<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                  FORM 10-Q/A
 
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                      FOR THE QUARTER ENDED JUNE 30, 1998
 
<TABLE>
<S>                                             <C>
        Commission File No. 0-21570                    Commission File No. 333-32259
        CHANCELLOR MEDIA CORPORATION                    CHANCELLOR MEDIA CORPORATION
         (Exact Name of Registrant                             OF LOS ANGELES
        as Specified in its Charter)                     (Exact Name of Registrant
                                                        as Specified in its Charter)
 
                  DELAWARE                                        DELAWARE
      (State or other jurisdiction of                 (State or other jurisdiction of
       incorporation or organization)                  incorporation or organization)
 
                 75-2247099                                      75-2451687
  (I.R.S. Employer Identification Number)         (I.R.S. Employer Identification Number)
</TABLE>
 
               300 CRESCENT COURT, SUITE 600, DALLAS, TEXAS 75201
          (Address of principal executive offices, including zip code)
 
                                 (214) 922-8700
              (Registrants' telephone number, including area code)
 
     Indicate by check mark whether Chancellor Media Corporation and Chancellor
Media Corporation of Los Angeles (1) have filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
 
<TABLE>
<S>                                          <C>
Chancellor Media Corporation                 Yes [X]     No [ ]
Chancellor Media Corporation of Los Angeles  Yes [X]     No [ ]
</TABLE>
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of July 31, 1998,
142,333,877 shares of Common Stock of Chancellor Media Corporation were
outstanding and 1,040 shares of Common Stock of Chancellor Media Corporation of
Los Angeles were outstanding.
 
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<PAGE>   2
 
     The Registrant hereby amends the following sections of its Form 10-Q for
the quarterly period ended June 30, 1998.
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   NO.
                                                                                   ----
<S>        <C>       <C>                                                           <C>
PART I.    FINANCIAL INFORMATION
           Item 1.   Financial Statements........................................    3
                     CHANCELLOR MEDIA CORPORATION
                     Consolidated Balance Sheets (unaudited).....................    3
                     Consolidated Statements of Operations (unaudited)...........    4
                     Consolidated Statements of Cash Flows (unaudited)...........    5
                     Notes to Consolidated Financial Statements (unaudited)......    6
                     CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
                     Consolidated Balance Sheets (unaudited).....................   17
                     Consolidated Statements of Operations (unaudited)...........   18
                     Consolidated Statements of Cash Flows (unaudited)...........   19
                     Notes to Consolidated Financial Statements (unaudited)......   20
           Item 2.   Management's Discussion and Analysis of Financial Condition
                       and Results of Operations.................................   31
 
PART II.   OTHER INFORMATION
           Item 1.   Legal Proceedings...........................................   37
           Item 6.   Exhibits and Reports on Form 8-K............................   38
</TABLE>
 
                                        2
<PAGE>   3
 
                                     PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   -----------
                                                                             (UNAUDITED)
                                                                             (RESTATED)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................   $   16,584    $   14,257
  Accounts receivable, less allowance for doubtful accounts
     of $12,651 in 1997 and $12,775 in 1998.................      239,869       290,341
  Other current assets......................................       27,208        32,388
                                                               ----------    ----------
          Total current assets..............................      283,661       336,986
Note receivable from affiliate..............................           --       150,000
Property and equipment, net.................................      159,797       166,778
Intangible assets, net......................................    4,404,443     4,625,672
Other assets, net...........................................      113,576       123,941
                                                               ----------    ----------
                                                               $4,961,477    $5,403,377
                                                               ==========    ==========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
  Accounts payable and accrued expenses.....................   $  171,017    $  160,211
Long-term debt..............................................    2,573,000     2,278,000
Deferred tax liabilities....................................      361,640       369,671
Other liabilities...........................................       44,405        53,625
                                                               ----------    ----------
          Total liabilities.................................    3,150,062     2,861,507
                                                               ----------    ----------
Redeemable preferred stock:
  Redeemable senior cumulative exchangeable preferred stock
     of subsidiary, par value $.01 per share; 1,000,000
     shares authorized, issued and outstanding; liquidation
     preference of $121,274 in 1997 and 1998................      119,445       119,445
  Redeemable cumulative exchangeable preferred stock of
     subsidiary, par value $.01 per share; 3,600,000 shares
     authorized and 2,117,629 shares issued and outstanding;
     liquidation preference of $223,519 in 1997.............      211,763            --
Stockholders' equity:
  Preferred stock, $.01 par value. 2,200,000 shares of 7%
     convertible preferred stock authorized, issued and
     outstanding............................................      110,000       110,000
  Preferred stock, $.01 par value. 6,000,000 shares
     authorized; 5,990,000 shares of $3.00 convertible
     exchangeable preferred stock issued and outstanding....      299,500       299,500
  Common stock, $.01 par value. Authorized 200,000,000
     shares; issued and outstanding 119,921,814 shares in
     1997 and 142,288,936 in 1998...........................        1,199         1,423
Paid-in capital.............................................    1,226,930     2,241,794
Accumulated deficit.........................................     (157,422)     (230,292)
                                                               ----------    ----------
          Total stockholders' equity........................    1,480,207     2,422,425
                                                               ----------    ----------
                                                               $4,961,477    $5,403,377
                                                               ==========    ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                        3
<PAGE>   4
 
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED       SIX MONTHS ENDED
                                                    ---------------------   ---------------------
                                                    JUNE 30,    JUNE 30,    JUNE 30,    JUNE 30,
                                                      1997        1998        1997        1998
                                                    --------   ----------   --------   ----------
                                                               (RESTATED)              (RESTATED)
<S>                                                 <C>        <C>          <C>        <C>
Gross revenues....................................  $122,365    $363,590    $216,177   $ 626,011
  Less agency commissions.........................    16,001      41,880      27,916      70,744
                                                    --------    --------    --------   ---------
          Net revenues............................   106,364     321,710     188,261     555,267
Operating expenses:
  Operating expenses, excluding depreciation and
     amortization.................................    58,178     168,843     111,162     316,862
  Depreciation and amortization...................    27,897     103,188      53,912     195,124
  Corporate general and administrative............     3,321       8,276       5,651      15,079
  Executive severance charge......................        --      59,475          --      59,475
                                                    --------    --------    --------   ---------
          Operating expenses......................    89,396     339,782     170,725     586,540
                                                    --------    --------    --------   ---------
          Operating income (loss).................    16,968     (18,072)     17,536     (31,273)
                                                    --------    --------    --------   ---------
Other (income) expense:
  Interest expense, net...........................    14,853      38,785      22,741      87,085
  Gain on disposition of representation
     contracts....................................        --     (11,270)         --     (11,270)
  Other income....................................   (13,323)   (127,404)    (13,323)   (127,404)
                                                    --------    --------    --------   ---------
          Other (income) expense..................     1,530     (99,889)      9,418     (51,589)
                                                    --------    --------    --------   ---------
          Income (loss) before income taxes and
            extraordinary item....................    15,438      81,817       8,118      20,316
Income tax expense................................     5,568      34,725       4,259      31,784
Dividends on preferred stock of subsidiary........        --       6,691          --      16,702
                                                    --------    --------    --------   ---------
          Income (loss) before extraordinary
            item..................................     9,870      40,401       3,859     (28,170)
Extraordinary loss, net of income tax benefit.....     4,350      31,865       4,350      31,865
                                                    --------    --------    --------   ---------
          Net income (loss).......................     5,520       8,536        (491)    (60,035)
Preferred stock dividends.........................       699       6,418         699      12,835
                                                    --------    --------    --------   ---------
          Net income (loss) attributable to common
            stockholders..........................  $  4,821    $  2,118    $ (1,190)  $ (72,870)
                                                    ========    ========    ========   =========
Basic and diluted income (loss) per common share:
  Before extraordinary item.......................  $   0.11    $   0.23    $   0.04   $   (0.31)
  Extraordinary item..............................     (0.05)      (0.22)      (0.05)      (0.24)
                                                    --------    --------    --------   ---------
          Net income (loss).......................  $   0.06    $   0.01    $  (0.01)  $   (0.55)
                                                    ========    ========    ========   =========
Weighted average common shares outstanding........    84,456     142,218      84,416     133,468
                                                    ========    ========    ========   =========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        4
<PAGE>   5
 
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED
                                                              ----------------------
                                                              JUNE 30,     JUNE 30,
                                                                1997         1998
                                                              ---------   ----------
                                                                          (RESTATED)
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $    (491)  $  (60,035)
  Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation...........................................      5,074       12,177
     Amortization of goodwill, intangible assets and other
      assets................................................     48,838      182,947
     Executive severance charge -- stock option
      compensation..........................................         --       16,000
     Provisions for doubtful accounts.......................      2,388        2,194
     Deferred income tax expense............................      4,259       31,784
     Gain on disposition of representation contracts........         --      (11,270)
     Dividends on preferred stock of subsidiary.............         --       16,702
     Gain on disposition of assets..........................    (13,323)    (123,845)
     Loss on extinguishment of debt.........................      4,350       31,865
     Other..................................................         --       (4,275)
     Changes in certain assets and liabilities, net of
      effects of acquisitions:
       Accounts receivable..................................    (14,893)     (51,352)
       Other current assets.................................     (5,102)      (7,432)
       Accounts payable and accrued expenses................      4,992       (4,032)
       Other assets.........................................        (29)        (490)
       Other liabilities....................................        102        6,925
                                                              ---------   ----------
          Net cash provided by operating activities.........     36,165       37,863
                                                              ---------   ----------
Cash flows from investing activities:
  Acquisitions, net of cash acquired........................   (447,240)    (266,328)
  Assets held for sale......................................    (50,000)          --
  Escrow deposits on pending acquisitions...................    (62,100)          --
  Payments made on purchases of representation contracts....         --      (15,880)
  Proceeds from sale of representation contracts............         --        9,822
  Proceeds from sale of assets..............................     99,750           --
  Issuance of note receivable from affiliate................         --     (150,000)
  Capital expenditures......................................     (3,547)     (12,099)
  Other.....................................................    (15,270)      (7,647)
                                                              ---------   ----------
          Net cash used by investing activities.............   (478,407)    (442,132)
                                                              ---------   ----------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt..................    584,250      445,000
  Principal payments on long-term debt......................   (417,250)    (740,000)
  Proceeds from issuance of common stock and preferred
     stock..................................................    288,382      999,088
  Repurchase of 12% Exchange Debentures.....................         --     (260,519)
  Dividends on preferred stock..............................       (699)     (41,291)
  Payments for debt issuance costs..........................    (10,430)        (336)
  Other.....................................................       (185)          --
                                                              ---------   ----------
          Net cash provided by financing activities.........    444,068      401,942
                                                              ---------   ----------
Increase (decrease) in cash and cash equivalents............      1,826       (2,327)
Cash and cash equivalents at beginning of period............      3,060       16,584
                                                              ---------   ----------
Cash and cash equivalents at end of period..................  $   4,886   $   14,257
                                                              =========   ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                        5
<PAGE>   6
 
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
               (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
 
1. BASIS OF PRESENTATION
 
     In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flows of Chancellor Media Corporation (formerly known as Evergreen Media
Corporation ("Evergreen")) and its subsidiaries (collectively, the "Company" or
"Chancellor Media") for the periods presented.
 
     Interim periods are not necessarily indicative of results to be expected
for the year. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
 
     On December 18, 1997, the Company declared a two-for-one stock split
effected in the form of a stock dividend payable on January 12, 1998 to
shareholders of record at the close of business on December 29, 1997. All share
and per share data (other than authorized share data) contained in the
accompanying financial statements have been retroactively adjusted to give
effect to the stock dividend.
 
     Income (loss) per common share is based on the weighted average number of
common shares outstanding during the periods after giving retroactive effect to
the stock split. The $3.00 Convertible Exchangeable Preferred Stock (the "$3.00
Convertible Preferred Stock") and the 7% Convertible Preferred Stock (the "7%
Convertible Preferred Stock") are not included in the calculation as their
effect would be antidilutive. Stock options outstanding do not have an impact on
the calculation.
 
     The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company has no items of comprehensive income for
any period presented and therefore is not required to report comprehensive
income.
 
     Certain Consolidated Balance Sheet, Consolidated Statement of Operations,
and Consolidated Statement of Cash Flows items have been restated (see Note 2).
 
2. ACQUISITIONS AND DISPOSITIONS
 
  1997 Completed Transactions
 
     On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Broadcasting Company ("Chancellor") for $30,000 in
cash plus various other direct acquisition costs. The Company had previously
provided certain sales and promotional functions to WWWW-FM and WDFN-AM under a
joint sales agreement since February 14, 1996 and subsequently operated the
stations under a time brokerage agreement since April 1, 1996.
 
     On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was
recognized by the Company upon consummation of the sale.
 
                                        6
<PAGE>   7
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168,000 in cash plus various other
direct acquisition costs. The Company had previously been operating WJLB-FM and
WMXD-FM under time brokerage agreements since September 1, 1996.
 
     On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc.
("Greater Media") in return for WWRC-AM in Washington, D.C. (now known as
WTEM-AM) and $9,500 in cash. The exchange was accounted for as a like-kind
exchange and no gain or loss was recognized upon consummation of the
transaction. The net purchase price to the Company of WWRC-AM was therefore
$22,500. The Company had previously been operating WWRC-AM under a time
brokerage agreement since June 17, 1996.
 
     On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.
 
     On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.
 
     On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.
 
     On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.
 
     On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the
Company on February 19, 1997 and (iii) $6,079 financed through working capital.
In June 1997, the Company issued 5,990,000 shares of $3.00 Convertible Preferred
Stock for net proceeds of $287,808 which were used to repay borrowings under the
Senior Credit Facility and subsequently were reborrowed on July 2, 1997 as part
of the financing of the Viacom Acquisition. On July 7, 1997, the Company sold
WJZW-FM in Washington, D.C. to affiliates of Capital Cities/ABC Radio for
$68,000 in cash. The assets of WJZW-FM, as well as the assets of WZHF-AM and
WBZS-AM, which were also sold on August 13, 1997, were accounted for as assets
held for sale in connection with the purchase price allocation of the Viacom
Acquisition and no gain or loss was recognized by the Company upon consummation
of the sales.
 
     On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, Chancellor sold the call letters "KSAN-FM" (which
Chancellor previously used in San Francisco) to Susquehanna. On July 7, 1997,
the Company and Chancellor entered into a time brokerage agreement to enable the
Company to operate KYLD-FM on the frequency previously assigned to KSAN-FM, and
on July 7, 1997, Chancellor changed the call letters of KSAN-FM to KYLD-FM. Upon
the
 
                                        7
<PAGE>   8
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
consummation of the Chancellor Merger (as defined herein), the Company changed
the format of the new KYLD-FM to the format previously operated on the old
KYLD-FM.
 
     On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
 
     On July 21, 1997, the Company entered into a time brokerage agreement with
Chancellor whereby the Company began managing certain limited functions of
Chancellor's stations KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the
consummation of the Chancellor Merger (as defined herein), which occurred on
September 5, 1997.
 
     On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco
to affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a
promissory note. The promissory note, as amended on May 1, 1998, bears interest
at 7 3/4% from the closing date through February 28, 1998 and at 10.0% from
March 1, 1998 through the remainder of the term of the note, with a balloon
principal payment due four years after closing. At closing, Douglas posted a
$1,000 letter of credit for the benefit of the Company that will remain
outstanding until all amounts due under the promissory note are paid.
 
     On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.
 
     On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen, Evergreen Mezzanine Holdings
Corporation ("EMHC") and Evergreen Media Corporation of Los Angeles ("EMCLA"),
(i) Chancellor was merged (the "Parent Merger") with and into EMHC, a direct,
wholly-owned subsidiary of Evergreen, with EMHC remaining as the surviving
corporation and (ii) CRBC was merged (the "Subsidiary Merger") with and into
EMCLA, a direct, wholly-owned subsidiary of EMHC, with EMCLA remaining as the
surviving corporation (collectively, the "Chancellor Merger"). Upon consummation
of the Parent Merger, the Company was renamed Chancellor Media Corporation and
EMHC was renamed Chancellor Mezzanine Holdings Corporation ("CMHC"). Upon
consummation of the Subsidiary Merger, EMCLA was renamed Chancellor Media
Corporation of Los Angeles ("CMCLA"). Consummation of the Chancellor Merger
added 52 radio stations (36 FM and 16 AM) to the Company's portfolio of
stations, including 13 stations in markets in which the Company previously
operated. The total purchase price allocated to net assets acquired was
approximately $1,998,383 which included (i) the conversion of each outstanding
share of Chancellor Common Stock into 0.9091 shares of the Company's Common
Stock, resulting in the issuance of 34,617,460 shares of the Company's Common
Stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC of
$949,000 which included $549,000 of borrowings outstanding under the CRBC senior
credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004
and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007, (iii) the
issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in
exchange for CRBC's substantially identical securities with a fair value of
$215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of
1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock in exchange for CRBC's substantially identical securities with a
fair value of $120,217 including accrued and unpaid dividends of $772, (v) the
issuance of 2,200,000 shares of the Company's 7% Convertible Preferred Stock in
exchange for Chancellor's substantially
                                        8
<PAGE>   9
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
identical securities with a fair value of $111,048 including accrued and unpaid
dividends of $1,048, (vi) the assumption of stock options issued to Chancellor
stock option holders with a fair value of $34,977 and (vii) estimated
acquisition costs of $31,000.
 
     On October 28, 1997, the Company acquired Katz Media Group, Inc. ("KMG"), a
full-service media representation firm, in a tender offer transaction for a
total purchase price of approximately $379,101 (the "Katz Acquisition") which
included (i) the conversion of each outstanding share of KMG Common Stock into
the right to receive $11.00 in cash, resulting in total cash payments of
$149,601, (ii) the assumption of long-term debt of KMG and its subsidiaries of
$222,000 which included $122,000 of borrowings outstanding under the KMG senior
credit facility and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of
Katz Media Corporation (a subsidiary of KMG) and (iii) estimated acquisition
costs of $7,500.
 
     On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/ AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.
 
  1998 Completed Transactions
 
     On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to the Company) for $26,000 in cash plus
various other direct acquisition costs, of which $1,650 was previously paid by
Chancellor as escrow funds and are classified as other assets at December 31,
1997. The Company had previously operated KXPK-FM under a time brokerage
agreement since September 1, 1997.
 
     On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000
paid by the Company in escrow and classified as other assets at December 31,
1997) to Bonneville for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in
Los Angeles (the "Bonneville Exchange"). The Company had previously operated
KLDE-FM and KBIG-FM under time brokerage agreements since October 1, 1997 and
WBIX-FM since October 10, 1997, and had sold substantially all of the broadcast
time of WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since October 1, 1997.
 
     Based on discussions with the Securities and Exchange Commission, the
Company has restated its previously reported results for the three months and
six months ended June 30, 1998. The Company has recognized a pre-tax gain of
$123,845 related to the Bonneville Exchange. This transaction was previously
accounted for as a like-kind exchange and is now recorded as a business
combination in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations." A summary of the impact on the results of operations
follows:
 
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED             SIX MONTHS ENDED
                                                       JUNE 30, 1998                 JUNE 30, 1998
                                                ---------------------------   ---------------------------
                                                (AS PREVIOUSLY                (AS PREVIOUSLY
                                                  REPORTED)      (RESTATED)     REPORTED)      (RESTATED)
<S>                                             <C>              <C>          <C>              <C>
Income (loss) before extraordinary item.......     $(32,668)      $40,401       $(101,239)      $(28,170)
Net income (loss) attributable to common
  stockholders................................      (70,951)        2,118        (145,939)       (72,870)
Basic and diluted income (loss) per common
  share
  Before extraordinary item...................     $  (0.28)      $  0.23       $   (0.85)      $  (0.31)
  Net income (loss)...........................        (0.50)         0.01           (1.09)         (0.55)
</TABLE>
 
     On April 13, 1998, the Company and Secret entered into a settlement
agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, the
Company and Secret had entered into an agreement under
 
                                        9
<PAGE>   10
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
which the Company would acquire WFLN-FM from Secret for $37,750 in cash. In
April 1997, the Company entered into an agreement to sell WFLN-FM to Greater
Media for $41,800 in cash. On July 16, 1997, Secret purported to terminate the
sale of WFLN-FM to the Company. The Company subsequently brought suit against
Secret to enforce its rights to acquire WFLN-FM. Pursuant to a court settlement
entered in August 1997 and the settlement agreement between the Company and
Secret entered on April 13, 1998, (i) Secret sold WFLN-FM directly to Greater
Media for $37,750, (ii) Greater Media deposited $4,050 (the difference between
the Company's proposed acquisition price for WFLN-FM from Secret and the
Company's proposed sale price for WFLN-FM to Greater Media) with the court and
(iii) the Company received $3,500 of such amount deposited by Greater Media with
the court, plus interest earned during the period which the court held such
amounts (the "WFLN Settlement"), and Secret received the balance of such
amounts.
 
     On May 29, 1998, as part of the Capstar Transaction (defined below), the
Company exchanged WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of
the Capstar Transaction at $53,000) plus $90,250 in cash to Capstar Broadcasting
Corporation (together with its subsidiaries, "Capstar") in return for KODA-FM in
Houston (the "Houston Exchange"). Furthermore, on May 29, 1998, Capstar sold
KKPN-FM in Houston (acquired by Capstar as part of the SFX Acquisition) due to
the attributable ownership of Hicks, Muse, Tate & Furst, Incorporated ("Hicks
Muse") in both Capstar and the Company in order to comply with the FCC's
multiple ownership limits. In connection with Capstar's sale of KKPN-FM, the
Company received a commission from Capstar of $1,730. On May 29, 1998, the
Company also provided a loan to Capstar in the principal amount of $150,000 (the
"Capstar Loan") as part of the Capstar Transaction. The Capstar Loan bears
interest at the rate of 12% per annum (subject to increase in certain
circumstances), and is secured by a senior pledge of common stock of Capstar's
direct subsidiary. A portion of the Capstar Loan will be prepaid by Capstar in
connection with the Company's acquisition of, and the proceeds of such
prepayment would be used by the Company as a portion of the purchase price for,
each Capstar Station. Hicks Muse, which is a substantial shareholder of the
Company, controls Capstar, and certain officers and directors of the Company are
directors and/or executive officers of Capstar and/or Hicks Muse.
 
     On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from
Capitol Broadcasting Company and its affiliates for $74,062 in cash (including
$2,062 for the purchase of the stations' accounts receivable) plus various other
direct acquisition costs, of which $4,000 was previously paid by the Company as
escrow funds and are classified as other assets at December 31, 1997 (the
"Capitol Broadcasting Acquisition").
 
     On May 1, 1998, the Company formed a new division, the Chancellor Marketing
Group, in an effort to enhance the revenues the Company derives from its sales
promotion activities. On June 1, 1998, the Company acquired Global Sales
Development, Inc., a consulting firm based in Richmond, Virginia, for $675 in
cash plus various other direct acquisition costs to lead its marketing efforts
for this new division.
 
     On June 15, 1998, the Company's national radio network, The AMFM Radio
Networks, acquired the syndicated programming shows of Global Satellite Network
for $14,000 in cash plus various other direct acquisition costs. The syndicated
programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in
the Years" and the concert series "Live from the Pit".
 
     On July 31, 1998, the Company acquired Martin Media, L.P. and certain
affiliated companies ("Martin"), an outdoor advertising company with over 13,000
billboards and outdoor displays in 12 states serving 23 markets, for $610,000 in
cash plus working capital of $20,985 subject to certain adjustments and various
other direct acquisition costs. Additionally, the Company paid $13,559 to Martin
for properties acquired by Martin subsequent to the purchase agreement date of
June 22, 1998 and prior to the closing on July 31, 1998. The additional
properties acquired from Martin added approximately 1,500 billboards and outdoor
displays in four of Martin's 23 existing markets.
 
                                       10
<PAGE>   11
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
  Pending Transactions
 
     On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, the "Capstar Stations") for an aggregate
purchase price of approximately $637,500 in a series of purchases and exchanges
over a period of three years (the "Capstar Transaction"). On May 29, 1998, the
Company completed the Houston Exchange (defined above) and began operating the
remaining ten Capstar Stations under time brokerage agreements. The Company will
pay approximately $494,250 for the remaining ten Capstar Stations.
 
     On April 8, 1998, the Company entered into an agreement to acquire Petry
Media Corporation, a leading independent television representation firm, for
approximately $150,000 in cash (the "Petry Acquisition"). On June 3, 1998, the
Antitrust Division of the United States Department of Justice issued a second
request for additional information under the HSR Act in connection with the
Petry Acquisition. The Company is presently responding to this request for
additional information. Although there can be no assurance, the Company expects
that the Petry Acquisition will be consummated in the fourth quarter of 1998.
 
     On June 15, 1998, the Company, Capstar, LIN Television Corporation and TSG
Capital Group, L.L.C. announced the formation of an alliance to capitalize on
investment opportunities in broadcasting entities across a broad spectrum of
ethnic ownership. Accordingly, as the first investment of the alliance, the
Company entered into an agreement to acquire a 20% non-voting equity stake in
Z-Spanish Media Corporation for approximately $25,000 in cash (the "Z-Spanish
Acquisition"). Z-Spanish Media, which is headquartered in Sacramento,
California, is the owner and operator of 22 Hispanic format radio stations in
California, Texas, Arizona and Illinois. Although there can be no assurance, the
Company expects that the Z-Spanish Acquisition will be consummated in the third
or fourth quarter of 1998.
 
     On July 7, 1998, the Company entered into an agreement whereby the ultimate
parent of LIN Television Corporation ("LIN") will merge into the Company (the
"LIN Merger"). Pursuant to this agreement, the Company will acquire the stock of
LIN from affiliates of Hicks Muse in a stock-for-stock transaction. Upon
consummation of the LIN Merger, it is expected that LIN will own or operate 12
television stations in eight markets in the United States. Although there can be
no assurance, the Company expects that the LIN Merger will be consummated in the
first quarter of 1999.
 
     On July 10, 1998, the Company entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V. ("GRC") for approximately
$120,500 in cash and $116,500 in Common Stock for an aggregate purchase price of
$237,000 (the "GRC Acquisition"). The Chancellor Media shares issued to GRC will
be valued at the market price at closing, subject to a maximum price of $57.00
and a minimum price of $42.75. The purchase price is subject to upward or
downward revisions of up to $29,100, payable in Chancellor Media Common Stock,
based upon GRC's 1999 performance. GRC is Latin America's largest pure play
radio company with six FM and six AM radio stations in Mexico. Additionally, GRC
acts as the national sales representative and provides programming for a network
of more than 90 radio station affiliates in 57 cities throughout Mexico.
Although there can be no assurance, the Company expects that the GRC Acquisition
will be consummated in the fourth quarter of 1998.
 
     On July 27, 1998, the Company entered into an agreement to acquire Primedia
Broadcast Group, Inc. and certain of its affiliates, which own and operate eight
FM stations in Puerto Rico, for approximately $75,000 in cash (the "Primedia
Acquisition"). Although there can be no assurance, the Company expects that the
Primedia Acquisition will be consummated in the fourth quarter of 1998.
 
     On August 11, 1998, the Company entered into agreements to acquire four FM
and two AM radio stations in Cleveland for an aggregate purchase price of
approximately $275,000 in cash plus various other direct acquisition costs (the
"Ohio Acquisitions"). The Ohio Acquisitions consist of the purchase by the
                                       11
<PAGE>   12
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
Company of (i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership,
(ii) WZAK-FM from Zapis Communications, (iii) Zebra Broadcasting Corporation
which owns WZJM-FM and WJMO-AM and (v) Wincom Broadcasting Corporation which
owns WQAL-FM (the "Wincom Acquisition"). The consummation of each of the Ohio
Acquisitions (other than the Wincom Acquisition) is contingent upon the
consummation of each of the other Ohio Acquisitions (other than the Wincom
Acquisition). Although there can be no assurance, the Company expects that the
Ohio Acquisitions will be consummated in the first quarter of 1999.
 
     Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC (except in the case of the
Petry Acquisition) and the expiration or early termination of any waiting period
required under the HSR Act. The Company believes that such conditions will be
satisfied in the ordinary course, but there can be no assurance that this will
be the case.
 
     Escrow funds of $4,650 paid by the Company in connection with the
Bonneville Exchange and the Capitol Broadcasting Acquisition were classified as
other assets in the accompanying balance sheet at December 31, 1997.
 
  Summary of Net Assets Acquired
 
     The completed acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
 
     A summary of the net assets acquired follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR       SIX MONTHS
                                                                 ENDED         ENDED
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   ----------
                                                                             (RESTATED)
<S>                                                           <C>            <C>
Working capital, including cash of $9,724 in 1997...........   $   66,805     $  1,991
Property and equipment......................................      118,371        7,062
Assets held for sale........................................      131,000           --
Intangible assets...........................................    3,823,746      383,476
Other assets................................................       26,742           --
Deferred tax liability......................................     (279,371)          --
Other liabilities...........................................      (39,681)        (697)
                                                               ----------     --------
                                                               $3,847,612     $391,832
                                                               ==========     ========
</TABLE>
 
     The pro forma consolidated condensed results of operations data for the six
months ended June 30, 1997 and 1998, as if the 1997 Completed Transactions and
the 1998 Completed Transactions discussed above, the 8 1/8% Notes Offering, the
amendment and restatement of the Senior Credit Facility and the 1998 Completed
Financing Transactions (as defined herein) occurred at January 1, 1997, follow:
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                              ---------------------
                                                              JUNE 30,    JUNE 30,
                                                                1997        1998
                                                              --------   ----------
                                                                         (RESTATED)
<S>                                                           <C>        <C>
Net revenues................................................  $506,102   $ 580,634
Net loss....................................................   (95,155)    (41,510)
Basic and diluted loss per common share.....................  $  (0.67)  $   (0.29)
</TABLE>
 
     The results of operations for the six months ended June 30, 1998 include a
one-time executive severance charge of $59,475.
 
                                       12
<PAGE>   13
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the entire periods
presented.
 
3. FINANCING TRANSACTIONS
 
  1998 Completed Financing Transactions
 
     On March 13, 1998, the Company completed a secondary offering of 21,850,000
shares of its Common Stock (the "1998 Equity Offering"). The net proceeds from
the 1998 Equity Offering of approximately $994,642 were used to reduce bank
borrowings under the revolving credit portion of the Senior Credit Facility (as
defined) and the excess proceeds were initially invested in short-term
investment grade securities. The Company subsequently used the excess proceeds
for general corporate purposes, including the financing of the Bonneville
Exchange, the Capstar Loan and a portion of the Houston Exchange.
 
     On May 8, 1998, CMCLA completed a consent solicitation (the "12% Consent
Solicitation") to modify certain timing restrictions on CMCLA's ability to
exchange all shares of its 12% Preferred Stock for its 12% Subordinated Exchange
Debentures due 2009 (the "12% Debentures"). Consenting holders of 12% Preferred
Stock received payments of $0.05 per share of 12% Preferred Stock. On May 13,
1998, CMCLA exchanged the shares of 12% Preferred Stock for 12% Debentures (the
"12% Exchange"). In connection with the 12% Consent Solicitation and 12%
Exchange, CMCLA incurred approximately $270 in transaction costs which were
recorded as deferred debt issuance costs.
 
     On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures
Tender Offer") for all of CMCLA's 12% Debentures for an aggregate repurchase
cost of $262,495 which included (i) the principal amount of the 12% Debentures
of $211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798,
(iii) accrued and unpaid interest on the 12% Debentures from May 14, 1998
through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In
connection with the 12% Debentures Tender Offer, the Company recorded an
extraordinary charge of $31,865 (net of a tax benefit of $17,158) consisting of
the premiums, estimated transaction costs and the write-off of the unamortized
balance of deferred debt issuance costs.
 
     On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4%
Preferred Stock Consent Solicitation") to modify certain timing restrictions on
CMCLA's ability to exchange all shares of its 12 1/4% Preferred Stock for its
12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"),
and on July 23, 1998 CMCLA exchanged the shares of 12 1/4% Preferred Stock for
12 1/4% Debentures. Consenting holders of 12 1/4% Preferred Stock received
payments of $0.05 per share of 12 1/4 Preferred Stock.
 
  Pending Financing Transactions
 
     On August 6, 1998, CMCLA commenced a cash tender offer (the "Tender Offer")
for CMCLA's 12 1/4% Debentures. The offer price for each $1,000 principal amount
of 12 1/4% Debentures is $1,189.90 plus accrued and unpaid interest through the
expiration date. The Tender Offer will expire at 11:59 p.m. on August 19, 1998,
unless extended. There can be no assurance that the Tender Offer will be
successful.
 
                                       13
<PAGE>   14
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
4. LONG-TERM DEBT
 
     Long-term debt consists of the following at December 31, 1997 and June 30,
1998:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   ----------
<S>                                                           <C>            <C>
Senior Credit Facility(a)...................................   $1,573,000    $1,278,000
9 3/8% Notes(b).............................................      200,000       200,000
8 3/4% Notes(b).............................................      200,000       200,000
10 1/2% Notes(b)............................................      100,000       100,000
8 1/8% Notes(b).............................................      500,000       500,000
                                                               ----------    ----------
          Total long-term debt..............................   $2,573,000    $2,278,000
                                                               ==========    ==========
</TABLE>
 
  (a) Senior Credit Facility
 
     On April 25, 1997, the Company entered into a loan agreement which amended
and restated its prior senior credit facility. Under the amended and restated
agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997,
February 10, 1998, May 1, 1998 and July 31, 1998 (as amended, the "Senior Credit
Facility"), the Company established a $1,250,000 revolving facility (the
"Revolving Loan Facility") and a $500,000 term loan facility (the "Term Loan
Facility"). Upon consummation of the Chancellor Merger, the aggregate
commitments under the Revolving Loan Facility and the Term Loan Facility were
increased to $1,600,000 and $900,000, respectively. In connection with the
amendment and restatement of the Senior Credit Facility, the Company wrote off
the unamortized balance of deferred debt issuance costs of $4,350 (net of a tax
benefit of $2,343) as an extraordinary charge.
 
     Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of the Company, on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described below, the interest rate on the $900,000
outstanding under the Term Loan Facility at June 30, 1998 was 6.19% on a blended
basis, based on Eurodollar rates, and the interest rate on advances of $365,000
and $13,000 outstanding under the Revolving Loan Facility were 6.19% and 8.50%,
respectively, at June 30, 1998, based on the Eurodollar and prime rates,
respectively. The Company pays fees ranging from 0.25% to 0.375% per annum on
the aggregate unused portion of the loan commitment based upon the leverage
ratio for the most recent quarter end, in addition to an annual agent's fee.
Pursuant to the Senior Credit Facility, the Company is required to enter into
interest hedging agreements that result in the fixing or placing a cap on the
Company's floating rate debt so that not less than 50% of the principal amount
of total debt outstanding has a fixed or capped rate.
 
     The Term Loan Facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 20, 2005. The Revolving Loan Facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. At July 31, 1998, the Company had drawn $900,000 of the Term Loan Facility
and $980,000 of the Revolving Loan Facility. The capital stock of the Company's
subsidiaries is pledged to secure the performance of the Company's obligations
under the Senior Credit Facility, and each of the Company's subsidiaries have
guaranteed those obligations.
 
  (b) Senior Subordinated Notes
 
     Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed all of the obligations under CRBC's $200,000 aggregate principal
amount 9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8% Notes") and the
indenture governing such securities, and assumed all of the obligations under
CRBC's $200,000 aggregate principal amount 8 3/4% Senior Subordinated Notes due
2007 (the "8 3/4% Notes") and the indenture governing such securities. Upon
consummation of the Katz Acquisition, on October 28, 1997, the Company assumed
all of the obligations under Katz Media Corporation's $100,000 aggregate
principal amount of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2%
Notes") and the amended and
 
                                       14
<PAGE>   15
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
restated indenture governing such securities. On December 22, 1997, the Company
issued $500,000 aggregate principal amount of 8 1/8% Senior Subordinated Notes
due 2007 (the "8 1/8% Notes") for estimated net proceeds of $485,000.
 
  (c) Other
 
     The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes and the 8 1/8% Notes
(collectively, the "Notes") are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Notes are fully and unconditionally guaranteed,
on a joint and several basis, by all of the Company's direct and indirect
subsidiaries other than certain inconsequential subsidiaries (the "Subsidiary
Guarantors"). The Subsidiary Guarantors are wholly-owned subsidiaries of the
Company.
 
     The Senior Credit Facility and the indentures governing the Notes contain
customary restrictive covenants, which, among other things and with certain
exceptions, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and liens in connection therewith, enter into certain
transactions with affiliates, pay dividends, consolidate, merge or effect
certain asset sales, issue additional stock, effect an asset swap and make
acquisitions. The Company is required under the Senior Credit Facility to
maintain specified financial ratios, including leverage, cash flow and debt
service coverage ratios (as defined).
 
5. EXECUTIVE SEVERANCE CHARGE
 
     On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of the Company. On April 20, 1998, Mr. Ginsburg resigned as
director of the Company and from all appointments and positions with its
respective subsidiaries. On April 20, 1998, Mr. Ginsburg and the Company entered
into a separation and consulting agreement. Following Mr. Ginsburg's
resignation, the Company entered into new employment agreements with Jimmy de
Castro, the Company's Chief Operating Officer, and Matthew E. Devine, the
Company's Chief Financial Officer, each effective April 17, 1998. On April 29,
1998, Jeffrey A. Marcus, was named President and Chief Executive Officer of the
Company and the Company entered into an employment agreement with Mr. Marcus
effective June 1, 1998.
 
     In connection with Mr. Ginsburg's resignation described above, the Company
incurred a one-time executive severance charge of $59,475 which consists of (i)
a lump sum severance payment of $20,000 to Mr. Ginsburg, (ii) compensation
expense of $16,000 related to the grant of 800,000 stock options to Mr. Ginsburg
at an exercise price of $23.25 per share, (iii) consulting fees of $12,500 to be
paid to Mr. Ginsburg over five years, (iv) one-time cash payments of $5,000 and
$2,000 to Mr. de Castro and Mr. Devine, respectively, (v) execution bonuses of
$1,000 paid to Mr. de Castro, Mr. Devine and Mr. Marcus and (vi) other costs
incurred in connection with Mr. Ginsburg's resignation of $975.
 
6. OTHER INCOME
 
     Other income consists of the following for the six months ended June 30,
1997 and 1998:
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                              ---------------------
                                                              JUNE 30,    JUNE 30,
                                                                1997        1998
                                                              --------   ----------
                                                                         (RESTATED)
<S>                                                           <C>        <C>
Gain on disposition of assets(a)............................  $13,323     $123,845
WFLN Settlement(b)..........................................       --        3,559
                                                              -------     --------
                                                              $13,323     $127,404
                                                              =======     ========
</TABLE>
 
---------------
 
(a) For the six months ended June 30, 1997, the Company recorded a gain on
    disposition of assets of $13,323 related to the dispositions of WNKS-FM in
    Charlotte on May 15, 1997 ($3,536), WPNT-FM in
 
                                       15
<PAGE>   16
                 CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
    Chicago on May 30, 1997 ($529), and WEJM-FM in Chicago on June 3, 1997
    ($9,258). For the six months ended June 30, 1998, the Company recorded a
    gain on disposition of assets of $123,845 related to the April 3, 1998
    exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in Los Angeles
    plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM
    in Los Angeles (see Note 2).
 
(b) For the six months ended June 30, 1998, the Company recorded a gain from the
    WFLN Settlement (defined above) of $3,559.
 
7. CONTINGENCIES
 
     The Company is involved in several lawsuits that are incidental to its
business. A discussion of certain of these lawsuits is contained in Part II,
Item 1, "Legal Proceedings", of this Form 10-Q/A. The Company believes that the
ultimate resolution of the lawsuits will not have a material effect on its
financial position or results of operations.
 
                                       16
<PAGE>   17
 
                                     PART I
 
ITEM 1. FINANCIAL STATEMENTS
 
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   -----------
                                                                             (UNAUDITED)
                                                                             (RESTATED)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................   $   16,584    $   14,257
  Accounts receivable, less allowance for doubtful accounts
     of $12,651 in 1997 and $12,775 in 1998.................      239,869       290,341
  Other current assets......................................       27,208        32,388
                                                               ----------    ----------
          Total current assets..............................      283,661       336,986
Note receivable from affiliate..............................           --       150,000
Property and equipment, net.................................      159,797       166,778
Intangible assets, net......................................    4,404,443     4,625,672
Other assets, net...........................................      113,576       123,941
                                                               ----------    ----------
                                                               $4,961,477    $5,403,377
                                                               ==========    ==========
 
                          LIABILITIES AND STOCKHOLDER'S EQUITY
 
Current liabilities:
  Accounts payable and accrued expenses.....................   $  171,017    $  160,211
Long-term debt..............................................    2,573,000     2,278,000
Deferred tax liabilities....................................      361,640       369,671
Other liabilities...........................................       44,405        53,625
                                                               ----------    ----------
          Total liabilities.................................    3,150,062     2,861,507
                                                               ----------    ----------
Redeemable preferred stock:
  Redeemable senior cumulative exchangeable preferred stock
     of subsidiary, par value $.01 per share; 1,000,000
     shares authorized, issued and outstanding; liquidation
     preference of $121,274 in 1997 and 1998................      119,445       119,445
  Redeemable cumulative exchangeable preferred stock of
     subsidiary, par value $.01 per share; 3,600,000 shares
     authorized and 2,117,629 shares issued and outstanding;
     liquidation preference of $223,519 in 1997.............      211,763            --
Stockholder's equity:
  Common stock, $.01 par value. 1,040 shares authorized,
     issued and outstanding.................................            1             1
Paid-in capital.............................................    1,637,628     2,581,765
Accumulated deficit.........................................     (157,422)     (159,341)
                                                               ----------    ----------
          Total stockholder's equity........................    1,480,207     2,422,425
                                                               ----------    ----------
                                                               $4,961,477    $5,403,377
                                                               ==========    ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements
 
                                       17
<PAGE>   18
 
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                                                   ---------------------   ---------------------
                                                   JUNE 30,    JUNE 30,    JUNE 30,    JUNE 30,
                                                     1997        1998        1997        1998
                                                   --------   ----------   --------   ----------
                                                              (RESTATED)              (RESTATED)
<S>                                                <C>        <C>          <C>        <C>
Gross revenues...................................  $122,365   $ 363,590    $216,177   $ 626,011
  Less agency commissions........................    16,001      41,880      27,916      70,744
                                                   --------   ---------    --------   ---------
          Net revenues...........................   106,364     321,710     188,261     555,267
Operating expenses:
  Operating expenses, excluding depreciation and
     amortization................................    58,178     168,843     111,162     316,862
  Depreciation and amortization..................    27,897     103,188      53,912     195,124
  Corporate general and administrative...........     3,321       8,276       5,651      15,079
  Executive severance charge.....................        --      59,475          --      59,475
                                                   --------   ---------    --------   ---------
          Operating expenses.....................    89,396     339,782     170,725     586,540
                                                   --------   ---------    --------   ---------
          Operating income (loss)................    16,968     (18,072)     17,536     (31,273)
                                                   --------   ---------    --------   ---------
Other (income) expense:
  Interest expense, net..........................    14,853      38,785      22,741      87,085
  Gain on disposition of representation
     contracts...................................        --     (11,270)         --     (11,270)
  Other income...................................   (13,323)   (127,404)    (13,323)   (127,404)
                                                   --------   ---------    --------   ---------
          Other (income) expense.................     1,530     (99,889)      9,418     (51,589)
                                                   --------   ---------    --------   ---------
          Income (loss) before income taxes and
            extraordinary item...................    15,438      81,817       8,118      20,316
Income tax expense...............................     5,568      34,725       4,259      31,784
                                                   --------   ---------    --------   ---------
          Income (loss) before extraordinary
            item.................................     9,870      47,092       3,859     (11,468)
Extraordinary loss, net of income tax benefit....     4,350      31,865       4,350      31,865
                                                   --------   ---------    --------   ---------
          Net income (loss)......................     5,520      15,227        (491)    (43,333)
Preferred stock dividends........................        --       6,691          --      16,702
                                                   --------   ---------    --------   ---------
          Net income (loss) attributable to
            common stockholders..................  $  5,520   $   8,536    $   (491)  $ (60,035)
                                                   ========   =========    ========   =========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       18
<PAGE>   19
 
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED
                                                              ----------------------
                                                              JUNE 30,     JUNE 30,
                                                                1997         1998
                                                              ---------   ----------
                                                                          (RESTATED)
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $    (491)  $  (43,333)
  Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation...........................................      5,074       12,177
     Amortization of goodwill, intangible assets and other
      assets................................................     48,838      182,947
     Executive severance charge -- stock option
      compensation..........................................         --       16,000
     Provisions for doubtful accounts.......................      2,388        2,194
     Deferred income tax expense............................      4,259       31,784
     Gain on disposition of representation contracts........         --      (11,270)
     Gain on disposition of assets..........................    (13,323)    (123,845)
     Loss on extinguishment of debt.........................      4,350       31,865
     Other..................................................         --       (4,275)
     Changes in certain assets and liabilities, net of
      effects of acquisitions:
       Accounts receivable..................................    (14,893)     (51,352)
       Other current assets.................................     (5,102)      (7,432)
       Accounts payable and accrued expenses................      4,992       (4,032)
       Other assets.........................................        (29)        (490)
       Other liabilities....................................        102        6,925
                                                              ---------   ----------
          Net cash provided by operating activities.........     36,165       37,863
                                                              ---------   ----------
Cash flows from investing activities:
  Acquisitions, net of cash acquired........................   (447,240)    (266,328)
  Assets held for sale......................................    (50,000)          --
  Escrow deposits on pending acquisitions...................    (62,100)          --
  Payments made on purchases of representation contracts....         --      (15,880)
  Proceeds from sale of representation contracts............         --        9,822
  Proceeds from sale of assets..............................     99,750           --
  Issuance of note receivable from affiliate................         --     (150,000)
  Capital expenditures......................................     (3,547)     (12,099)
  Other.....................................................    (15,270)      (7,647)
                                                              ---------   ----------
          Net cash used by investing activities.............   (478,407)    (442,132)
                                                              ---------   ----------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt..................    584,250      445,000
  Principal payments on long-term debt......................   (417,250)    (740,000)
  Cash contributed by parent................................    288,382      999,088
  Repurchase of 12% Exchange Debentures.....................         --     (260,519)
  Dividends on preferred stock..............................         --      (28,460)
  Dividend to parent........................................       (699)     (12,831)
  Payments for debt issuance costs..........................    (10,430)        (336)
  Other.....................................................       (185)          --
                                                              ---------   ----------
          Net cash provided by financing activities.........    444,068      401,942
                                                              ---------   ----------
Increase (decrease) in cash and cash equivalents............      1,826       (2,327)
Cash and cash equivalents at beginning of period............      3,060       16,584
                                                              ---------   ----------
Cash and cash equivalents at end of period..................  $   4,886   $   14,257
                                                              =========   ==========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       19
<PAGE>   20
 
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                             (DOLLARS IN THOUSANDS)
 
1. BASIS OF PRESENTATION
 
     In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flows of Chancellor Media Corporation of Los Angeles (formerly known as
Evergreen Media Corporation of Los Angeles ("EMCLA")) and its subsidiaries
(collectively, "CMCLA") for the periods presented. Chancellor Media Corporation
of Los Angeles is an indirect, wholly owned subsidiary of Chancellor Media
Corporation ("Chancellor Media").
 
     Interim periods are not necessarily indicative of results to be expected
for the year. It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in CMCLA's Annual Report on Form 10-K for the year ended December 31,
1997.
 
     The consolidated financial statements include the accounts of CMCLA and its
subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
 
     CMCLA adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. CMCLA has no items of comprehensive income for any
period presented and therefore is not required to report comprehensive income.
 
     Certain Consolidated Balance Sheet, Consolidated Statement of Operations,
and Consolidated Statement of Cash Flows items have been restated (see Note 2).
 
2. ACQUISITIONS AND DISPOSITIONS
 
  1997 Completed Transactions
 
     On January 31, 1997, CMCLA acquired WWWW-FM and WDFN-AM in Detroit from
affiliates of Chancellor Radio Broadcasting Company ("CRBC") for $30,000 in cash
plus various other direct acquisition costs. CMCLA had previously provided
certain sales and promotional functions to WWWW-FM and WDFN-AM under a joint
sales agreement since February 14, 1996 and subsequently operated the stations
under a time brokerage agreement since April 1, 1996.
 
     On January 31, 1997, CMCLA acquired KKSF-FM and KDFC-FM/AM in San Francisco
from affiliates of the Brown Organization for $115,000 in cash plus various
other direct acquisition costs. CMCLA had previously been operating KKSF-FM and
KDFC-FM/AM under a time brokerage agreement since November 1, 1996. On July 21,
1997, CMCLA sold KDFC-FM to Bonneville International Corporation ("Bonneville")
for $50,000 in cash. The assets of KDFC-FM were classified as assets held for
sale in connection with the purchase price allocation of the acquisition of
KKSF-FM and KDFC-FM/AM and no gain or loss was recognized by CMCLA upon
consummation of the sale.
 
     On April 1, 1997, CMCLA acquired WJLB-FM and WMXD-FM in Detroit from Secret
Communications, L.P. ("Secret") for $168,000 in cash plus various other direct
acquisition costs. CMCLA had previously been operating WJLB-FM and WMXD-FM under
time brokerage agreements since September 1, 1996.
 
     On April 3, 1997, CMCLA exchanged WQRS-FM in Detroit (which CMCLA acquired
on April 3, 1997 from Secret for $32,000 in cash plus various other direct
acquisition costs), to affiliates of Greater Media Radio, Inc. ("Greater Media")
in return for WWRC-AM in Washington, D.C. (now known as WTEM-AM) and $9,500 in
cash. The exchange was accounted for as a like-kind exchange and no gain or loss
was recognized upon consummation of the transaction. The net purchase price to
CMCLA of WWRC-AM was
 
                                       20
<PAGE>   21
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
therefore $22,500. CMCLA had previously been operating WWRC-AM under a time
brokerage agreement since June 17, 1996.
 
     On May 1, 1997, CMCLA acquired WDAS-FM/AM in Philadelphia from affiliates
of Beasley FM Acquisition Corporation for $103,000 in cash plus various other
direct acquisition costs.
 
     On May 15, 1997, CMCLA exchanged five of its six stations in Charlotte,
North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM stations in
Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc. ("EZ") in
Philadelphia (the "Charlotte Exchange"), and also sold CMCLA's sixth radio
station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and recognized a gain
of $3,536. The Charlotte Exchange was accounted for as a like-kind exchange and
no gain or loss was recognized upon consummation of the transaction.
 
     On May 30, 1997, CMCLA acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, CMCLA sold WPNT-FM in Chicago to Bonneville
for $75,000 in cash and recognized a gain of $529.
 
     On June 3, 1997, CMCLA sold WEJM-FM in Chicago to affiliates of Crawford
Broadcasting for $14,750 in cash and recognized a gain of $9,258.
 
     On July 2, 1997, CMCLA acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by CMCLA on
February 19, 1997 and (iii) $6,079 financed through working capital. In June
1997, Chancellor Media issued 5,990,000 shares of $3.00 Convertible Preferred
Stock for net proceeds of $287,808 which were contributed to CMCLA and used to
repay borrowings under the Senior Credit Facility and subsequently were
reborrowed on July 2, 1997 as part of the financing of the Viacom Acquisition.
On July 7, 1997, CMCLA sold WJZW-FM in Washington, D.C. to affiliates of Capital
Cities/ABC Radio for $68,000 in cash. The assets of WJZW-FM, as well as the
assets of WZHF-AM and WBZS-AM, which were also sold on August 13, 1997, were
accounted for as assets held for sale in connection with the purchase price
allocation of the Viacom Acquisition and no gain or loss was recognized by CMCLA
upon consummation of the sales.
 
     On July 7, 1997, CMCLA sold the Federal Communications Commission ("FCC")
authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, CRBC sold the call letters "KSAN-FM" (which CRBC
previously used in San Francisco) to Susquehanna. On July 7, 1997, CMCLA and
CRBC entered into a time brokerage agreement to enable CMCLA to operate KYLD-FM
on the frequency previously assigned to KSAN-FM, and on July 7, 1997, CRBC
changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation of the
Chancellor Merger (as defined herein), CMCLA changed the format of the new
KYLD-FM to the format previously operated on the old KYLD-FM.
 
     On July 14, 1997, CMCLA completed the disposition of WLUP-FM in Chicago to
Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, CMCLA applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. CMCLA had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.
                                       21
<PAGE>   22
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     On July 21, 1997, CMCLA entered into a time brokerage agreement with CRBC
whereby CMCLA began managing certain limited functions of CRBC's stations
KBGG-FM, KNEW-AM and KABL-FM in San Francisco pending the consummation of the
Chancellor Merger (as defined herein), which occurred on September 5, 1997.
 
     On August 13, 1997, CMCLA sold WBZS-AM and WZHF-AM in Washington, D.C.
(acquired as part of the Viacom Acquisition) and KDFC-AM in San Francisco to
affiliates of Douglas Broadcasting ("Douglas") for $18,000 in the form of a
promissory note. The promissory note, as amended on May 1, 1998, bears interest
at 7 3/4% from the closing date through February 28, 1998 and at 10.0% from
March 1, 1998 through the remainder of the term of the note, with a balloon
principal payment due four years after closing. At closing, Douglas posted a
$1,000 letter of credit for the benefit of CMCLA that will remain outstanding
until all amounts due under the promissory note are paid.
 
     On August 27, 1997, CMCLA sold WEJM-AM in Chicago to Douglas for $7,500 in
cash and recognized a gain of $3,331.
 
     On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among Chancellor Broadcasting
Company ("Chancellor"), CRBC, Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and EMCLA, (i) Chancellor was
merged (the "Parent Merger") with and into EMHC, a direct, wholly-owned
subsidiary of Evergreen, with EMHC remaining as the surviving corporation and
(ii) CRBC was merged (the "Subsidiary Merger") with and into EMCLA, a direct,
wholly-owned subsidiary of EMHC, with EMCLA remaining as the surviving
corporation (collectively, the "Chancellor Merger"). Upon consummation of the
Parent Merger, Evergreen was renamed Chancellor Media Corporation and EMHC was
renamed Chancellor Mezzanine Holdings Corporation ("CMHC"). Upon consummation of
the Subsidiary Merger, EMCLA was renamed Chancellor Media Corporation of Los
Angeles ("CMCLA"). Consummation of the Chancellor Merger added 52 radio stations
(36 FM and 16 AM) to CMCLA's portfolio of stations, including 13 stations in
markets in which CMCLA previously operated. The total purchase price allocated
to net assets acquired was approximately $1,998,383 which included (i) the
conversion of each outstanding share of Chancellor Common Stock into 0.9091
shares of Chancellor Media's Common Stock, resulting in the issuance of
34,617,460 shares of Chancellor Media's Common Stock at $15.50 per share, (ii)
the assumption of long-term debt of CRBC of $949,000 which included $549,000 of
borrowings outstanding under the CRBC senior credit facility, $200,000 of CRBC's
9 3/8% Senior Subordinated Notes due 2004 and $200,000 of CRBC's 8 3/4% Senior
Subordinated Notes due 2007, (iii) the issuance of 2,117,629 shares of CMCLA's
12% Exchangeable Preferred Stock in exchange for CRBC's substantially identical
securities with a fair value of $215,570 including accrued and unpaid dividends
of $3,807, (iv) the issuance of 1,000,000 shares of CMCLA's 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock in exchange for CRBC's
substantially identical securities with a fair value of $120,217 including
accrued and unpaid dividends of $772, (v) the issuance of 2,200,000 shares of
Chancellor Media's 7% Convertible Preferred Stock in exchange for Chancellor's
substantially identical securities with a fair value of $111,048 including
accrued and unpaid dividends of $1,048, (vi) the assumption of stock options
issued to Chancellor stock option holders with a fair value of $34,977 and (vii)
estimated acquisition costs of $31,000.
 
     On October 28, 1997, Chancellor Media and CMCLA acquired Katz Media Group,
Inc. ("KMG"), a full-service media representation firm, in a tender offer
transaction for a total purchase price of approximately $379,101 (the "Katz
Acquisition") which included (i) the conversion of each outstanding share of KMG
Common Stock into the right to receive $11.00 in cash, resulting in total cash
payments of $149,601, (ii) the assumption of long-term debt of KMG and its
subsidiaries of $222,000 which included $122,000 of borrowings outstanding under
the KMG senior credit facility and $100,000 of 10 1/2% Senior Subordinated Notes
due 2007 of Katz Media Corporation (a subsidiary of KMG) and (iii) estimated
acquisition costs of $7,500.
 
                                       22
<PAGE>   23
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     On December 29, 1997, CMCLA acquired five radio stations from Pacific and
Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.
 
  1998 Completed Transactions
 
     On January 30, 1998, CMCLA acquired KXPK-FM in Denver from Ever Green
Wireless LLC (which is unrelated to CMCLA) for $26,000 in cash plus various
other direct acquisition costs, of which $1,650 was previously paid by CRBC as
escrow funds and are classified as other assets at December 31, 1997. CMCLA had
previously operated KXPK-FM under a time brokerage agreement since September 1,
1997.
 
     On April 3, 1998, CMCLA exchanged WTOP-AM in Washington, KZLA-FM in Los
Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000 paid by
CMCLA in escrow and classified as other assets at December 31, 1997) to
Bonneville for WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los
Angeles (the "Bonneville Exchange"). CMCLA had previously operated KLDE-FM and
KBIG-FM under time brokerage agreements since October 1, 1997 and WBIX-FM since
October 10, 1997, and had sold substantially all of the broadcast time of
WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since October 1, 1997.
 
     Based on discussions with the Securities and Exchange Commission, CMCLA has
restated its previously reported results for the three months and six months
ended June 30, 1998. CMCLA has recognized a pre-tax gain of $123,845 related to
the Bonneville Exchange. This transaction was previously accounted for as a
like-kind exchange and is now recorded as a business combination in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations." A
summary of the impact on the results of operations follows:
 
<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED             SIX MONTHS ENDED
                                                        JUNE 30, 1998                 JUNE 30, 1998
                                                 ---------------------------   ---------------------------
                                                 (AS PREVIOUSLY                (AS PREVIOUSLY
                                                   REPORTED)      (RESTATED)     REPORTED)      (RESTATED)
<S>                                              <C>              <C>          <C>              <C>
Income (loss) before extraordinary item........     $(25,977)      $47,092       $ (84,537)      $(11,468)
Net income (loss) attributable to common
  stockholders.................................      (64,533)        8,536        (133,104)       (60,035)
</TABLE>
 
     On April 13, 1998, CMCLA and Secret entered into a settlement agreement
regarding WFLN-FM in Philadelphia. Previously in August 1996, CMCLA and Secret
had entered into an agreement under which CMCLA would acquire WFLN-FM from
Secret for $37,750 in cash. In April 1997, CMCLA entered into an agreement to
sell WFLN-FM to Greater Media for $41,800 in cash. On July 16, 1997, Secret
purported to terminate the sale of WFLN-FM to CMCLA. CMCLA subsequently brought
suit against Secret to enforce its rights to acquire WFLN-FM. Pursuant to a
court settlement entered in August 1997 and the settlement agreement between
CMCLA and Secret entered on April 13, 1998, (i) Secret sold WFLN-FM directly to
Greater Media for $37,750, (ii) Greater Media deposited $4,050 (the difference
between CMCLA's proposed acquisition price for WFLN-FM from Secret and CMCLA's
proposed sale price for WFLN-FM to Greater Media) with the court and (iii) CMCLA
received $3,500 of such amount deposited by Greater Media with the court, plus
interest earned during the period which the court held such amounts (the "WFLN
Settlement"), and Secret received the balance of such amounts.
 
     On May 29, 1998, as part of the Capstar Transaction (defined below), CMCLA
exchanged WAPE-FM and WFYV-FM in Jacksonville (valued for purposes of the
Capstar Transaction at $53,000) plus $90,250 in cash to Capstar Broadcasting
Corporation (together with its subsidiaries, "Capstar") in return for KODA-FM in
Houston (the "Houston Exchange"). Furthermore, on May 29, 1998, Capstar sold
KKPN-FM in Houston (acquired by Capstar as part of the SFX Acquisition) due to
the attributable ownership of Hicks, Muse, Tate
 
                                       23
<PAGE>   24
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
& Furst, Incorporated ("Hicks Muse") in both Capstar and CMCLA in order to
comply with the FCC's multiple ownership limits. In connection with Capstar's
sale of KKPN-FM, CMCLA received a commission from Capstar of $1,730. On May 29,
1998, CMCLA also provided a loan to Capstar in the principal amount of $150,000
(the "Capstar Loan") as part of the Capstar Transaction. The Capstar Loan bears
interest at the rate of 12% per annum (subject to increase in certain
circumstances), and is secured by a senior pledge of common stock of Capstar's
direct subsidiary. A portion of the Capstar Loan will be prepaid by Capstar in
connection with CMCLA's acquisition of, and the proceeds of such prepayment
would be used by CMCLA as a portion of the purchase price for, each Capstar
Station. Hicks Muse, which is a substantial shareholder of CMCLA, controls
Capstar, and certain officers and directors of CMCLA are directors and/or
executive officers of Capstar and/or Hicks Muse.
 
     On June 1, 1998, CMCLA acquired WWDC-FM/AM in Washington, D.C. from Capitol
Broadcasting Company and its affiliates for $74,062 in cash (including $2,062
for the purchase of the stations' accounts receivable) plus various other direct
acquisition costs, of which $4,000 was previously paid by CMCLA as escrow funds
and are classified as other assets at December 31, 1997 (the "Capitol
Broadcasting Acquisition").
 
     On May 1, 1998, the Company formed a new division, Chancellor Marketing
Group, in an effort to enhance the revenues CMCLA derives from its sales
promotion activities. On June 1, 1998, CMCLA acquired Global Sales Development,
Inc., a consulting firm based in Richmond, Virginia, for $675 in cash plus
various other direct acquisition costs to lead its marketing efforts for this
new division.
 
     On June 15, 1998, CMCLA's national radio network, The AMFM Radio Networks,
acquired the syndicated programming shows of Global Satellite Network for
$14,000 in cash plus various other direct acquisition costs. The syndicated
programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in
the Years" and the concert series "Live from the Pit".
 
     On July 31, 1998, CMCLA acquired Martin Media, L.P. and certain affiliated
companies ("Martin"), an outdoor advertising company with over 13,000 billboards
and outdoor displays in 12 states serving 23 markets, for $610,000 in cash plus
working capital of $20,985 subject to certain adjustments and various other
direct acquisition costs. Additionally, CMCLA paid $13,559 to Martin for
properties acquired by Martin subsequent to the purchase agreement date of June
22, 1998 and prior to the closing on July 31, 1998. The additional properties
acquired from Martin added approximately 1,500 billboards and outdoor displays
in four of Martin's 23 existing markets.
 
  Pending Transactions
 
     On February 20, 1998, CMCLA entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, the "Capstar Stations") for an aggregate
purchase price of approximately $637,500 in a series of purchases and exchanges
over a period of three years (the "Capstar Transaction"). On May 29, 1998, CMCLA
completed the Houston Exchange (defined above) and began operating the remaining
ten Capstar Stations under time brokerage agreements. CMCLA will pay
approximately $494,250 for the remaining ten Capstar Stations.
 
     On April 8, 1998, CMCLA entered into an agreement to acquire Petry Media
Corporation, a leading independent television representation firm, for
approximately $150,000 in cash (the "Petry Acquisition"). On June 3, 1998, the
Antitrust Division of the United States Department of Justice issued a second
request for additional information under the HSR Act in connection with the
Petry Acquisition. The Company is presently responding to this request for
additional information. Although there can be no assurance, CMCLA expects that
the Petry Acquisition will be consummated in the fourth quarter of 1998.
 
                                       24
<PAGE>   25
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     On June 15, 1998, CMCLA, Capstar, LIN Television Corporation and TSG
Capital Group, L.L.C. announced the formation of an alliance to capitalize on
investment opportunities in broadcasting entities across a broad spectrum of
ethnic ownership. Accordingly, as the first investment of the alliance, CMCLA
entered into an agreement to acquire a 20% non-voting equity stake in Z-Spanish
Media Corporation for approximately $25,000 in cash (the "Z-Spanish
Acquisition"). Z-Spanish Media, which is headquartered in Sacramento,
California, is the owner and operator of 22 Hispanic format radio stations in
California, Texas, Arizona and Illinois. Although there can be no assurance,
CMCLA expects that the Z-Spanish Acquisition will be consummated in the third or
fourth quarter of 1998.
 
     On July 7, 1998, Chancellor Media entered into an agreement whereby the
ultimate parent of LIN Television Corporation ("LIN") will merge into Chancellor
Media (the "LIN Merger"). Pursuant to this agreement, Chancellor Media will
acquire the stock of LIN from affiliates of Hicks Muse in a stock-for-stock
transaction. Upon consummation of the LIN Merger, it is expected that LIN will
own or operate 12 television stations in eight markets in the United States.
Although there can be no assurance, Chancellor Media expects that the LIN Merger
will be consummated in the first quarter of 1999.
 
     On July 10, 1998, Chancellor Media and CMCLA entered into an agreement to
acquire a 50% economic interest in Grupo Radio Centro, S.A. de C.V. ("GRC") for
approximately $120,500 in cash and $116,500 in Common Stock for an aggregate
purchase price of $237,000 (the "GRC Acquisition"). The Chancellor Media shares
issued to GRC will be valued at the market price at closing, subject to a
maximum price of $57.00 and a minimum price of $42.75. The purchase price is
subject to upward or downward revisions of up to $29,100, payable in Chancellor
Media Common Stock, based upon GRC's 1999 performance. GRC is Latin America's
largest pure play radio company with six FM and six AM radio stations in Mexico.
Additionally, GRC acts as the national sales representative and provides
programming for a network of more than 90 radio station affiliates in 57 cities
throughout Mexico. Although there can be no assurance, CMCLA expects that the
GRC Acquisition will be consummated in the fourth quarter of 1998.
 
     On July 27, 1998, CMCLA entered into an agreement to acquire Primedia
Broadcast Group, Inc. and certain of its affiliates, which own and operate eight
FM stations in Puerto Rico, for approximately $75,000 in cash (the "Primedia
Acquisition"). Although there can be no assurance, CMCLA expects that the
Primedia Acquisition will be consummated in the fourth quarter of 1998.
 
     On August 11, 1998, CMCLA entered into agreements to acquire four FM and
two AM radio stations in Cleveland for an aggregate purchase price of
approximately $275,000 in cash plus various other direct acquisitions cost (the
"Ohio Acquisitions"). The Ohio Acquisitions consist of the purchase by CMCLA of
(i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership, (ii) WZAK-FM
from Zapis Communications, (iii) Zebra Broadcasting Corporation which owns
WZJM-FM and WJMO-AM and (iv) Wincom Broadcasting Corporation which owns WQAL-FM
(the "Wincom Acquisition"). The consummation of each of the Ohio Acquisitions
(other than the Wincom Acquisition) is contingent upon the consummation of each
of the other Ohio Acquisitions (other than the Wincom Acquisition). Although
there can be no assurance, CMCLA expects that the Ohio Acquisitions will be
consummated in the first quarter of 1999.
 
     Consummation of each of the transactions discussed above is subject to
various conditions, including approval from the FCC (except in the case of the
Petry Acquisition) and the expiration or early termination of any waiting period
required under the HSR Act. CMCLA believes that such conditions will be
satisfied in the ordinary course, but there can be no assurance that this will
be the case.
 
     Escrow funds of $4,650 paid by CMCLA in connection with the Bonneville
Exchange and the Capitol Broadcasting Acquisition were classified as other
assets in the accompanying balance sheet at December 31, 1997.
 
                                       25
<PAGE>   26
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
  Summary of Net Assets Acquired
 
     The completed acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
 
     A summary of the net assets acquired follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR       SIX MONTHS
                                                                 ENDED         ENDED
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   ----------
                                                                             (RESTATED)
<S>                                                           <C>            <C>
Working capital, including cash of $9,724 in 1997...........   $   66,805     $  1,991
Property and equipment......................................      118,371        7,062
Assets held for sale........................................      131,000           --
Intangible assets...........................................    3,823,746      383,476
Other assets................................................       26,742           --
Deferred tax liability......................................     (279,371)          --
Other liabilities...........................................      (39,681)        (697)
                                                               ----------     --------
                                                               $3,847,612     $391,832
                                                               ==========     ========
</TABLE>
 
     The pro forma consolidated condensed results of operations data for the six
months ended June 30, 1997 and 1998, as if the 1997 Completed Transactions and
the 1998 Completed Transactions discussed above, the 8 1/8% Notes Offering, the
amendment and restatement of the Senior Credit Facility and the 1998 Completed
Financing Transactions (as defined herein) occurred at January 1, 1997, follow:
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                              ---------------------
                                                              JUNE 30,    JUNE 30,
                                                                1997        1998
                                                              --------   ----------
                                                                         (RESTATED)
<S>                                                           <C>        <C>
Net revenues................................................  $506,102    $580,634
Net loss....................................................   (82,320)    (28,675)
</TABLE>
 
     The results of operations for the six months ended June 30, 1998 include a
one-time executive severance charge of $59,475.
 
     The pro forma results are not necessarily indicative of what would have
occurred if the acquisitions had been in effect for the entire periods
presented.
 
3. FINANCING TRANSACTIONS
 
  1998 Completed Financing Transactions
 
     On March 13, 1998, Chancellor Media completed a secondary offering of
21,850,000 shares of its Common Stock (the "1998 Equity Offering"). The net
proceeds from the 1998 Equity Offering of approximately $994,642 were
contributed to CMCLA and were used to reduce bank borrowings under the revolving
credit portion of the Senior Credit Facility (as defined) and the excess
proceeds were initially invested in short-term investment grade securities. The
Company subsequently used the excess proceeds for general corporate purposes,
including the financing of the Bonneville Exchange, the Capstar Loan and a
portion of the Houston Exchange.
 
     On May 8, 1998, CMCLA completed a consent solicitation (the "12% Consent
Solicitation") to modify certain timing restrictions on CMCLA's ability to
exchange all shares of its 12% Preferred Stock for its 12% Subordinated Exchange
Debentures due 2009 (the "12% Debentures"). Consenting holders of 12%
 
                                       26
<PAGE>   27
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
Preferred Stock received payments of $0.05 per share of 12% Preferred Stock. On
May 13, 1998, CMCLA exchanged the shares of 12% Preferred Stock for 12%
Debentures (the "12% Exchange"). In connection with the 12% Consent Solicitation
and 12% Exchange, CMCLA incurred approximately $270 in transaction costs which
were recorded as deferred debt issuance costs.
 
     On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures
Tender Offer") for all of CMCLA's 12% Debentures for an aggregate repurchase
cost of $262,495 which included (i) the principal amount of the 12% Debentures
of $211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798,
(iii) accrued and unpaid interest on the 12% Debentures from May 14, 1998
through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In
connection with the 12% Debentures Tender Offer, CMCLA recorded an extraordinary
charge of $31,865 (net of a tax benefit of $17,158) consisting of the premiums,
estimated transaction costs and the write-off of the unamortized balance of
deferred debt issuance costs.
 
     On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4%
Preferred Stock Consent Solicitation") to modify certain timing restrictions on
CMCLA's ability to exchange all shares of its 12 1/4% Preferred Stock for its
12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures"),
and on July 23, 1998 CMCLA exchanged the shares of 12 1/4% Preferred Stock for
12 1/4% Debentures. Consenting holders of 12 1/4% Preferred Stock received
payments of $0.05 per share of 12 1/4 Preferred Stock.
 
  Pending Financing Transactions
 
     On August 6, 1998, CMCLA commenced a cash tender offer (the "Tender Offer")
for CMCLA's 12 1/4% Debentures. The offer price for each $1,000 principal amount
of 12 1/4% Debentures is $1,189.90 plus accrued and unpaid interest through the
expiration date. The Tender Offer will expire at 11:59 p.m. on August 19, 1998,
unless extended. There can be no assurance that the Tender Offer will be
successful.
 
4. LONG-TERM DEBT
 
     Long-term debt consists of the following at December 31, 1997 and June 30,
1998:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1997          1998
                                                              ------------   ----------
<S>                                                           <C>            <C>
Senior Credit Facility(a)...................................   $1,573,000    $1,278,000
9 3/8% Notes(b).............................................      200,000       200,000
8 3/4% Notes(b).............................................      200,000       200,000
10 1/2% Notes(b)............................................      100,000       100,000
8 1/8% Notes(b).............................................      500,000       500,000
                                                               ----------    ----------
          Total long-term debt..............................   $2,573,000    $2,278,000
                                                               ==========    ==========
</TABLE>
 
  (a) Senior Credit Facility
 
     On April 25, 1997, CMCLA entered into a loan agreement which amended and
restated its prior senior credit facility. Under the amended and restated
agreement, as amended on June 26, 1997, August 7, 1997, October 28, 1997,
February 10, 1998, May 1, 1998 and July 31, 1998 (as amended, the "Senior Credit
Facility"), CMCLA established a $1,250,000 revolving facility (the "Revolving
Loan Facility") and a $500,000 term loan facility (the "Term Loan Facility").
Upon consummation of the Chancellor Merger, the aggregate commitments under the
Revolving Loan Facility and the Term Loan Facility were increased to $1,600,000
and $900,000, respectively. In connection with the amendment and restatement of
the Senior Credit Facility, CMCLA wrote off the unamortized balance of deferred
debt issuance costs of $4,350 (net of a tax benefit of $2,343) as an
extraordinary charge.
 
                                       27
<PAGE>   28
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
     Borrowings under the Senior Credit Facility bear interest at a rate based,
at the option of CMCLA, on the participating banks' prime rate or Eurodollar
rate, plus an incremental rate. Without giving effect to the interest rate swap
and cap agreements described below, the interest rate on the $900,000
outstanding under the Term Loan Facility at June 30, 1998 was 6.19% on a blended
basis, based on Eurodollar rates, and the interest rate on advances of $365,000
and $13,000 outstanding under the Revolving Loan Facility were 6.19% and 8.50%,
respectively, at June 30, 1998, based on the Eurodollar and prime rates,
respectively. CMCLA pays fees ranging from 0.25% to 0.375% per annum on the
aggregate unused portion of the loan commitment based upon the leverage ratio
for the most recent quarter end, in addition to an annual agent's fee. Pursuant
to the Senior Credit Facility, CMCLA is required to enter into interest hedging
agreements that result in the fixing or placing a cap on CMCLA's floating rate
debt so that not less than 50% of the principal amount of total debt outstanding
has a fixed or capped rate.
 
     The Term Loan Facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 20, 2005. The Revolving Loan Facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. At July 31, 1998, CMCLA had drawn $900,000 of the Term Loan Facility and
$980,000 of the Revolving Loan Facility. The capital stock of CMCLA's
subsidiaries is pledged to secure the performance of CMCLA's obligations under
the Senior Credit Facility, and each of CMCLA's subsidiaries have guaranteed
those obligations.
 
  (b) Senior Subordinated Notes
 
     Upon consummation of the Chancellor Merger, on September 5, 1997, CMCLA
assumed all of the obligations under CRBC's $200,000 aggregate principal amount
9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8% Notes") and the indenture
governing such securities, and assumed all of the obligations under CRBC's
$200,000 aggregate principal amount 8 3/4% Senior Subordinated Notes due 2007
(the "8 3/4% Notes") and the indenture governing such securities. Upon
consummation of the Katz Acquisition, on October 28, 1997, CMCLA assumed all of
the obligations under Katz Media Corporation's $100,000 aggregate principal
amount of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2% Notes") and
the amended and restated indenture governing such securities. On December 22,
1997, CMCLA issued $500,000 aggregate principal amount of 8 1/8% Senior
Subordinated Notes due 2007 (the "8 1/8% Notes") for estimated net proceeds of
$485,000.
 
  (c) Summarized Financial Information of Subsidiary Guarantors
 
     The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes and the 8 1/8% Notes
(collectively, the "Notes") are unsecured obligations of CMCLA, subordinated in
right of payment to all existing and any future senior indebtedness of CMCLA.
The Notes are fully and unconditionally guaranteed, on a joint and several
basis, by all of CMCLA's direct and indirect subsidiaries other than certain
inconsequential subsidiaries (the "Subsidiary Guarantors"). The Subsidiary
Guarantors are wholly-owned subsidiaries of CMCLA. Summarized financial
information of the Subsidiary Guarantors as of December 31, 1997 and June 30,
1998 and for the six months ended June 30, 1998 is presented below. Separate
financial statements and other disclosures concerning the Subsidiary Guarantors
are not presented because management has determined that they are
 
                                       28
<PAGE>   29
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
not material to investors. There are no significant restrictions on
distributions from each of the Subsidiary Guarantors to CMCLA.
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,      JUNE 30,
                                                                1997            1998
                                                            ------------     ----------
                                                                             (RESTATED)
<S>                                                         <C>              <C>
Current assets............................................   $  223,913      $  275,671
Noncurrent assets.........................................      987,028       1,000,875
Current liabilities.......................................       89,362         100,418
Noncurrent liabilities....................................    1,130,105       1,175,057
</TABLE>
 
<TABLE>
<CAPTION>
                                                                             SIX MONTHS
                                                                               ENDED
                                                                             ----------
                                                                              JUNE 30,
                                                                                1998
                                                                             ----------
                                                                             (RESTATED)
<S>                                                         <C>              <C>
Net revenues..............................................                   $  452,427
Operating income..........................................                       31,293
Net loss..................................................                        6,068
</TABLE>
 
  (d) Other
 
     The Senior Credit Facility and the indentures governing the Notes contain
customary restrictive covenants, which, among other things and with certain
exceptions, limit the ability of CMCLA and its subsidiaries to incur additional
indebtedness and liens in connection therewith, enter into certain transactions
with affiliates, pay dividends, consolidate, merge or effect certain asset
sales, issue additional stock, effect an asset swap and make acquisitions. CMCLA
is required under the Senior Credit Facility to maintain specified financial
rations, including leverage, cash flow and debt service coverage ratios (as
defined).
 
5. EXECUTIVE SEVERANCE CHARGE
 
     On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of Chancellor Media, CMHC and CMCLA. On April 20, 1998, Mr.
Ginsburg resigned as director of Chancellor Media, CMHC and CMCLA and from all
appointments and positions with its respective subsidiaries. On April 20, 1998,
Mr. Ginsburg and Chancellor Media and CMCLA entered into a separation and
consulting agreement. Following Mr. Ginsburg's resignation, Chancellor Media and
CMCLA entered into new employment agreements with Jimmy de Castro, Chancellor
Media's and CMCLA's Chief Operating Officer, and Matthew E. Devine, Chancellor
Media's and CMCLA's Chief Financial Officer, each effective April 17, 1998. On
April 29, 1998, Jeffrey A. Marcus, was named President and Chief Executive
Officer of Chancellor Media, CMHC and CMCLA and Chancellor Media and CMCLA
entered into an employment agreement with Mr. Marcus effective June 1, 1998.
 
     In connection with Mr. Ginsburg's resignation described above, CMCLA
incurred a one-time executive severance charge of $59,475 which consists of (i)
a lump sum severance payment of $20,000 to Mr. Ginsburg, (ii) compensation
expense of $16,000 related to the grant of 800,000 stock options to Mr. Ginsburg
at an exercise price of $23.25 per share, (iii) consulting fees of $12,500 to be
paid to Mr. Ginsburg over five years, (iv) one-time cash payments of $5,000 and
$2,000 to Mr. de Castro and Mr. Devine, respectively, (v) execution bonuses of
$1,000 paid to Mr. de Castro, Mr. Devine and Mr. Marcus and (vi) other costs
incurred in connection with Mr. Ginsburg's resignation of $975.
 
                                       29
<PAGE>   30
          CHANCELLOR MEDIA CORPORATION OF LOS ANGELES AND SUBSIDIARIES
 
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
 
6. OTHER INCOME
 
     Other income consists of the following for the six months ended June 30,
1997 and 1998:
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                              ---------------------
                                                              JUNE 30,    JUNE 30,
                                                                1997        1998
                                                              --------   ----------
                                                                         (RESTATED)
<S>                                                           <C>        <C>
Gain on disposition of assets(a)............................  $13,323     $123,845
WFLN Settlement(b)..........................................       --        3,559
                                                              -------     --------
                                                              $13,323     $127,404
                                                              =======     ========
</TABLE>
 
---------------
 
(a) For the six months ended June 30, 1997, CMCLA recorded a gain on disposition
    of assets of $13,323 related to the dispositions of WNKS-FM in Charlotte on
    May 15, 1997 ($3,536), WPNT-FM in Chicago on May 30, 1997 ($529), and
    WEJM-FM in Chicago on June 3, 1997 ($9,258). For the six months ended June
    30, 1998, CMCLA recorded a gain on disposition of assets of $123,845 related
    to the April 3, 1998 exchange of WTOP-AM and WGMS-FM in Washington and
    KZLA-FM in Los Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM
    in Houston and KBIG-FM in Los Angeles (see Note 2).
 
(b) For the six months ended June 30, 1998, CMCLA recorded a gain from the WFLN
    Settlement (defined above) of $3,559.
 
7. CONTINGENCIES
 
     CMCLA is involved in several lawsuits that are incidental to its business.
A discussion of certain of these lawsuits is contained in Part II, Item 1,
"Legal Proceedings", of this Form 10-Q/A. CMCLA believes that the ultimate
resolution of the lawsuits will not have a material effect on its financial
position or results of operations.
 
                                       30
<PAGE>   31
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
GENERAL
 
     Since 1995, Chancellor Media Corporation ("Chancellor Media"), Chancellor
Media Corporation of Los Angeles ("CMCLA"), an indirect, wholly-owned subsidiary
of Chancellor Media, and their respective subsidiaries (collectively, the
"Company") have engaged in an acquisition strategy concentrating on expanding
the Company's presence in the nation's largest radio markets. At August 1, 1998,
the Company's radio station portfolio consisted of 98 radio stations (70 FM and
28 AM), including a total of 11 radio station clusters of four or five FM
stations ("superduopolies") in nine of the nation's 15 largest radio
markets -- Los Angeles, New York, Chicago, San Francisco, Philadelphia,
Washington, D.C., Detroit, Denver and Minneapolis-St. Paul -- and in two other
large markets -- Phoenix and Orlando. Consummation of the pending transactions
will result in a net increase of 13 FM stations and three AM stations and will
add the San Diego and Cleveland markets to the Company's portfolio. In addition,
consummation of the pending transactions will increase the number of
superduopolies in the Company's station portfolio to 15, including two new
superduopolies in the nation's 10 largest radio markets -- Dallas/Ft. Worth and
Houston -- and two other large markets -- Cleveland and Pittsburgh.
 
     In 1998, the Company broadened its acquisition strategy to focus on
creating a leading multi-media company, with a significant presence in large-
and middle-market radio, television, outdoor advertising and international
media. In this regard, during 1998, the Company has (i) completed the
acquisition of three radio stations and the exchange of five radio stations for
four radio stations, began operating 10 radio stations under time brokerage
agreements and entered into an agreement to acquire six radio stations in
Cleveland; (ii) entered into an agreement to purchase LIN Television which, upon
completion of pending transactions, will own or operate 12 television stations
in eight markets in the United States; (iii) acquired Martin Media, an outdoor
advertising company with over 14,500 billboards and outdoor displays in 12
states serving 23 markets; and (iv) entered into an agreement to acquire
Primedia Broadcast Group, Inc. and certain of its affiliates which own and
operate eight FM stations in Puerto Rico and entered into an agreement to
acquire a 50% economic interest in Grupo Radio Centro which owns and operates
six FM and six AM radio stations in Mexico. The Company has also leveraged its
radio expertise and expand into industries related to the operation of radio
stations including (i) the formation of a national radio network, The AMFM Radio
Network, in September 1997 which has expanded in 1998 through the acquisition of
syndicated programming shows including American Top 40 with Casey Kasem,
Rockline, Modern Rock Live, Reelin' in the Years and Live from the Pit; (ii) the
acquisition of Katz, a full service media representation firm in October 1997 as
well as the pending acquisition of Petry, a television representation firm,
which will be combined with Katz to provide expanded services and operating
efficiencies and (iii) the formation of a new division, Chancellor Marketing
Group, to enhance revenues derived from radio sales promotion activities. For a
discussion of the various transactions completed and agreements entered into
since January 1, 1997 as part of the Company's acquisition strategy, see the
Notes to the Consolidated Financial Statements of Chancellor Media and CMCLA and
their respective subsidiaries contained in this Quarterly Report on Form 10-Q/A.
 
     The Company's results of operations from period to period have not
historically been comparable because of the impact of the various acquisitions
and dispositions that the Company has completed. For a description of the
transactions completed by the Company during 1997 and to date in 1998, see the
Notes to the Consolidated Financial Statements contained in this Quarterly
Report on Form 10-Q/A.
 
     In the following analysis, management discusses the Company's broadcast
cash flow. The performance of a radio station group is customarily measured by
its ability to generate broadcast cash flow. The two components of broadcast
cash flow are gross revenues (net of agency commissions) and operating expenses
(excluding depreciation and amortization, corporate general and administrative
expense and non-cash and non-recurring charges). The primary source of revenues
is the sale of broadcasting time for advertising. The Company's most significant
operating expenses for purposes of the computation of broadcast cash flow are
employee salaries and commissions, programming expenses, and advertising and
promotion expenses. The Company strives to control these expenses by working
closely with local station management. The Company's revenues vary throughout
the year. As is typical in the radio broadcasting industry, the Company's first
 
                                       31
<PAGE>   32
 
calendar quarter generally produces the lowest revenues, and the fourth quarter
generally produces the highest revenues.
 
     Although broadcast cash flow is not calculated in accordance with generally
accepted accounting principles, the Company believes that it is widely used as a
measure of operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows from
operating activities or any other measure for determining the Company's
operating performance or liquidity that is calculated in accordance with
generally accepted accounting principles. Broadcast cash flow does not take into
account the Company's debt service requirements and other commitments and,
accordingly, broadcast cash flow is not necessarily indicative of amounts that
may be available for dividends, reinvestment in the Company's business or other
discretionary uses.
 
  Three Months Ended June 30, 1998 Compared To Three Months Ended June 30, 1997
 
     The Company's results of operations for the three months ended June 30,
1998 are not comparable to the results of operations for the three months ended
June 30, 1997 due to the impact of the Chancellor Merger, the Viacom
Acquisition, the Katz Acquisition and various other acquisitions and
dispositions discussed in the Notes to the Consolidated Financial Statements
contained in this Quarterly Report on Form 10-Q/A.
 
     Net revenues for the three months ended June 30, 1998 increased 202.5% to
$321.7 million compared to $106.4 million for the second quarter of 1997.
Operating expenses excluding depreciation and amortization for the three months
ended June 30, 1998 increased 190.2% to $168.8 million compared to $58.2 million
for the three months ended June 30, 1997. Operating income excluding
depreciation and amortization, corporate general and administrative expense and
other non-cash and non-recurring charges (broadcast cash flow) for the three
months ended June 30, 1998 increased 217.2% to $152.9 million compared to $48.2
million for the second quarter of 1997. The increase in net revenues, operating
expenses, and broadcast cash flow for the three months ended June 30, 1998 was
primarily attributable to the net impact of the Chancellor Merger, the Viacom
Acquisition, the Katz Acquisition and the various acquisitions and dispositions
discussed elsewhere herein, in addition to the overall net operational
improvements realized by the Company.
 
     Depreciation and amortization for the three months ended June 30, 1998
increased 270.0% to $103.2 million compared to $27.9 million for the second
quarter of 1997. The increase is primarily due to the impact of the Viacom
Acquisition, the Chancellor Merger and the Katz Acquisition, as well as other
acquisitions completed during 1997 and to date in 1998.
 
     Corporate general and administrative expenses for the three months ended
June 30, 1998 increased 149.2% to $8.3 million compared to $3.3 million for the
second quarter of 1997. The increase is due to the growth of the Company, and
the related increase in properties and staff, primarily due to recent
acquisitions.
 
     The executive severance charge of $59.5 million for the three months ended
June 30, 1998 represents a one-time charge incurred in connection with the
resignation of Scott K. Ginsburg as President and Chief Executive Officer of the
Company.
 
     As a result of the above factors, the Company realized an operating loss of
$18.1 million for the three months ended June 30, 1998 compared to $17.0 million
of operating income for the second quarter of 1997.
 
     Interest expense, net for the three months ended June 30, 1998 increased
161.1% to $38.8 million compared to $14.9 million for the same period in 1997.
The net increase in interest expense was primarily due to (i) additional bank
borrowings under the Senior Credit Facility required to finance the various
acquisitions discussed elsewhere herein offset by repayment of borrowings from
the net proceeds of the Company's various radio station dispositions and the
1998 Equity Offering, (ii) the assumption of CRBC's 9 3/8% Notes and 8 3/4%
Notes upon consummation of the Chancellor Merger on September 5, 1997, (iii) the
assumption of Katz' 10 1/2% Notes upon consummation of the Katz Acquisition on
October 28, 1997 and (iv) the issuance of the 8 1/8% Notes by the Company on
December 22, 1997.
 
     For the three months ended June 30, 1997, other income of $13.3 million
represents a gain on the disposition of assets related to the dispositions of
WNKS-FM in Charlotte ($3.5 million), WPNT-FM in
 
                                       32
<PAGE>   33
 
Chicago ($0.5 million), and WEJM-FM in Chicago ($9.3 million). For the three
months ended June 30, 1998, other income represents a gain from the WFLN
Settlement of $3.6 million and a gain on disposition of assets of $123.8 million
related to the exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in Los
Angeles plus $63,000 in cash for WBIX-FM in New York, KLDE-FM in Houston and
KBIG-FM in Los Angeles.
 
     The income tax expense for the three months ended June 30, 1998 is
comprised of current federal and state tax expense.
 
     Dividends on preferred stock of CMCLA were $6.7 million for the three
months ended June 30, 1998, representing dividends on CMCLA's 12% Exchangeable
Preferred Stock (the "12% Preferred Stock") for the period from April 1, 1998
through May 13, 1998 and on CMCLA's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for the entire
period, each issued in September 1997 as part of the Chancellor Merger. On May
13, 1998, CMCLA exchanged all shares of the 12% Preferred Stock for its 12%
Subordinated Exchange Debentures due 2009 (the "12% Debentures"). The 12%
Debentures were subsequently repurchased by CMCLA.
 
     For the three months ended June 30, 1997, the Company recorded an
extraordinary charge of $4.4 million (net of a tax benefit of $2.3 million)
consisting of the write-off of the unamortized balance of deferred debt issuance
costs related to the amendment and restatement of the Company's Senior Credit
Facility on April 25, 1997. For the three months ended June 30, 1998, the
Company recorded an extraordinary charge of $31.9 million (net of a tax benefit
of $17.2 million) consisting of premiums, estimated transaction costs and the
unamortized balance of deferred debt issuance costs related to the 12%
Debentures Tender Offer.
 
     Dividends on Chancellor Media's preferred stock were $6.4 million for the
three months ended June 30, 1998 compared to $0.7 million for the same period in
1997. The increase is due to dividends on Chancellor Media's $3.00 Convertible
Exchangeable Preferred Stock (the "$3.00 Convertible Preferred Stock") issued in
June 1997 and dividends on Chancellor Media's 7% Convertible Preferred Stock
(the "7% Convertible Preferred Stock") issued in September 1997 as part of the
Chancellor Merger.
 
     As a result of the above factors, the Company had a net income attributable
to common stockholders of $2.1 million for the three months ended June 30, 1998
compared to $4.8 million for the second quarter of 1997.
 
     The basic and diluted income per common share for the three months ended
June 30, 1998 was $0.01 compared to a $0.06 basic and diluted income per common
share for the second quarter of 1997.
 
  Six Months Ended June 30, 1998 Compared To Six Months Ended June 30, 1997
 
     The Company's results of operations for the six months ended June 30, 1998
are not comparable to the results of operations for the six months ended June
30, 1997 due to the impact of the Chancellor Merger, the Viacom Acquisition, the
Katz Acquisition and various other acquisitions and dispositions discussed in
the Notes to the Consolidated Financial Statements contained in this Quarterly
Report on Form 10-Q/A.
 
     Net revenues for the six months ended June 30, 1998 increased 194.9% to
$555.3 million compared to $188.3 million for the six months ended June 30,
1997. Operating expenses excluding depreciation and amortization for the six
months ended June 30, 1998 increased 185.0% to $316.9 million compared to $111.2
million for the six months ended June 30, 1997. Operating income excluding
depreciation and amortization, corporate general and administrative expense and
other non-cash and non-recurring charges (broadcast cash flow) for the six
months ended June 30, 1998 increased 209.2% to $238.4 million compared to $77.1
million for the six months ended June 30, 1997. The increase in net revenues,
operating expenses, and broadcast cash flow for the six months ended June 30,
1998 was primarily attributable to the net impact of the Chancellor Merger, the
Viacom Acquisition, the Katz Acquisition and the various acquisitions and
dispositions discussed elsewhere herein, in addition to the overall net
operational improvements realized by the Company.
 
                                       33
<PAGE>   34
 
     Depreciation and amortization for the six months ended June 30, 1998
increased 261.9% to $195.1 million compared to $53.9 million for the six months
ended June 30, 1997. The increase is primarily due to the impact of the Viacom
Acquisition, the Chancellor Merger and the Katz Acquisition, as well as other
acquisitions completed during 1997 and to date in 1998.
 
     Corporate general and administrative expenses for the six months ended June
30, 1998 increased 166.8% to $15.1 million compared to $5.7 million for the six
months ended June 30, 1997. The increase is due to the growth of the Company,
and the related increase in properties and staff, primarily due to recent
acquisitions.
 
     The executive severance charge of $59.5 million for the six months ended
June 30, 1998 represents a one-time charge incurred in connection with the
resignation of Scott K. Ginsburg as President and Chief Executive Officer of the
Company.
 
     As a result of the above factors, the Company realized an operating loss of
$31.3 million for the six months ended June 30, 1998 compared to $17.5 million
of operating income for the six months ended June 30, 1997.
 
     Interest expense, net for the six months ended June 30, 1998 increased
282.9% to $87.1 million compared to $22.7 million for the same period in 1997.
The net increase in interest expense was primarily due to (i) additional bank
borrowings under the Senior Credit Facility required to finance the various
acquisitions discussed elsewhere herein offset by repayment of borrowings from
the net proceeds of the Company's various radio station dispositions and the
1998 Equity Offering, (ii) the assumption of CRBC's 9 3/8% Notes and 8 3/4%
Notes upon consummation of the Chancellor Merger on September 5, 1997, (iii) the
assumption of Katz' 10 1/2% Notes upon consummation of the Katz Acquisition on
October 28, 1997 and (iv) the issuance of the 8 1/8% Notes by the Company on
December 22, 1997.
 
     For the six months ended June 30, 1997, other income of $13.3 million
represents a gain on the disposition of assets related to the dispositions of
WNKS-FM in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), and
WEJM-FM in Chicago ($9.3 million). For the six months ended June 30, 1998, other
income represents a gain from the WFLN Settlement of $3.6 million and a gain on
disposition of assets of $123.8 million related to the exchange of WTOP-AM and
WGMS-FM in Washington and KZLA-FM in Los Angeles plus $63,000 in cash for
WBIX-FM in New York, KLDE-FM in Houston and KBIG-FM in Los Angeles.
 
     The income tax expense for the six months ended June 30, 1998 is comprised
of current federal and state tax expense.
 
     Dividends on preferred stock of CMCLA were $16.7 million for the six months
ended June 30, 1998, representing dividends on CMCLA's 12% Exchangeable
Preferred Stock (the "12% Preferred Stock") for the period from January 1, 1998
through May 13, 1998 and on CMCLA's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") for the entire
period, each issued in September 1997 as part of the Chancellor Merger. On May
13, 1998, CMCLA exchanged all shares of the 12% Preferred Stock for its 12%
Debentures. The 12% Debentures were subsequently repurchased by CMCLA.
 
     For the six months ended June 30, 1997, the Company recorded an
extraordinary charge of $4.4 million (net of a tax benefit of $2.3 million)
consisting of the write-off of the unamortized balance of deferred debt issuance
costs related to the amendment and restatement of the Company's Senior Credit
Facility on April 25, 1997. For the six months ended June 30, 1998, the Company
recorded an extraordinary charge of $31.9 million (net of a tax benefit of $17.2
million) consisting of premiums, estimated transaction costs and the unamortized
balance of deferred debt issuance costs related to the 12% Debentures Tender
Offer.
 
     Dividends on Chancellor Media's preferred stock were $12.8 million for the
six months ended June 30, 1998 compared to $0.7 million for the same period in
1997. The increase is due to dividends on the $3.00 Convertible Preferred Stock
issued in June 1997 and dividends on the 7% Convertible Preferred Stock issued
in September 1997 as part of the Chancellor Merger.
 
                                       34
<PAGE>   35
 
     As a result of the above factors, the Company incurred a $72.9 million net
loss attributable to common stockholders for the six months ended June 30, 1998
compared to a net loss attributable to common stockholders of $1.2 million for
the six months ended June 30, 1997.
 
     The basic and diluted loss per common share for the six months ended June
30, 1998 was $0.55 compared to a $0.01 basic and diluted loss per common share
for the six months ended June 30, 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Overview. The Company historically has generated sufficient cash flow from
operations to finance its existing operational requirements and debt service
requirements, and the Company anticipates that this will continue to be the
case. The Company historically has used the proceeds of bank debt and private
and public debt and equity offerings, supplemented by cash flow from operations
not required to fund operational requirements and debt service, to fund
implementation of the Company's acquisition strategy.
 
     On March 13, 1998, Chancellor Media completed a secondary public offering
of 21,850,000 shares of its Common Stock (the "1998 Equity Offering"). The net
proceeds from the 1998 Equity Offering of approximately $994.6 million were
contributed by Chancellor Media to CMCLA, of which $696.0 million was used to
repay all amounts outstanding under the Revolving Loan Facility at March 13,
1998 and the remaining $298.6 million was used for general corporate purposes,
including $60.0 million to finance the Bonneville Exchange, $150.0 million to
finance the Capstar Loan and $72.0 million to finance a portion of the Houston
Exchange.
 
     The total cash financing required to consummate the Pending Transactions is
expected to be $989.8 million. Although there can be no assurance, the Company
expects that $370.5 million of such amount will be required to be borrowed
during the third and fourth quarters of 1998, $275.0 million will be required to
be borrowed during the first quarter of 1999 and the remaining $344.3 million
will be required to be borrowed for the Capstar Transaction over the three year
period in which the Capstar Stations will be acquired. In addition, the total
cash financing required to consummate the 12 1/4% Tender Offer is expected to be
approximately $142.1 million. The Company anticipates that it will obtain any
additional financing needed to complete the Pending Transactions and the 12 1/4%
Tender Offer from borrowings under the Senior Credit Facility and from the net
proceeds from the issuance of public or private debt, common equity or preferred
equity securities.
 
     In addition to debt service requirements under the Senior Credit Facility,
the Company is required to pay interest on the Notes. Interest payment
requirements of the Company on the Notes are $87.4 million per year. The 12 1/4%
Debentures of CMCLA do not require the payment of cash interest through February
14, 2001 although CMCLA may issue additional 12 1/4% Debentures in lieu of cash
interest until such time. Cash dividend requirements of Chancellor Media on its
$3.00 Convertible Preferred Stock and its 7% Convertible Preferred Stock are
$25.7 million per year. Because Chancellor Media is a holding company with no
significant assets other than the common stock of CMHC, Chancellor Media will
rely solely on dividends from CMHC, which in turn is expected to distribute
dividends paid to it by CMCLA and KMG to Chancellor Media, to permit Chancellor
Media to pay cash dividends on the $3.00 Convertible Preferred Stock and the 7%
Convertible Preferred Stock. The Senior Credit Facility and the indentures
governing the Notes and the 12 1/4% Debentures limit, but do not prohibit, CMCLA
from paying such dividends to CMHC.
 
FORWARD LOOKING STATEMENTS
 
     When used in the preceding and following discussion, the words "believes,"
"expects," "anticipates," "intends" and similar expressions are intended to
identify forward looking statements. Such statements are subject to a number of
known and unknown risks and uncertainties. Actual results in the future could
differ materially from those described in the forward looking statements. Such
risks and uncertainties include, but are not limited to, industry-wide market
factors and regulatory developments affecting the Company's operations and the
acquisitions and dispositions described elsewhere herein.
 
                                       35
<PAGE>   36
 
RECENTLY ISSUED ACCOUNTING PRINCIPLES
 
     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.
 
     In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, Employers' Disclosure about Pensions and Other Postretirement Benefits.
This Statement revises employers' disclosures about pensions and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. Management does not anticipate that this Statement will have
a significant effect on the Company's consolidated financial statements.
 
     In April 1998, Accounting Standards Executive Committee ("ACSEC") issued
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") effective for fiscal years beginning after December 15,
1998. This SOP provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application of SOP 98-5
should be reported as the cumulative effect of a change in accounting principle,
as described in Accounting Principles Board (APB) Opinion No. 20, "Accounting
Changes." When adopting this SOP, entities are not required to report the pro
forma effects of retroactive application. Management does not believe the
implementation of SOP 98-5 will have a material impact on the Company's
consolidated financial statements.
 
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. Management does not anticipate that this Statement will have a
material impact on the Company's consolidated financial statements.
 
YEAR 2000 ISSUE
 
     The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue (as defined)
and has developed an implementation plan. The "Year 2000 Issue" is whether the
Company's computer systems will properly recognize date sensitive information
when the year changes to 2000, or "00." Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company uses purchased software programs for a variety of functions, including
general ledger, accounts payable and accounts receivable accounting packages.
The companies providing these software programs are Year 2000 compliant, and the
Company has received Year 2000 compliance certificates from these software
vendors. The Company's Year 2000 implementation plan also includes ensuring that
all individual work stations are Year 2000 compliant. Costs associated with
ensuring the Company's systems are Year 2000 compliant are expected to be
minimal. The Company believes that the Year 2000 Issue will not pose significant
operational problems for the Company's computer systems and, therefore will not
have an impact on the operations of the Company.
 
                                       36
<PAGE>   37
 
                                    PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
     In August 1993, the Company terminated an agreement with Sagittarius
Broadcasting Company (an affiliate of Infinity Broadcasting Corporation) and One
Twelve, Inc. (collectively, the "Claimants" or the "Plaintiffs") pursuant to
which programming featuring radio personality Howard Stern was broadcast on
radio station WLUP-AM (now WMVP-AM) in Chicago. The Claimants allege that
termination of the agreement was wrongful and have sued the Company in the
Supreme Court of the State of New York, County of New York (the "Court"). The
agreement required payments to the Claimants in the amount of $2.6 million plus
five percent of advertising revenues generated by the programming over the
three-year term of the agreement. A total of approximately $680,000 was paid to
the Claimants pursuant to the agreement prior to termination. Claimants'
complaint alleged claims for breach of contract, indemnification, breach of
fiduciary duty and fraud. Plaintiffs' aggregate prayer for relief totaled $45.0
million. On July 12, 1994, the Court granted motion to dismiss Plaintiffs'
claims for fraud and breach of fiduciary duty. On June 6, 1995, the Court denied
the Plaintiff's motion for summary judgment on their contract and
indemnification claims and this order has been affirmed on appeal. On May 17,
1996, after the close of discovery, the Company filed a motion for summary
judgment, seeking the dismissal of the remaining claims in the original
complaint. On July 1, 1996, Plaintiffs moved for leave to amend their complaint
in order to add claims for breach of the covenant of good faith and fair
dealing, tortious interference with business advantage and prima facia tort. In
the proposed amended complaint, Plaintiffs seek compensatory and punitive
damages in excess of $25.0 million. On March 13, 1997, the Court denied the
Company's motion for summary judgment, allowed Plaintiffs' request to amend the
complaint to add a claim for breach of the covenant of good faith and fair
dealing and denied Plaintiffs' request to amend the complaint to add claims for
tortious interference with business advantage and prima facia tort. On April 25,
1997, the Company filed a notice of appeal of the denial of the motion for
summary judgment. In October 1997, the N.Y. State Supreme Court, Appellate
Division, granted a portion of the appeal seeking to strike certain damages
sought, but otherwise affirmed the denial of the motion for summary judgment and
sent the case back to the trial court for trial. Trial on the case is presently
scheduled for September 8, 1998. The Company believes that it acted within its
rights in terminating the agreement.
 
     In July 1998, a stockholder derivative action was commenced in the Delaware
Court of Chancery by a stockholder purporting to act on behalf of the Company.
The defendants in the case include Hicks, Muse, Tate & Furst, Inc. ("Hicks
Muse"), LIN Television Corporation and certain of the Company's directors. The
plaintiff alleges that the Company has agreed to acquire LIN at too high of a
price and that the transaction therefore constitutes a breach of fiduciary duty
and a waste of corporate assets by Hicks Muse (which is alleged to control the
Company) and the directors of the Company named as defendants. The plaintiff
seeks to enjoin consummation or rescission of the transaction, compensatory
damages, an order requiring that the directors named as defendants "carry out
their fiduciary duties," and attorneys' fees and other costs.
 
     The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position or results of
operations.
 
                                       37
<PAGE>   38
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                               DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
       27.1+             -- Financial Data Schedule of Chancellor Media Corporation.
       27.2+             -- Financial Data Schedule of Chancellor Media Corporation
                            of Los Angeles.
</TABLE>
 
---------------
 
 +    Filed herewith.
 
                                       38
<PAGE>   39
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
 
<TABLE>
<S>                                                         <C>
           Chancellor Media Corporation                                Chancellor Media Corporation
                                                                              of Los Angeles
 
            By: /s/ THOMAS P. MCMILLIN                                  By: /s/ THOMAS P. MCMILLIN
 ------------------------------------------------            ------------------------------------------------
                Thomas P. McMillin                                          Thomas P. McMillin
             Senior Vice-President and                                   Senior Vice-President and
              Chief Financial Officer                                     Chief Financial Officer
</TABLE>
 
Date: February 11, 1999
 
                                       39
<PAGE>   40
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                               DESCRIPTION OF EXHIBIT
        -------                             ----------------------
<C>                      <S>
       27.1+             -- Financial Data Schedule of Chancellor Media Corporation.
       27.2+             -- Financial Data Schedule of Chancellor Media Corporation
                            of Los Angeles.
</TABLE>
 
---------------
 
 +    Filed herewith.