 8 to the Consolidated Financial Statements.


                                       28

<PAGE>

                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,  which are not historical in
nature  (including  the  discussions  of the  effects  of  recent  acquisitions,
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 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 section.

     Important  factors that could cause our actual results to differ materially
from those expressed in this section  include:  (i) material  adverse changes in
general economic conditions,  including changes in inflation and interest rates;
(ii)  changes in laws and  regulations  affecting  the outdoor  advertising  and
television and radio  broadcasting  businesses,  including  changes in the FCC's
treatment of time  brokerage  agreements and related  matters,  and the possible
inability  to  obtain  FCC  consent  to  proposed  or  pending  acquisitions  of
broadcasting  stations;  (iii) competitive  factors in the outdoor  advertising,
television and radio broadcasting, and sports and entertainment businesses, (iv)
material  changes to accounting  standards,  (v)  expiration or  non-renewal  of
airport  franchise  agreements,   broadcasting   licenses,  and  time  brokerage
agreements,  (vi) labor matters, including changes in labor costs, renegotiation
of labor contracts and risk of work stoppages or strikes, (vii) matters relating
to our  level  of  indebtedness,  including  restriction  imposed  by  financial
covenants and the need to refinance a substantial  portion of that  indebtedness
over the next  several  years,  (viii) the win-loss  record of the  SuperSonics,
which  has  a  substantial  influence  on  attendance,   and  whether  the  team
participates  in the NBA  playoffs,  and  (ix)  recessionary  influences  in the
regional markets that we serve.

Overview

     We reported net income of $32.9 million in 1997,  compared to $15.8 million
in 1996. This increase in net income in part reflects  increased  Operating Cash
Flow  (as  defined  below)  of  our  out-of-home  advertising  and  broadcasting
operations. In addition, a component of our strategy is to expand our businesses
through   acquisitions.   As  a  result,   our  results  of  operations  reflect
depreciation  and  amortization  expense and interest expense on long-term debt,
which are in part attributable to past acquisitions.  In addition,  the increase
in our net income in 1997 from 1996 reflects a $19.2 million  income tax benefit
primarily  due to the  recognition  of a deferred  tax asset and a $5.0  million
reduction in an accrual for litigation expense, offset in part by a $9.3 million
charge for stock compensation expense. Disregarding the impact of this reduction
in the accrual for litigation  expense and stock  compensation  expense,  income
before  income taxes and  extraordinary  items would have been $18.1 million for
1997 compared to $18.9 million for 1996.  Operating Cash Flow for 1997 was $60.4
million, compared to $60.3 million for 1996.


                                       29
<PAGE>


     Refinancing.  In January 1998, we replaced our 1996 credit  agreement  with
our new $265.0 million Credit Agreement.  The Credit Agreement currently permits
borrowings  of up to $77.5  million  due to  restrictions  related to the Senior
Notes. The Credit Agreement  further provides that if we redeem our Senior Notes
prior to December 15, 1998, the maximum permissible  borrowings under the Credit
Agreement will be increased to $265.0  million.  In addition,  subsequent to the
redemption  of the  Senior  Notes  and prior to  December  15,  1998,  the total
available under the revolving  credit facility can be increased by $35.0 million
only to refinance  the  Partnership's  Credit  Agreement.  See "- Liquidity  and
Capital Resources" below.

     As of December 31,  1997,  $120.0  million  aggregate  principal  amount of
Senior Notes were outstanding. We currently intend to redeem the Senior Notes in
the fourth quarter of 1998, which would result in non-recurring  charges for the
write-off of deferred  financing costs and redemption fees.  Accordingly,  if we
redeem the Senior Notes as planned, we expect to incur a non-recurring charge of
approximately  $6.8 million at the time of such redemption.  We intend to redeem
the  Senior  Notes  with the  proceeds  from the  borrowings  under  the  Credit
Agreement.

     Acquisitions  and Time Brokerage  Agreements.  On June 30, 1997, we entered
into a time brokerage  agreement to operate  television station WUTR licensed to
Utica, New York.

     On  July  28,  1997,  we  entered  into a  purchase  agreement  to  acquire
television  station WIVT (formerly  WMGC)  licensed to Binghamton,  New York for
$9.0 million. We are operating the station pending closing of the purchase under
a time brokerage agreement.

     We own a limited  partnership  interest in the Partnership,  which owns and
operates radio stations in the Seattle market. In February 1998, the Partnership
redeemed the limited  partnership  interests of the two former limited  partners
and satisfied certain other obligations for $18.0 million.  In February 1998, we
joined in an agreement  that provides for the  Partnership to redeem the general
partner's  interest for  approximately  $17.7 million.  The redemption  requires
approval of the FCC, which we have requested.  We currently anticipate receiving
the FCC's consent and closing this transaction in 1998,  following which we will
be the sole owner of the stations.

     In addition,  we acquired the assets of a small billboard  company in South
Florida in November 1997 and the assets of KHHO (AM), a radio station in Tacoma,
Washington, in March 1998.

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



                                       30
<PAGE>


Flow and Segment  Operating  Cash Flow,  however,  are not to be  considered  as
alternatives  to net income (loss) as an indicator of our operating  performance
or to cash flows as a measure of our liquidity.

Results of Operations

     The following tables set forth certain  historical  financial and operating
data for the three-year  period ended December 31, 1997,  including net revenue,
operating expenses, and Operating Cash Flow information by segment:

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  (Dollars in Thousands)
                                       --------------------------------------------------------------------------
                                                 1997                      1996                       1995
                                       --------------------------------------------------------------------------
                                                 As % of Net                As % of Net               As % of Net
                                                 -----------                -----------               -----------
                                        Amount     Revenue     Amount         Revenue     Amount        Revenue
                                        ------     -------     ------         -------     ------        -------
<S>                                    <C>            <C>      <C>             <C>        <C>             <C>
Net revenue                            $ 271,175      100.0%   $ 247,298       100.0%     $ 207,397       100.0%
Segment operating expenses               200,739       74.0      178,721        72.3        148,826        71.8
Corporate overhead                        10,013        3.7        8,233         3.3          7,517         3.6
                                       ---------               ---------                  ---------
  Total operating expenses               210,752       77.7      186,954        75.6        156,343        75.4
                                       ---------               ---------                  ---------
Operating Cash Flow                       60,423       22.3       60,344        24.4         51,054        24.6
Other expenses:
  Depreciation and amortization           16,103        5.9       16,996         6.9         13,243         6.4
  Interest expense                        26,219        9.7       24,461         9.9         25,010        12.1
  Litigation expense (credit) .           (5,000)      (1.8)        --          --           14,200         6.8
  Stock compensation expense               9,344        3.4         --          --             --          --
                                       ---------               ---------                  ---------
       Total other expenses               46,666       17.2       41,457        16.8         52,453        25.3
Income (loss) before income
  taxes and extraordinary item            13,757        5.1       18,887         7.6         (1,399)       (0.7)
  Income tax (benefit) expense           (19,172)      (7.1)       2,758         1.1          1,515         0.7
                                       ---------               ---------                  ---------
Income (loss) before
  extraordinary item                      32,929       12.1       16,129         6.5         (2,914)       (1.4)
Extraordinary item                          --         --           (355)       (0.1)          --          --
                                       ---------               ---------                  ---------
Net income (loss)                      $  32,929       12.1    $  15,774         6.4      $  (2,914)       (1.4)
                                       =========               =========                  =========
</TABLE>


                                       31
<PAGE>


<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                                 (Dollars in Thousands)
                                                         --------------------------------------
                                                            1997          1996          1995
                                                         --------------------------------------
<S>                                                      <C>            <C>           <C>
Net revenue:
     Out-of-home media                                   $ 113,162      $  99,833     $  93,177
     Broadcasting                                           96,533         85,927        72,429
     Sports & entertainment                                 61,480         61,538        41,791
                                                         ---------      ---------     ---------
        Total net revenue                                $ 271,175      $ 247,298     $ 207,397
                                                         =========      =========     =========
Segment operating expenses:
     Out-of-home media                                   $  72,159      $  63,924     $  61,199
     Broadcasting                                           60,049         53,096        42,447
     Sports & entertainment                                 68,531         61,701        45,180
                                                         ---------      ---------     ---------
        Total segment operating expenses:                $ 200,739      $ 178,721     $ 148,826
                                                         =========      =========     =========
Operating Cash Flow:
     Out-of-home media                                   $  41,003      $  35,909     $  31,978
     Broadcasting                                           36,484         32,831        29,982
     Sports & entertainment                                 (7,051)          (163)       (3,389)
                                                         ---------      ---------     ---------
        Total Segment Operating Cash Flow                   70,436         68,577        58,571
     Corporate overhead                                    (10,013)        (8,233)       (7,517)
                                                         ---------      ---------     ---------
        Operating Cash Flow                              $  60,423      $  60,344     $  51,054
                                                         =========      =========     =========
Change in net revenue from prior periods:
     Out-of-home media                                        13.4%           7.1%          9.1%
     Broadcasting                                             12.3           18.6           7.0
     Sports & entertainment                                   (0.1)          47.3          26.7
        Change in total net revenue                            9.7           19.2          11.4
Operating data as a % of net revenue:
     Segment operating expenses as a % of net
         revenue:
        Out-of-home media                                     63.8%          64.0%         65.7%
        Broadcasting                                          62.2           61.8          58.6
        Sports & entertainment                               111.5          100.3         108.1
          Total segment operating expenses:                   74.0           72.3          71.8
Operating Cash Flow as a % of net revenue:
        Out-of-home media                                     36.2%          36.0%         34.3%
        Broadcasting                                          37.8           38.2          41.4
        Sports & entertainment                               (11.5)          (0.3)         (8.1)
        Operating Cash Flow as a % of total net
         revenue                                              22.3           24.4          24.6

</TABLE>


                                       32

<PAGE>


1997 Compared with 1996

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

     o    Out-of-Home  Media. Our 1997 net revenue from our outdoor  advertising
          and airport advertising operations increased by $13.3 million, or 13%,
          from  1996.  This  increase  was  mainly  due to an  increase  in both
          national and local advertising sales.

     o    Broadcasting.  Our 1997 net  revenue  from our  television  and  radio
          broadcasting operations increased by $10.6 million, or 12%, from 1996.
          This  increase  was mainly due to the effects of  increased  rates and
          sales  volumes,   the  addition  of  time  brokerage  agreements  with
          television  stations  WUTR and WIVT,  and the  completion of a full 12
          months of operations at KFTY and KION.

     o    Sports &  Entertainment.  Our 1997 net  revenue  from our  sports  and
          entertainment  operations remained unchanged,  at $61.5 million,  from
          1996.  The  net  revenues  remained  unchanged  primarily  due  to the
          combination  of  increased  ticket sales and the addition of a Seattle
          SuperSonics  retail store,  offset primarily by decreased revenues due
          to the SuperSonics  participating in 12 games of the 1997 NBA playoffs
          compared to 21 games in the 1996 playoffs.

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

     o    Out-of-Home  Media.  Our 1997  operating  expenses  from  our  outdoor
          advertising  and  airport  advertising  operations  increased  by $8.2
          million,  or 13%  from  1996,  to $72.2  million.  This  increase  was
          primarily due to expenses related to increased sales activity.

     o    Broadcasting.  Our 1997  operating  expenses from our  television  and
          radio broadcasting  operations increased by $7.0 million from 1996, or
          13%, to $60.0 million.  This increase was primarily due to the effects
          of higher  programming,  promotion,  and production expenses primarily
          reflecting   the   development   and   expansion  of  our  local  news
          programming.  The  addition  of time  brokerage  agreements  with  the
          television  stations WUTR and WITV, and a full 12 months of operations
          at KFTY and  KION,  also  contributed  to the  increase  in  operating
          expenses.

     o    Sports &  Entertainment.  Our 1997 operating  expenses from our sports
          and entertainment  operations  increased by $6.8 million from 1996, or
          11%, to


                                       33
<PAGE>


          $68.5 million.  This increase was primarily due to the  combination of
          expenses  related  to  increased  player  compensation  costs  and the
          addition  of a Seattle  SuperSonics  retail  store,  offset in part by
          lower costs associated with the SuperSonics  participating in 12 games
          of the 1997 NBA playoffs instead of 21 games in the 1996 NBA playoffs.

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

     Operating Cash Flow. Our Operating Cash Flow increased  slightly from $60.3
million in 1996 to $60.4  million.  The increase in  Operating  Cash Flow in our
out-of-home  and  broadcasting  segments  offset the  decrease in the sports and
entertainment  segment's  Operating  Cash  Flow and the  increase  in  corporate
overhead expenses.  Operating Cash Flow as a percentage of net revenue decreased
to 22% in 1997 from 24% in 1996.

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

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

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

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

     Income  Tax  Expense.  In 1997,  we  incurred  a $19.2  million  income tax
benefit, compared to an income tax expense of $2.8 million in 1996. This benefit
primarily  resulted from the recognition of a deferred tax asset in 1997, offset
in part by alternative minimum taxes and state income taxes. Recognition of this
deferred tax asset in 1997 occurred as a result of a $27.2  million  decrease in
the  Company's  valuation  allowance,   primarily  through  utilization  of  net
operating  loss  carryforwards  and  the  reversal  of the  remaining  valuation
allowance.   Our  management   expects  to  recognize   income  tax  expense  at
approximately  statutory  rates in 1998.  This  forward  looking  statement  is,
however,  subject  to  the  qualifications  set  forth  under  "Forward  Looking
Statements" above.


                                       34
<PAGE>

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

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

1996 Compared with 1995

     Net Revenue.  In 1996, our net revenue was $247.3 million.  This represents
an increase of $39.9 million,  or 19%, from $207.4  million in 1995.  Changes in
our net revenue were as follows:

     o    Out-of-Home Media. Our 1996 net revenues from our outdoor  advertising
          and airport advertising  operations  increased by $6.7 million, or 7%,
          from 1995.  This increase was primarily due to increased  sales volume
          reflecting a strengthening market for national advertising.

     o    Broadcasting.  Our 1996 net  revenue  from our  television  and  radio
          broadcasting operations increased by $13.5 million, or 19%, from 1995.
          This increase was due primarily to improved  local  broadcast  revenue
          related to sports operations, the addition of television stations KION
          and KFTY, and increased rates and sale volumes.

     o    Sports &  Entertainment.  Our 1996 net  revenue  from our  sports  and
          entertainment  operations  increased by $19.7  million,  or 47%,  from
          1995. This was mainly due to the SuperSonics participating in 21 games
          of the 1996 NBA playoffs compared to 4 games in the 1995 NBA playoffs.

     Segment Operating Expenses (Excluding Corporate Overhead). Our 1996 segment
operating  expenses were $178.7  million.  This  represents an increase of $29.9
million,  or 20%, from $148.8 million in 1995.  Changes in our segment operating
expenses (excluding corporate overhead) were as follows:

     o    Out-of-Home  Media.  Our 1996  operating  expenses  from  our  outdoor
          advertising and airport advertising operations increased $2.7 million,
          or 4%, from 1995 to $63.9 million.  This increase was primarily due to
          expenses related to increased sales activity.

     o    Broadcasting.  Our 1996  operating  expenses from our  television  and
          radio broadcasting  operations were $53.1 million.  This represents an
          increase  of $10.6  million,  or 25%,  from  1995.  The  increase  was
          primarily  due  to  the  addition  of  television  station  KFTY,  the
          commencement of the time brokerage


                                       35
<PAGE>


          agreement for the  television  station KION,  and higher  programming,
          promotion, and production expenses.

     o    Sports &  Entertainment.  Our 1996 operating  expenses from our sports
          and  entertainment  operations were $61.7 million.  This represents an
          increase  of $16.5  million,  or 37%,  from  1995.  The  increase  was
          primarily due to increased  basketball  operating  expenses related to
          the  SuperSonics  participating  in 21 games of the 1996 NBA  playoffs
          compared to 4 games in the 1995 NBA playoffs.

     Corporate Overhead. Our 1996 corporate overhead expenses were $8.2 million.
This  represents an increase of $0.7 million,  or 9%, from $7.5 million in 1995.
This increase was mainly due to expenses associated with our company name change
in 1996 and relocation expenses related to moving our corporate offices in 1996.

     Operating  Cash Flow.  Our  Operating  Cash Flow in 1996  increased by $9.3
million, or 18%, from our Operating Cash Flow in 1995. The increase in Operating
Cash Flow in our out-of-home  media and  broadcasting  segments,  in conjunction
with a lower deficiency in Operating Cash Flow for our sports and  entertainment
segment, more than offset the increase in corporate overhead expenses. Operating
Cash Flow as a percentage of net revenue slightly  decreased to 24% in 1996 from
25% in 1995.

     Depreciation  and Amortization  Expense.  Our depreciation and amortization
expenses  were $17.0  million  in 1996.  This  represents  an  increase  of $3.8
million,  or 29%, from our 1995 depreciation and amortization  expenses of $13.2
million.  The increase is mainly the result of depreciation  expenses related to
the Key Arena leasehold improvements and the acquisition of KFTY in 1996.

     Interest  Expense.  Our interest  expense was $24.5  million in 1996.  This
represents a decrease of $0.5 million,  or 2%, from our 1995 interest expense of
$25.0  million.  This decrease was mainly due to a combination  of lower average
debt balances in 1996 and to favorable interest rate contracts in 1996.

     Litigation  Expense.  In 1995,  we  recorded  an accrual  for a  litigation
expense of $14.2 million.  See "Legal  Proceedings"  above.  We recorded no such
accrual in 1996.

     Income  Tax  Expense.  In 1996,  we  incurred  $2.8  million  of income tax
expense. The majority of that expense was for state income taxes ($1.2 million),
related to a pending  settlement of certain prior year tax returns,  and for the
federal alternative minimum tax ($1.6 million). Income tax expense was below the
applicable statutory rate primarily due to the utilization of net operating loss
carryforwards.

     Extraordinary  Item.  As a result of the credit  agreement  that we entered
into in  1996,  we  wrote  off  deferred  costs of $0.4  million  in 1996.  This
write-off  was  related  to  the  previous  credit  agreement.   There  were  no
extraordinary items for 1995.


                                       36
<PAGE>


     Net  Income  (Loss).  Our net  income  was  $15.8  million  in  1996.  This
represents  an increase of $18.7  million  from the net loss of $2.9  million in
1995.  The  increase  was mainly due to the effect of recording an accrual for a
litigation  expense in 1995. Net income as a percentage of net revenue increased
to 6% in 1996 from (1.0%) in 1995.

Liquidity and Capital Resources

     On January  28,  1998,  we  replaced  our  existing  $77.5  million  credit
agreement  with our new $265.0 million Credit  Agreement.  The Credit  Agreement
provides a revolving credit facility of up to $77.5 million, due to restrictions
related to the Senior Notes, including up to $10.0 million in standby letters of
credit. The Credit Agreement further provides that if we redeem our Senior Notes
prior to December 15, 1998, the maximum permissible  borrowings under the Credit
Agreement  will be increased to $265.0  million,  which will consist of a $120.0
million term loan facility and a revolving credit facility of $145.0 million. In
addition, subsequent to the redemption of the Senior Notes and prior to December
15,  1998,  the total  available  under the  revolving  credit  facility  can be
increased by $35.0 million only to refinance the Partnership's Credit Agreement.
See " - Overview Refinancing" above.

     In addition,  in February 1998 the Partnership replaced its previous credit
agreement  with a new credit  agreement  providing  for  borrowings  up to $35.0
million ("Partnership Credit Agreement"). The borrowings are secured by a pledge
of all the  Partnership's  assets.  Subsequent  to the  redemption of the Senior
Notes and prior to December 15, 1995, it is expected that the Partnership Credit
Agreement  will  terminate and be refinanced  with  borrowings  under the Credit
Agreement,  and that the maximum borrowings permitted under the Credit Agreement
will be increased by $35.0 million.

     As of March 13, 1998, we had utilized $70.0 million of our revolving credit
facility and had available $6.7 million for future  borrowings  under the Credit
Agreement.  As of the same date, the  Partnership had utilized $20.5 million and
had available $14.5 million for future  borrowings under the Partnership  Credit
Agreement.  We will be  required  to  repay  the  outstanding  revolving  credit
facility in quarterly  installments  from March 2000  through  June 2005.  If we
redeem the Senior  Notes,  we will be required to repay  outstanding  borrowings
under the term loan facility in quarterly  installments  from March 1999 through
June 2005.

     We can choose to have interest  calculated  under the Credit Agreement at a
Base Rate or LIBOR rate plus defined  margins.  As of March 13, 1998, the annual
interest  rate  of  borrowings   outstanding  under  the  Credit  Agreement  was
approximately 7.06% and under the Partnership Credit Agreement was approximately
7.69%.

     The Company had $32.5 million  aggregate  principal  amount of Subordinated
Notes outstanding at December 31, 1997. The Subordinated Notes require principal
repayments of $12.5 million, $10.0 million, and $10.0 million in 1998, 1999, and
2000, respectively.

     We have pledged all of our  subsidiaries'  outstanding  stock as collateral
for amounts due under the Credit  Agreement  and the Senior  Notes.  Thus, if we
default  under the Credit  Agreement or the Senior  Notes,  the lenders may take
possession  of  and  sell  some  or  all  of our



                                       37
<PAGE>


subsidiaries to satisfy our obligations.  Similarly, the Partnership has pledged
all its  assets  under the  Partnership  Credit  Agreement.  If the  Partnership
defaults under the Partnership Credit Agreement, the lenders may take possession
of and sell some or all of the Partnership's  assets to satisfy its obligations,
subject to applicable FCC restrictions.

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

     In  connection  with our time  brokerage  agreements  with  the  owners  of
television  stations  WUTR  and  KION,  we have  guaranteed  certain  bank  loan
obligations of the station owners. The aggregate  principal balance  outstanding
on such  obligations  was $11.6 million at December 31, 1997. See Note 12 to the
Consolidated Financial Statements.

     Our working  capital was $12.0  million,  as of December  31,  1997;  $11.2
million, as of December 31, 1996; and $15.1 million as of December 31, 1995.

     We expended  $17.6  million,  $13.1  million and $15.1  million for capital
expenditures in 1997, 1996 and 1995,  respectively.  Our management  anticipates
that  1998  capital  expenditures,  consisting  primarily  of  construction  and
maintenance  of  billboard  structures,   broadcasting  equipment,  the  Seattle
SuperSonics aircraft, and other capital additions, will be between $20.0 million
and $25.0 million.  This forward looking  statement is, however,  subject to the
qualifications set forth under "Forward Looking Statements" above.

     For the fiscal  years 1995  through  1997,  we have  financed  our  working
capital needs  primarily from cash provided by operating  activities.  Over that
period,  our long-term  liquidity needs,  including for acquisitions,  have been
financed  through  additions to our  long-term  debt,  principally  through bank
borrowings  and the sale of senior and  subordinated  debt  securities.  Capital
expenditures  for new property and  equipment  have been financed with both cash
provided by operating  activities and long-term debt. Cash provided by operating
activities for 1997 increased to $28.0 million from $16.3 million in 1996.  This
increase  is mainly due to one-time  advance  payments  made in 1996  related to
Seattle SuperSonics players' contracts.

Impact of Year 2000

     Some of our older  computer  programs  were written using two digits rather
than four to define the applicable  year. As a result,  those computer  programs
have time-sensitive  software that recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or  miscalculations
causing  disruptions of operations,  including  among other things,  a temporary
inability to process transactions and engage in normal business activities.

     We have  completed a  preliminary  assessment to identify and mitigate Year
2000-related  issues.  Based on our  assessment,  we identified that most of our
core business software that will be in use by 1999 has been certified in writing
to be Year 2000  compliant  by the vendors.  However,  we are aware of some core
business  software  that  has  not  been  certified  and are in the



                                       38
<PAGE>


process of obtaining  certification  or  replacing  the  software.  In addition,
system  replacement  projects  are  being  actively  planned  for core  business
software  that is known  today to have  Year  2000  issues.  These  systems  are
scheduled to be replaced,  regardless of Year 2000 issues, by mid-1999.  We also
identified  some of the  components  of our custom  developed  software that are
currently not Year 2000  compliant.  As a result,  we have  completed a detailed
assessment  and have developed an action plan to address these issues by the end
of 1998.  Lastly,  we do not have total  control of systems  used in  electronic
communications with third parties (e.g., banks, vendors, etc.). If these systems
are not successfully modified to address Year 2000 issues, the operations of our
company may be negatively  impacted.  However, as part of our Year 2000 Project,
due to be  completed  in 1998,  we intend to  identify  exposure  areas and plan
alternative solutions.

     Based on our  assessment,  we  believe  the Year 2000  issue  will not pose
significant risk to our operations.  Modifications and upgrades directly related
to Year 2000 issues are not  expected to have a material  financial  impact upon
our company.

Quarterly Variations

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

Taxes

     At December 31, 1997, we had a net operating loss  carryforward for federal
income tax  purposes of  approximately  $38.4  million that expires in the years
2005  through  2007,  and an  alternative  minimum  tax credit  carryforward  of
approximately $2.1 million.

Inflation

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

New Accounting Standards

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


                                       39
<PAGE>

Other

     On March  23,  1998,  the  Board of  Governors  voted to  reopen  the NBA's
collective   bargaining   agreement   with  the  National   Basketball   Players
Association.  As a result,  the current  agreement will expire on June 30, 1998.
While  the  desire  is to reach a new  agreement  before  June  30,  there is no
assurance  that  the  parties  will do so.  If the  parties  fail to reach a new
agreement before the start of the 1998-99 season,  there is a risk that all or a
portion of that season could be cancelled.  In such event,  our  Operating  Cash
Flow  could  be  adversely  affected.  However,  the  loss of  revenue  would be
partially  offset by a substantial  reduction of operating  expenses,  primarily
players' salaries.

              ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information  called  for by this  item is  included  in Item 14,  pages F-1
through F-21.

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

                                      None.




                                       40
<PAGE>



                                    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, 1998,  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,  1998,   which   information  is
incorporated into this section by reference.

                     ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

     As of March 13,  1998,  Barry A.  Ackerley,  Gabelli  Funds,  Inc.  and The
Capital Group Companies,  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,
1998, 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, 1998,
which information is incorporated into this section by reference.



                                       41
<PAGE>


                                     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

                                                                            Page
                                                                          Number
                                                                          ------

Report of Ernst & Young, LLP, independent auditors ....................... F-1

Consolidated balance sheets as of December 31, 1997 and 1996 ............. F-2

Consolidated statements of operations for the  years ended
December 31, 1997, 1996 and 1995 ......................................... F-3

Consolidated statements of stockholders' deficiency for the years ended
December 31, 1997, 1996 and 1995 ......................................... F-4

Consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 ......................................... F-5

Notes to consolidated financial statements ............................... F-7


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:

Exhibit
  No.    Exhibit
  ---    -------

3.1      Third Restated Certificate of Incorporation(1)

3.2      Certificate  of  Amendment   dated  May  11,  1994  to  Third  Restated
         Certificate of Incorporation(1)

3.3      Certificate  of  Amendment  dated  October  1,  1996 to Third  Restated
         Certificate of Incorporation(2)



                                       42
<PAGE>


Exhibit
  No.    Exhibit
  ---    -------

3.4      Certificate  of Amendment  dated  September 26, 1996 to Third  Restated
         Certificate of Incorporation(2)

3.5      Amended and Restated Bylaws

4.1      Indenture  dated  October 1, 1993  between  the  Company and First Bank
         National  Association,  relating to the 10 3/4% Series A Senior Secured
         Notes and the 10 3/4% Senior Secured Notes Due 2003(5)

4.2      Form of Specimen 10 3/4% Senior Secured Note Due 2003(5)

10.1     Credit  Agreement  dated  January 28,  1998,  by and among The Ackerley
         Group, Inc., First Union National Bank, Fleet Bank, N.A., Union Bank of
         California, N.A., and KeyBank National Association.

10.2     Pledge  Agreement  dated as of October 1, 1993  between the Company and
         First Trust of California, National Association(5)

10.3     Composite  Conformed  Copies of Note Agreement  between the Company and
         certain insurance companies, dated as of December 1, 1988(4)

10.4     Composite  Conformed  Copies of Note Agreement  between the Company and
         certain insurance companies, dated as of December 1, 1989(6)

10.5     Amendment  No.  1 dated  October  18,  1991 to  Note  Agreements  dated
         December 1, 1988 and December 1, 1989(7)

10.6     Agreements  of Waiver and  Amendment  dated as of  September  30, 1990,
         relating  to the Note  Agreements(8)

10.7     Implementation and Waiver Agreement dated October 18, 1991(7)

10.10    The  Company's  Employee  Stock Option Plan, as amended and restated on
         March 4, 1996(9)

10.11    Nonemployee-Director's Equity Compensation Plan(10)

10.12    Amended  and  Restated  Limited  Partnership  Agreement  of New Century
         Seattle Partners, L.P. dated July 14, 1994(3)

10.13    Premises Use and  Occupancy  Agreement  between The City of Seattle and
         SSI Sports, Inc. dated March 2, 1994(1)



                                       43
<PAGE>

Exhibit
  No.    Exhibit
  ---    -------

21       Subsidiaries of the Company

24       Power of Attorney for each of Gail A. Ackerley,  Richard D. Cooley,  M.
         Ian G. Gilchrist and Michel C. Thielen dated March 11, 1998.

27.1     Financial Data Schedule for fiscal year ended December 31, 1997.

27.2     Restated  Financial Data Schedule for period of January 1, 1997 through
         September 30, 1997.

27.3     Restated  Financial Data Schedule for period of January 1, 1997 through
         June 30, 1997.

27.4     Restated  Financial Data Schedule for period of January 1, 1997 through
         March 31, 1997.

27.5     Restated  Financial  Data  Schedule for fiscal year ended  December 31,
         1996.

27.6     Restated  Financial Data Schedule for period of January 1, 1996 through
         September 30, 1996.

27.7     Restated  Financial Data Schedule for period of January 1, 1996 through
         June 30, 1996.

27.8     Restated  Financial Data Schedule for period of January 1, 1996 through
         March 31, 1996.

27.9     Restated  Financial  Data  Schedule for fiscal year ended  December 31,
         1995.

------------
(1)      Incorporated  by reference to Exhibits 3.1, 3.2, 10.1,  10.8 and 10.22,
         respectively, to the Company's 1994 Annual Report on Form 10-K
(2)      Incorporated  by reference to Exhibits 3.1, 3.2, and 10,  respectively,
         the  Company's  Quarterly  Report  on Form 10-Q for the  quarter  ended
         September 30, 1996
(3)      Incorporated  by  reference  to Exhibit 10 to the  Company's  Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1994
(4)      Incorporated by reference to Exhibits 3.3 and 10.12,  respectively,  to
         the Company's 1988 Annual Report on Form 10-K
(5)      Incorporated  by  reference  to  Exhibits  4.1,  4.2 and  10.21  of the
         Company's Registration Agreement on Form S-1, File No. 33-70936
(6)      Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
         the Company's 1989 Annual Report on Form 10-K
(7)      Incorporated   by  reference  to  Exhibits   10.9,   10.10  and  10.16,
         respectively, to the Company's 1991 Annual Report on Form 10-K
(8)      Incorporated by reference to Exhibit 10.20 to the Company's 1990 Annual
         Report on Form 10-K
(9)      Incorporated by reference to Exhibits 10.10 and 27.1, respectively,  to
         the Company's 1995 Annual Report on Form 10-K
(10)     Incorporated by reference to Exhibit 99.1 to the Company's Registration
         Statement on Form S-8, filed on May 14, 1996.

(b)      Reports on Form 8-K.
         No  reports on Form 8-K were filed  during  the fourth  quarter  ending
         December 31, 1997.

(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.



                                       44
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 30th day of
March, 1998.

                                   THE ACKERLEY GROUP, INC.

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


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the  following  persons on behalf of the Company
and in the  capacities  and on the  dates  indicated,  on the 30th day of March,
1998.

<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 of the Board and
                                          Chief Executive Officer

/s/ GAIL A. ACKERLEY*
---------------------
Gail A. Ackerley, Co-Chairman

                                          Principal Financial Officer:

/s/ RICHARD P. COOLEY*                    /s/ DENIS M. CURLEY
----------------------                    -------------------
Richard P. Cooley, Director               Denis M. Curley, Co-President and Chief Financial
                                          Officer, Treasurer and Secretary

/s/ M. IAN G. GILCHRIST*
------------------------
M. Ian G. Gilchrist, Director

                                          Principal Accounting Officer:

/s/ MICHEL C. THIELEN*                    /s/ KEITH W. RITZMANN
----------------------                    ---------------------
Michael C. Thielen, Director              Keith W. Ritzmann, Senior Vice President and
                                          Chief Information Officer, Assistant Secretary
                                          and Controller

*By: /s/ DENIS M. CURLEY
-------------------------
 Attorney-in-Fact

</TABLE>


                                       45
<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors
The Ackerley Group, Inc.


We have audited the  accompanying  consolidated  balance  sheets of The Ackerley
Group,  Inc. as of  December  31,  1997 and 1996,  and the related  consolidated
statements of operations,  stockholders' deficiency,  and cash flows for each of
the  three  years  in the  period  ended  December  31,  1997.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of The
Ackerley Group, Inc. at December 31, 1997 and 1996, and the consolidated results
of its  operations  and its cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.

                                                /s/ Ernst & Young LLP
                                        ---------------------------------------

Seattle, Washington
February 27, 1998,
except for Note 12, as to which the date is March 23, 1998


                                       F-1

<PAGE>


                            THE ACKERLEY GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                     ASSETS
                                                                                         December 31,
                                                                                     1997            1996
                                                                                 ------------    ------------
                                                                                       (In thousands)
<S>                                                                              <C>             <C>
Current assets:
     Cash and cash equivalents                                                   $      3,656    $      2,910
     Accounts receivable, net of allowance ($1,498 in 1997, $1,426 in 1996)            52,923          43,754
     Current portion of broadcast rights                                                7,349           5,656
     Prepaid expenses                                                                  12,360          13,336
     Deferred tax asset                                                                11,499            --
     Other current assets                                                               4,734           3,509
                                                                                 ------------    ------------
         Total current assets                                                          92,521          69,165

Property and equipment, net                                                            94,968          88,136
Intangibles, net                                                                       42,318          41,856
Other assets                                                                           36,578          25,755
                                                                                 ------------    ------------
         Total assets                                                            $    266,385    $    224,912
                                                                                 ============    ============
                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
     Accounts payable                                                            $      9,103    $      5,019
     Accrued interest                                                                   3,995           3,959
     Other accrued liabilities                                                         19,071          16,160
     Deferred revenue                                                                  23,857          20,050
     Current portion of broadcasting obligations                                        8,346           7,032
     Current portion of long-term debt                                                 16,130           5,791
                                                                                 ------------    ------------
         Total current liabilities                                                     80,502          58,011
Long-term debt, net of current portion                                                213,294         229,350
Litigation accrual                                                                      8,072          13,248
Other long-term liabilities                                                             9,426           8,142
                                                                                 ------------    ------------
         Total liabilities                                                            311,294         308,751
Commitments and contingencies
Stockholders' deficiency:
     Common  stock,  par value  $.01 per  share--authorized 50,000,000 shares;
     issued 21,855,398 and 21,186,724 shares at  December  31, 1997 and 1996
     respectively; and outstanding 20,480,452 and 19,811,778 shares at
     December 31, 1997 and 1996 respectively                                              218             212

     Class B common  stock,  par  value  $.01 per  share--authorized 11,406,510
     shares; issued and outstanding 11,053,510 and 11,353,810 shares at
     December 31, 1997 and 1996 respectively                                              111             114

Capital in excess of par value                                                          9,816           3,195
Deficit                                                                               (44,965)        (77,271)
Less common stock in treasury, at cost (1,374,946 shares)                             (10,089)        (10,089)
                                                                                 ------------    ------------
     Total stockholders' deficiency                                                   (44,909)        (83,839)
                                                                                 ------------    ------------
     Total liabilities and stockholders' deficiency                              $    266,385    $    224,912
                                                                                 ============    ============
</TABLE>


                             See accompanying notes


                                      F-2

<PAGE>


                            THE ACKERLEY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                          ---------------------------------------
                                                               1997         1996         1995
                                                          ---------------------------------------
                                                          (In thousands, except per share amounts)
<S>                                                         <C>          <C>          <C>
Revenue                                                     $ 306,169    $ 279,662    $ 235,820
Less agency commissions and discounts                          34,994       32,364       28,423
                                                            ---------    ---------    ---------
Net revenue                                                   271,175      247,298      207,397

Expenses:
     Operating expenses                                       210,752      186,954      156,343
     Amortization                                               4,146        6,404        5,734
     Depreciation                                              11,957       10,592        7,509
     Interest expense                                          26,219       24,461       25,010
     Litigation expense (credit)                               (5,000)        --         14,200
     Stock compensation expense                                 9,344         --           --
                                                            ---------    ---------    ---------
Total expenses                                                257,418      228,411      208,796

Income (loss) before income taxes and extraordinary item       13,757       18,887       (1,399)
Income tax (benefit) expense                                  (19,172)       2,758        1,515
                                                            ---------    ---------    ---------
Income (loss) before extraordinary item                        32,929       16,129       (2,914)
Extraordinary item:  loss on debt extinguishment                 --           (355)        --
                                                            ---------    ---------    ---------
Net income (loss)                                           $  32,929    $  15,774    $  (2,914)
                                                            =========    =========    =========
Earnings per common share:
Income (loss) per common share, before extraordinary item   $    1.05    $     .52    $    (.09)
Extraordinary item:  loss on debt extinguishment                 --           (.01)        --
                                                            ---------    ---------    ---------
Net income (loss) per common share                          $    1.05    $     .51    $    (.09)
                                                            =========    =========    =========
Earnings per common share - assuming dilution:
Income (loss) per common share, before extraordinary item   $    1.04    $     .51    $    (.09)
Extraordinary item:  loss on debt extinguishment                 --           (.01)        --
                                                            ---------    ---------    ---------
Net income (loss) per common share                          $    1.04    $     .50    $    (.09)
                                                            =========    =========    =========
Weighted average number of shares                              31,345       31,166       31,052
Weighted average number of shares - assuming dilution          31,652       31,760       31,052
</TABLE>


                             See accompanying notes

                                      F-3

<PAGE>

                            THE ACKERLEY GROUP, INC.

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                    (in thousands, except share information)


<TABLE>
<CAPTION>
                                                                                                                Common
                                                                                    Capital in                 stock in
                                                                 Class B common      excess of                 treasury
                                       Common stock                  stock           par value    Deficit      (at cost)
                                       ------------                  -----           ---------    -------      ---------
                                    Shares      Amount        Shares        Amount
                                    ------      ------        ------        ------
<S>                                <C>          <C>         <C>           <C>        <C>        <C>            <C>
Balance, January 1, 1995           20,499,812   $  205      11,803,722    $   118    $  2,851   $   (89,044)   $  (10,089)

Exercise of stock options and
stock conversions                     277,200        3         (72,200)        (1)        242          --            --

Cash dividend, $0.015 per share          --       --             --          --          --             (464)         --

Net loss                                 --       --             --          --          --           (2,914)         --
                                   -------------------      ----------    -------    --------   ------------   ----------
Balance, December 31, 1995         20,777,012      208      11,731,522        117       3,093       (92,422)      (10,089)

Exercise of stock options and
stock conversions                     409,712        4        (377,712)        (3)        102          --            --

Cash dividend, $0.02 per share           --       --             --          --          --            (623)          --

Net income                               --       --             --          --          --           15,774          --
                                   -------------------      ----------    -------    --------   ------------   ----------
Balance, December 31, 1996         21,186,724      212      11,353,810        114       3,195       (77,271)      (10,089)

Exercise of stock options and
stock conversions                     663,964        6        (300,300)        (3)      6,561         --             --

Stock issued to directors               4,710     --             --          --            60          --             --

Cash dividend, $0.02 per share           --       --             --          --          --            (623)          --

Net income                               --       --             --          --          --           32,929          --
                                   -------------------      ----------    -------    --------   ------------   ----------
Balance, December 31, 1997         21,855,398   $  218      11,053,510    $   111    $  9,816   $    (44,965)  $  (10,089)
                                   ===================      ==========    =======    ========   ============   ==========
</TABLE>


                             See accompanying notes

                                      F-4

<PAGE>


                            THE ACKERLEY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                            ---------------------------------
                                                              1997        1996        1995
                                                            --------    --------    --------
                                                                      (In thousands)
<S>                                                         <C>         <C>         <C>
Cash flows from operating activities:
Reconciliation of net income (loss) to net
cash provided by operating activities:
     Net income (loss)                                      $ 32,929    $ 15,774    $ (2,914)
     Adjustment to reconcile net income (loss) to net
     cash provided by operating activities:
         Litigation expense (credit)                          (5,000)       --        14,200
         Stock compensation expense                            9,344        --          --
         Deferred tax benefit                                (19,798)       --          --
         Loss on debt extinguishment                            --           355        --
         Depreciation and amortization                        16,103      16,996      13,243
         Amortization of deferred financing costs              1,790       1,379         820
         Gain on sale of property and equipment                 (155)       (423)        (50)
     Change in assets and liabilities:
         Accounts receivable                                  (9,169)       (164)     (1,037)
         Current portion of broadcast rights                  (1,693)        123      (1,513)
         Prepaid expenses                                        976      (6,236)       (300)
         Other current assets and other assets                10,804      (3,274)      7,691
         Accounts payable and accrued interest                 4,120       1,066      (2,675)
         Other accrued liabilities and other long-term
           liabilities                                       (17,362)    (11,927)      2,898
         Deferred revenues                                     3,807       1,781       4,574
         Current portion of broadcast obligations              1,314         887       1,401
                                                            --------    --------    --------
     Net cash provided by operating activities                28,010      16,337      36,338

Cash flows from investing activities:
     Proceeds from sale of property and equipment                275       1,474         478
     Payments for acquisitions                                (2,483)    (20,445)       --
     Capital expenditures                                    (17,593)    (13,124)    (15,098)
                                                            --------    --------    --------
         Net cash used in investing activities               (19,801)    (32,095)    (14,620)

Cash flows from financing activities:
     Borrowings under debt obligations                        27,000      38,000      64,000
     Repayments under debt obligations                       (34,100)    (24,539)    (81,294)
     Dividends paid                                             (623)       (623)       (464)
     Payments of deferred financing costs                       --          (694)        (70)
     Proceeds from the issuance of stock                         260         103         243
                                                            --------    --------    --------
         Net cash provided (used in) financing activities     (7,463)     12,247     (17,585)
                                                            --------    --------    --------

Net increase (decrease) in cash and cash equivalents             746      (3,511)      4,133
Cash and cash equivalents at beginning of period               2,910       6,421       2,288
                                                            --------    --------    --------
     Cash and cash equivalents at end of period             $  3,656    $  2,910    $  6,421
                                                            ========    ========    ========
</TABLE>


                                      F-5

<PAGE>


                            THE ACKERLEY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                            ---------------------------------
                                                              1997        1996        1995
                                                            --------    --------    --------
                                                                      (In thousands)
<S>                                                         <C>         <C>         <C>
Supplemental cash flow information:
     Interest paid                                          $23,163     $21,524     $24,032
     Income taxes paid                                          836       2,157         538
     Noncash transactions:
         Broadcast rights acquired and broadcast
         obligations assumed                                $12,201     $ 9,165     $10,337
         Assets acquired through barter                       1,053       1,342       1,065
         Assets acquired under capital leases                  --          --         7,982
</TABLE>

                             See accompanying notes



                                      F-6
<PAGE>



                            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
three principal businesses: (i) out-of-home media, including outdoor and airport
advertising; (ii) television and radio broadcasting;  and (iii) sports marketing
and  promotion,  primarily  through  ownership  of the  Seattle  SuperSonics,  a
franchise of the National Basketball Association. Outdoor advertising operations
are  conducted  principally  in  the  Seattle,   Portland,  Boston,  Miami,  Ft.
Lauderdale,  and West Palm Beach markets, whereas airport advertising operations
are conducted in airports  throughout the United  States.  The markets served by
the  Company's  television  stations  and  their  affiliations  are as  follows:
Syracuse,  New York (ABC affiliate);  Utica,  New York (ABC affiliate  through a
time brokerage  agreement);  Binghamton,  New York (ABC affiliate through a time
brokerage agreement);  Colorado Springs,  Colorado (CBS affiliate);  Santa Rosa,
California    (independent);    Bakersfield,    California   (NBC    affiliate);
Salinas/Monterey,  California  (FOX  affiliate and CBS affiliate  through a time
brokerage  agreement);  and Bellingham,  Washington/Vancouver,  British Columbia
(independent). Radio broadcasting consists of one AM and two FM stations serving
the Seattle/Tacoma  area through the Company's limited  partnership  interest in
the Partnership, and one AM station serving the Seattle/Tacoma area.

     (b) Principles of  consolidation - The  accompanying  financial  statements
consolidate  the accounts of The  Ackerley  Group,  Inc.  and its  subsidiaries,
substantially all of which are wholly-owned.  Minority interest is not material.
All significant intercompany transactions have been eliminated in consolidation.

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

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

     (e) Property  and  equipment - Property  and  equipment  are carried on the
basis of cost. Maintenance,  repairs, and renewals, which neither materially add
to the value of the property nor


                                      F-7
<PAGE>


appreciably  prolong its life,  are charged to expense as incurred.  The Company
depreciates  groups of large number of assets with  homogeneous  characteristics
and useful  lives.  Under group  depreciation,  no gain or loss on  disposals is
recognized unless the asset group is fully depreciated. For assets accounted for
under group  depreciation,  the Company recognizes gains on disposals  primarily
from  proceeds  received from  condemnations  of  fully-depreciated  advertising
structures.  The Company recognizes gains and losses on disposals of individual,
non-homogeneous  assets.  Depreciation of property and 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 on the basis of cost
and are amortized  principally on the straight-line method over estimated useful
lives.  Goodwill represents the cost of acquired businesses in excess of amounts
assigned to certain tangible and intangible assets at the dates of acquisition.

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

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

     (i) 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.

     (j)  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 long-term debt,  approximates market value at
December 31, 1997.

     (k)  Statements  of cash  flows -  Beginning  in 1997,  the  Company  began
presenting the  Consolidated  Statements of Cash Flows using the indirect method


                                      F-8
<PAGE>


instead of the direct  method which was used in prior  years.  The 1996 and 1995
Consolidated  Statements of Cash Flows have been restated to conform to the 1997
presentation.

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

     (m) Reclassifications - Certain prior years' amounts have been reclassified
to conform to the 1997 presentation.

2.   New accounting standards

     The Company adopted Financial Accounting Standards Board Statement No. 128,
Earnings Per Share,  during 1997.  This  statement  simplifies the standards for
computing earnings per share and makes them comparable to international earnings
per share standards. It requires dual presentation of basic and diluted earnings
per share on the face of the income statement. 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  reflects the potential  dilution that could occur if options
and rights to purchase common stock were  exercised.  The 1996 and 1995 earnings
per  share   amounts  have  been  restated  to  conform  to  Statement  No.  128
requirements.

     The dilutive effects of the weighted-average  number of shares representing
options and rights  included in the  calculation  of diluted  earnings per share
were 306,982 shares and 594,283 shares in 1997 and 1996, respectively.  Due to a
net loss in 1995, the dilutive effects of options and stock purchase rights were
excluded from diluted  earnings per share as the effects would be  antidilutive.
There were no  differences  between net income (loss)  amounts used to calculate
basic and dilutive earnings per share for any of the periods presented.

     The Company  adopted early Financial  Accounting  Standards Board Statement
No. 131,  Disclosures  about Segments of an Enterprise and Related  Information,
during  1997.  The  statement  establishes  standards  for the way  that  public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas, and major customers. The adoption of Statement No. 131 did not
affect results of operations or financial position but did affect the disclosure
of segment information (See Note 14).

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting  Comprehensive  Income. This statement  establishes standards for
reporting  and   disclosure  of   comprehensive   income  and  its   components.
Comprehensive  income includes net income and other  comprehensive  income which
refers to unrealized gains and losses that under generally  accepted  accounting
principles are excluded from net income.  Adoption of this statement is required
in 1998.  Management does not expect the adoption of the statement to impact the
financials statements.


                                      F-9
<PAGE>


3.   Investments and acquisitions

     The  Company's  wholly-owned  subsidiary,  KJR  Radio,  Inc.,  is a limited
partner in New Century Seattle Partners, L.P. (the "Partnership") which owns and
operates radio  stations in the Seattle  market.  The Company  accounts for this
investment using the consolidation method.

     In  February  1998,  the  Partnership   redeemed  the  limited  partnership
interests  and  satisfied  certain  other  obligations  for $18.0  million.  The
Partnership  has  entered  into an  agreement  to redeem the  general  partner's
interest for approximately  $17.7 million,  following which KJR Radio, Inc. will
be the sole owner of the  stations.  The  redemption  requires  approval  of the
Federal Communications Commission ("FCC"), which we have requested. We currently
anticipate receiving the FCC's consent and closing this transaction in 1998.

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

4.   Accounts receivable and allowance for doubtful accounts

     As of December 31, 1997 and 1996,  accounts  receivable  includes  employee
receivables of $2.9 million and $0.2 million, respectively.

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

                                                      1997      1996      1995
                                                    -------   -------   -------
     Balance at beginning of year                   $ 1,426   $ 1,163   $ 1,160
     Additions charged to operating expense             814     1,386       979
     Write-offs of receivables, net of recoveries      (742)   (1,123)     (976)
                                                    -------   -------   -------
     Balance at end of year                         $ 1,498   $ 1,426   $ 1,163
                                                    =======   =======   =======


                                      F-10
<PAGE>



5.   Property and equipment

     At December  31, 1997 and 1996,  property  and  equipment  consisted of the
following:

                                                                 Estimated
                                             1997      1996     useful life
                                           --------   --------  -----------
     Land                                  $  7,468   $  6,976
     Advertising structures                  86,737     82,325   6-20 years
     Broadcast equipment                     56,065     52,712   6-20 years
     Building and improvements               38,403     33,264   3-40 years
     Office furniture and equipment          25,482     22,738   5-10 years
     Transportation and other equipment      10,335      9,238   5-6 years
     Equipment under capital leases           7,930      7,982    10 years
                                           --------   --------
                                            232,420    215,235
     Less accumulated depreciation          137,452    127,099
                                           --------   --------
                                           $ 94,968   $ 88,136
                                           ========   ========

6.   Intangibles

     At December 31, 1997 and 1996, intangibles consisted of the following:

                                                                  Estimated
                                             1997      1996      useful life
                                           --------   --------   -----------
     Goodwill                              $ 46,229   $ 48,923   15-40 years
     Favorable leases and contracts          17,462     15,294    20 years
     Broadcasting agreements                  4,000      4,000    15 years
     Other                                    6,196      7,333   5-30 years
                                           --------   --------
                                             73,887     75,550
     Less accumulated amortization           31,569     33,694
                                           --------   --------
                                           $ 42,318   $ 41,856
                                           ========   ========

7.   Debt

     On September 30, 1996,  the Company  entered into a credit  agreement  (the
"1996  Credit  Agreement")  with various  banks which  increased  the  aggregate
principal  amount of borrowings  available under the lending facility from $65.0
million to $77.5 million. The refinancing of the Company's debt in 1996 resulted
in an  extraordinary  loss of $0.4 million.  At December 31, 1997,  the interest
rate under the 1996 Credit Agreement was LIBOR (5.9375%) plus 2.25%.

     In January 1998, we replaced our 1996 credit  agreement with our new $265.0
million  Credit  Agreement  (the  "1998  Credit  Agreement").  The  1998  Credit
Agreement  currently permits borrowings of up to $77.5 million,  including up to
$10.0 million in standby letters of credit,  due to restrictions  related to the
Senior Notes. The 1998 Credit  Agreement  further provides that if we redeem our
Senior  Notes prior to December  15, 1998,  the maximum  permissible  borrowings
under  the 1998  Credit  Agreement  will be  increased  to  $265.0  million.  In
addition, subsequent to



                                      F-11
<PAGE>


the  redemption  of the Senior Notes and prior to December  15, 1998,  the total
available under the revolving  credit facility can be increased by $35.0 million
only to refinance the Partnership's credit agreement.

     The Company can choose to have  interest  calculated  under the 1998 Credit
Agreement  at rates  based on  either a Base  Rate or LIBOR  rate  plus  defined
margins. The margins and the fees on the letter of credit facility vary based on
the Company's total leverage ratio.  Principal  repayments under the 1998 Credit
Agreement are due quarterly from March 2000 through June 2005.

     At December 31, 1997 and 1996,  outstanding balances under letter of credit
agreements totaled $1.1 million and $1.5 million, respectively.

     The  Company's  senior  secured notes bear interest at 10.75% and mature in
October 2003. Interest payments are due semiannually in April and October.

     Senior   subordinated  notes  consist  of  amounts  borrowed  from  several
insurance companies.  Effective interest rates under these agreements range from
10.5% to 11.2%.  Interest is payable  quarterly.  Principal  repayments of $12.5
million,  $10.0  million,  and $10.0  million are due in 1998,  1999,  and 2000,
respectively.

     Partnership debt represents the debt of New Century Seattle Partners,  L.P.
and consists of senior term notes totaling $3.3 million and  subordinated  notes
totaling $5.6 million.  In February 1998, the  Partnership  replaced these notes
with a new credit  agreement  providing for borrowings up to $35.0 million.  The
borrowings are secured by a pledge of all Partnership assets.

         At  December  31,  1997  and  1996,  long-term  debt  consisted  of the
following:

                                                          1997       1996
                                                        --------   --------
     Credit agreement                                   $ 59,000   $ 55,000
     Senior secured notes                                120,000    120,000
     Senior subordinated notes payable                    32,500     35,000
     Partnership debt                                      8,888     13,903
     Capitalized lease obligation (net of imputed
     interest of $1,434 in 1997 and $1,854 in 1996)        6,451      7,268
     Other                                                 2,585      3,970
                                                        --------   --------
                                                         229,424    235,141
     Less amounts classified as current                   16,130      5,791
                                                        --------   --------
                                                        $213,294   $229,350
                                                        ========   ========

                                      F-12
<PAGE>


     Aggregate  annual payments of long-term debt during the next five years are
as follows:


                      Credit     Partnership
                     agreement    debt and    Capital lease
                     and notes     other        obligation     Total
                     --------     --------      ----------   --------
     1998            $ 12,500     $  2,770      $    860     $ 16,130
     1999              10,000        3,006           907       13,913
     2000              15,900        2,313           957       19,170
     2001              11,800        2,518         1,011       15,329
     2002              11,800          209         1,070       13,079
     Later years      149,500          657         1,646      151,803
                     --------     --------      --------     --------
     Total           $211,500     $ 11,473      $  6,451     $229,424
                     ========     ========      ========     ========


     All of the  outstanding  stock of the Company's  subsidiaries is pledged as
collateral  under the 1998  Credit  Agreements  and  senior  secured  notes.  In
addition,   the  1998  Credit   Agreement,   senior  secured  notes  and  senior
subordinated  notes  restrict,  among other things,  the  Company's  borrowings,
dividend payments,  stock repurchases,  sales or transfers of assets and contain
certain  other  restrictive  covenants  which  require  the  Company to maintain
certain debt coverage and other financial ratios.

8.   Income taxes

     Deferred income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.  At December 31, 1997 and
1996 significant components of the Company's deferred tax liabilities and assets
are as follows:


                                                     1997       1996
                                                   --------   --------
     Deferred tax assets:
         Net operating loss carryforwards          $ 14,579   $ 22,752
         Litigation accrual                           3,067      5,067
         Tax credit carryforwards                     2,133        951
         Capital lease obligation                     2,451      2,780
         Deferred NBA expansion revenue                 772      1,958
         Deferred compensation agreements               730      1,293
         Other                                        5,494      5,559
                                                   --------   --------
     Total deferred tax assets                       29,226     40,360
     Valuation allowance for deferred tax assets       --      (27,202)
                                                   --------   --------
     Net deferred tax assets                         29,226     13,158
                                                   --------   --------
     Deferred tax liabilities:
         Tax over book depreciation                   7,131      8,701
         Other                                          297      4,457
                                                   --------   --------
     Total deferred tax liabilities                   7,428     13,158

     Net deferred tax assets                       $ 21,798   $   --
                                                   ========   ========


                                      F-13
<PAGE>


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

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

                                               1997        1996       1995
                                             --------    --------   --------
     Current:
          Federal                            $    263    $  1,561   $    422
          State                                   363       1,197      1,093
                                             --------    --------   --------
                                                  626       2,758      1,515
     Deferred:
          Federal                             (18,235)       --         --
          State                                (1,563)       --         --
                                             --------    --------   --------
                                              (19,798)       --         --
     Income tax (benefit) expense            $(19,172)   $  2,758   $  1,515
                                             ========    ========   ========

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

                                              1997        1996        1995
                                            --------    --------    --------
     Tax at U.S. statutory rate             $  4,815    $  6,422    $   (476)
     Non-deductible expenses                     929         582         476
     State taxes                                 363       1,197       1,093
     Net operating loss carryforwards         (5,744)     (7,004)       --
     Alternative minimum tax                    --         1,561         422
     Change in valuation account             (19,535)       --          --
                                            --------    --------    --------
     Provision (benefit) for income taxes   $(19,172)   $  2,758    $  1,515
                                            ========    ========    ========

     At December 31, 1997, the Company has net operating loss  carryforwards  of
approximately  $38.4  million  that  expire in the years 2005  through  2007 and
alternative minimum tax credit carryforwards of approximately $2.1 million.

9.   Employee benefit plan

     The  Company  has a  voluntary  defined  contribution  401(k)  savings  and
retirement  plan for the benefit of its nonunion  employees,  who may contribute
from 1% to 15% of  their  compensation  up to a limit  imposed  by the  Internal
Revenue Code. The Company matches participating  employee contributions up to 4%
of their compensation and may also make an additional voluntary  contribution to
the plan. The Company's contributions totaled $1.1 million in 1997, $1.1 million
in 1996, and $0.8 million in 1995.

10.  Stockholders' deficiency

     The Class B common stock has the same rights as common  stock,  except that
the Class B common stock has ten times the voting  rights of common stock and is
restricted as to its transfer.


                                      F-14
<PAGE>

Each  outstanding  share of Class B common stock may be converted into one share
of common stock at any time at the option of the stockholder.

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

     The Company's  Nonemployee-Directors'  Equity Compensation Plan ("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  and
reserved for issuance under the Directors Plan.

     At December 31,  1997,  the Company had  11,053,510  shares of common stock
reserved for conversion of Class B common stock,  550,850 shares  reserved under
the Employee  Stock Option Plan,  105,000  shares  reserved under stock purchase
agreements, and 95,290 shares reserved under the Directors Plan.

11.  Stock Option Plan

     The Company's  Employee  Stock Option Plan (the "Plan") was approved by the
Board of Directors and the  stockholders  of the Company in 1983.  In 1994,  the
Plan was  amended to extend the term of the Plan and to  increase  the amount of
common stock reserved for issuance to 1,000,000 shares.

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

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


                                      F-15
<PAGE>


<TABLE>
<CAPTION>
                                      1997                    1996                   1995
                              ---------------------   --------------------    ---------------------
                                           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              658,000       $2.96       690,000    $2.97      512,000       $0.97
Granted                         70,000        0.69           --      --        300,000        5.67
Exercised                     (367,400)       0.69       (32,000)    3.23      (40,000)       2.25
Canceled                       (40,000)       5.53           --      --        (82,000)       0.69
                              --------                  --------              --------
Options outstanding at end
of year                        320,600       $4.75       658,000    $2.96      690,000       $2.97

Exercisable at end of year      60,600       $0.69           --      --         20,000       $4.75

Weighted average fair
value of options
granted during year             $14.00                       --                 $3.67
</TABLE>


     Exercise  prices for options  outstanding  at December 31, 1997 ranged from
$0.69 to $7.63.  A summary of options  outstanding as of December 31, 1997 is as
follows:


<TABLE>
<CAPTION>
                                              Weighted-
                                               Average            Weighted-
   Range of Exercise         Options          Remaining            Average
         Price             Outstanding     Contractual Life     Exercise Price       Exercisable
         -----             -----------     ----------------     --------------       -----------

<S>                          <C>              <C>                    <C>               <C>
      $0.00 - $0.69           60,600          4.6 years              $0.69             60,600
        0.70 - 3.44          120,000          7.1                     3.44                --
        3.45 - 7.63          140,000          8.0                     7.63                --
                             -------
      $0.00 - $7.63          320,600          7.0 years              $4.75
</TABLE>


     As required by Financial  Accounting Standards Board Statement No. 123, the
pro forma  information  regarding  net  income and  earnings  per share has been
calculated as if the Company had accounted for its employee  stock options under
the fair value method of that statement.  The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the  following  weighted-average  assumptions  used for  grants in 1997 and 1995
(there were no grants in 1996):  Dividend  yield of 0%;  expected  volatility of
55%; risk-free interest rate of 6%; and a weighted-average  expected life of the
options of 7.5 years.



                                      F-16
<PAGE>


     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:

                                       1997        1996         1995
                                       ----        ----         ----
     Net income                     $ 32,742    $  15,554    $  (2,972)
     Net income per common share    $   1.04    $    0.50    $   (0.10)


12.  Commitments and contingencies

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

     The Company has  employment  contracts  with certain  employees,  including
basketball  coaches  and players of the Seattle  SuperSonics,  extending  beyond
December 31, 1997. Most of these contracts  require that payments continue to be
made if the  individual  should  be  unable  to  perform  because  of  death  or
disability. Future minimum obligations under these contracts are as follows:


     1998                                     $   33,380
     1999                                         23,049
     2000                                         20,992
     2001                                         21,373
     2002                                         18,925
     Later years                                   6,503
                                              ----------
                                              $  124,222
                                              ==========

     The players are covered by the terms of a collective  bargaining  agreement
which  expires on June 30, 2001.  However,  on March 23, 1998,  the NBA Board of
Governors  voted to reopen the NBA's  collective  bargaining  agreement with the
National Basketball Players Association. As a result, the current agreement will
expire on June 30, 1998. There is no assurance that a new collective  bargaining
agreement  will be in effect  before June 30, 1998. If a new agreement is not in
effect before the start of the 1998-1999  season,  there is a risk that all or a
portion of that season could be cancelled.

     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




                                      F-17
<PAGE>

insurance proceeds which would be required to meet its guaranteed obligations in
the event of permanent or total disability of its key players.

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


                        Equipment/Facilities  Franchises   Broadcast Obligations
                        --------------------  ----------   ---------------------
           1998              $  4,829          $   9,155           $  9,723
           1999                 4,196              6,487              4,913
           2000                 3,329              5,301              2,420
           2001                 3,090              3,505                292
           2002                 2,620              1,159                 12
           Later years         14,585              1,314                ---
                             --------          ---------           --------
                             $ 32,649          $  26,921           $ 17,360
                             ========           ========           ========

     Rent expense for operating  leases  aggregated  $5.4 million in 1997,  $4.5
million in 1996,  and $3.2  million in 1995.  Franchise  fee expense  aggregated
$18.8  million  in 1997,  $16.1  million  in 1996,  and $17.2  million  in 1995.
Broadcasting film and programming  expense aggregated $8.3 million in 1997, $8.2
million in 1996, and $6.7 million in 1995.

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

     On April 24, 1996, the Company entered into a time brokerage agreement with
Harron Television of Monterey,  the owner of television station KION licensed to
Monterey,   California.  In  conjunction  with  the  transaction,   the  Company
guaranteed  a bank  loan  obligation  of the  licensee  which  had an  aggregate
principal  amount of $4.8 million  maturing in April 1999.  At December 31, 1997
and 1996, the outstanding principal amount of the bank loan obligation under the
guarantee was $3.7 million and $4.8 million,  respectively.  To date,  there has
been no default under the bank loan  obligation and revenues from KION have been
and are expected to continue to service the bank loan obligation.

     The Company has incurred transportation costs of $2.0 million in 1997, $2.0
million in 1996,  and $2.1 million in 1995,  and made  advance  payments of $0.1
million at December 31, 1997, to a company  controlled  by the  Company's  major
stockholder. At December 31, 1997, principal amounts outstanding on loans to the
Company's major stockholder were $1.0 million.




                                      F-18
<PAGE>


13.  Litigation accrual

     The Company and two of its executive officers were defendants in a wrongful
termination  suit  brought by former  employees.  On February  29,  1996, a jury
issued a verdict  awarding the plaintiffs  compensatory  and punitive damages of
approximately  $13.0  million.  At December  31,  1995,  the  Company  initially
recorded  an accrual of $14.2  million,  including  estimated  additional  legal
costs,  related to the  verdict.  Following  post-trial  motions,  the  punitive
damages award was reduced. The Company is currently appealing the verdict. Based
on the  Company's  progress  to date  with  respect  to the  appeal,  management
estimated  that the  verdict,  plus legal  costs,  will  result in  payments  of
approximately $8.0 million.  Based on the revised estimate,  the Company reduced
the accrual related to this litigation by $5.0 million.

14.  Industry segment information

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

     Selected  financial  information  for these  segments  for the years  ended
December 31, 1997, 1996 and 1995 is presented as follows:



                                      F-19
<PAGE>



<TABLE>
<CAPTION>
                                                      Out-of-
                                                        home                       Sports &
                                                       Media       Broadcasting    Entertainment    Consolidated
                                                     -----------   ------------    -------------    ------------
<S>                                                  <C>            <C>              <C>             <C>
           1997:
           -----
           Net revenue                               $   113,162    $    96,533      $    61,480     $   271,175
           Segment operating expenses                    (72,159)       (60,049)         (68,531)       (200,739)
                                                     -----------    -----------      -----------     -----------
           Segment Operating Cash Flow               $    41,003    $    36,484      $    (7,051)         70,436
                                                     ===========    ===========      ===========
           Corporate overhead                                                                            (10,013)
                                                                                                     -----------
           Operating Cash Flow                                                                            60,423
           Other expenses:
              Depreciation and amortization                                                              (16,103)
              Interest expense                                                                           (26,219)
              Litigation credit                                                                            5,000
              Stock compensation expense                                                                  (9,344)
                                                                                                     -----------
           Income before income taxes                                                                $    13,757
                                                                                                     ===========
           Segment assets                            $    79,208    $   107,651      $    43,133     $   229,992
                                                     ===========    ===========      ===========
           Corporate assets                                                                               36,393
                                                                                                     -----------
           Total assets                                                                              $   266,385
                                                                                                     ===========
           Capital expenditures                      $     6,523    $     8,084      $     1,706     $    16,313
                                                     ===========    ===========      ===========
           Corporate capital expenditures                                                                  1,280
                                                                                                     -----------
           Total capital expenditures                                                                $    17,593
                                                                                                     ===========
           1996:
           -----
           Net revenue                               $    99,833    $    85,927      $    61,538     $   247,298
           Segment operating expenses                    (63,924)       (53,096)         (61,701)       (178,721)
                                                     -----------    -----------      -----------     -----------
           Segment Operating Cash Flow               $    35,909    $    32,831      $      (163)         68,577
                                                     ===========    ===========      ===========
           Corporate overhead                                                                             (8,233)
                                                                                                     -----------
           Operating Cash Flow                                                                            60,344
           Other expenses:
              Depreciation and amortization                                                              (16,996)
              Interest expense                                                                           (24,461)
                                                                                                     -----------
           Income before taxes and extraordinary
           item                                                                                      $    18,887
                                                                                                     ===========
           Segment assets                            $    67,918    $    95,836      $    48,550     $   212,304
                                                     ===========    ===========      ===========
           Corporate assets                                                                               12,608
                                                                                                     -----------
           Total assets                                                                              $   224,912
                                                                                                     ===========
           Capital expenditures                      $     4,674    $     4,163      $     1,652     $    10,489
                                                     ===========    ===========      ===========
           Corporate capital expenditures                                                                  2,635
                                                                                                     -----------
           Total capital expenditures                                                                $    13,124
                                                                                                     ===========
</TABLE>


                                      F-20
<PAGE>


<TABLE>
<CAPTION>
                                                      Out-of-
                                                        home                       Sports &
                                                       Media       Broadcasting    Entertainment    Consolidated
                                                     -----------   ------------    -------------    ------------
<S>                                                  <C>            <C>              <C>             <C>
           1995:
           -----
           Net revenue                               $    93,177    $    72,429      $    41,791     $   207,397
           Segment operating expenses                    (61,199)       (42,447)         (45,180)       (148,826)
                                                     -----------    -----------      -----------     -----------
           Segment Operating Cash Flow               $    31,978    $    29,982      $    (3,389)         58,571
                                                     ===========    ===========      ===========
           Corporate overhead                                                                             (7,517)
                                                                                                     -----------
           Operating Cash Flow                                                                            51,054
           Other expenses:
              Depreciation and amortization                                                              (13,243)
              Interest expense                                                                           (25,010)
              Litigation expense                                                                         (14,200)
                                                                                                     -----------
           Loss before taxes                                                                         $    (1,399)
                                                                                                     ===========
           Segment assets                            $    53,281    $    83,366      $    38,353     $   175,000
                                                     ===========    ===========      ===========
           Corporate assets                                                                               14,882
                                                                                                     -----------
           Total assets                                                                              $   189,882
                                                                                                     ===========
           Capital expenditures                      $     3,099    $     3,922      $     7,262     $    14,283
                                                     ===========    ===========      ===========
           Corporate capital expenditures                                                                    815
                                                                                                     -----------
           Total capital expenditures                                                                $    15,098
                                                                                                     ===========
</TABLE>

15.  Summary of quarterly financial data (unaudited)

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

     The 1996 and first three  quarters of 1997  earnings per share amounts have
been restated to comply with Financial  Accounting Standards Board Statement No.
128.  The  following  table  sets forth a summary  of the  quarterly  results of
operations for the years ended December 31, 1997 and 1996:

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


<PAGE>

<TABLE>
<CAPTION>
                                                   First        Second        Third       Fourth
                                                  Quarter       Quarter      Quarter      Quarter
                                                  -------       -------      -------      -------
<S>                                              <C>           <C>          <C>           <C>
     1996
     ----
     Net revenue                                 $  62,927     $  68,235    $  45,842     $ 70,294
     Operating Cash Flow                            12,674        19,986       11,255       16,429
     Income before extraordinary item                3,123         9,147          379        3,480
     Extraordinary loss                                --            --           --           355
     Net income                                      3,123         9,147          379        3,125
     Net income per share                              .10           .29          .01          .11
     Net income per share - assuming dilution          .10           .29          .01          .10
</TABLE>

----------
*    Includes  stock  compensation  expense of $4.7  million and  adjustment  to
     litigation accrual of $5.0 million.
**   Includes  adjustment to deferred tax  valuation  allowance of $14.6 million
     and additional stock compensation expense of $4.6 million.