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SECURITIES AND EXCHANGE COMMISSIONWashington, 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) |  |                                                                                         
|          
|          
|          
|          
|(XBOX)     |  | QUARTERLY REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended September 30, 2001
OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|(BOX) |  | 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               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 November 1, 2001
|                                     |  |                                
|Common Stock, $.01 par value         |  | 24,078,472 shares              
|                                    
|                                    
|                                    
|                                    
|Class B Common Stock, $.01 par value |  | 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 1  LEGAL PROCEEDINGS                                                                    
|ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                    
|                                                                                               | SIGNATURES                                            



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##### Table of Contents



TABLE OF CONTENTS

|          |  |                                                                                                      |  |     
|--------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                                      |  | Page
|          |  |                                                                                                      |  |     
|PART I -  |  | FINANCIAL INFORMATION                                                                                |  |     
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|ITEM 1.   |  | FINANCIAL STATEMENTS                                                                                 |  |     
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|          |  | CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000                                 |  | 1   
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|          |  | CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND 2000 |  | 2   
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|          |  | CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED SEPTEMBER 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 1.   |  | LEGAL PROCEEDINGS                                                                                    |  | 18  
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|ITEM 6.   |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                     |  | 19  
|         
|         
|         
|         
|          |  |                                                                                                      |  |     
|         
|         
|         
|         
|          |  | SIGNATURES                                                                                           |  | 20  





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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1  FINANCIAL STATEMENTS




THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS



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ASSETS

|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |         |         |  | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------------------------------------ | ------- | -------------- | ------- | ------------ | ------- | ------- |  | 
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         | (Unaudited)    |         |              |         |        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         | September 30,  |         | December 31,
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         | 2001           |         | 2000        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |             
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         | (In thousands)
|Current assets:                      |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |             
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                                                                                                       |                            | $                                          | 6,787                                |         |                | $       | 4,687        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Restricted cash                                                                                                                                                                                                                                 |                            |                                            | 54,000                               |         |                |         |             |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net of allowance                                                                                                                                                                                                           |                            |                                            | 41,038                               |         |                |         | 60,742       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of broadcast rights                                                                                                                                                                                                             |                            |                                            | 10,431                               |         |                |         | 9,023        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses                                                                                                                                                                                                                                |                            |                                            | 5,909                                |         |                |         | 14,345       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax asset                                                                                                                                                                                                                              |                            |                                            | 2,383                                |         |                |         | 1,619        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                                                                                                                                            |                            |                                            | 3,347                                |         |                |         | 6,879        |        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            | Total current assets                       |                                      |         | 123,895        |         |              |         | 97,295  | 
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                                                                                                                                                 |                            | 127,867                                    |                                      |         |                | 170,473 |             
|                                    
|                                    
|                                    
|                                    
|Goodwill, net                        |                                                                                                                                                                                                                                                 |                            | 198,083                                    |                                      |         |                | 210,961 |             
|                                    
|                                    
|                                    
|                                    
|Other intangibles, net               |                                                                                                                                                                                                                                                 |                            | 134,225                                    |                                      |         |                | 142,171 |             
|                                    
|                                    
|                                    
|                                    
|Investment in affiliates             |                                                                                                                                                                                                                                                 |                            | 21,005                                     |                                      |         |                | 19,896  |             
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                                                                                                                 |                            | 22,874                                     |                                      |         |                | 26,511  |             
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            | Total assets                               |                                      | $       | 627,949        |         |              | $       | 667,307 | 
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |                |         |              |         |         |  | 
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |             
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                                                                                                                |                            | $                                          | 4,210                                |         |                | $       | 7,426        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued interest                                                                                                                                                                                                                                |                            |                                            | 3,888                                |         |                |         | 8,950        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued wages and commissions                                                                                                                                                                                                                   |                            |                                            | 2,074                                |         |                |         | 6,398        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                                                                                                                                                       |                            |                                            | 11,675                               |         |                |         | 21,199       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                                                                                                                                            |                            |                                            | 37,380                               |         |                |         | 396          |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                                                                                                                                                |                            |                                            | 797                                  |         |                |         | 19,022       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of broadcast obligations                                                                                                                                                                                                        |                            |                                            | 10,290                               |         |                |         | 9,564        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                                                                                                                               |                            |                                            | 1,547                                |         |                |         | 9,232        |        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            | Total current liabilities                  |                                      |         | 71,861         |         |              |         | 82,187  | 
|                                    
|                                    
|                                    
|                                    
|Long-term debt, less current portion |                                                                                                                                                                                                                                                 |                            | 289,336                                    |                                      |         |                | 385,439 |             
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                                                                                                                                                                                                                 |                            | 30,107                                     |                                      |         |                | 23,701  |             
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            | Total liabilities                          |                                      |         | 391,304        |         |              |         | 491,327 | 
|                                    
|                                    
|                                    
|                                    
|Stockholders equity:                |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |             
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $.01 per
shareauthorized 50,000,000 shares; issued
September 30, 2001  25,453,418 and December 1, 2000
 25,342,929 shares; and outstanding September 30, 2001
 24,078,472 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 September 30, 2001  11,020,622 and
December 31, 2000  11,051,200 shares                                                                   |                            |                                            | 110                                  |         |                |         | 111          |        
|                                    
|                                    
|                                    
|                                    
|                                     | Capital in excess of par value                                                                                                                                                                                                                  |                            |                                            | 58,862                               |         |                |         | 57,967       |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings                                                                                                                                                                                                                               |                            |                                            | 187,508                              |         |                |         | 127,738      |        
|                                    
|                                    
|                                    
|                                    
|                                     | Less common stock in treasury, at cost                                                                                                                                                                                                          |                            |                                            | (10,089                              | )       |                |         | (10,089      | )      
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 | Total stockholders equity |                                            |                                      | 236,645 |                |         |              | 175,980 |        
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        
|                                     |                                                                                                                                                                                                                                                 |                            | Total liabilities and stockholders equity |                                      | $       | 627,949        |         |              | $       | 667,307 | 
|                                     |                                                                                                                                                                                                                                                 |                            |                                            |                                      |         |                |         |              |        

See Notes to Consolidated Financial Statements





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##### Table of Contents






THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED

|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|----------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | --------------------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                    |  | For the Three Month                      |        | For the Nine Month         
|                                                                                    |  | Periods Ended September 30,              |        | Periods Ended September 30,
|                                                                                    |  |                                          |        |                            
|                                                                                    |  | 2001                                     |        | 2000                        |  | 2001 |        | 2000
|                                                                                    |  |                                          |        |                             |  |      |        |     
|                                                                                    |  | (In thousands, except per share amounts)
|Revenue                                                                             |  | $                                        | 56,230 |                             |  | $    | 67,193 |      |  | $ | 172,930 |   |  | $ | 192,430  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Less agency commissions and discounts                                               |  |                                          | (7,741 | )                           |  |      | (9,650 | )    |  |   | (24,002 | ) |  |   | (28,140  | )
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Net revenue                                                                         |  |                                          | 48,489 |                             |  |      | 57,543 |      |  |   | 148,928 |   |  |   | 164,290  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Expenses (other income):                                                            |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Operating expenses                                                                  |  |                                          | 41,739 |                             |  |      | 46,332 |      |  |   | 136,310 |   |  |   | 132,493  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Workforce reduction costs                                                           |  |                                          | 4      |                             |  |      |       |      |  |   | 2,435   |   |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Amortization expense                                                                |  |                                          | 6,561  |                             |  |      | 6,037  |      |  |   | 19,711  |   |  |   | 15,857   |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Depreciation expense                                                                |  |                                          | 3,889  |                             |  |      | 3,331  |      |  |   | 12,205  |   |  |   | 9,854    |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Interest expense, net                                                               |  |                                          | 5,925  |                             |  |      | 7,011  |      |  |   | 20,646  |   |  |   | 16,424   |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net (gain) loss on dispositions of assets                                           |  |                                          | (12    | )                           |  |      | 467    |      |  |   | 2,198   |   |  |   | (280,166 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Other                                                                               |  |                                          | 255    |                             |  |      | 163    |      |  |   | 305     |   |  |   | 871      |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Total expenses (other income)                                                       |  |                                          | 58,361 |                             |  |      | 63,341 |      |  |   | 193,810 |   |  |   | (104,667 | )
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Income (loss) from continuing operations before
income taxes and extraordinary item |  |                                          | (9,872 | )                           |  |      | (5,798 | )    |  |   | (44,882 | ) |  |   | 268,957  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Income tax expense (benefit)                                                        |  |                                          | (1,975 | )                           |  |      | (2,447 | )    |  |   | (14,613 | ) |  |   | 107,897  |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Income (loss) from continuing operations before
extraordinary item                  |  |                                          | (7,897 | )                           |  |      | (3,351 | )    |  |   | (30,269 | ) |  |   | 161,060  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Discontinued
operations
Loss from discontinued operations, net of taxes             |  |                                          |       |                             |  |      | (2,887 | )    |  |   |        |   |  |   | (4,285   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Gain on disposal of discontinued operations, net
of
    taxes                       |  |                                          | 1,881  |                             |  |      |       |      |  |   | 92,689  |   |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Extraordinary items: loss on debt extinguishment,
net of taxes, and merger costs    |  |                                          | (2,650 | )                           |  |      |       |      |  |   | (2,650  | ) |  |   |         |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Net income (loss)                                                                   |  | $                                        | (8,666 | )                           |  | $    | (6,238 | )    |  | $ | 59,770  |   |  | $ | 156,775  |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Earnings per Common Share:                                                          |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Income (loss) from continuing operations                                            |  | $                                        | (.22   | )                           |  | $    | (.10   | )    |  | $ | (.86    | ) |  | $ | 4.60     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Loss from discontinued operations                                                   |  |                                          |       |                             |  |      | (.08   | )    |  |   |        |   |  |   | (.12     | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Gain on disposal of discontinued operations                                         |  |                                          | .05    |                             |  |      |       |      |  |   | 2.64    |   |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Extraordinary items: loss on debt extinguishment
and merger costs                   |  |                                          | (.08   | )                           |  |      |       |      |  |   | (.08    | ) |  |   |         |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Net income (loss)                                                                   |  | $                                        | (.25   | )                           |  | $    | (.18   | )    |  | $ | 1.70    |   |  | $ | 4.48     |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Earnings per Common Share  Assuming Dilution:                                      |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Income (loss) from continuing operations                                            |  | $                                        | (.22   | )                           |  | $    | (.10   | )    |  | $ | (.86    | ) |  | $ | 4.58     |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Loss from discontinued operations                                                   |  |                                          |       |                             |  |      | (.08   | )    |  |   |        |   |  |   | (.12     | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Gain on disposal of discontinued operations                                         |  |                                          | .05    |                             |  |      |       |      |  |   | 2.64    |   |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Extraordinary items: loss on debt extinguishment
and merger costs                   |  |                                          | (.08   | )                           |  |      |       |      |  |   | (.08    | ) |  |   |         |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Net income (loss) assuming dilution                                                 |  | $                                        | (.25   | )                           |  | $    | (.18   | )    |  | $ | 1.70    |   |  | $ | 4.46     |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Dividends per common share                                                          |  | $                                        |       |                             |  | $    |       |      |  | $ |        |   |  | $ | .02      |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Dividends per common share, diluted                                                 |  | $                                        |       |                             |  | $    |       |      |  | $ |        |   |  | $ | .02      |  
|                                                                                    |  |                                          |        |                             |  |      |        |      |  |   |         |   |  |   |          |  
|Weighted average number of common shares                                            |  |                                          | 35,098 |                             |  |      | 35,012 |      |  |   | 35,073  |   |  |   | 34,985   |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Weighted average number of common shares  diluted                                  |  |                                          | 35,098 |                             |  |      | 35,012 |      |  |   | 35,073  |   |  |   | 35,124   |  

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 Nine Month         
|                                                                              |                                            |                                                                                  |                                                             |          | Periods Ended September 30,
|                                                                              |                                            |                                                                                  |                                                             |          |                            
|                                                                              |                                            |                                                                                  |                                                             |          | 2001                        |        | 2000   
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |        
|                                                                              |                                            |                                                                                  |                                                             |          | (In thousands)             
|Cash flows from operating activities:                                         |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Net income                                                                    |                                            | $                                                                                | 59,770                                                      |          |                             | $      | 156,775 |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Adjustments to reconcile net income to net cash used in operating activities: |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Depreciation and amortization                                                    |                                                             |          | 32,372                      |        |         |          | 27,668   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Net (gain) loss on dispositions of assets                                        |                                                             |          | 2,198                       |        |         |          | (280,166 | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of broadcast rights                                                 |                                                             |          | 8,457                       |        |         |          | 6,681    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Deferred tax expense                                                             |                                                             |          | 4,389                       |        |         |          | 12,251   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Stock compensation expense                                                       |                                                             |          | 305                         |        |         |          | 70       |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Equity in losses of affiliates                                                   |                                                             |          |                            |        |         |          | 801      |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of deferred financing costs                                         |                                                             |          | 1,876                       |        |         |          | 1,414    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Income from barter transactions, net                                             |                                                             |          | (1,706                      | )      |         |          | (933     | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Amortization of deferred gain on termination of interest rate
swap agreements    |                                                             |          | (2,696                      | )      |         |          | (669     | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Gain on disposal of discontinued operation, net of taxes                         |                                                             |          | (92,689                     | )      |         |          |         |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Extraordinary item: loss on debt extinguishment, net of taxes                    |                                                             |          | 1,613                       |        |         |          |         |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Change in assets and liabilities:          |                                                                                  |                                                             |          |                             |        |         |          |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Accounts receivable                                                              |                                                             |          | 6,377                       |        |         |          | 1,455    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Prepaid expenses                                                                 |                                                             |          | 5,712                       |        |         |          | (3,685   | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Other current assets and other assets                                            |                                                             |          | (5,838                      | )      |         |          | 226      |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Accounts payable, accrued interest, and accrued wages and
commissions            |                                                             |          | (12,640                     | )      |         |          | (11,463  | )    
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Other accrued liabilities, income taxes payable, and
other long-term liabilities |                                                             |          | (13,468                     | )      |         |          | 27,134   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Deferred revenues                                                                |                                                             |          | (12,908                     | )      |         |          | 3,879    |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Broadcast obligations                                                            |                                                             |          | (8,920                      | )      |         |          | (8,094   | )    
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                              | Net cash used in operating activities      |                                                                                  |                                                             | (27,796  | )                           |        |         | (66,656  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash flows from investing activities:                                         |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from dispositions of assets       |                                                                                  |                                                             | 196,347  |                             |        |         | 306,986  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments for acquisitions                  |                                                                                  |                                                             |         |                             |        |         | (145,363 | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Capital expenditures                       |                                                                                  |                                                             | (8,358   | )                           |        |         | (29,139  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments for investments                   |                                                                                  |                                                             | (1,050   | )                           |        |         | (17,709  | )       
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                              | Net cash provided by investing activities  |                                                                                  |                                                             | 186,939  |                             |        |         | 114,775  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash flows from financing activities:                                         |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Borrowings under credit agreements         |                                                                                  |                                                             | 142,400  |                             |        |         | 152,000  |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments under credit agreements           |                                                                                  |                                                             | (242,308 | )                           |        |         | (196,496 | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments of deferred financing costs       |                                                                                  |                                                             | (3,473   | )                           |        |         | (487     | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Payments under capital lease obligation    |                                                                                  |                                                             | (252     | )                           |        |         | (1,766   | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Dividends paid                             |                                                                                  |                                                             |         |                             |        |         | (700     | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from employee stock purchase plan |                                                                                  |                                                             | 590      |                             |        |         | 447      |         
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                              | Net cash used in financing activities      |                                                                                  |                                                             | (103,043 | )                           |        |         | (47,002  | )       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Net increase in cash and cash equivalents                                     |                                            |                                                                                  | 56,100                                                      |          |                             |        | 1,117   |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Cash and cash equivalents at beginning of period                              |                                            |                                                                                  | 4,687                                                       |          |                             |        | 2,808   |         
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |         |         
|Cash and cash equivalents at end of period                                    |                                            | $                                                                                | 60,787                                                      |          |                             | $      | 3,925   |         
|                                                                              |                                            |                                                                                  |                                                             |          |                             |        |         |         
|                                                                              | Supplemental cash flow information:        |                                                                                  |                                                             |          |                             |        |         |          |         
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Interest paid, net of capitalized interest                                       |                                                             | $        | 27,172                      |        |         | $        | 24,928   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Income taxes paid, net                                                           |                                                             | $        | 300                         |        |         | $        | 40,205   |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            | Noncash transactions:                                                            |                                                             |          |                             |        |         |          |          |      
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            |                                                                                  | Broadcast rights acquired and broadcast obligations assumed |          | $                           | 11,771 |         |          | $        | 9,774 | 
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                            |                                                                                  | Property and equipment acquired through barter              |          | $                           | 322    |         |          | $        | 271   | 

See Notes to Consolidated Financial Statements

3



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##### Table of Contents






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.

In
August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, effective for fiscal years beginning after
December 15, 2001. Statement No. 144 supersedes Statement
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, providing a single
accounting model for long-lived assets to be disposed of. In
addition, Statement No. 144 amends certain provisions of
Accounting Principles Board Opinion No. 30 with respect to the
accounting for discontinued operations. The impact of the statement
is currently being studied, and the effect of the new statement on
the financial statements has not yet been determined.

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 addition, on June 12, 2001, the Company entered into an agreement to
sell separately its Boeing 727

4



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##### Table of Contents



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 Periods Ended | Nine
Month Periods Ended
|                                                               |  | September 30              | September 30            
|                                                               |  |                           |                         
|                                                               |  | 2001                      |                          | 2000 |  | 2001 |        | 2000
|                                                               |  |                           |                          |      |  |      |        |     
|Loss from discontinued operations                              |  | $                         |                         |      |  | $    | (4,995 | )    |  | $ |        |   |  | $ | (7,665 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Gain on disposal of discontinued operations                    |  |                           | 2,894                    |      |  |      |       |      |  |   | 142,599 |   |  |   |       |  
|                                                              
|                                                              
|                                                              
|                                                              
|Income tax (expense) benefit                                   |  |                           | (1,013                   | )    |  |      | 2,108  |      |  |   | (49,910 | ) |  |   | 3,380  |  
|                                                               |  |                           |                          |      |  |      |        |      |  |   |         |   |  |   |        |  
|Net income (loss) from discontinued operations                 |  | $                         | 1,881                    |      |  | $    | (2,887 | )    |  | $ | 92,689  |   |  | $ | (4,285 | )
|                                                               |  |                           |                          |      |  |      |        |      |  |   |         |   |  |   |        |  
|Net revenue included in loss from
discontinued operations      |  | $                         |                         |      |  | $    | 3,952  |      |  | $ |        |   |  | $ | 52,957 |  
|                                                              
|                                                              
|                                                              
|                                                              
|Interest expense included in loss from
discontinued operations |  | $                         |                         |      |  | $    | 584    |      |  | $ |        |   |  | $ | 1,732  |  

The loss from operations of the sports & entertainment operations from the
measurement date through September 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 or third quarters 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 3 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
were waived through September 15, 2001. In addition, borrowings under the
Revolver were limited to $26.3 million.

On September 7, 2001, the Company replaced its 1999 Credit Agreement with
a new $120.0 million credit agreement (the 2001 Credit Agreement), consisting
of a $100.0 million term loan (the 2001 Term Loan) and a $20.0 million
revolving credit facility (the 2001 Revolver). The 2001 Revolver includes up
to $5.0 million in standby letters of credit. The transaction resulted in a
charge of $1.6 million, net of applicable taxes of $0.9 million consisting of
the write-off of deferred financing costs.

5



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##### Table of Contents



At closing, $54.0 million of the 2001 Term Loan was placed in escrow, of
which $45.0 million will be used to fund the Companys estimated federal income
tax payments due in October and December of 2001. The remaining $9.0 million
will be used to fund the Companys interest payment on its senior subordinated
notes due in January 2002. The $54.0 million is classified as restricted cash
on the consolidated balance sheet.

Principal payments under the 2001 Term Loan are due in quarterly
installments of $250,000 each for the period commencing on December 31, 2001
and ending on September 30, 2005, and $24.0 million each for the period
commencing on December 31, 2005 and ending on August 31, 2006. Any outstanding
borrowings under the 2001 Revolver will be due on August 31, 2004. In order to
remain compliant with certain financial covenants, at September 30, 2001, the
Company had prepaid $8.5 million of the 2001 Term Loan so that outstanding
borrowings were $91.5 million. There were no outstanding borrowings under the
2001 Revolver.

The Company can choose to have interest calculated at rates based on
either LIBOR or a base rate plus defined margins. The interest rate applicable
to the 2001 Revolver will be subject to certain reductions based on the
Companys interest coverage ratio. Commitment fees on the unused portion of
the 2001 Revolver are payable quarterly at an annual rate of 1.5%.

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. Seventy-five positions representing a wide variety
of functions across all business segments and the corporate office have been
eliminated. As of September 30, 2001, all of the termination benefits 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 made to
the Company in the second quarter of 2001 by a company owned by certain
officers and directors to fund an investment. The Company expects to repay
this advance in the fourth quarter of 2001, together with accrued interest, out of available cash.

NOTE 8.   SUBSEQUENT EVENT

On October 5, 2001, the Company entered into a merger agreement (the
Merger Agreement) with Clear Channel Communications, Inc. (Clear Channel).
Under the terms of the Merger Agreement, each share of the common stock and the
Class B common stock of Ackerley will be converted into the right to receive
0.35 of a share of the common stock of Clear Channel. The transaction is
generally intended to be tax-free to the Companys stockholders. The
transaction, which is expected to be consummated in the first half of 2002, is
subject to the approval of the Companys stockholders, and customary regulatory
approvals and closing conditions. The Company incurred approximately $1.0
million of expenses related to this transaction in the third quarter of 2001.
These costs are reflected on the consolidated statements of operations as an
extraordinary item. In order to remain compliant with

6



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##### Table of Contents



certain financial covenants in the 2001 Credit Agreement, the Company has
obtained a waiver allowing it to exclude these merger costs in determining
compliance with such financial covenants for the periods ending September 30,
2001 and December 31, 2001.

NOTE 9.   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 nine
month periods ended September 30, 2001 and 2000 is presented as follows:

|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|-------------------------------------------- |  | ------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | -------------- | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                             |  | Outdoor |         | Television   |  | Radio        |         | Interactive |  |                |        |  
|                                             |  | Media   |         | Broadcasting |  | Broadcasting |         | Media       |  | Consolidated  
|                                             |  |         |         |              |  |              |         |             |  |               
|                                             |  |         |         |              |  |              |         |             |  | (in thousands) |        |   |  |   |       |   |  |  
|Three Month Period Ended
September 30, 2001: |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Net revenue                                  |  | $       | 19,534  |              |  | $            | 22,169  |             |  | $              | 6,716  |   |  | $ | 70    |   |  | $ | 48,489  |  
|                                            
|                                            
|                                            
|                                            
|Segment operating expenses                   |  |         | (11,401 | )            |  |              | (21,738 | )           |  |                | (5,017 | ) |  |   | (280  | ) |  |   | (38,436 | )
|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow                  |  | $       | 8,133   |              |  | $            | 431     |             |  | $              | 1,699  |   |  | $ | (210  | ) |  | $ | 10,053  |  
|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|Segment assets                               |  | $       | 102,128 |              |  | $            | 374,866 |             |  | $              | 56,857 |   |  | $ | 1,483 |   |  | $ | 535,334 |  
|                                            
|                                            
|                                            
|                                            
|Capital expenditures                         |  | $       |        |              |  | $            | 774     |             |  | $              | 39     |   |  | $ | 44    |   |  | $ | 857     |  
|                                            
|                                            
|                                            
|                                            
|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Three Month Period Ended
September 30, 2000: |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|                                            
|                                            
|                                            
|                                            
|Net revenue                                  |  | $       | 24,741  |              |  | $            | 25,602  |             |  | $              | 7,200  |   |  | $ |      |   |  | $ | 57,543  |  
|                                            
|                                            
|                                            
|                                            
|Segment operating expenses                   |  |         | (13,041 | )            |  |              | (22,405 | )           |  |                | (5,079 | ) |  |   | (70   | ) |  |   | (40,595 | )
|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|Segment Operating Cash Flow                  |  | $       | 11,700  |              |  | $            | 3,197   |             |  | $              | 2,121  |   |  | $ | (70   | ) |  | $ | 16,948  |  
|                                             |  |         |         |              |  |              |         |             |  |                |        |   |  |   |       |   |  |   |         |  
|Segment assets                               |  | $       | 111,953 |              |  | $            | 369,265 |             |  | $              | 57,178 |   |  | $ | 745   |   |  | $ | 539,141 |  
|                                            
|                                            
|                                            
|                                            
|Capital expenditures                         |  | $       | 1,266   |              |  | $            | 3,487   |             |  | $              | 112    |   |  | $ | 515   |   |  | $ | 5,380   |  

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:

|                                                                           |  |                           |         |      |  |   |         |  
|-------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                                                                           |  | Three
Month Periods Ended
|                                                                           |  | September 30,            
|                                                                           |  | 2001                      |         | 2000
|                                                                           |  |                           |         |     
|                                                                           |  | (in thousands)           
|Segment Operating Cash Flow                                                |  | $                         | 10,053  |      |  | $ | 16,948  |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Corporate overhead                                                         |  |                           | (3,303  | )    |  |   | (5,737  | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Workforce reduction costs                                                  |  |                           | (4      | )    |  |   |        |  
|                                                                           |  |                           |         |      |  |   |         |  
|EBITDA                                                                     |  |                           | 6,746   |      |  |   | 11,211  |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Depreciation and amortization                                              |  |                           | (10,450 | )    |  |   | (9,368  | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Interest expense, net                                                      |  |                           | (5,925  | )    |  |   | (7,011  | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Net gain (loss) on dispositions of assets                                  |  |                           | 12      |      |  |   | (467    | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Other                                                                      |  |                           | (255    | )    |  |   | (163    | )
|                                                                           |  |                           |         |      |  |   |         |  
|Loss from continuing operations before income taxes and extraordinary
item |  | $                         | (9,872  | )    |  | $ | (5,798  | )
|                                                                           |  |                           |         |      |  |   |         |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Segment assets                                                             |  | $                         | 535,334 |      |  | $ | 539,141 |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Corporate assets                                                           |  |                           | 91,398  |      |  |   | 62,356  |  
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Assets of discontinued operations                                          |  |                           | 1,217   |      |  |   | 60,565  |  
|                                                                           |  |                           |         |      |  |   |         |  

7



---



##### Table of Contents



|                                                |  |                            |         |      |  |   |         | 
|----------------------------------------------- |  | -------------------------- | ------- | ---- |  | - | ------- | 
|                                                |  | Three
Months Periods Ended
|                                                |  | September 30,             
|                                                |  | 2001                       |         | 2000
|                                                |  |                            |         |     
|                                                |  | (in thousands)            
|Consolidated total assets                       |  | $                          | 627,949 |      |  | $ | 662,062 | 
|                                               
|                                               
|                                               
|                                               
|Segment capital expenditures                    |  | $                          | 857     |      |  | $ | 5,380   | 
|                                               
|                                               
|                                               
|                                               
|Corporate capital expenditures                  |  |                            | 10      |      |  |   | 1,830   | 
|                                               
|                                               
|                                               
|                                               
|Capital expenditures of discontinued operations |  |                            |        |      |  |   | 510     | 
|                                                |  |                            |         |      |  |   |         | 
|Consolidated capital expenditures               |  | $                          | 867     |      |  | $ | 7,720   | 
|                                                |  |                            |         |      |  |   |         | 

|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|------------------------------------------- |  | ------- | ------- | ------------ |  | ------------ | ------- | ----------- |  | -------------- | ------- | - |  | - | ------ | - |  | - | -------- | -
|                                            |  | Outdoor |         | Television   |  | Radio        |         | Interactive |  |                |         |  
|                                            |  | Media   |         | Broadcasting |  | Broadcasting |         | Media       |  | Consolidated  
|                                            |  |         |         |              |  |              |         |             |  |               
|                                            |  |         |         |              |  |              |         |             |  | (in thousands) |         |   |  |   |        |   |  |  
|Nine Month Period Ended
September 30, 2001: |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|                                           
|                                           
|                                           
|                                           
|Net revenue                                 |  | $       | 60,042  |              |  | $            | 71,572  |             |  | $              | 17,162  |   |  | $ | 152    |   |  | $ | 148,928  |  
|                                           
|                                           
|                                           
|                                           
|Segment operating expenses                  |  |         | (37,206 | )            |  |              | (68,445 | )           |  |                | (15,439 | ) |  |   | (1,043 | ) |  |   | (122,133 | )
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|Segment Operating Cash Flow                 |  | $       | 22,836  |              |  | $            | 3,127   |             |  | $              | 1,723   |   |  | $ | (891   | ) |  | $ | 26,795   |  
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|Segment assets                              |  | $       | 102,128 |              |  | $            | 374,866 |             |  | $              | 56,857  |   |  | $ | 1,483  |   |  | $ | 535,334  |  
|                                           
|                                           
|                                           
|                                           
|Capital expenditures                        |  | $       | 1,298   |              |  | $            | 4,403   |             |  | $              | 524     |   |  | $ | 584    |   |  | $ | 6,809    |  
|                                           
|                                           
|                                           
|                                           
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|                                           
|                                           
|                                           
|                                           
|Nine Month Period Ended
September 30, 2000: |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|                                           
|                                           
|                                           
|                                           
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|                                           
|                                           
|                                           
|                                           
|Net revenue                                 |  | $       | 67,784  |              |  | $            | 75,293  |             |  | $              | 21,213  |   |  | $ |       |   |  | $ | 164,290  |  
|                                           
|                                           
|                                           
|                                           
|Segment operating expenses                  |  |         | (37,911 | )            |  |              | (62,659 | )           |  |                | (14,234 | ) |  |   | (70    | ) |  |   | (114,874 | )
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|Segment Operating Cash Flow                 |  | $       | 29,873  |              |  | $            | 12,634  |             |  | $              | 6,979   |   |  | $ | (70    | ) |  | $ | 49,416   |  
|                                            |  |         |         |              |  |              |         |             |  |                |         |   |  |   |        |   |  |   |          |  
|Segment assets                              |  | $       | 111,953 |              |  | $            | 369,265 |             |  | $              | 57,178  |   |  | $ | 745    |   |  | $ | 539,141  |  
|                                           
|                                           
|                                           
|                                           
|Capital expenditures                        |  | $       | 3,610   |              |  | $            | 9,303   |             |  | $              | 702     |   |  | $ | 625    |   |  | $ | 14,240   |  

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:

|                                                                                    |  |                          |         |      |  |   |         |  
|----------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | - | ------- | -
|                                                                                    |  | Nine Month Periods Ended
|                                                                                    |  | September 30,           
|                                                                                    |  | 2001                     |         | 2000
|                                                                                    |  |                          |         |     
|                                                                                    |  | (in thousands)          
|Segment Operating Cash Flow                                                         |  | $                        | 26,795  |      |  | $ | 49,416  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Corporate overhead                                                                  |  |                          | (14,177 | )    |  |   | (17,619 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Workforce reduction costs                                                           |  |                          | (2,435  | )    |  |   |        |  
|                                                                                    |  |                          |         |      |  |   |         |  
|EBITDA                                                                              |  |                          | 10,183  |      |  |   | 31,797  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Depreciation and amortization                                                       |  |                          | (31,916 | )    |  |   | (25,711 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Interest expense, net                                                               |  |                          | (20,646 | )    |  |   | (16,424 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Net gain (loss) on dispositions of assets                                           |  |                          | (2,198  | )    |  |   | 280,166 |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Other                                                                               |  |                          | (305    | )    |  |   | (871    | )
|                                                                                    |  |                          |         |      |  |   |         |  
|Income (loss) from continuing operations
before income taxes and extraordinary item |  | $                        | (44,882 | )    |  | $ | 268,957 |  
|                                                                                    |  |                          |         |      |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Segment assets                                                                      |  | $                        | 535,334 |      |  | $ | 539,141 |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Corporate assets                                                                    |  |                          | 91,398  |      |  |   | 62,356  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Assets of discontinued operations                                                   |  |                          | 1,217   |      |  |   | 60,565  |  
|                                                                                    |  |                          |         |      |  |   |         |  
|Consolidated total assets                                                           |  | $                        | 627,949 |      |  | $ | 662,062 |  
|                                                                                    |  |                          |         |      |  |   |         |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Segment capital expenditures                                                        |  | $                        | 6,809   |      |  | $ | 14,240  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Corporate capital expenditures                                                      |  |                          | 468     |      |  |   | 13,891  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Capital expenditures of discontinued operations                                     |  |                          | 1,081   |      |  |   | 1,008   |  
|                                                                                    |  |                          |         |      |  |   |         |  
|Consolidated capital expenditures                                                   |  | $                        | 8,358   |      |  | $ | 29,139  |  
|                                                                                    |  |                          |         |      |  |   |         |  

8



---



##### Table of Contents






ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We reported net income of $59.8 million for the first nine months of 2001,
compared to net income of $156.8 million for the first nine months of 2000.
Our net income for 2001 includes a pre-tax gain on sale of our discontinued
sports & entertainment operations of $142.6 million, a loss on debt
extinguishment of $1.6 million, net of taxes, and $1.0 million of costs
associated with the merger with Clear Channel, discussed below. Our net income
for 2000 includes a net pre-tax gain on dispositions of assets of $280.2
million and a loss from discontinued operations of $4.3 million, net of taxes.
Net revenue for the first nine months of 2001 decreased over the same period
last year by $15.4 million, or 9%, while our EBITDA (as defined below)
decreased by $21.6 million to $10.2 million.

On October 5, 2001, we entered into a merger agreement (the Merger
Agreement) with Clear Channel Communications, Inc. (Clear Channel). Under
the terms of the Merger Agreement, each share of our common stock and our Class
B common stock will be converted into the right to receive 0.35 of a share of
the common stock of Clear Channel. The transaction is generally intended to be
tax-free to our stockholders. The transaction, which we expect to be
consummated in the first half of 2002, is subject to the approval of our
stockholders, and customary regulatory approvals and closing conditions.

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 $92.7 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 nine month periods ended September 30, 2001 and 2000,
including net revenue, operating expenses, and Segment Operating Cash Flow
information by segment:

9



---



##### Table of Contents



|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |      |      |  
|--------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | ------ | --------------------------------------- | ------ | ----------- | ----- | ------- | ---- | ----------- | ------ | ----- | ------ | ------- | ----- | ---- | ---- | -
|                                                                            |                                       |                          |        | Three Month Periods Ended September 30,
|                                                                            |                                       |                          |        |                                        
|                                                                            |                                       |                          |        | 2001                                    |        | 2000       
|                                                                            |                                       |                          |        |                                         |        |            
|                                                                            |                                       |                          |        | (Dollars in thousands)                 
|                                                                            |                                       |                          |        |                                         |        |             |       | As % of |      |             |        |       |        | As % of
|                                                                            |                                       |                          |        | Amount                                  |        | Net Revenue |       | Amount  |      | Net Revenue
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |            
|Net revenue                                                                 |                                       | $                        | 48,489 |                                         |        |             | 100.0 | %       |      | $           | 57,543 |       |        |         | 100.0 | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Segment operating expenses                                                  |                                       |                          | 38,436 |                                         |        |             | 79.3  | %       |      |             | 40,595 |       |        |         | 70.5  | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Corporate overhead                                                          |                                       |                          | 3,303  |                                         |        |             | 6.8   | %       |      |             | 5,737  |       |        |         | 10.0  | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Workforce reduction costs                                                   |                                       |                          | 4      |                                         |        |             |      |         |      |             |       |       |        |         |      |     
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|                                                                            |                                       | Total operating expenses |        |                                         | 41,743 |             |       |         | 86.1 | %           |        |       | 46,332 |         |       |      | 80.5 | %
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|EBITDA                                                                      |                                       |                          | 6,746  |                                         |        |             | 13.9  | %       |      |             | 11,211 |       |        |         | 19.5  | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Other expenses (income):                                                    |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation and amortization expense |                          |        | 10,450                                  |        |             |       | 21.6    | %    |             |        | 9,368 |        |         |       | 16.3 | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Interest expense                      |                          |        | 5,925                                   |        |             |       | 12.2    | %    |             |        | 7,011 |        |         |       | 12.2 | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Loss (gain) on dispositions of assets |                          |        | (12                                     | )      |             |       |        |      |             |        | 467   |        |         |       | 0.8  | %   
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other                                 |                          |        | 255                                     |        |             |       | .5      | %    |             |        | 163   |        |         |       | 0.3  | %   
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|                                                                            |                                       | Total other expenses     |        |                                         | 16,618 |             |       |         | 34.3 | %           |        |       | 17,009 |         |       |      | 29.6 | %
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|Loss from continuing operations before income taxes and
extraordinary items |                                       |                          | (9,872 | )                                       |        |             | (20.4 | )%      |      |             | (5,798 | )     |        |         | (10.1 | )%  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Income tax benefit                                                          |                                       |                          | (1,975 | )                                       |        |             | (4.1  | )%      |      |             | (2,447 | )     |        |         | (4.3  | )%  
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|Loss from continuing operations before extraordinary items                  |                                       |                          | (7,897 | )                                       |        |             | (16.3 | %)      |      |             | (3,351 | )     |        |         | (5.8  | )%  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Loss from discontinued operations, net
of tax                               |                                       |                          |       |                                         |        |             |       |         |      |             | (2,887 | )     |        |         | (5.0  | )%  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Gain on disposal of discontinued operations,
net of tax                     |                                       |                          | 1,881  |                                         |        |             | 3.9   | %       |      |             |       |       |        |         |      |     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Extraordinary items                                                         |                                       |                          | (2,650 | )                                       |        |             | (5.5  | )%      |      |             |       |       |        |         |      |     
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     
|Net loss                                                                    |                                       | $                        | (8,666 | )                                       |        |             | (17.9 | )%      |      | $           | (6,238 | )     |        |         | (10.8 | )%  
|                                                                            |                                       |                          |        |                                         |        |             |       |         |      |             |        |       |        |         |       |     

|                           |                                           |                          |         |                                        |         |             |       |         |      |             |         |          |         |         |       |        |      |  
|-------------------------- | ----------------------------------------- | ------------------------ | ------- | -------------------------------------- | ------- | ----------- | ----- | ------- | ---- | ----------- | ------- | -------- | ------- | ------- | ----- | ------ | ---- | -
|                           |                                           |                          |         | Nine Month Periods Ended September 30,
|                           |                                           |                          |         |                                       
|                           |                                           |                          |         | 2001                                   |         | 2000       
|                           |                                           |                          |         |                                        |         |            
|                           |                                           |                          |         | (Dollars in thousands)                
|                           |                                           |                          |         |                                        |         |             |       | As % of |      |             |         |          |         | As % of
|                           |                                           |                          |         | Amount                                 |         | Net Revenue |       | Amount  |      | Net Revenue
|                           |                                           |                          |         |                                        |         |             |       |         |      |            
|Net revenue                |                                           | $                        | 148,928 |                                        |         |             | 100.0 | %       |      | $           | 164,290 |          |         |         | 100.0 | %     
|                          
|                          
|                          
|                          
|Segment operating expenses |                                           |                          | 122,133 |                                        |         |             | 82.0  | %       |      |             | 114,874 |          |         |         | 69.9  | %     
|                          
|                          
|                          
|                          
|Corporate overhead         |                                           |                          | 14,177  |                                        |         |             | 9.5   | %       |      |             | 17,619  |          |         |         | 10.7  | %     
|                          
|                          
|                          
|                          
|Workforce reduction costs  |                                           |                          | 2,435   |                                        |         |             | 1.6   | %       |      |             |        |          |         |         |      |       
|                           |                                           |                          |         |                                        |         |             |       |         |      |             |         |          |         |         |       |       
|                           |                                           | Total operating expenses |         |                                        | 138,745 |             |       |         | 93.1 | %           |         |          | 132,493 |         |       |        | 80.6 | %
|                           |                                           |                          |         |                                        |         |             |       |         |      |             |         |          |         |         |       |       
|EBITDA                     |                                           |                          | 10,183  |                                        |         |             | 6.8   | %       |      |             | 31,797  |          |         |         | 19.4  | %     
|                          
|                          
|                          
|                          
|Other expenses (income):   |                                           |                          |         |                                        |         |             |       |         |      |             |         |          |         |         |       |       
|                          
|                          
|                          
|                          
|                           | Depreciation and amortization expense     |                          |         | 31,916                                 |         |             |       | 21.4    | %    |             |         | 25,711   |         |         |       | 15.7   | %   
|                          
|                          
|                          
|                          
|                           | Interest expense                          |                          |         | 20,646                                 |         |             |       | 13.9    | %    |             |         | 16,424   |         |         |       | 10.0   | %   
|                          
|                          
|                          
|                          
|                           | Net (gain) loss on dispositions of assets |                          |         | 2,198                                  |         |             |       | 1.5     | %    |             |         | (280,166 | )       |         |       | (170.5 | )%  

10



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##### Table of Contents



|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |     |        |   
|---------------------------------------------------------------------------------- | ----- | ----------------------------- | ------- | -------------------------------------- | ------ | ----------- | ----- | ------- | ---- | ----------- | ------- | --- | -------- | ------- | ----- | --- | ------ | --
|                                                                                   |       |                               |         | Nine Month Periods Ended September 30,
|                                                                                   |       |                               |         |                                       
|                                                                                   |       |                               |         | 2001                                   |        | 2000       
|                                                                                   |       |                               |         |                                        |        |            
|                                                                                   |       |                               |         | (Dollars in thousands)                
|                                                                                   |       |                               |         |                                        |        |             |       | As % of |      |             |         |     |          | As % of
|                                                                                   |       |                               |         | Amount                                 |        | Net Revenue |       | Amount  |      | Net Revenue
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |            
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Other |                               |         | 305                                    |        |             |       | 0.2     | %    |             |         | 871 |          |         |       | 0.5 | %     
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |    
|                                                                                   |       | Total other expenses (income) |         |                                        | 55,065 |             |       |         | 37.0 | %           |         |     | (237,160 | )       |       |     | (144.3 | )%
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |    
|Income (loss) from continuing operations before income tax and
extraordinary
items |       |                               | (44,882 | )                                      |        |             | (30.1 | )%      |      |             | 268,957 |     |          |         | 163.7 | %  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Income tax expense (benefit)                                                       |       |                               | (14,613 | )                                      |        |             | (9.8  | )%      |      |             | 107,897 |     |          |         | 65.7  | %  
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |    
|Income (loss) from continuing operations before extraordinary items                |       |                               | (30,269 | )                                      |        |             | (20.3 | )%      |      |             | 161,060 |     |          |         | 98.   | %  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Loss from discontinued operations, net
of tax                                      |       |                               |        |                                        |        |             |      |         |      |             | (4,285  | )   |          |         | (2.6  | )  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Gain on disposal of discontinued operations,
net of tax                            |       |                               | 92,689  |                                        |        |             | 62.2  | %       |      |             |        |     |          |         |      |    
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Extraordinary items                                                                |       |                               | (2,650  | )                                      |        |             | (1.8  | )%      |      |             |        |     |          |         |      |    
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |    
|Net income                                                                         |       | $                             | 59,770  |                                        |        |             | 40.1  | %       |      | $           | 156,775 |     |          |         | 95.4  | %  
|                                                                                   |       |                               |         |                                        |        |             |       |         |      |             |         |     |          |         |       |    

|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |         | 
|--------------------------------------- |  |  | ------------------------- | --------------------------------- | - | ------------------------- | ------ | ------------------------ | - | ------ | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                        |  |  |                           |                                   |   | Three Month Periods Ended |        | Nine Month Periods Ended
|                                        |  |  |                           |                                   |   | September 30,             |        | September 30,           
|                                        |  |  |                           |                                   |   |                           |        |                         
|                                        |  |  |                           |                                   |   | 2001                      |        | 2000                     |   | 2001   |        | 2000
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |     
|                                        |  |  |                           |                                   |   | (Dollars in Thousands)    |        | (Dollars in Thousands)  
|Net revenue:                            |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Outdoor media             |                                   | $ | 19,534                    |        |                          | $ | 24,741 |        |      | $ | 60,042  |         |  | $ | 67,784  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Television broadcasting   |                                   |   | 22,169                    |        |                          |   | 25,602 |        |      |   | 71,572  |         |  |   | 75,293  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Radio broadcasting        |                                   |   | 6,716                     |        |                          |   | 7,200  |        |      |   | 17,162  |         |  |   | 21,213  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Interactive media         |                                   |   | 70                        |        |                          |   |       |        |      |   | 152     |         |  |   |        |        
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|                                        |  |  |                           | Total net revenue                 |   | $                         | 48,489 |                          |   | $      | 57,543 |      |   | $       | 148,928 |  |   | $       | 164,290 | 
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|Segment operating expenses:             |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Outdoor media             |                                   | $ | 11,401                    |        |                          | $ | 13,041 |        |      | $ | 37,206  |         |  | $ | 37,911  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Television broadcasting   |                                   |   | 21,738                    |        |                          |   | 22,405 |        |      |   | 68,445  |         |  |   | 62,659  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Radio broadcasting        |                                   |   | 5,017                     |        |                          |   | 5,079  |        |      |   | 15,439  |         |  |   | 14,234  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Interactive media         |                                   |   | 280                       |        |                          |   | 70     |        |      |   | 1,043   |         |  |   | 70      |        
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|                                        |  |  |                           | Total segment operating
expenses  |   | $                         | 38,436 |                          |   | $      | 40,595 |      |   | $       | 122,133 |  |   | $       | 114,874 | 
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|Segment Operating Cash Flow and
EBITDA: |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Outdoor media             |                                   | $ | 8,133                     |        |                          | $ | 11,700 |        |      | $ | 22,836  |         |  | $ | 29,873  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Television broadcasting   |                                   |   | 431                       |        |                          |   | 3,197  |        |      |   | 3,127   |         |  |   | 12,634  |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Radio broadcasting        |                                   |   | 1,699                     |        |                          |   | 2,121  |        |      |   | 1,723   |         |  |   | 6,979   |        
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Interactive media         |                                   |   | (210                      | )      |                          |   | (70    | )      |      |   | (891    | )       |  |   | (70     | )      
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|                                        |  |  |                           | Total Segment Operating Cash
Flow |   |                           | 10,053 |                          |   |        | 16,948 |      |   |         | 26,795  |  |   |         | 49,416  | 
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Corporate overhead        |                                   |   | (3,303                    | )      |                          |   | (5,737 | )      |      |   | (14,177 | )       |  |   | (17,619 | )      
|                                       
|                                       
|                                       
|                                       
|                                        |  |  | Workforce reduction costs |                                   |   | (4                        | )      |                          |   |       |        |      |   | (2,435  | )       |  |   |        |        
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        
|                                        |  |  |                           | Total EBITDA                      |   | $                         | 6,746  |                          |   | $      | 11,211 |      |   | $       | 10,183  |  |   | $       | 31,797  | 
|                                        |  |  |                           |                                   |   |                           |        |                          |   |        |        |      |   |         |         |  |   |         |        

11



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|                                                           |                         |                         |      |                                                               |       |                           |       |                          |      |      |      |        |       |    |      |      |      |    |      |  
|---------------------------------------------------------- | ----------------------- | ----------------------- | ---- | ------------------------------------------------------------- | ----- | ------------------------- | ----- | ------------------------ | ---- | ---- | ---- | ------ | ----- | -- | ---- | ---- | ---- | -- | ---- | -
|                                                           |                         |                         |      |                                                               |       | Three Month Periods Ended |       | Nine Month Periods Ended
|                                                           |                         |                         |      |                                                               |       | September 30,             |       | September 30,           
|                                                           |                         |                         |      |                                                               |       |                           |       |                         
|                                                           |                         |                         |      |                                                               |       | 2001                      |       | 2000                     |      | 2001 |      | 2000  
|                                                           |                         |                         |      |                                                               |       |                           |       |                          |      |      |      |       
|                                                           |                         |                         |      |                                                               |       | (Dollars in Thousands)    |       | (Dollars in Thousands)  
|Change in net revenue from prior periods:                  |                         |                         |      |                                                               |       |                           |       |                          |      |      |      |        |       |    |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         | Outdoor media           |      |                                                               | (21.0 | )%                        |       |                          | (5.8 | )%   |      |        | (11.4 | )% |      |      | (5.9 | )%
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         | Television broadcasting |      |                                                               | (13.4 | )%                        |       |                          | 27.8 | %    |      |        | (4.9  | )% |      |      | 30.4 | % 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         | Radio broadcasting      |      |                                                               | (6.7  | )%                        |       |                          | (7.0 | )%   |      |        | (19.1 | )% |      |      | 6.6  | % 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         | Interactive media       |      |                                                               | 100.0 | %                         |       |                          |     |      |      |        | 100.0 | %  |      |      |     |   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         |                         |      | Change in total net revenue                                   |       |                           | (15.7 | )%                       |      |      | 6.5  | %      |       |    | (9.4 | )%   |      |    | 9.8  | %
|                                                          
|                                                          
|                                                          
|                                                          
|Segment operating expenses as a % of segment
net revenue:  |                         |                         |      |                                                               |       |                           |       |                          |      |      |      |        |       |    |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outdoor media           |                         |      | 58.4                                                          | %     |                           |       | 52.7                     | %    |      |      | 62.0   | %     |    |      | 55.9 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Television broadcasting |                         |      | 98.1                                                          | %     |                           |       | 87.5                     | %    |      |      | 95.6   | %     |    |      | 83.2 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Radio broadcasting      |                         |      | 74.7                                                          | %     |                           |       | 70.5                     | %    |      |      | 90.0   | %     |    |      | 67.1 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interactive media       |                         |      | 400.0                                                         | %     |                           |       |                         |      |      |      | 686.2  | %     |    |      |     |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         |                         |      | Total segment operating
expenses as a % of total net
revenue  |       |                           | 79.3  | %                        |      |      | 70.5 | %      |       |    | 82.0 | %    |      |    | 69.9 | %
|                                                          
|                                                          
|                                                          
|                                                          
|Segment Operating Cash Flow as a % of segment
net revenue: |                         |                         |      |                                                               |       |                           |       |                          |      |      |      |        |       |    |      |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outdoor media           |                         |      | 41.6                                                          | %     |                           |       | 47.3                     | %    |      |      | 38.0   | %     |    |      | 44.1 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Television broadcasting |                         |      | 1.9                                                           | %     |                           |       | 12.5                     | %    |      |      | 4.4    | %     |    |      | 16.8 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Radio broadcasting      |                         |      | 25.3                                                          | %     |                           |       | 29.5                     | %    |      |      | 10.0   | %     |    |      | 32.9 | %   
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Interactive media       |                         |      | (300.0                                                        | )%    |                           |       |                         |      |      |      | (586.2 | )%    |    |      |     |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                         |                         |      | Total Segment Operating Cash
Flow as a % of total net
revenue |       |                           | 20.7  | %                        |      |      | 29.5 | %      |       |    | 18.0 | %    |      |    | 30.1 | %
|                                                          
|                                                          
|                                                          
|                                                          
|EBITDA as a % of total net revenue                         |                         |                         | 13.9 | %                                                             |       |                           | 19.5  | %                        |      |      | 6.8  | %      |       |    | 19.4 | %   

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

Net Revenue.Our net revenue for the third quarter of 2001 was $48.5
million. This represented a decrease of $9.0 million, or 16%, compared to
$57.5 million in the third quarter of 2000. Changes in net revenue were as
follows:



| |  |  | Outdoor Media.Our net revenue from our outdoor media segment for
the third quarter of 2001 decreased by $5.2 million, or 21%, compared
to the third 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 third quarter of 2001
from our television broadcasting segment decreased by $3.4 million, or
13%, compared to the third quarter of 2000. This decrease was due
mainly to a decline in national advertising revenue, particularly in
the political and automotive advertising categories.                                                                                                                                                     
|
| |  |  | Radio Broadcasting.Net revenue for the third quarter of 2001 from
our radio broadcasting segment decreased by $0.5 million, or 7%,
compared to the third quarter of 2000.This decrease was due primarily
to a decrease in national sales, particularly in the dot-com
advertising category, and is consistent with industry trends.                                                                                                                                                      

12



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Segment Operating Expenses.Our segment operating expenses (which
exclude corporate overhead and workforce reduction costs) for the third
quarter of 2001 were $38.4 million. This represented a decrease of $2.2
million, or 5%, compared to $40.6 million for the third quarter of 2000.
Changes in segment operating expenses were as follows:



| |  |  | Outdoor Media.Operating expenses for the third quarter of 2001
from our outdoor media segment decreased by $1.6 million, or 12%,
compared to the third quarter of 2000 as we implemented cost reduction
initiatives in the second quarter of 2001.                                                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Operating expenses for the third quarter
of 2001 from our television broadcasting segment decreased by $0.7
million, or 3%, compared to the third quarter of 2000. This decrease
was due primarily to cost reduction initiatives implemented in the
second quarter of 2001 offset partially by increased fiber optic
connection costs.     
|
| |  |  | Radio Broadcasting.Operating expenses for the third quarter of
2001 from our radio broadcasting segment decreased by $0.1 million, or
1%, compared to the third quarter of 2000. This decrease was due
primarily to cost reduction initiatives implemented in the second
quarter of 2001 offset partially by increased costs of on-air talent
and facilities costs.

Corporate Overhead Expenses.Our corporate overhead expenses for the
third quarter of 2001 were $3.3 million. This represented a decrease of $2.4
million, or 42%, compared to the third quarter of 2000. This decrease was a
result primarily of cost reduction initiatives implemented in the second
quarter of 2001.

EBITDA.Our EBITDA for the third quarter of 2001 was $6.7 million. This
represented a decrease of $4.5 million, or 40%, compared to EBITDA of $11.2
million for the third quarter of 2000.

Depreciation and Amortization Expenses.Our depreciation and amortization
expenses were $10.5 million for the third quarter of 2001. This represented an
increase of $1.1 million, or 12%, compared to $9.4 million for the third
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 and
automated news production systems for our television broadcasting segment.

Interest Expense, net.Our interest expense was $5.9 million for the
third quarter of 2001. This represented a decrease of $1.1 million, or 16%,
compared to the third quarter of 2000. This decrease primarily reflects lower
average debt balances and interest rates in the third quarter of 2001 compared
to the third quarter of 2000.

Net Loss on Dispositions of Assets.For the third quarter of 2000, we
recorded a net loss of $0.5 million due to adjustments to the gain on sale of
our Florida outdoor advertising operations in January 2000.

Income Tax Expense.We recognized an income tax benefit of $2.0 million
for the third quarter of 2001 based on our loss from continuing operations
before income taxes of $9.9 million. For the third quarter of 2000, we
recorded an income tax benefit of $2.5 million, based on our loss from
continuing operations before income taxes of $5.8 million.

Discontinued Operations.As more fully described in Note 3 to the
consolidated financial statements, we recorded an after-tax gain of $1.9
million in the third quarter of 2001 on the sale of our discontinued sports &
entertainment operations. In the third quarter of 2000, we recorded an
after-tax loss of $2.9 million from our discontinued sports & entertainment
operations.

13



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##### Table of Contents



Extraordinary Items. We recorded a charge of $1.6 million net of taxes in
the third quarter of 2001 for the write-off of deferred financing costs in
connection with the replacement of our bank credit facilities. In addition, we
recorded $1.0 million of costs associated with our pending merger with Clear
Channel in the third quarter of 2001. These merger costs are
not deductible for tax purposes. There were no such charges in the third
quarter of 2000.

Net Loss.Our net loss was $8.7 million for the third quarter of 2001,
compared to $6.2 million for the third quarter of 2000. This increase was due
primarily to the extraordinary items described above.

Nine Month Period Ended September 30, 2001 Compared With Nine Month Period
Ended September 30, 2000

Net Revenue.Our net revenue for the nine month period ended September
30, 2001 was $148.9 million. This represented a decrease of $15.4 million, or
9% compared to $164.3 million for the nine month period ended September 30,
2000. Changes in net revenue were as follows:



| |  |  | Outdoor Media.Our net revenue from our outdoor media segment for
the first nine months of 2001 decreased by $7.8 million, or 12%,
compared to the first nine 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 nine months of
2001 from our television broadcasting segment decreased by $3.7
million, or 5%, compared to the first nine 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 nine months of
2001 from our television broadcasting segment decreased $8.9 million,
or 13%, compared to the first nine months of 2000. This decrease was
due primarily to a decrease in national sales, particularly in the
political and automotive advertising categories.
|
| |  |  | Radio Broadcasting.Net revenue for the first nine months of 2001
from our radio broadcasting segment decreased by $4.0 million, or 19%,
compared to the first nine months of 2000.This decrease was due
primarily to a decrease in both national and local sales, particularly
in the dot-com and automotive advertising categories, 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 has gained
market share with its new format.                                                                              

Segment Operating Expenses.Our segment operating expenses (which exclude
corporate overhead and workforce reduction costs) for the first nine months of
2001 were $122.1 million. This represented an increase of $7.2 million, or 6%,
compared to $114.9 million for the first nine months of 2000. Changes in
segment operating expenses were as follows:



| |  |  | Outdoor Media.Operating expenses for the first nine months of
2001 from our outdoor media segment decreased by $0.7 million, or 2%,
compared to the first nine months of 2000. This decrease was due
primarily to cost reduction initiatives implemented in the second
quarter of 2001.                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Television Broadcasting.Operating expenses for the first nine
months of 2001 from our television broadcasting segment increased by
$5.8 million, or 9%, compared to the first nine 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
nine months of 2001 from our

14



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| |   |  | television broadcasting segment increased by $1.2 million, or 2%,
compared to the first nine months of 2000. This increase was due
primarily to employee, programming, and fiber optic connection costs,
offset partially by cost reduction initiatives implemented in the second
quarter of 2001.                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Radio Broadcasting.Operating expenses for the first nine months
of 2001 from our radio broadcasting segment increased by $1.2 million,
or 8%, compared to the first nine 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 nine months of 2001 were $14.2 million. This represented a decrease of
$3.4 million, or 19%, compared to the first nine months of 2000. This decrease
was a result primarily of cost reduction initiatives implemented in the second
quarter of 2001 and 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 nine months of 2001 was $10.2 million.
This represented a decrease of $21.6 million, or 68%, compared to EBITDA of
$31.8 million for the first nine months of 2000.

Depreciation and Amortization Expenses.Our depreciation and amortization
expenses were $31.9 million for the first nine months of 2001. This
represented an increase of $6.2 million, or 24%, compared to $25.7 million for
the first nine 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 and automated news production systems for our television
broadcasting segment.

Interest Expense, net.Our interest expense was $20.6 million for the
first nine months of 2001. This represented an increase of $4.2 million, or
26%, compared to the first nine months of 2000. This increase was due
primarily to higher average debt balances during the first nine 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 nine months of 2000
were lower due to the application of proceeds from the sale of our Florida
outdoor advertising operations in January 2000. In addition, we earned
interest income in the first nine 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 second
quarter of 2001. We recognized a net gain of $280.2 million for the first nine
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 $14.6 million
for the first nine months of 2001 based on our loss from continuing operations
before income taxes of $44.9 million. For the first nine months of 2000, we
recorded an income tax expense of $107.9 million, primarily as a result of the
gain on dispositions of assets.

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Discontinued Operations.As more fully described in Note 3 to the
consolidated financial statements, we recorded an after-tax gain of $92.7
million for the first nine months of 2001 on the sale of our discontinued
sports & entertainment operations. For the first nine months of 2000, we
recorded an after-tax loss of $4.3 million from our discontinued sports &
entertainment operations.

Extraordinary Items.We recorded a charge of $1.6 million, net of taxes,
in the third quarter of 2001 for the write-off of deferred financing costs in
connection with the replacement of our bank credit facilities. In addition, we
recorded $1.0 million of costs associated with our pending merger with Clear
Channel in the third quarter of 2001. These merger costs are
not deductible for tax purposes. There were no such charges in the third
quarter of 2000.

Net Income.Our net income was $59.8 million for the first nine months of
2001, compared to our net income of $156.8 million for the first nine 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, which was greater than the gain on the sale of our discontinued sports &
entertainment operations in April 2001, as well as the decreases in EBITDA and
extraordinary items described above.

Liquidity and Capital Resources

Cash used in operating activities was $27.8 million in the first nine months of
2001 compared to $66.7 million in the first nine months of 2000. Our working
capital increased from $15.1 million at December 31, 2000 to $52.0 million at
September 30, 2001. This is due primarily to cash provided by the refinancing
of our bank credit facilities, described below, and decreases in accrued
liabilities, offset partially by the increase in income taxes payable resulting
from the gain on the sale of our sports & entertainment operations.

We expended $8.4 million for capital expenditures in the first nine months
of 2001, compared to $29.1 million in the corresponding period in 2000.
Capital expenditures in the first nine 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 (TV) 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 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 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 were waived through
September 15, 2001. In addition, borrowings under the Revolver were limited to
$26.3 million.

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On September 7, 2001, we replaced our 1999 Credit Agreement with a new
$120.0 million credit agreement (the 2001 Credit Agreement), consisting of a
$100.0 million term loan (the 2001 Term Loan) and a $20.0 million revolving
credit facility (the 2001 Revolver). The 2001 Revolver includes up to $5.0
million in standby letters of credit. The transaction resulted in a charge of
$1.6 million, net of applicable taxes of $0.9 million, consisting of the
write-off of deferred financing costs.

At closing, $54.0 million of the 2001 Term Loan was placed in escrow, of
which $45.0 million will be used to fund our estimated federal income tax
payments due in October and December of 2001 and the remaining $9.0 million
will be used to fund the interest payment on our senior subordinated notes due
in January 2002. Accordingly, the $54.0 million is classified as restricted
cash on our consolidated balance sheet.

Principal payments under the 2001 Term Loan are due in quarterly
installments of $250,000 each for the period commencing on December 31, 2001
and ending on September 30, 2005, and $24.0 million each for the period
commencing on December 31, 2005 and ending on August 31, 2006. Any outstanding
borrowings under the 2001 Revolver will be due on August 31, 2004. In order to
remain compliant with certain financial covenants, on September 28, 2001, we
prepaid $8.5 million of outstanding borrowings under the 2001 Term Loan, so
that at September 30, 2001, outstanding borrowings were $91.5 million. There
were no outstanding borrowings under the 2001 Revolver.

We can choose to have interest calculated at rates based on either LIBOR
or a base rate plus defined margins. The interest rate applicable to the 2001
Revolver will be subject to certain reductions based on our interest coverage
ratio. Commitment fees on the unused portion of the 2001 Revolver are payable
quarterly at an annual rate of 1.5%. At September 30, 2001, the average annual
interest rate on borrowings outstanding under the 2001 Term Loan was 6.9%.

We have pledged substantially all of our subsidiaries outstanding stock
and assets as collateral for amounts due under the 2001 Credit Agreement and
our subsidiaries have guaranteed our obligations under both the 2001 Credit
Agreement and the Indenture for the 9% Senior Subordinated Notes (Indenture).
Thus, if we default under the 2001 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 2001 Credit Agreement and the Indenture restrict, among
other things, our ability to borrow, pay dividends, repurchase outstanding
shares of our stock, sell or transfer our assets, acquire assets, or make
investments. They also contain restrictive covenants requiring us to maintain
certain financial ratios. As of September 30, 2001, we were in compliance with
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 equal
to or less than 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. In addition, we could be required to obtain waivers of
compliance with certain covenants of our 2001 Credit Agreement and might need
to seek additional sources of financing.

Subsequent Event

On October 5, 2001, we entered into a merger agreement (the Merger
Agreement) with Clear Channel Communications, Inc. (Clear Channel). Under
the terms of the Merger Agreement, each share of our common stock and our Class
B common stock will be converted into the right to receive 0.35 of a share of
the common stock of Clear Channel. The transaction is generally intended to be
tax-free to our stockholders. The transaction, which we expect to be
consummated in the first half of 2002, is subject to

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the approval of our stockholders, and customary regulatory approvals and
closing conditions. We recorded $1.0 million of expenses related to this
transaction in the third quarter of 2001. These costs are reflected on the
consolidated statements of operations as an extraordinary item. In order to
remain compliant with certain financial covenants of our 2001 Credit Agreement,
we have obtained a waiver allowing us to exclude these merger costs in
determining compliance with such financial covenants for the periods ending
September 30, 2001 and December 31, 2001.

In connection with the Merger Agreement, Barry A. Ackerley, our Chairman
and CEO, entered into a voting and support voting agreement (the Stockholder
Agreement) with Clear Channel. Pursuant to the Stockholder Agreement, Mr.
Ackerley has agreed, among other things, to vote shares of our common stock
owned by him, representing approximately 6.7% of the outstanding voting power
of our stock, in favor of the transaction with Clear Channel and against
competing proposals, until the Merger Agreement is terminated in accordance
with its terms. However, Mr. Ackerleys agreement to vote in favor of the
transaction with Clear Channel and against competing proposals is not
applicable to the shares of our Class B common stock owned by him, which
represent approximately 82% of the outstanding voting power of our stock.

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.

In
August 2001, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective for fiscal
years beginning after December 15, 2001. Statement No. 144
supersedes Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
providing a single accounting model for long-lived assets to be
disposed of. In addition, Statement No. 144 amends certain
provisions of Accounting Principles Board Opinion No. 30 with
respect to the accounting for discontinued operations. The impact of
the statement is currently being studied, and the effect of the new
statement on the financial statements has not yet been determined.




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 1  LEGAL PROCEEDINGS

Van Alstyne v. The Ackerley Group, Inc.In our Annual Report on Form 10-K
for the year ending December 31, 2000, we reported the following: On June 7,
1996, a former sales manager for television station WIXT, Syracuse, New York
filed a complaint in the U.S. District Court for the Northern District of New
York against The Ackerley Group, Inc., WIXT and the current and former general
managers of WIXT. The complaint sought unspecified damages and injunctive
relief for discrimination on the basis of gender and disability, as well as
unlawful retaliation, under both state and federal law. In September 2000, the
Court granted defendants Motion for Summary Judgment as to all federal claims
and dismissed plaintiffs state law claims without prejudice. Plaintiff
appealed that decision to the Second Circuit. On May 21, 2001,
the U.S. Court
of Appeals for the Second Circuit issued a Summary Order affirming the District
Courts decision granting the defendants Motion for

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Summary Judgment. On May 31, 2001, the parties agreed to discontinue,
with prejudice, plaintiffs lawsuit in New York State court.




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

(a)      Exhibits:

(b)      Reports on Form 8-K:



| | (1) |  | Current Report on Form 8-K, filed August 7, 2001, relating to
the retirement of Denis Curley, The Co-President and Chief Operating
Officer of the Company.   
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Current Report on Form 8-K, filed September 14, 2001, relating to the
refinancing of the Companys senior credit facilities.                                 
|
| | (3) |  | Current
Report on Form 8-K, filed October 9, 2001, relating to the merger
transaction with Clear Channel Communications, Inc.                                
|
| | (4) |  | Current Report on Form 8-K, filed November 6, 2001, relating
to the announcement of the Companys financial results for the
quarter ended September 30, 2001.

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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.

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|                          |  |  |  | THE ACKERLEY GROUP, INC.                                                                                                                   
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|DATED:  November 13, 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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