##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

QUARTERLY REPORT
Under
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934



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(Mark One)



|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended June 30, 2001

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
(State or other jurisdiction of
incorporation or organization) |  | 91-1043807
(IRS Employer Identification No.)

1301 Fifth Avenue
Suite 4000
Seattle, Washington 98101
(206) 624-2888
(Address, including zip code, and telephone number,
including area code, of Registrants principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

Yes [X]      No [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                                                                  |  |                                    
|----------------------------------------------------------------- |  | -----------------------------------
|Title of Class                                                    |  | Outstanding at August 1, 2001      
|                                                                  |  |                                    
|Common Stock, $.01 par value
Class B Common Stock, $.01 par value |  | 24,076,174 shares
11,020,622 shares



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TABLE OF CONTENTS



|                               |                                                                                                |                                                        |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1  FINANCIAL STATEMENTS                                                                 
|                               |                                                                                                | CONSOLIDATED BALANCE SHEETS                           
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS                 
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|                               |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|                               | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION   
|                               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|                               | ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                    
|SIGNATURES                    
|EXHIBIT INDEX                 
|EXHIBIT 10.1                  
|EXHIBIT 10.2                  
|EXHIBIT 10.3                  

TABLE OF CONTENTS

|          |  |                                                                                                |  |     
|--------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                |  | Page
|          |  |                                                                                                |  |     
|PART I   |  | FINANCIAL INFORMATION                                                                          |  |     
|         
|         
|         
|         
|ITEM 1.   |  | FINANCIAL STATEMENTS                                                                           |  |     
|         
|         
|         
|         
|          |  | CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000                                |  | 1   
|         
|         
|         
|         
|          |  | CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 |  | 2   
|         
|         
|         
|         
|          |  | CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000           |  | 3   
|         
|         
|         
|         
|          |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                     |  | 4   
|         
|         
|         
|         
|ITEM 2.   |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 9   
|         
|         
|         
|         
|ITEM 3.   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS                                    |  | 18  
|         
|         
|         
|         
|PART II  |  | OTHER INFORMATION                                                                              |  |     
|         
|         
|         
|         
|ITEM 4.   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 18  
|         
|         
|         
|         
|ITEM 6.   |  | EXHIBITS AND REPORTS ON FORM 8-K                                                               |  | 18  
|         
|         
|         
|         
|          |  | SIGNATURES                                                                                     |  | 20  

i



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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1  FINANCIAL STATEMENTS




THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS



---



ASSETS

|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |         |         |         | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | -------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         | (Unaudited)    |         |              |         |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         | June 30,       |         | December 31,
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         | 2001           |         | 2000        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |             
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         | (In thousands)
|                                    
|                                    
|                                    
|                                    
|Current assets:                      |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                                                                                              |                            | $                                          | 6,900   |                |         | $            | 4,687   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net of allowance                                                                                                                                                                                                  |                            |                                            | 45,510  |                |         |              | 60,742  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of broadcast rights                                                                                                                                                                                                    |                            |                                            | 4,035   |                |         |              | 9,023   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses                                                                                                                                                                                                                       |                            |                                            | 5,747   |                |         |              | 14,345  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax asset                                                                                                                                                                                                                     |                            |                                            | 2,348   |                |         |              | 1,619   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                                                                                                                                   |                            |                                            | 5,819   |                |         |              | 6,879   |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        |                            | Total current assets                       |         |                | 70,359  |              |         |         | 97,295  | 
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                                                                                                                                        |                            | 137,014                                    |         |                |         | 170,473      |        
|                                    
|                                    
|                                    
|                                    
|Goodwill, net                        |                                                                                                                                                                                                                                        |                            | 202,334                                    |         |                |         | 210,961      |        
|                                    
|                                    
|                                    
|                                    
|Other intangibles, net               |                                                                                                                                                                                                                                        |                            | 136,494                                    |         |                |         | 142,171      |        
|                                    
|                                    
|                                    
|                                    
|Investment in affiliates             |                                                                                                                                                                                                                                        |                            | 20,946                                     |         |                |         | 19,896       |        
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                                                                                                        |                            | 18,736                                     |         |                |         | 26,511       |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        |                            | Total assets                               |         | $              | 585,883 |              |         | $       | 667,307 | 
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                                                                                                       |                            | $                                          | 7,544   |                |         | $            | 7,426   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued interest                                                                                                                                                                                                                       |                            |                                            | 8,291   |                |         |              | 8,950   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued wages and commissions                                                                                                                                                                                                          |                            |                                            | 1,629   |                |         |              | 6,398   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                                                                                                                                              |                            |                                            | 18,018  |                |         |              | 21,199  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                                                                                                                                   |                            |                                            | 43,945  |                |         |              | 396     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                                                                                                                                       |                            |                                            | 839     |                |         |              | 19,022  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of broadcasting obligations                                                                                                                                                                                            |                            |                                            | 4,923   |                |         |              | 9,564   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                                                                                                                      |                            |                                            | 2,776   |                |         |              | 9,232   |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        |                            | Total current liabilities                  |         |                | 87,965  |              |         |         | 82,187  | 
|                                    
|                                    
|                                    
|                                    
|Long-term debt, less current portion |                                                                                                                                                                                                                                        |                            | 229,872                                    |         |                |         | 385,439      |        
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                                                                                                                                                                                                        |                            | 23,261                                     |         |                |         | 23,701       |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        |                            | Total liabilities                          |         |                | 341,098 |              |         |         | 491,327 | 
|                                    
|                                    
|                                    
|                                    
|Stockholders equity:                |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $.01 per
shareauthorized 50,000,000 shares; issued June
30, 2001  25,416,691 and December 31, 2000 
25,342,929 shares; and outstanding June 30,
2001  24,041,745 and December 31, 2000 
23,967,983 shares |                            |                                            | 254     |                |         |              | 253     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Class B common stock, par value $.01 per
shareauthorized 11,406,510 shares; issued and
outstanding June 30, 2001  11,020,622 and
December 31, 2000  11,051,200 shares                                                               |                            |                                            | 110     |                |         |              | 111     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Capital in excess of par value                                                                                                                                                                                                         |                            |                                            | 58,336  |                |         |              | 57,967  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                                                                                                                                      |                            |                                            | 196,174 |                |         |              | 127,738 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Less common stock in treasury, at cost                                                                                                                                                                                                 |                            |                                            | (10,089 | )              |         |              | (10,089 | )      
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        | Total stockholders equity |                                            |         | 244,785        |         |              |         | 175,980 |        
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                        |                            | Total liabilities and stockholders equity |         | $              | 585,883 |              |         | $       | 667,307 | 
|                                     |                                                                                                                                                                                                                                        |                            |                                            |         |                |         |              |        

See Notes to Consolidated Financial Statements

1



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##### Table of Contents






THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED



---



|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |          |  
|------------------------------------------------------------ | --------------------------------------------------------- | - | ---------------------------------------- | ------ | ---------------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | -------- | -------- | -
|                                                             |                                                           |   | For the Three Month                      |        | For the Six Month     
|                                                             |                                                           |   | Periods Ended June 30,                   |        | Periods Ended June 30,
|                                                             |                                                           |   |                                          |        |                       
|                                                             |                                                           |   | 2001                                     |        | 2000                   |   | 2001    |        | 2000
|                                                             |                                                           |   |                                          |        |                        |   |         |        |     
|                                                             |                                                           |   | (In thousands, except per share amounts)
|                                                            
|                                                            
|                                                            
|                                                            
|Revenue                                                      |                                                           | $ | 64,583                                   |        |                        | $ | 70,352  |        |      | $ | 116,700 |        |  | $ | 125,237  |         
|                                                            
|                                                            
|                                                            
|                                                            
|Less agency commissions and discounts                        |                                                           |   | (9,017                                   | )      |                        |   | (10,374 | )      |      |   | (16,261 | )      |  |   | (18,490  | )       
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Net revenue                                                  |                                                           |   | 55,566                                   |        |                        |   | 59,978  |        |      |   | 100,439 |        |  |   | 106,747  |         
|                                                            
|                                                            
|                                                            
|                                                            
|Expenses (other income):                                     |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Operating expenses                                        |   |                                          | 46,693 |                        |   |         | 45,872 |      |   |         | 94,571 |  |   |          | 86,161   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Workforce reduction costs                                 |   |                                          | 2,431  |                        |   |         |       |      |   |         | 2,431  |  |   |          |         |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Amortization expense                                      |   |                                          | 6,573  |                        |   |         | 5,469  |      |   |         | 13,150 |  |   |          | 9,820    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Depreciation expense                                      |   |                                          | 4,035  |                        |   |         | 3,356  |      |   |         | 8,316  |  |   |          | 6,523    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Interest expense, net                                     |   |                                          | 5,173  |                        |   |         | 4,348  |      |   |         | 14,721 |  |   |          | 9,413    |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Net (gain) loss on dispositions of assets                 |   |                                          | 2,210  |                        |   |         | 724    |      |   |         | 2,210  |  |   |          | (280,633 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Other                                                     |   |                                          | 25     |                        |   |         | 698    |      |   |         | 50     |  |   |          | 708      |  
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Total expenses (other income)                                |                                                           |   | 67,140                                   |        |                        |   | 60,467  |        |      |   | 135,449 |        |  |   | (168,008 | )       
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Income (loss) from continuing operations before
income taxes |                                                           |   | (11,574                                  | )      |                        |   | (489    | )      |      |   | (35,010 | )      |  |   | 274,755  |         
|                                                            
|                                                            
|                                                            
|                                                            
|Income tax expense (benefit)                                 |                                                           |   | (4,438                                   | )      |                        |   | (223    | )      |      |   | (12,638 | )      |  |   | 110,344  |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Income (loss) from continuing operations                     |                                                           |   | (7,136                                   | )      |                        |   | (266    | )      |      |   | (22,372 | )      |  |   | 164,411  |         
|                                                            
|                                                            
|                                                            
|                                                            
|Discontinued operations                                      |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Loss from discontinued operations, net of taxes           |   |                                          |       |                        |   |         | (1,972 | )    |   |         |       |  |   |          | (1,398   | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Gain on disposal of discontinued operations, net
of taxes |   |                                          | 90,808 |                        |   |         |       |      |   |         | 90,808 |  |   |          |         |  
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Net income (loss)                                            |                                                           | $ | 83,672                                   |        |                        | $ | (2,238  | )      |      | $ | 68,436  |        |  | $ | 163,013  |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Earnings per Common Share:                                   |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|                                                            
|                                                            
|                                                            
|                                                            
|Income (loss) from continuing operations                     |                                                           | $ | (.20                                     | )      |                        | $ |        |        |      | $ | (.64    | )      |  | $ | 4.70     |         
|                                                            
|                                                            
|                                                            
|                                                            
|Loss from discontinued operations                            |                                                           |   |                                         |        |                        |   | (.06    | )      |      |   |        |        |  |   | (.04     | )       
|                                                            
|                                                            
|                                                            
|                                                            
|Gain on disposal of discontinued operations                  |                                                           |   | 2.59                                     |        |                        |   |        |        |      |   | 2.59    |        |  |   |         |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Net income (loss)                                            |                                                           | $ | 2.39                                     |        |                        | $ | (.06    | )      |      | $ | 1.95    |        |  | $ | 4.66     |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Earnings per Common Share  Assuming Dilution:               |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|                                                            
|                                                            
|                                                            
|                                                            
|Income (loss) from continuing operations                     |                                                           | $ | (.20                                     | )      |                        | $ |        |        |      | $ | (.64    | )      |  | $ | 4.70     |         
|                                                            
|                                                            
|                                                            
|                                                            
|Loss from discontinued operations                            |                                                           |   |                                         |        |                        |   | (.06    | )      |      |   |        |        |  |   | (.04     | )       
|                                                            
|                                                            
|                                                            
|                                                            
|Gain on disposal of discontinued operations                  |                                                           |   | 2.59                                     |        |                        |   |        |        |      |   | 2.59    |        |  |   |         |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Net income (loss) assuming dilution                          |                                                           | $ | 2.39                                     |        |                        | $ | (.06    | )      |      | $ | 1.95    |        |  | $ | 4.66     |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Dividends per common share                                   |                                                           | $ |                                         |        |                        | $ |        |        |      | $ |        |        |  | $ | .02      |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Dividends per common share, diluted                          |                                                           | $ |                                         |        |                        | $ |        |        |      | $ |        |        |  | $ | .02      |         
|                                                             |                                                           |   |                                          |        |                        |   |         |        |      |   |         |        |  |   |          |         
|Weighted average number of common shares                     |                                                           |   | 35,062                                   |        |                        |   | 34,974  |        |      |   | 35,060  |        |  |   | 34,972   |         
|                                                            
|                                                            
|                                                            
|                                                            
|Weighted average number of common shares  diluted           |                                                           |   | 35,062                                   |        |                        |   | 34,974  |        |      |   | 35,060  |        |  |   | 34,972   |         

See Notes to Consolidated Financial Statements

2



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##### Table of Contents






THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED



---



|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |          |          |       | 
|----------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------- | ---------------------- | --- | ------- | -------- | -------- | ----- | 
|                                                                              |                                            |                                                                                  |                                                             |          | For the Six Month     
|                                                                              |                                            |                                                                                  |                                                             |          | Periods Ended June 30,
|                                                                              |                                            |                                                                                  |                                                             |          |                       
|                                                                              |                                            |                                                                                  |                                                             |          | 2001                   |     | 2000   
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |        
|                                                                              |                                            |                                                                                  |                                                             |          | (In thousands)        
|Cash flows from operating activities:                                         |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Net income                                                                    |                                            | $                                                                                | 68,436                                                      |          |                        | $   | 163,013 |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Adjustments to reconcile net income to net cash used in
operating activities: |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Depreciation and amortization                                                    |                                                             |          | 21,921                 |     |         |          | 17,583   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Net (gain) loss on dispositions of assets                                        |                                                             |          | 2,210                  |     |         |          | (280,633 | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of broadcast rights                                                 |                                                             |          | 6,133                  |     |         |          | 5,227    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Deferred tax expense (benefit)                                                   |                                                             |          | (6,811                 | )   |         |          | 12,251   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Stock compensation expense                                                       |                                                             |          | 50                     |     |         |          | 40       |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Equity in losses of affiliates                                                   |                                                             |          |                       |     |         |          | 668      |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of deferred financing costs                                         |                                                             |          | 1,439                  |     |         |          | 959      |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Income from barter transactions                                                  |                                                             |          | (1,529                 | )   |         |          | (769     | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of deferred gain on termination of interest rate
swap agreements    |                                                             |          | (1,618                 | )   |         |          | (446     | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Gain on disposal of discontinued operation, net of taxes                         |                                                             |          | (90,808                | )   |         |          |         |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Change in assets and liabilities:          |                                                                                  |                                                             |          |                        |     |         |          |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Accounts receivable                                                              |                                                             |          | 2,851                  |     |         |          | (7,589   | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Prepaid expenses                                                                 |                                                             |          | 5,874                  |     |         |          | 4,214    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Other current assets and other assets                                            |                                                             |          | (7,033                 | )   |         |          | 701      |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Accounts payable, accrued interest, and accrued wages and
commissions            |                                                             |          | (5,310                 | )   |         |          | (5,241   | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Other accrued liabilities, income taxes payable, and
other long-term liabilities |                                                             |          | 1,761                  |     |         |          | 88,819   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Deferred revenues                                                                |                                                             |          | (12,865                | )   |         |          | (15,945  | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Broadcast obligations                                                            |                                                             |          | (6,048                 | )   |         |          | (6,467   | )    
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                              | Net cash used in operating activities      |                                                                                  |                                                             | (21,347  | )                      |     |         | (23,615  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash flows from investing activities:                                         |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from dispositions of assets       |                                                                                  |                                                             | 190,142  |                        |     |         | 306,986  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments for acquisitions                  |                                                                                  |                                                             |         |                        |     |         | (91,253  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Capital expenditures                       |                                                                                  |                                                             | (7,490   | )                      |     |         | (21,419  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments for investments                   |                                                                                  |                                                             | (1,050   | )                      |     |         | (17,000  | )       
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                              | Net cash provided by investing activities  |                                                                                  |                                                             | 181,602  |                        |     |         | 177,314  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash flows from financing activities:                                         |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Borrowings under credit agreements         |                                                                                  |                                                             | 35,000   |                        |     |         | 95,000   |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments under credit agreements           |                                                                                  |                                                             | (192,000 | )                      |     |         | (196,496 | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments under capital lease obligation    |                                                                                  |                                                             | (1,316   | )                      |     |         | (975     | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Dividends paid                             |                                                                                  |                                                             |         |                        |     |         | (700     | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from employee stock purchase plan |                                                                                  |                                                             | 274      |                        |     |         | 434      |         
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                              | Net cash used in financing activities      |                                                                                  |                                                             | (158,042 | )                      |     |         | (102,737 | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Net increase in cash and cash equivalents                                     |                                            |                                                                                  | 2,213                                                       |          |                        |     | 50,962  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash and cash equivalents at beginning of period                              |                                            |                                                                                  | 4,687                                                       |          |                        |     | 2,808   |         
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |         
|Cash and cash equivalents at end of period                                    |                                            | $                                                                                | 6,900                                                       |          |                        | $   | 53,770  |         
|                                                                              |                                            |                                                                                  |                                                             |          |                        |     |         |         
|                                                                              | Supplemental cash flow information:        |                                                                                  |                                                             |          |                        |     |         |          |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Interest paid, net of capitalized interest                                       |                                                             | $        | 16,203                 |     |         | $        | 13,176   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Income taxes paid (refund received), net                                         |                                                             | $        | (6,245                 | )   |         | $        | 14       |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Noncash transactions:                                                            |                                                             |          |                        |     |         |          |          |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            |                                                                                  | Broadcast rights acquired and broadcast obligations assumed |          | $                      | 221 |         |          | $        | 2,659 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            |                                                                                  | Property and equipment acquired through barter              |          | $                      | 233 |         |          | $        | 199   | 

See Notes to Consolidated Financial Statements

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THE ACKERLEY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of The
Ackerley Group, Inc. and its subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. The balance sheet at December 31, 2000 has been derived from the audited
consolidated financial statements at that date. The accompanying consolidated
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all normal and recurring adjustments
necessary for a fair presentation of the financial position and the results of
operations for such periods have been included. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Companys Annual Report on Form
10-K for the year ended December 31, 2000.

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

Certain prior years amounts have been reclassified to conform to the 2001 presentation.

NOTE 2. NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations,and No. 142,
Goodwill and Other Intangible Assets,effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized, but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of Statement No. 142 is expected to result in a
decrease in amortization expense of between approximately $19.0 million to
$26.0 million per year, depending on whether certain intangible assets are
deemed to have indefinite lives. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet determined
what the effect of these tests will be on its earnings and financial position.

NOTE 3. DISCONTINUED OPERATIONS

On December 8, 2000 (the measurement date), the Company executed a
letter of intent to sell substantially all of the assets of its sports &
entertainment operations (the Sonics Sale) to The Basketball Club of Seattle,
LLC for $200.0 million in cash and the assumption of certain liabilities.
These operations consisted principally of the Seattle SuperSonics National
Basketball Association franchise, operating rights to the Seattle Storm, a
Womans National Basketball Association franchise, and Full House Sports &
Entertainment, the Companys sports marketing business. A definitive purchase
agreement was signed on January 11, 2001 and the transaction closed on April 2,
2001. In

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##### Table of Contents



addition, on June 12, 2001, the Company entered into an agreement to sell
separately its Boeing 727 aircraft used by the Seattle SuperSonics for
transportation to and from away games. The sale of the aircraft closed on
August 2, 2001 for $6.2 million.

Operating results of the discontinued sports & entertainment operations
are as follows (in thousands):

|                                                               |  |                          |         |                        |  |      |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------ | ------- | ---------------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                               |  | Three Month Period Ended |         | Six Month Period Ended
|                                                               |  | June 30                  |         | June 30               
|                                                               |  |                          |         |                       
|                                                               |  | 2001                     |         | 2000                   |  | 2001 |        | 2000
|                                                               |  |                          |         |                        |  |      |        |     
|Loss from discontinued operations                              |  | $                        |        |                        |  | $    | (3,630 | )    |  | $ |        |   |  |   | ($2,670 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Gain on disposal of discontinued operations                    |  |                          | 139,705 |                        |  |      |       |      |  |   | 139,705 |   |  |   |        |  
|                                                              
|                                                              
|                                                              
|                                                              
|Income tax (expense) benefit                                   |  |                          | (48,897 | )                      |  |      | 1,658  |      |  |   | (48,897 | ) |  |   | 1,272   |  
|                                                               |  |                          |         |                        |  |      |        |      |  |   |         |   |  |   |         |  
|Net income (loss) from discontinued operations                 |  | $                        | 90,808  |                        |  | $    | (1,972 | )    |  | $ | 90,808  |   |  | $ | (1,398  | )
|                                                               |  |                          |         |                        |  |      |        |      |  |   |         |   |  |   |         |  
|Net revenue included in loss from
discontinued operations      |  | $                        |        |                        |  | $    | 13,473 |      |  | $ |        |   |  | $ | 49,006  |  
|                                                              
|                                                              
|                                                              
|                                                              
|Interest expense included in loss from
discontinued operations |  | $                        |        |                        |  | $    | 600    |      |  | $ |        |   |  | $ | 1,152   |  

The loss from operations of the sports & entertainment operations from the
measurement date through June 30, 2001 was $10.6 million, which included $43.8
million in net revenue. Included in these totals is a loss of $4.5 million and
net revenue of $35.4 million for the first quarter of 2001 and a loss of $3.1
million for the second quarter of 2001. There was no net revenue for the
second quarter of 2001. These losses from operations were recognized in the
second quarter of 2001 as a reduction of the combined net gain from the Sonics
Sale and the sale of the Boeing 727 aircraft.

Interest expense included in discontinued operations is comprised of
interest on obligations related to the assets sold as well as interest
allocated to the sports & entertainment operations. Such interest was
allocated based on the Companys incremental borrowing rate applied to the
initial acquisition price of the Seattle SuperSonics franchise.

NOTE 4. DEBT

To accommodate recent acquisitions, particularly KGPE (TV), and the timing
of the sale of the sports & entertainment operations (as discussed in Note 2 to
the Consolidated Financial Statements), the Company amended its 1999 Credit
Agreement to provide waivers of compliance with, and to change the requirements
of, certain restrictive covenants effective for the period from June 30, 2000
through April 15, 2001. On April 2, 2001, the Company utilized net proceeds
from the sale of its sports & entertainment operations, aggregating
approximately $192.0 million, to repay fully the $51.3 million outstanding
principal amount under the term loan facility of the 1999 Credit Agreement and
the remaining $140.7 million of the net proceeds were used to reduce amounts
outstanding under the revolving credit facility (Revolver) of the 1999 Credit
Agreement. After this repayment, the total outstanding principal amount under
the Revolver was $15.3 million. In conjunction with this repayment, total
available borrowings under the Revolver were reduced to $75.0 million.

On May 14, 2001, the Company executed a provisional waiver and standstill
agreement with its lenders. Under this agreement, as subsequently amended,
certain restrictive covenants and requirements of the 1999 Credit Agreement are
waived through September 15, 2001. In addition, borrowings under the Revolver
are limited to $26.3 million. The Company anticipates closing on a replacement
credit facility prior to September 15, 2001.

5



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##### Table of Contents



NOTE 5. WORKFORCE REDUCTION COSTS

In the second quarter of 2001, the Company implemented a cost reduction
initiative in all of its business segments and the corporate office, including
a senior management transition, in order to mitigate decreases in national
advertising revenue due to the slowing national economy. The Company recorded
a charge of $2.4 million in the second quarter consisting of termination
benefits for employees whose positions were eliminated in connection with the
cost reduction initiative. Approximately 70 positions representing a wide
variety of functions across all business segments and the corporate office have
been eliminated. As of June 30, 2001, termination benefits of approximately
$107,000, representing 35 employees, had been paid and charged to the workforce
reduction accrual.

NOTE 6. DISPOSAL OF RADIO BROADCASTING TRANSMISSION FACILITIES

The Company recorded a net charge of $2.2 million in the second quarter of
2001 in connection with the disposal of radio broadcasting transmission
facilities for station KJR (AM). These facilities were located on property
leased from the Port of Seattle. In connection with the lease termination, the
Company received a payment of $0.8 million from the Port of Seattle that was
recorded as a reduction of the disposal charge. KJR (AM) currently is
transmitting from facilities located in Tacoma, Washington.

NOTE 7. RELATED PARTY TRANSACTION

Included in other accrued liabilities is an advance of $500,000 to the
Company to fund an investment from two individuals who are officers and
directors. The advance will be repaid from available cash flow.

NOTE 8. INDUSTRY SEGMENT INFORMATION

The Company organizes its segments based on the products and services from
which revenues are generated. The Company evaluates segment performance and
allocates resources based on Segment Operating Cash Flow, which is defined as
EBITDA before corporate overhead and workforce reduction costs. The Company
defines EBITDA as net revenue less operating expenses and workforce reduction
costs before amortization, depreciation, interest, other expenses, and net gain
or loss on dispositions of assets.

Selected financial information for these segments for the three and six
month periods ended June 30, 2001 and 2000 is presented as follows:

|                                        |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|--------------------------------------- |  | -------------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | ------------ | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                        |  | Outdoor        |         | Television   |  | Radio        |         | Interactive |  |              |        |  
|                                        |  | Media          |         | Broadcasting |  | Broadcasting |         | Media       |  | Consolidated
|                                        |  |                |         |              |  |              |         |             |  |             
|                                        |  | (in thousands)
|Three Month Period Ended
June 30, 2001: |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|                                       
|                                       
|                                       
|                                       
|Net revenue                             |  | $              | 23,263  |              |  | $            | 26,529  |             |  | $            | 5,713  |   |  | $ | 61    |   |  | $ | 55,566  |  
|                                       
|                                       
|                                       
|                                       
|Segment operating expenses              |  |                | (13,100 | )            |  |              | (23,103 | )           |  |              | (5,044 | ) |  |   | (408  | ) |  |   | (41,655 | )
|                                        |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow             |  | $              | 10,163  |              |  | $            | 3,426   |             |  | $            | 669    |   |  | $ | (347  | ) |  | $ | 13,911  |  
|                                        |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|Segment assets                          |  | $              | 105,509 |              |  | $            | 373,855 |             |  | $            | 57,926 |   |  | $ | 1,590 |   |  | $ | 538,880 |  
|                                       
|                                       
|                                       
|                                       
|Capital expenditures                    |  | $              | 133     |              |  | $            | 981     |             |  | $            | 289    |   |  | $ | 119   |   |  | $ | 1,522   |  
|                                       
|                                       
|                                       
|                                       
|Three Month Period Ended
June 30, 2000: |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|                                       
|                                       
|                                       
|                                       
|Net revenue                             |  | $              | 25,326  |              |  | $            | 27,166  |             |  | $            | 7,486  |   |  | $ |      |   |  | $ | 59,978  |  
|                                       
|                                       
|                                       
|                                       
|Segment operating expenses              |  |                | (13,083 | )            |  |              | (21,351 | )           |  |              | (4,895 | ) |  |   |      |   |  |   | (39,329 | )
|                                        |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow             |  | $              | 12,243  |              |  | $            | 5,815   |             |  | $            | 2,591  |   |  | $ |      |   |  | $ | 20,649  |  
|                                        |  |                |         |              |  |              |         |             |  |              |        |   |  |   |       |   |  |   |         |  

6



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##### Table of Contents



|                     |  |                |         |              |  |              |         |             |  |              |        |  |  |   |     |  |  |   |         | 
|-------------------- |  | -------------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | ------------ | ------ |  |  | - | --- |  |  | - | ------- | 
|                     |  | Outdoor        |         | Television   |  | Radio        |         | Interactive |  |              |        | 
|                     |  | Media          |         | Broadcasting |  | Broadcasting |         | Media       |  | Consolidated
|                     |  |                |         |              |  |              |         |             |  |             
|                     |  | (in thousands)
|                    
|                    
|                    
|                    
|Segment assets       |  | $              | 112,828 |              |  | $            | 310,238 |             |  | $            | 59,501 |  |  | $ |    |  |  | $ | 482,567 | 
|                    
|                    
|                    
|                    
|Capital expenditures |  | $              | 1,097   |              |  | $            | 2,639   |             |  | $            | 188    |  |  | $ | 110 |  |  | $ | 4,034   | 

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

|                                                    |  |                          |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------- | ---- |  | - | ------- | -
|                                                    |  | Three Month Period Ended
|                                                    |  | June 30,                
|                                                    |  |                         
|                                                    |  | 2001                     |         | 2000
|                                                    |  |                          |         |     
|Segment Operating Cash Flow                         |  | $                        | 13,911  |      |  | $ | 20,649  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Corporate overhead                                  |  |                          | (5,038  | )    |  |   | (6,543  | )
|                                                   
|                                                   
|                                                   
|                                                   
|Workforce reduction costs                           |  |                          | (2,431  | )    |  |   |        |  
|                                                    |  |                          |         |      |  |   |         |  
|EBITDA                                              |  |                          | 6,442   |      |  |   | 14,106  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Depreciation and amortization                       |  |                          | (10,608 | )    |  |   | (8,825  | )
|                                                   
|                                                   
|                                                   
|                                                   
|Interest expense                                    |  |                          | (5,173  | )    |  |   | (4,348  | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net loss on dispositions of assets                  |  |                          | (2,210  | )    |  |   | (724    | )
|                                                   
|                                                   
|                                                   
|                                                   
|Other                                               |  |                          | (25     | )    |  |   | (698    | )
|                                                    |  |                          |         |      |  |   |         |  
|Loss from continuing operations before income taxes |  | $                        | (11,574 | )    |  | $ | (489    | )
|                                                    |  |                          |         |      |  |   |         |  
|Segment assets                                      |  | $                        | 538,880 |      |  | $ | 482,567 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Corporate assets                                    |  |                          | 38,430  |      |  |   | 112,033 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Assets of discontinued operations                   |  |                          | 8,573   |      |  |   | 60,228  |  
|                                                    |  |                          |         |      |  |   |         |  
|Consolidated total assets                           |  | $                        | 585,883 |      |  | $ | 654,828 |  
|                                                    |  |                          |         |      |  |   |         |  
|Segment capital expenditures                        |  | $                        | 1,522   |      |  | $ | 4,034   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Corporate capital expenditures                      |  |                          | 237     |      |  |   | 9,753   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Capital expenditures of discontinued operations     |  |                          |        |      |  |   | 111     |  
|                                                    |  |                          |         |      |  |   |         |  
|Consolidated capital expenditures                   |  | $                        | 1,759   |      |  | $ | 13,898  |  
|                                                    |  |                          |         |      |  |   |         |  

|                                      |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|------------------------------------- |  | -------------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | ------------ | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                      |  | Outdoor        |         | Television   |  | Radio        |         | Interactive |  |              |         |  
|                                      |  | Media          |         | Broadcasting |  | Broadcasting |         | Media       |  | Consolidated
|                                      |  |                |         |              |  |              |         |             |  |             
|                                      |  | (in thousands)
|Six Month Period Ended
June 30, 2001: |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|                                     
|                                     
|                                     
|                                     
|Net revenue                           |  | $              | 40,508  |              |  | $            | 49,403  |             |  | $            | 10,446  |   |  | $ | 82    |   |  | $ | 100,439 |  
|                                     
|                                     
|                                     
|                                     
|Segment operating expenses            |  |                | (25,805 | )            |  |              | (46,707 | )           |  |              | (10,422 | ) |  |   | (763  | ) |  |   | (83,697 | )
|                                      |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow           |  | $              | 14,703  |              |  | $            | 2,696   |             |  | $            | 24      |   |  | $ | (681  | ) |  | $ | 16,742  |  
|                                      |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|Segment assets                        |  | $              | 105,509 |              |  | $            | 373,855 |             |  | $            | 57,926  |   |  | $ | 1,590 |   |  | $ | 538,880 |  
|                                     
|                                     
|                                     
|                                     
|Capital expenditures                  |  | $              | 1,337   |              |  | $            | 3,629   |             |  | $            | 485     |   |  | $ | 540   |   |  | $ | 5,991   |  
|                                     
|                                     
|                                     
|                                     
|Six Month Period Ended
June 30, 2000: |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|                                     
|                                     
|                                     
|                                     
|Net revenue                           |  | $              | 43,043  |              |  | $            | 49,691  |             |  | $            | 14,013  |   |  | $ |      |   |  | $ | 106,747 |  
|                                     
|                                     
|                                     
|                                     
|Segment operating expenses            |  |                | (24,871 | )            |  |              | (40,254 | )           |  |              | (9,155  | ) |  |   |      |   |  |   | (74,280 | )
|                                      |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow           |  | $              | 18,172  |              |  | $            | 9,437   |             |  | $            | 4,858   |   |  | $ |      |   |  | $ | 32,467  |  
|                                      |  |                |         |              |  |              |         |             |  |              |         |   |  |   |       |   |  |   |         |  
|Segment assets                        |  | $              | 112,828 |              |  | $            | 310,238 |             |  | $            | 59,501  |   |  | $ |      |   |  | $ | 482,567 |  
|                                     
|                                     
|                                     
|                                     
|Capital expenditures                  |  | $              | 2,344   |              |  | $            | 5,816   |             |  | $            | 590     |   |  | $ | 110   |   |  | $ | 8,860   |  

7



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##### Table of Contents



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

|                                                             |  |                        |         |      |  |   |         |  
|------------------------------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                             |  | Six Month Period Ended
|                                                             |  | June 30,              
|                                                             |  |                       
|                                                             |  | 2001                   |         | 2000
|                                                             |  |                        |         |     
|Segment Operating Cash Flow                                  |  | $                      | 16,742  |      |  | $ | 32,467  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Corporate overhead                                           |  |                        | (10,874 | )    |  |   | (11,881 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Workforce reduction costs                                    |  |                        | (2,431  | )    |  |   |        |  
|                                                             |  |                        |         |      |  |   |         |  
|EBITDA                                                       |  |                        | 3,437   |      |  |   | 20,586  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Depreciation and amortization                                |  |                        | (21,466 | )    |  |   | (16,343 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Interest expense                                             |  |                        | (14,721 | )    |  |   | (9,413  | )
|                                                            
|                                                            
|                                                            
|                                                            
|Net gain (loss) on dispositions of assets                    |  |                        | (2,210  | )    |  |   | 280,633 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Other                                                        |  |                        | (50     | )    |  |   | (708    | )
|                                                             |  |                        |         |      |  |   |         |  
|Income (loss) from continuing operations before income taxes |  | $                      | (35,010 | )    |  | $ | 274,755 |  
|                                                             |  |                        |         |      |  |   |         |  
|Segment assets                                               |  | $                      | 538,880 |      |  | $ | 482,567 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Corporate assets                                             |  |                        | 38,430  |      |  |   | 112,033 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Assets of discontinued operations                            |  |                        | 8,573   |      |  |   | 60,228  |  
|                                                             |  |                        |         |      |  |   |         |  
|Consolidated total assets                                    |  | $                      | 585,883 |      |  | $ | 654,828 |  
|                                                             |  |                        |         |      |  |   |         |  
|Segment capital expenditures                                 |  | $                      | 5,991   |      |  | $ | 8,860   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Corporate capital expenditures                               |  |                        | 418     |      |  |   | 12,061  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Capital expenditures of discontinued operations              |  |                        | 1,081   |      |  |   | 498     |  
|                                                             |  |                        |         |      |  |   |         |  
|Consolidated capital expenditures                            |  | $                      | 7,490   |      |  | $ | 21,419  |  
|                                                             |  |                        |         |      |  |   |         |  

8



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##### Table of Contents






ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We reported net income of $68.4 million for the first six months of 2001,
compared to net income of $163.0 million for the first six months of 2000. Our
net income for 2001 includes a gain on sale of our discontinued sports &
entertainment operations of $90.8 million, net of taxes. Our net income for
2000 includes a net pre-tax gain on dispositions of assets of $280.6 million
and a loss from discontinued operations of $1.4 million, net of taxes. Net
revenue for the first six months of 2001 decreased over the same period last
year by $6.3 million, or 6%, while our EBITDA (as defined below) decreased by
$17.1 million, to $3.4 million.

In April 2001, we sold our sports & entertainment operations for $200.0
million in cash and the assumption of certain liabilities. We recorded a gain
on the transaction of $90.8 million, net of taxes. Accordingly, our sports &
entertainment operations are reflected in our financial statements as a
discontinued operation for all periods presented. This transaction is
discussed more fully in Note 3 to the Consolidated Financial Statements.

In the second quarter of 2001, we implemented a company-wide cost
reduction initiative, including a senior management transition, to mitigate
decreases in national advertising due to the slowing of the national economy.
We recorded a charge of $2.4 million consisting of employee termination
benefits in connection with this initiative. These cost reduction initiatives
are designed to keep total operating expenses level with total 2000 operating
expenses of approximately $181.0 million.

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

Results of Operations

The following tables set forth certain historical financial and operating
data for the three and six month periods ended June 30, 2001 and 2000,
including net revenue, operating expenses, and Segment Operating Cash Flow
information by segment:

|                           |  |   |        |                                    |  |      |  |  |  |             |       |         |  |   |        |  |  |             |  |  |  |         |       |   |  | 
|-------------------------- |  | - | ------ | ---------------------------------- |  | ---- |  |  |  | ----------- | ----- | ------- |  | - | ------ |  |  | ----------- |  |  |  | ------- | ----- | - |  | 
|                           |  |   |        | Three Month Periods Ended June 30,
|                           |  |   |        |                                   
|                           |  |   |        | 2001                               |  | 2000
|                           |  |   |        |                                    |  |     
|                           |  |   |        | (Dollars in thousands)            
|                           |  |   |        |                                    |  |      |  |  |  |             |       | As % of |  |   |        |  |  |             |  |  |  | As % of
|                           |  |   |        | Amount                             |  |      |  |  |  | Net Revenue |       | Amount  |  |   |        |  |  | Net Revenue
|                           |  |   |        |                                    |  |      |  |  |  |             |       |         |  |   |        |  |  |            
|Net revenue                |  | $ | 55,566 |                                    |  |      |  |  |  |             | 100.0 | %       |  | $ | 59,978 |  |  |             |  |  |  |         | 100.0 | %
|                          
|                          
|                          
|                          
|Segment operating expenses |  |   | 41,655 |                                    |  |      |  |  |  |             | 75.0  | %       |  |   | 39,329 |  |  |             |  |  |  |         | 65.6  | %
|                          
|                          
|                          
|                          
|Corporate overhead         |  |   | 5,038  |                                    |  |      |  |  |  |             | 9.1   | %       |  |   | 6,543  |  |  |             |  |  |  |         | 10.9  | %
|                          
|                          
|                          
|                          
|Workforce reduction costs  |  |   | 2,431  |                                    |  |      |  |  |  |             | 4.4   | %       |  |   |       |  |  |             |  |  |  |         |      |  
|                           |  |   |        |                                    |  |      |  |  |  |             |       |         |  |   |        |  |  |             |  |  |  |         |       |  

9



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##### Table of Contents



|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |      |      |  
|------------------------------------------------------- | ------------------------------------- | ------------------------ | ------- | ---------------------------------- | ------ | ---- |  |  |  | ----------- | ----- | ------- | ---- | - | ------ | ----- | ------ | ----------- |  |  |  | ------- | ---- | ---- | ---- | -
|                                                        |                                       |                          |         | Three Month Periods Ended June 30,
|                                                        |                                       |                          |         |                                   
|                                                        |                                       |                          |         | 2001                               |        | 2000
|                                                        |                                       |                          |         |                                    |        |     
|                                                        |                                       |                          |         | (Dollars in thousands)            
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       | As % of |      |   |        |       |        |             |  |  |  | As % of
|                                                        |                                       |                          |         | Amount                             |        |      |  |  |  | Net Revenue |       | Amount  |      |   |        |       |        | Net Revenue
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |            
|                                                        |                                       | Total operating expenses |         |                                    | 49,124 |      |  |  |  |             |       |         | 88.4 | % |        |       | 45,872 |             |  |  |  |         |      |      | 76.5 | %
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|EBITDA                                                  |                                       |                          | 6,442   |                                    |        |      |  |  |  |             | 11.6  | %       |      |   | 14,106 |       |        |             |  |  |  |         | 23.5 | %   
|                                                       
|                                                       
|                                                       
|                                                       
|Other expenses:                                         |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Depreciation and amortization expense |                          |         | 10,608                             |        |      |  |  |  |             |       | 19.1    | %    |   |        | 8,825 |        |             |  |  |  |         |      | 14.7 | %   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Interest expense                      |                          |         | 5,173                              |        |      |  |  |  |             |       | 9.3     | %    |   |        | 4,348 |        |             |  |  |  |         |      | 7.2  | %   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Loss on dispositions of assets        |                          |         | 2,210                              |        |      |  |  |  |             |       | 4.0     | %    |   |        | 724   |        |             |  |  |  |         |      | 1.2  | %   
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Other                                 |                          |         | 25                                 |        |      |  |  |  |             |       |        |      |   |        | 698   |        |             |  |  |  |         |      | 1.2  | %   
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|                                                        |                                       | Total other expenses     |         |                                    | 18,016 |      |  |  |  |             |       |         | 32.4 | % |        |       | 14,595 |             |  |  |  |         |      |      | 24.3 | %
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|Loss from continuing operations before income taxes     |                                       |                          | (11,574 | )                                  |        |      |  |  |  |             | (20.8 | )%      |      |   | (489   | )     |        |             |  |  |  |         | (0.8 | )%  
|                                                       
|                                                       
|                                                       
|                                                       
|Income tax benefit                                      |                                       |                          | (4,438  | )                                  |        |      |  |  |  |             | 8.0   | %       |      |   | (223   | )     |        |             |  |  |  |         | 0.4  | %   
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|Loss from continuing operations                         |                                       |                          | (7,136  | )                                  |        |      |  |  |  |             | (12.8 | )%      |      |   | (266   | )     |        |             |  |  |  |         | (0.4 | )%  
|                                                       
|                                                       
|                                                       
|                                                       
|Loss from discontinued operations, net
of tax           |                                       |                          |        |                                    |        |      |  |  |  |             |      |         |      |   | (1,972 | )     |        |             |  |  |  |         | (3.3 | )%  
|                                                       
|                                                       
|                                                       
|                                                       
|Gain on disposal of discontinued operations,
net of tax |                                       |                          | 90,808  |                                    |        |      |  |  |  |             | 163.4 | %       |      |   |       |       |        |             |  |  |  |         |     | %   
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     
|Net income (loss)                                       |                                       | $                        | 83,672  |                                    |        |      |  |  |  |             | 150.6 | %       |      | $ | (2,238 | )     |        |             |  |  |  |         | (3.7 | )%  
|                                                        |                                       |                          |         |                                    |        |      |  |  |  |             |       |         |      |   |        |       |        |             |  |  |  |         |      |     

|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |        |        |   
|---------------------------------------------------------- | ----------------------------------------- | ----------------------------- | ------- | -------------------------------- | ------ | ----------- |  | ------ |  |  | ----- | ------- | ---- | ----------- | ------- | -------- | -------- | - |  |  |  | ------- | ----- | ------ | ------ | --
|                                                           |                                           |                               |         | Six Month Periods Ended June 30,
|                                                           |                                           |                               |         |                                 
|                                                           |                                           |                               |         | 2001                             |        | 2000       
|                                                           |                                           |                               |         |                                  |        |            
|                                                           |                                           |                               |         | (Dollars in thousands)          
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       | As % of |      |             |         |          |          |   |  |  |  | As % of
|                                                           |                                           |                               |         | Amount                           |        | Net Revenue |  | Amount |  |  |       |         |      | Net Revenue
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |            
|Net revenue                                                |                                           | $                             | 100,439 |                                  |        |             |  |        |  |  | 100.0 | %       |      | $           | 106,747 |          |          |   |  |  |  |         | 100.0 | %     
|                                                          
|                                                          
|                                                          
|                                                          
|Segment operating expenses                                 |                                           |                               | 83,697  |                                  |        |             |  |        |  |  | 83.3  | %       |      |             | 74,280  |          |          |   |  |  |  |         | 69.6  | %     
|                                                          
|                                                          
|                                                          
|                                                          
|Corporate overhead                                         |                                           |                               | 10,874  |                                  |        |             |  |        |  |  | 10.8  | %       |      |             | 11,881  |          |          |   |  |  |  |         | 11.1  | %     
|                                                          
|                                                          
|                                                          
|                                                          
|Workforce reduction costs                                  |                                           |                               | 2,431   |                                  |        |             |  |        |  |  | 2.4   | %       |      |             |        |          |          |   |  |  |  |         |      | %     
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|                                                           |                                           | Total operating expenses      |         |                                  | 97,002 |             |  |        |  |  |       |         | 96.6 | %           |         |          | 86,161   |   |  |  |  |         |       |        | 80.7   | % 
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|EBITDA                                                     |                                           |                               | 3,437   |                                  |        |             |  |        |  |  | 3.4   | %       |      |             | 20,586  |          |          |   |  |  |  |         | 19.3  | %     
|                                                          
|                                                          
|                                                          
|                                                          
|Other expenses (income):                                   |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Depreciation and amortization expense     |                               |         | 21,466                           |        |             |  |        |  |  |       | 21.4    | %    |             |         | 16,343   |          |   |  |  |  |         |       | 15.3   | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interest expense                          |                               |         | 14,721                           |        |             |  |        |  |  |       | 14.7    | %    |             |         | 9,413    |          |   |  |  |  |         |       | 8.8    | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Net (gain) loss on dispositions of assets |                               |         | 2,210                            |        |             |  |        |  |  |       | 2.2     | %    |             |         | (280,633 | )        |   |  |  |  |         |       | (262.9 | )%    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Other                                     |                               |         | 50                               |        |             |  |        |  |  |       |        |      |             |         | 708      |          |   |  |  |  |         |       | 0.7    | %     
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|                                                           |                                           | Total other expenses (income) |         |                                  | 38,447 |             |  |        |  |  |       |         | 38.3 | %           |         |          | (254,169 | ) |  |  |  |         |       |        | (238.1 | )%
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|Income (loss) from continuing operations before income tax |                                           |                               | (35,010 | )                                |        |             |  |        |  |  | (34.9 | )%      |      |             | 274,755 |          |          |   |  |  |  |         | 257.4 | %     
|                                                          
|                                                          
|                                                          
|                                                          
|Income tax expense (benefit)                               |                                           |                               | (12,638 | )                                |        |             |  |        |  |  | 12.6  | %       |      |             | 110,344 |          |          |   |  |  |  |         | 103.4 | %     
|                                                           |                                           |                               |         |                                  |        |             |  |        |  |  |       |         |      |             |         |          |          |   |  |  |  |         |       |       
|Income (loss) from continuing operations                   |                                           |                               | (22,372 | )                                |        |             |  |        |  |  | (22.3 | )%      |      |             | 164,411 |          |          |   |  |  |  |         | 154.0 | %     

10



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##### Table of Contents



|                                                        |  |   |        |                                  |  |             |  |        |  |  |      |         |  |             |         |   |  |  |  |  |  |         |       |    |  | 
|------------------------------------------------------- |  | - | ------ | -------------------------------- |  | ----------- |  | ------ |  |  | ---- | ------- |  | ----------- | ------- | - |  |  |  |  |  | ------- | ----- | -- |  | 
|                                                        |  |   |        | Six Month Periods Ended June 30,
|                                                        |  |   |        |                                 
|                                                        |  |   |        | 2001                             |  | 2000       
|                                                        |  |   |        |                                  |  |            
|                                                        |  |   |        | (Dollars in thousands)          
|                                                        |  |   |        |                                  |  |             |  |        |  |  |      | As % of |  |             |         |   |  |  |  |  |  | As % of
|                                                        |  |   |        | Amount                           |  | Net Revenue |  | Amount |  |  |      |         |  | Net Revenue
|                                                        |  |   |        |                                  |  |             |  |        |  |  |      |         |  |            
|                                                       
|                                                       
|                                                       
|                                                       
|Loss from discontinued operations, net
of tax           |  |   |       |                                  |  |             |  |        |  |  |     |         |  |             | (1,398  | ) |  |  |  |  |  |         | (1.3  | )%
|                                                       
|                                                       
|                                                       
|                                                       
|Gain on disposal of discontinued operations,
net of tax |  |   | 90,808 |                                  |  |             |  |        |  |  | 90.4 | %       |  |             |        |   |  |  |  |  |  |         |      |   
|                                                        |  |   |        |                                  |  |             |  |        |  |  |      |         |  |             |         |   |  |  |  |  |  |         |       |   
|Net income (loss)                                       |  | $ | 68,436 |                                  |  |             |  |        |  |  | 68.1 | %       |  | $           | 163,013 |   |  |  |  |  |  |         | 152.7 | % 
|                                                        |  |   |        |                                  |  |             |  |        |  |  |      |         |  |             |         |   |  |  |  |  |  |         |       |   

|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |   |         |         |  
|----------------------------------------- |  | ------------------------- | --------------------------------- | - | ------------------------- | ------ | ----------------------- | - | ------ | ------ | ---- | - | ------- | ------- | -- | - | ------- | ------- | -
|                                          |  |                           |                                   |   | Three Month Periods Ended |        | Six Month Periods Ended
|                                          |  |                           |                                   |   | June 30,                  |        | June 30,               
|                                          |  |                           |                                   |   |                           |        |                        
|                                          |  |                           |                                   |   | 2001                      |        | 2000                    |   | 2001   |        | 2000
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |     
|                                          |  |                           |                                   |   | (Dollars in Thousands)    |        | (Dollars in Thousands) 
|                                          |  |                           |                                   |   |                           |        |                        
|Net revenue:                              |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                         
|                                         
|                                         
|                                         
|                                          |  | Outdoor media             |                                   | $ | 23,263                    |        |                         | $ | 25,326 |        |      | $ | 40,508  |         |    | $ | 43,043  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Television broadcasting   |                                   |   | 26,529                    |        |                         |   | 27,166 |        |      |   | 49,403  |         |    |   | 49,691  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Radio broadcasting        |                                   |   | 5,713                     |        |                         |   | 7,486  |        |      |   | 10,446  |         |    |   | 14,013  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Interactive media         |                                   |   | 61                        |        |                         |   |       |        |      |   | 82      |         |    |   |        |        
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                          |  |                           | Total net revenue                 |   | $                         | 55,566 |                         |   | $      | 59,978 |      |   | $       | 100,439 |    |   | $       | 106,747 |  
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|Segment operating expenses:               |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                         
|                                         
|                                         
|                                         
|                                          |  | Outdoor media             |                                   | $ | 13,100                    |        |                         | $ | 13,083 |        |      | $ | 25,805  |         |    | $ | 24,871  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Television broadcasting   |                                   |   | 23,103                    |        |                         |   | 21,351 |        |      |   | 46,707  |         |    |   | 40,254  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Radio broadcasting        |                                   |   | 5,044                     |        |                         |   | 4,895  |        |      |   | 10,422  |         |    |   | 9,155   |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Interactive media         |                                   |   | 408                       |        |                         |   |       |        |      |   | 763     |         |    |   |        |        
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                          |  |                           | Total segment operating
expenses  |   | $                         | 41,655 |                         |   | $      | 39,329 |      |   | $       | 83,697  |    |   | $       | 74,280  |  
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|Segment Operating Cash Flow and
EBITDA:   |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                         
|                                         
|                                         
|                                         
|                                          |  | Outdoor media             |                                   | $ | 10,163                    |        |                         | $ | 12,243 |        |      | $ | 14,703  |         |    | $ | 18,172  |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Television broadcasting   |                                   |   | 3,426                     |        |                         |   | 5,815  |        |      |   | 2,696   |         |    |   | 9,437   |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Radio broadcasting        |                                   |   | 669                       |        |                         |   | 2,591  |        |      |   | 24      |         |    |   | 4,858   |        
|                                         
|                                         
|                                         
|                                         
|                                          |  | Interactive media         |                                   |   | (347                      | )      |                         |   |       |        |      |   | (681    | )       |    |   |        |        
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                          |  |                           | Total Segment Operating Cash
Flow |   |                           | 13,911 |                         |   |        | 20,649 |      |   |         | 16,742  |    |   |         | 32,467  |  
|                                         
|                                         
|                                         
|                                         
|                                          |  | Corporate overhead        |                                   |   | (5,038                    | )      |                         |   | (6,543 | )      |      |   | (10,874 | )       |    |   | (11,881 | )      
|                                         
|                                         
|                                         
|                                         
|                                          |  | Workforce reduction costs |                                   |   | (2,431                    | )      |                         |   |       |        |      |   | (2,431  | )       |    |   |        |        
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                          |  |                           | Total EBITDA                      |   | $                         | 6,442  |                         |   | $      | 14,106 |      |   | $       | 3,437   |    |   | $       | 20,586  |  
|                                          |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|Change in net revenue from prior
periods: |  |                           |                                   |   |                           |        |                         |   |        |        |      |   |         |         |    |  
|                                         
|                                         
|                                         
|                                         
|                                          |  | Outdoor media             |                                   |   | (8.1                      | )%     |                         |   | (1.6   | )%     |      |   | (5.9    | )%      |    |   | (5.9    | )%     
|                                         
|                                         
|                                         
|                                         
|                                          |  | Television broadcasting   |                                   |   | (2.3                      | )%     |                         |   | 26.8   | %      |      |   | (0.6    | )%      |    |   | 31.9    | %      
|                                         
|                                         
|                                         
|                                         
|                                          |  | Radio broadcasting        |                                   |   | (23.7                     | )%     |                         |   | 7.9    | %      |      |   | (25.5   | )%      |    |   | 15.3    | %      
|                                         
|                                         
|                                         
|                                         
|                                          |  | Interactive media         |                                   |   | 100.0                     | %      |                         |   |       |        |      |   | 100.0   | %       |    |   |        |        
|                                         
|                                         
|                                         
|                                         
|                                          |  |                           | Change in total net revenue       |   |                           | (7.4   | )%                      |   |        | 10.8   | %    |   |         | (5.9    | )% |   |         | 11.7    | %

11



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##### Table of Contents



|                                                           |                         |  |                                                               |        |                           |      |                         |      |      |      |      |        |    |      |      |      |   |      |  
|---------------------------------------------------------- | ----------------------- |  | ------------------------------------------------------------- | ------ | ------------------------- | ---- | ----------------------- | ---- | ---- | ---- | ---- | ------ | -- | ---- | ---- | ---- | - | ---- | -
|                                                           |                         |  |                                                               |        | Three Month Periods Ended |      | Six Month Periods Ended
|                                                           |                         |  |                                                               |        | June 30,                  |      | June 30,               
|                                                           |                         |  |                                                               |        |                           |      |                        
|                                                           |                         |  |                                                               |        | 2001                      |      | 2000                    |      | 2001 |      | 2000
|                                                           |                         |  |                                                               |        |                           |      |                         |      |      |      |     
|                                                           |                         |  |                                                               |        | (Dollars in Thousands)    |      | (Dollars in Thousands) 
|                                                           |                         |  |                                                               |        |                           |      |                        
|                                                          
|                                                          
|                                                          
|                                                          
|Segment operating expenses as a % of
segment net revenue:  |                         |  |                                                               |        |                           |      |                         |      |      |      |      |        |    |      |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outdoor media           |  |                                                               | 56.3   | %                         |      |                         | 51.7 | %    |      |      | 63.7   | %  |      |      | 57.8 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Television broadcasting |  |                                                               | 87.1   | %                         |      |                         | 78.6 | %    |      |      | 94.5   | %  |      |      | 81.0 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Radio broadcasting      |  |                                                               | 88.3   | %                         |      |                         | 65.4 | %    |      |      | 99.8   | %  |      |      | 65.3 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interactive media       |  |                                                               | 668.9  | %                         |      |                         |     |      |      |      | 930.5  | %  |      |      |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         |  | Total segment operating
expenses as a % of total net
revenue  |        |                           | 75.0 | %                       |      |      | 65.6 | %    |        |    | 83.3 | %    |      |   | 69.6 | %
|                                                          
|                                                          
|                                                          
|                                                          
|Segment Operating Cash Flow as a % of
segment net revenue: |                         |  |                                                               |        |                           |      |                         |      |      |      |      |        |    |      |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outdoor media           |  |                                                               | 43.7   | %                         |      |                         | 48.3 | %    |      |      | 36.3   | %  |      |      | 42.2 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Television broadcasting |  |                                                               | 12.9   | %                         |      |                         | 21.4 | %    |      |      | 5.5    | %  |      |      | 19.0 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Radio broadcasting      |  |                                                               | 11.7   | %                         |      |                         | 34.6 | %    |      |      | 0.2    | %  |      |      | 34.7 | %
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interactive media       |  |                                                               | (568.9 | )%                        |      |                         |     |      |      |      | (830.5 | )% |      |      |     |  
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         |  | Total Segment Operating Cash
Flow as a % of
total net revenue |        |                           | 25.0 | %                       |      |      | 34.4 | %    |        |    | 16.7 | %    |      |   | 30.4 | %
|                                                          
|                                                          
|                                                          
|                                                          
|EBITDA as a % of total net revenue                         |                         |  | 11.6                                                          | %      |                           |      | 23.5                    | %    |      |      | 3.4  | %      |    |      | 19.3 | %   

Three Month Period Ended June 30, 2001 Compared With Three Month Period Ended
June 30, 2000

Net Revenue.Our net revenue for the second quarter of 2001 was $55.6
million. This represented a decrease of $4.4 million, or 7%, compared to $60.0
million in the second quarter of 2000. Changes in net revenue were as follows:



| |  |  | Outdoor Media.Our net revenue from our outdoor media segment for
the second quarter of 2001 decreased by $2.1 million, or 8%, compared
to the second quarter of 2000. This decrease resulted primarily from a
decrease in national sales, particularly in the dot-com and automotive
advertising categories. While our local sales were also impacted
negatively by declines in dot-com advertising, they were largely
replaced by increases in a variety of other advertising categories.                                                                                                                                                                                                                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Net revenue for the second quarter of
2001 from our television broadcasting segment decreased by $0.7
million, or 2%, compared to the second quarter of 2000. This decrease
was due mainly to a decline in national advertising revenue,
particularly in the political and automotive advertising categories.
These declines were offset partially by the addition of television
stations WWTI in June 2000 and KGPE in August 2000. Excluding these
transactions, net revenue for the second quarter of 2001 from our
television broadcasting segment decreased $2.7 million, or 10%,
compared to the second quarter of 2000. By contrast, our local sales
were flat compared to the prior year on a same station basis.
|
| |  |  | Radio Broadcasting.Net revenue for the second quarter of 2001
from our radio broadcasting segment decreased by $1.8 million, or 24%,
compared to the second quarter of 2000.This decrease was due
primarily to a decrease in both national and local sales and is
consistent with industry trends. In addition, net revenue was impacted
negatively by a format change in the fourth quarter of 2000 of one of
our FM stations. Recent market data indicates that this station                                                                                                                                                                                                                                                                   

12



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| |  |  | has gained market share with its new format. However, this will likely
not result in substantial revenue increases until the fourth quarter of
2001.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Segment Operating Expenses.Our segment operating expenses (which exclude
corporate overhead) for the second quarter of 2001 were $41.6 million. This
represented an increase of $2.3 million, or 6%, compared to $39.3 million for
the second quarter of 2000. Changes in segment operating expenses were as
follows:



| |  |  | Outdoor Media.Operating expenses for the second quarter of 2001
from our outdoor media segment were flat compared to the second quarter
of 2000 as we implemented cost containment and cost reduction
initiatives in the second quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Operating expenses for the second quarter
of 2001 from our television broadcasting segment increased by $1.8
million, or 8%, compared to the second quarter of 2000. This increase
was due in part to the addition of stations WWTI in June 2000 and KGPE
in August 2000. Excluding these transactions, operating expenses for
the second quarter of 2001 from our television broadcasting segment
increased by $0.4 million, or 2%, compared to the second quarter of
2000. This increase was due primarily to employee and fiber optic
connection costs, offset partially by cost reduction initiatives
implemented in the second quarter of 2001.
|
| |  |  | Radio Broadcasting.Operating expenses for the second quarter of
2001 from our radio broadcasting segment increased by $0.1 million, or
3%, compared to the second quarter of 2000. This increase was due
primarily to increased costs of on-air talent offset partially by cost
reduction initiatives implemented in the second quarter of 2001.                                                                                                                                                                                                                                                                                                                            

Corporate Overhead Expenses.Our corporate overhead expenses for the
second quarter of 2001 were $5.0 million. This represented an decrease of $1.5
million, or 23%, compared to the second quarter of 2000. This decrease was
primarily a result of one-time costs associated with the celebration of our
25th anniversary in the second quarter of 2000.

Workforce Reduction Costs.As more fully described in Note 5 to the
consolidated financial statements, we recorded a net charge of $2.4 million in
the second quarter of 2001 consisting of termination benefits for employees
whose positions were eliminated in connection with our company-wide cost
reduction initiative, which included a senior management transition.

EBITDA.Our EBITDA for the second quarter of 2001 was $6.4 million. This
represented a decrease of $7.7 million, or 54%, compared to EBITDA of $14.1
million for the second quarter of 2000.

Depreciation and Amortization Expenses.Our depreciation and amortization
expenses were $10.6 million for the second quarter of 2001. This represented
an increase of $1.8 million, or 20%, compared to $8.8 million for the second
quarter of 2000. This increase resulted primarily from depreciation and
amortization expenses relating to our business acquisitions during 2000,
depreciation expense from the construction of a new operating facility for our
radio broadcasting operations and our corporate technology group, and
depreciation expense from our investment in our Digital CentralCasting system
for our television broadcasting segment.

Interest Expense.Our interest expense was $5.2 million for the second
quarter of 2001. This represented an increase of $0.8 million, or 19%,
compared to the second quarter of 2000. This increase primarily reflects
interest expense in 2000 offset partially by interest income earned in the
second quarter of 2000 on proceeds from the sale of our Florida outdoor
advertising operations.

Net Loss on Dispositions of Assets.As described in Note 6 to the
consolidated financial statements, we recognized a net loss of $2.2 million on
the disposal of radio broadcasting transmission

13



---



##### Table of Contents



facilities in the second quarter of 2001. For the second quarter of 2000,
we recorded a net loss of $0.7 million due to adjustments to the gain on sales
of our Florida outdoor advertising operations and television station KCBA in
January 2000.

Income Tax Expense.We recognized an income tax benefit of $4.4 million
for the second quarter of 2001 based on our loss from continuing operations
before income taxes of $11.6 million. For the second quarter of 2000, we
recorded an income tax benefit of $0.2 million, based on our loss from
continuing operations before income taxes of $0.5 million.

Discontinued Operations.As more fully described in Note 3 to the
consolidated financial statements, we recorded an after-tax gain of $90.8
million in the second quarter of 2001 on the sale of our discontinued sports &
entertainment operations. In the second quarter of 2000, we recorded an
after-tax loss of $2.0 million from our discontinued sports & entertainment
operations.

Net Income (Loss).Our net income was $83.7 million for the second
quarter of 2001, compared to a net loss of $2.2 million for the second quarter
of 2000. This increase was due primarily to the gain related to the sale of
our discontinued sports & entertainment operations and the decrease in EBITDA
described above.

Six Month Period Ended June 30, 2001 Compared With Six Month Period Ended June
30, 2000

Net Revenue.Our net revenue for the six month period ended June 30, 2001
was $100.4 million. This represented a decrease of $6.3 million, or 6%,
compared to $106.7 million for the six month period ended June 30, 2000.
Changes in net revenue were as follows:



| |  |  | Outdoor Media.Our net revenue from our outdoor media segment for
the first six months of 2001 decreased by $2.5 million, or 6%, compared
to the first six months of 2000. This decrease resulted primarily from
a decrease in national sales, particularly in the dot-com and
automotive advertising categories. While our local sales were also
impacted negatively by declines in dot-com advertising, they were
largely replaced by increases in a variety of other advertising
categories.                                                                                                                                                                                                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Net revenue for the first six months of
2001 from our television broadcasting segment decreased by $0.3
million, or 1%, compared to the first six months of 2000. These
results include television stations WETM and WBGH acquired in February
2000, WWTI in April 2000, KKFX in May 2000, and KGPE in August 2000.
Excluding these transactions, net revenue for the first six months of
2001 from our television broadcasting segment decreased $5.4 million,
or 12%, compared to the first six months of 2000. This decrease was
due primarily to a decrease in gross sales from the political and
automotive advertising categories. These declines impacted primarily
our national sales. By contrast, our local sales remained flat
compared to the prior year.
|
| |  |  | Radio Broadcasting.Net revenue for the first six months of 2001
from our radio broadcasting segment decreased by $3.6 million, or 25%,
compared to the first six months of 2000.This decrease was due
primarily to a decrease in both national and local sales and is
consistent with industry trends. Approximately $2.1 million of this
decline was from the dot-com and automotive advertising categories. In
addition, net revenue was impacted negatively by a format change in the
fourth quarter of 2000 of one of our FM stations. Recent market data
indicates that this station has gained market share with its new
format. However, this will likely not result in substantial revenue
increases until the fourth quarter of 2001.                                               

Segment Operating Expenses.Our segment operating expenses (which exclude
corporate overhead) for the first six months of 2001 were $83.7 million. This
represented an increase of $9.4 million, or 13%,

14



---



##### Table of Contents



compared to $74.3 million for the first six months of 2000. Changes in segment
operating expenses were as follows:



| |  |  | Outdoor Media.Operating expenses for the first six months of 2001
from our outdoor media segment increased by $0.9 million, or 4%,
compared to the first quarter of 2000. This increase was due primarily
to higher lease costs for our advertising structures, employee costs,
and the acquisition of an outdoor advertising company in New Jersey on
March 31, 2000. These increases were offset partially by cost
reduction initiatives implemented in the second quarter of 2001.                                                                                                                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Operating expenses for the first six
months of 2001 from our television broadcasting segment increased by
$6.5 million, or 16%, compared to the first six months of 2000. This
increase was due in part to the addition of stations WETM and WBGH in
February 2000, WWTI in April 2000, KKFX in May 2000, and KGPE in August
2000. Excluding these transactions, operating expenses for the first
six months of 2001 from our television broadcasting segment increased
by $1.9 million, or 5%, compared to the first six months of 2000. This
increase was due primarily to employee, programming, and fiber optic
connection costs.
|
| |  |  | Radio Broadcasting.Operating expenses for the first six months of
2001 from our radio broadcasting segment increased by $1.3 million, or
14%, compared to the first six months of 2000. This increase was due
primarily to increased costs of on-air talent and increased occupancy
costs related to the radio broadcasting segments new operating
facility.                                                                                                                                                                                                                                                                                                

Corporate Overhead Expenses.Our corporate overhead expenses for the
first six months of 2001 were $10.9 million. This represented a decrease of
$1.0 million, or 8%, compared to the first six months of 2000. This decrease
was a result primarily of one-time costs associated with celebrating our 25th
anniversary in the second quarter of 2000.

Workforce Reduction Costs.As more fully described in Note 5 to the
consolidated financial statements, we recorded a net charge of $2.4 million in
the second quarter of 2001 consisting of termination benefits for employees
whose positions were eliminated in connection with a company-wide cost
reduction initiative, which included a senior management transition.

EBITDA.Our EBITDA for the first six months of 2001 was $3.5 million.
This represented a decrease of $17.1 million, or 83%, compared to EBITDA of
$20.6 million for the first six months of 2000.

Depreciation and Amortization Expenses.Our depreciation and amortization
expenses were $21.5 million for the first six months of 2001. This represented
an increase of $5.2 million, or 32%, compared to $16.3 million for the first
six months of 2000. This increase resulted primarily from depreciation and
amortization expenses relating to our business acquisitions during 2000,
depreciation expense from the construction of a new operating facility for our
radio broadcasting operations and our corporate technology group, and
depreciation expense from our investment in our Digital CentralCasting system
for our television broadcasting segment.

Interest Expense.Our interest expense was $14.7 million for the first
six months of 2001. This represented an increase of $5.3 million, or 56%,
compared to the first six months of 2000. This increase was due primarily to
higher average debt balances during the first six months of 2001, which
resulted primarily from borrowings to fund the acquisition of television
station KGPE in the third quarter of 2000 and our funding of the operating
losses associated with our discontinued sports & entertainment operations
through April 2 2001. Our debt balances for the first six months of 2000 were
lower due to the application of proceeds from the sale of our Florida outdoor
advertising operations in January 2000.

15



---



##### Table of Contents



In addition, we earned interest income in the first six months of 2000 on
a portion of the funds received from the sale of our Florida outdoor
advertising operations.

Net (Gain) Loss on Dispositions of Assets.As described in Note 6 to the
consolidated financial statements, we recognized a net loss of $2.2 million on
the disposal of radio broadcasting transmission facilities in the first six
months of 2001. We recognized a net gain of $280.6 million for the first six
months of 2000 due to the sale of our Florida outdoor advertising operations
and television station KCBA in California in January 2000.

Income Tax Expense.We recognized an income tax benefit of $12.6 million
for the first six months of 2001 based on our loss from continuing operations
before income taxes of $35.0 million. For the first six months of 2000, we
recorded an income tax expense of $110.3 million, primarily as a result of the
gain on dispositions of assets.

Discontinued Operations.As more fully described in Note 3 to the
consolidated financial statements, we recorded an after-tax gain of $90.8
million for the first six months of 2001 on the sale of our discontinued sports
& entertainment operations. For the first six months of 2000, we recorded an
after-tax loss of $1.4 million from our discontinued sports & entertainment
operations.

Net Income.Our net income was $68.4 million for the first six months of
2001, compared to our net income of $163.0 million for the first six months of
2000. This decrease was due primarily to the gain related to the sales of our
Florida outdoor advertising operations and television station KCBA in January
2000 and our discontinued sports & entertainment operations in April 2001, as
well as the decreases in EBITDA described above.

Liquidity and Capital Resources

Cash used in operating activities was $21.3 million in the first six months of
2001 compared to $23.6 million in the first six months of 2000. Our working
capital decreased from $15.1 million at December 31, 2000 to a deficit of $17.6
million at June 30, 2001. However, this is due primarily to an increase in
income taxes payable of $43.9 million related to the gain on sale of our
discontinued sports & entertainment operations.

We expended $7.5 million for capital expenditures in the first six months
of 2001, compared to $21.4 million in the corresponding period in 2000.
Capital expenditures in the first six months of 2001 were primarily for
equipment to complete our Digital CentralCasting implementation, automated news
production systems and news sets, upgrades to our operating facilities for
television station KGPE in Fresno, California and for outdoor advertising
structures in Washington.

For the periods presented, we financed our working capital and long-term
liquidity needs, including for acquisitions and capital expenditures, primarily
from proceeds from the sales of our Florida outdoor advertising operations and
television station KCBA in January 2000, and our discontinued sports &
entertainment operations in April 2001, and bank borrowings.

To accommodate recent acquisitions, particularly KGPE (TV), and the timing
of the sale of our sports & entertainment operations (as discussed in Note 3 to
the Consolidated Financial Statements), we amended our 1999 Credit Agreement to
provide waivers of compliance with, and to change the requirements of, certain
restrictive covenants effective for the period of June 30, 2000 through April
15, 2001. On April 2, 2001, we utilized net proceeds from the sale of our
sports & entertainment operations, aggregating approximately $192.0 million to
repay fully the $51.3 million outstanding principal amount under the term loan
facility of the 1999 Credit Agreement and the remaining $140.7 million of the
net proceeds were used to reduce amounts outstanding under the revolving credit
facility (Revolver) of the 1999 Credit Agreement. After this repayment, the
total outstanding principal amount under the Revolver

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was $15.3 million. In conjunction with this repayment, total available
borrowings under the Revolver were reduced to $75.0 million.

On May 14, 2001, we executed a provisional waiver and standstill agreement
with our lenders. Under this agreement, as amended, certain restrictive
covenants and requirements of the 1999 Credit Agreement are waived through
September 15, 2001. In addition, borrowings under the Revolver are limited to
$26.3 million. We anticipate closing on a replacement credit facility by
September 15, 2001. At June 30, 2001, the total outstanding principal under
the revolver was $19.3 million.

Under the 1999 Credit Agreement, we can choose to have interest calculated
at rates based on either LIBOR or a base rate plus defined margins. As of June
30, 2001, the annual interest rate of borrowings under the 1999 Credit
Agreement was approximately 7.86%.

We have pledged substantially all of our subsidiaries outstanding stock
and assets as collateral for amounts due under the 1999 Credit Agreement and
our subsidiaries have guaranteed our obligations under both the 1999 Credit
Agreement and the Indenture for the 9% Senior Subordinated Notes (Indenture).
Thus, if we default under the 1999 Credit Agreement, the lenders may take
direct action against our subsidiaries and may take possession of and sell some
or substantially all of our subsidiaries or their assets.

In addition, the 1999 Credit Agreement and the Indenture 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. As of
June 30, 2001, we were in compliance with, or had received waivers for, all
such ratios and covenants.

To address the slowing national economy and its effects on our revenue and
liquidity, we have evaluated our current cost structure. All of our operating
divisions and our corporate offices have identified and implemented measures to
reduce operating expenses for the remainder of the year and into 2002. These
cost reduction initiatives are designed to keep total operating expenses level
with total 2000 operating expenses of approximately $181.0 million. However,
if the magnitude and duration of the current national sales trends are greater
than anticipated, our liquidity may be impacted negatively to the extent we are
unable to offset such trends by increased local sales and further cost
reductions.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations,and No. 142,
Goodwill and Other Intangible Assets,effective for our fiscal year beginning
January 1, 2002. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized, but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.

We will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. We expect the
application of the nonamortization provisions of the Statement No. 142 to
result in a decrease in amortization expense of between approximately $19.0
million to $26.0 million per year, depending on whether certain intangible
assets are deemed to have indefinite lives. During 2002, we will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. We have not yet determined what the
effect of these tests will be on our earnings and financial position.

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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There are no material changes in information about market risk that was
provided in the Companys Form 10-K for the year ended December 31, 2000.




PART II  OTHER INFORMATION




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



| | (a) |  | The Annual Meeting of Shareholders of the Company was held on May 3,
2001.                                                                                                                                                                                            
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | The following directors were elected at the above meeting: Barry A.
Ackerley, Gail A. Ackerley, Christopher H. Ackerley, Edward G. Ackerley,
Deborah L. Bevier, Chris W. Birkeland, Kimberly A. Cleworth, Keith D.
Grinstein, Michael T. Lennon and Michel C. Thielen.
|
| | (c) |  | The result of the vote for the directors was as follows:                                                                                                                                                                                                              

|                        |  |     |             |         |  |           |         |           |  |  |           |  |  |  |     | 
|----------------------- |  | --- | ----------- | ------- |  | --------- | ------- | --------- |  |  | --------- |  |  |  | --- | 
|Director                |  | For |             | Against |  | Not Voted |         | Abstained
|                        |  |     |             |         |  |           |         |          
|Barry A. Ackerley       |  |     | 131,651,918 |         |  |           | 703,091 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Gail A. Ackerley        |  |     | 131,651,860 |         |  |           | 703,149 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Christopher H. Ackerley |  |     | 131,647,844 |         |  |           | 707,165 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Edward G. Ackerley      |  |     | 131,649,986 |         |  |           | 705,023 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Deborah L. Bevier       |  |     | 131,978,143 |         |  |           | 376,866 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Chris W. Birkeland      |  |     | 131,979,443 |         |  |           | 375,566 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Kimberly A. Cleworth    |  |     | 131,952,481 |         |  |           | 402,528 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Keith D. Grinstein      |  |     | 131,977,443 |         |  |           | 377,566 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Michael T. Lennon       |  |     | 131,954,923 |         |  |           | 400,086 |           |  |  | 2,061,419 |  |  |  | -0- | 
|                       
|                       
|                       
|                       
|Michel C. Thielen       |  |     | 131,981,027 |         |  |           | 373,982 |           |  |  | 2,061,419 |  |  |  | -0- | 



| | (d) |  | The shareholders approved an amendment to the Companys Fourth Amended
and Restated Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance under the Plan from 1,500,000 to 2,000,000
shares. The result of the vote adopting the Plan was as follows:
131,133,648 for; 1,216,184 against; 5,177 abstained; and 2,061,419 shares
not voted.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------

|     |  |                                                                                      
|---- |  | -------------------------------------------------------------------------------------
|10.1 |  | Retirement Agreement dated July 24, 2001 with Denis Curley.                          
|    
|    
|    
|    
|10.2 |  | Consulting Agreement dated July 24, 2001 with Denis Curley.                          
|10.3 |  | First Amendment to Provisional Waiver and Standstill Agreement dated
August 14, 2001.

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| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------



| | (1) |  | Current Report on Form 8-K, filed April 16, 2001, relating to
the sale of substantially all of the assets of our sports &
entertainment operations, consisting principally of the Seattle
Supersonics NBA franchise, our interests in the WNBA Seattle Storm,
and the assets of Full House Sports & Entertainment. The sale was
for $200.0 million plus the assumption of certain liabilities.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                       |                                                                                                                                             |                    
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
|                       | THE ACKERLEY GROUP, INC.                                                                                                                   
|                      
|DATED: August 14, 2001 | By:                                                                                                                                         | /s/ Kevin E. Hylton
|                       |                                                                                                                                            
|                       | Kevin E. Hylton
Senior Vice President, Chief Financial
Officer and Assistant Secretary
(Authorized Officer and
Principal Financial Officer)

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EXHIBIT INDEX

|         |  |                                                                                      
|-------- |  | -------------------------------------------------------------------------------------
|Exhibits |  | Description                                                                          
|         |  |                                                                                      
|10.1     |  | Retirement Agreement dated July 24, 2001 with Denis Curley.                          
|        
|        
|        
|        
|10.2     |  | Consulting Agreement dated July 24, 2001 with Denis Curley.                          
|10.3     |  | First Amendment to Provisional Waiver and Standstill Agreement dated
August 14, 2001.