<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              ---------------------

                                    FORM 10-Q


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

                          For the quarter ended June 30, 2000

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

                For the transition period from          to

                        Commission file number: 000-24017

                             SFX ENTERTAINMENT, INC.
             (Exact Name Of Registrant As Specified In Its Charter)

                 DELAWARE                             13-3977880
     (State or other jurisdiction of               (I.R.S. Employer
      incorporation or organization)              Identification No.)

                         650 MADISON AVENUE, 16TH FLOOR
                            NEW YORK, NEW YORK 10155
                    (Address of Principal Executive Offices)

                                 (212) 838-3100
                         (Registrant's Telephone Number)


Indicate by check mark whether the registrant (1) has filed all reports required
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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes [X]    No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of August 1, 2000, the
number of shares outstanding of the registrant's Class A Common Stock, $.01 par
value, and Class B Common Stock, $.01 par value, was 80,000,000 and 3,000,000,
respectively.


                                        1

<PAGE>

                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q


PART I FINANCIAL INFORMATION                                               PAGE
Item 1   Financial Statements

         Consolidated Balance Sheets at June 30, 2000 (unaudited) and
           December 31, 1999                                                 3

         Consolidated Statements of Operations for the Three Months
           Ended June 30, 2000 and 1999 (unaudited)                          4

         Consolidated Statements of Operations for the Six Months Ended
           June 30, 2000 and 1999 (unaudited)                                5

         Consolidated Statements of Cash Flows for the Six Months Ended
           June 30, 2000 and 1999 (unaudited)                                6

         Consolidated Statements of Shareholders' Equity for the Six
           Months Ended June 30, 2000 (unaudited)                            7

         Notes to Consolidated Financial Statements (unaudited)              8

Item 2   Management's Discussion and Analysis of Financial Condition        14
           and Results of Operations

Item 3   Quantitative and Qualitative Disclosure About Market Risk          23

PART II OTHER INFORMATION
Item 1   Legal Proceedings                                                  24

Item 6   Exhibits and Reports on Form 8-K                                   25

         SIGNATURES                                                         26

                                       2
<PAGE>
                             SFX ENTERTAINMENT, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       June 30,        December 31,
                                                                                         2000              1999
                                                                                     -----------       ------------
ASSETS                                                                               (Unaudited)
<S>                                                                                  <C>                <C>
Current assets:
    Cash and cash equivalents                                                        $  236,386         $  382,640
    Accounts receivable, net                                                            186,719            120,230
    Prepaid event expenses                                                               99,774             41,154
    Investments in and receivables from theatrical and other productions                  9,062              5,978
    Other prepaid expenses                                                               20,415             23,686
    Notes receivables from related parties and employees                                  2,563              1,749
    Other current assets                                                                 12,946             12,405
                                                                                     ----------         ----------
Total current assets                                                                    567,865            587,842
Property and equipment, net of accumulated depreciation of $81,029 and
    $55,388 at June 30, 2000 and December 31, 1999, respectively                        709,747            686,246
Goodwill, net of accumulated amortization of $196,099 and
    $135,201 at June 30, 2000 and December 31, 1999, respectively                     1,589,865          1,503,981
Investment in and receivables from investees                                             95,070             64,374
Notes receivable from related parties and employees, less current portion                13,455             29,225
Debt issuance costs, net                                                                 46,603             49,888
Other assets                                                                             45,834             27,317
                                                                                     ----------         ----------
TOTAL ASSETS                                                                         $3,068,439         $2,948,873
                                                                                     ==========         ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                                 $   34,998         $   23,714
    Accrued expenses                                                                    174,612            109,163
    Accrued interest payable                                                             25,960             23,972
    Deferred revenue                                                                    340,014            139,393
    Current portion of long-term debt                                                    14,391              7,826
    Current portion of deferred purchase consideration                                   25,765             57,610
                                                                                     ----------         ----------
Total current liabilities                                                               615,740            361,678
Long-term debt, less current portion                                                  1,406,933          1,384,992
Deferred purchase consideration, less current portion                                    17,229             18,617
Deferred income taxes                                                                    47,674             45,403
Other liabilities                                                                        12,392              9,273
                                                                                     ----------         ----------
TOTAL LIABILITIES                                                                     2,099,968          1,819,963
Minority interest                                                                         8,702             10,065
Temporary equity - stock subject to redemption                                           15,126             18,876
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued                 -                  -
     and outstanding as of June 30, 2000 and December 31, 1999
Class A Common Stock, $.01 par value, 100,000,000 shares authorized,
     63,938,627 and 63,873,657 shares issued and outstanding as of June 30,
     2000 and December 31, 1999, respectively                                               639                639
ClassB Common Stock, $.01 par value, 10,000,000 shares authorized, 2,545,557
     shares issued and outstanding as of June 30, 2000 and
     December 31, 1999                                                                       25                 25
Additional paid in capital                                                            1,298,926          1,238,186
Deferred compensation                                                                    (2,041)            (3,775)
Accumulated deficit                                                                    (347,048)          (133,106)
Less: cost of Class A Common Stock in treasury                                           (5,858)            (2,000)
                                                                                     ----------         ----------
Total shareholders' equity                                                              944,643          1,099,969
                                                                                     ----------         ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                           $3,068,439         $2,948,873
                                                                                     ==========         ==========
</TABLE>


                             See accompanying notes.

                                       3
<PAGE>

                             SFX ENTERTAINMENT, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 Three Months Ended June 30,
                                                                               -------------------------------
                                                                                   2000                1999
                                                                               -----------         -----------
<S>                                                                            <C>                 <C>
Revenue                                                                        $   610,151         $   404,753
Income from equity investments                                                         674               2,932
                                                                               -----------         -----------
    Total revenue                                                                  610,825             407,685

Operating expenses:
Cost of revenues                                                                   460,132             298,029
Selling, general and administrative expenses                                        98,601              54,893
Corporate expenses                                                                   7,348               4,592
Depreciation and amortization, including integration and start-up
   costs of $5,264 and $1,594 in 2000 and 1999, respectively                        48,200              32,928
Merger related and other charges                                                    26,547               1,164
                                                                               -----------         -----------
                                                                                   640,828             391,606
                                                                               -----------         -----------
Income (loss) from operations                                                      (30,003)             16,079

Interest expense                                                                   (37,407)            (20,004)
Investment and other income                                                          2,753                 998
Minority interest                                                                     (529)               (410)
                                                                               -----------         -----------
Loss before income taxes                                                           (65,186)             (3,337)
Provision for income taxes                                                         (21,558)             (6,715)
                                                                               -----------         -----------
Net loss                                                                           (86,744)            (10,052)

Accretion on stock subject to redemption                                              (709)               (912)
                                                                               -----------         -----------
Net loss applicable to common shares                                           $   (87,453)        $   (10,964)
                                                                               ===========         ===========

Basic and dilutive net loss per common share                                   $     (1.32)        $     (0.20)
                                                                               ===========         ===========

Weighted average basic and dilutive common shares outstanding                   66,471,262          55,822,251
                                                                               ===========         ===========
</TABLE>



                             See accompanying notes.

                                       4
<PAGE>


                             SFX ENTERTAINMENT, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              Six Months Ended June 30,
                                                                          ---------------------------------
                                                                                2000                1999
                                                                          --------------        -----------
<S>                                                                       <C>                   <C>
Revenue                                                                   $    1,033,221        $   679,900
Income from equity investments                                                       954              3,906
                                                                          --------------        -----------
    Total revenue                                                              1,034,175            683,806

Operating expenses:
Cost of revenues                                                                 759,805            509,158
Selling, general and administrative expenses                                     185,857             91,916
Corporate expenses                                                                13,670              9,772
Depreciation and amortization, including integration and start-up
   costs of  $8,998 and $3,022 in 2000 and 1999, respectively                     97,220             59,156
Merger related and other charges                                                 108,566              2,147
                                                                          --------------        -----------
                                                                               1,165,118            672,149
                                                                          --------------        -----------
Income (loss) from operations                                                   (130,943)            11,657
Interest expense                                                                 (73,983)           (38,809)
Investment and other income                                                        6,554              1,588
Minority interest                                                                 (1,163)              (494)
                                                                          --------------        -----------
Loss before income taxes                                                        (199,535)           (26,058)
Provision for income taxes                                                        (4,300)            (1,619)
                                                                          --------------        -----------
Net loss                                                                        (203,835)           (27,677)

Accretion on stock subject to redemption                                          (1,418)            (1,737)
                                                                          --------------        -----------
Net loss applicable to common shares                                      $     (205,253)       $   (29,414)
                                                                          ==============        ===========

Basic and dilutive net loss per common share                              $        (3.09)       $     (0.55)
                                                                          ==============        ===========

Weighted average basic and dilutive common shares outstanding                 66,443,993         53,121,386
                                                                          ==============        ===========
</TABLE>



                             See accompanying notes.

                                        5
<PAGE>




                             SFX ENTERTAINMENT, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                Six Months Ended June 30,
                                                                                -------------------------
                                                                                   2000           1999
                                                                                ----------     ----------
<S>                                                                             <C>             <C>
Operating activities:
Net loss                                                                        $(203,835)      $ (27,677)
Adjustment to reconcile net loss to net cash provided by operating activities:
   Depreciation and amortization                                                   88,222          56,134
   Income from equity investments, net of amounts received                          4,280           2,932
   Non-cash charges                                                                71,078           2,147
   Minority interest                                                                1,163             494
Changes in operating assets and liabilities, net of amounts acquired:
   Accounts receivable, net                                                       (70,541)        (20,646)
   Prepaid event expenses                                                         (57,845)        (17,198)
   Other prepaid expenses and other current assets                                  3,838           3,291
   Other assets and notes receivable from related parties                          (9,211)         (6,741)
   Accounts  payable, accrued expenses and other liabilities                       45,752         (32,299)
   Accrued interest payable                                                         1,988           1,033
   Deferred revenue                                                               184,503         132,884
                                                                                ---------       ---------
Net cash provided by operating activities                                          59,392          94,354
                                                                                ---------       ---------

Investing activities:
   Purchases of  businesses, net of  cash acquired                               (195,985)       (308,933)
   Purchases of property and equipment                                            (47,223)        (26,588)
                                                                                ---------       ---------
Net cash used in investing activities                                            (243,208)       (335,521)
                                                                                ---------       ---------

Financing activities:
   Borrowings under the senior credit facilities                                   44,000         199,000
   Proceeds from the issuance of common stock                                          -          260,697
   Payment for treasury stock                                                      (3,858)            -
   Repayment of debt and capital lease obligations                                   (922)       (166,285)
   Other                                                                            1,156            (913)
                                                                                ---------       ---------
Net cash provided by financing activities                                          40,376         292,499
                                                                                ---------       ---------

Effect of exchange rate changes on cash                                            (2,814)            -
                                                                                ---------       ---------
Net (decrease) increase in cash and cash equivalents                             (146,254)         51,332
Cash and cash equivalents at beginning of period                                  382,640          48,021
                                                                                ---------       ---------
Cash and cash equivalents at end of period                                      $ 236,386       $  99,353
                                                                                =========       =========
Supplemental disclosure of cash flow information:
Cash paid for interest                                                          $  68,449       $  36,299
                                                                                =========       =========
Cash paid for income taxes                                                      $   2,878       $   2,715
                                                                                =========       =========
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:
o    Issuance of equity securities, the assumption of debt and the agreement to
     pay future cash consideration in connection with certain acquisitions (see
     Note 3).



                             See accompanying notes.

                                       6
<PAGE>


                                         SFX ENTERTAINMENT, INC.
                             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                     (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                         Class A     Class B     Additional
                                          Common      Common      Paid-In       Deferred      Accumulated  Treasury
                                          Stock       Stock       Capital     Compensation      Deficit      Stock      Total
                                        ---------   ----------  -----------  --------------   -----------  --------   ----------
<S>                                      <C>         <C>         <C>           <C>             <C>          <C>        <C>
Balances, January 1, 2000                  $639         $25      $1,238,186     $(3,775)       $(133,106)   $(2,000)  $1,099,969
Issuance of 83,723 shares of Class A
  Common Stock pursuant to the
  exercise of employee stock options          -           -           1,156           -                -          -        1,156
Issuance of options to purchase
  2,102,500 shares of Class A
  Common Stock pursuant to
  employment agreements                       -           -          54,308           -                -          -       54,308
Repurchase of 66,643 shares of
  Class A Common Stock                        -           -           3,858           -                -     (3,858)           -
Accretion on stock subject to
   redemption                                 -           -           1,418           -           (1,418)         -            -
Amortization of deferred
  compensation                                -           -               -       1,734                           -        1,734
Net loss                                      -           -               -           -          (203,835)        -     (203,835)
Comprehensive loss:
   Foreign currency translation (1)           -           -               -           -            (8,689)        -       (8,689)
                                        ---------   ----------  -----------  --------------   -----------  --------   ----------
Comprehensive loss                            -           -               -           -          (212,524)        -     (212,524)
                                        ---------   ----------  -----------  --------------   -----------  --------   ----------
Balances, June 30, 2000 (unaudited)        $639         $25      $1,298,926     $(2,041)       $ (347,048)  $(5,858)  $ (944,643)
                                        =========   ==========  ===========  ==============   ===========  ========   ==========
</TABLE>

(1)      The foreign currency translation loss for the three months ended June
         30, 2000 was $6.3 million.


                             See accompanying notes.

                                       7
<PAGE>

                             SFX ENTERTAINMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

         SFX Entertainment, Inc. ("SFX") is the world's largest diversified
promoter, producer and venue operator for live entertainment events. In
addition, SFX is a leading fully integrated sports marketing and management
company specializing in the representation of sports athletes and broadcasters,
integrated event management, television programming and production and marketing
consulting services. SFX owns, partially or entirely, and/or operates under
lease or exclusive booking arrangements the largest network of venues used
principally for music concerts and other live entertainment events in the United
States, with 92 venues in 31 of the top 50 markets, including 17 amphitheaters
in the top 10 markets and 9 venues used principally for theatrical
presentations. In addition, SFX owns or operates 28 international venues used
primarily for theatrical presentations.

         In July of 1999, SFX completed a three-for-two split of its Class A and
B Common Stock. The financial and share information presented herein has been
restated, to the extent applicable, to reflect the effect of the stock split.
Certain 1999 amounts have been reclassified to conform to their 2000
presentation.

         Information with respect to the three and six months ended June 30,
2000 and 1999 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows of SFX, for the periods presented.

2.  MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC.

         On February 29, 2000, SFX announced that it entered into a definitive
merger agreement with Clear Channel Communications, Inc. ("Clear Channel"). On
August 1, 2000, the merger was consummated and SFX became a wholly owned
subsidiary of Clear Channel. Under the terms of the merger agreement, the Class
A stockholders of SFX received 0.60 shares of Clear Channel common stock for
each SFX share, and Class B stockholders of SFX received one share of Clear
Channel common stock for each SFX share, on a fixed exchange basis. In
connection with the merger, SFX's senior credit facility was repaid in its
entirety. In addition, as a result of the merger, SFX is required to make an
offer to repurchase the $550 million aggregate principal amount of senior
subordinated notes due 2008 at 101% of their principal amount, plus accrued and
unpaid interest and liquidated damages. As of the merger date, the unamortized
debt issuance costs related to the senior credit facility and the senior
subordinated notes were approximately $16.8 million and $29.2 million,
respectively.

         Under the terms of the merger agreement between Clear Channel and SFX,
certain payments and other distributions were made to senior management and
other employees of SFX, which will result in SFX recording significant
compensation expense as of the merger date.

         Between approximately February 29 and March 10, 2000, 11 lawsuits were
filed by various plaintiffs against SFX, its directors and Clear Channel with
respect to the proposed merger. On May 12, 2000, SFX and counsel to the
plaintiffs in the shareholder litigation entered into a memorandum of
understanding regarding a proposed settlement that would result in a
modification of the consideration payable to such holders in the merger (See
Note 8).

3.  ACQUISITIONS

2000 ACQUISITIONS

          During the first six months of 2000, SFX completed the acquisitions of
Speakers of Sport, which represents team sports athletes, primarily professional
baseball players; the Electric Factory Concerts group of companies, the leading
concert promoter in the Philadelphia, Pennsylvania area; and certain other
companies. The total consideration for these acquisitions was approximately
$98.4 million in cash, $20.0 million of deferred consideration payable in stock
and $1.6 million of deferred purchase consideration payable in cash. In
addition, SFX paid $41.6 million in cash for certain equity investments. SFX
financed these acquisitions with borrowings under its senior credit facility and
cash on hand.

                                       8
<PAGE>

1999 ACQUISITIONS

         The following table is a brief description of the acquisitions
completed by SFX in 1999. A detailed description of the 1999 acquisitions is
included in SFX's Annual Report on Form 10-K for the year ended December 31,
1999, as amended.

<TABLE>
<CAPTION>
    (in thousands)                             Cash                        Number
                                          Consideration        Value of      Of
                              Date          And Assumed         Stock      Shares                 Business
    Company                 Acquired         Debt (1)           Issued     Issued                 Segment
    --------------------    ----------    ---------------     ---------   ---------    -------------------------------
<S>                          <C>          <C>                 <C>         <C>          <C>
    Cellar Door              2/19/99          $ 79,396          $ 20,000       519     Music
    Nederlander              3/16/99           126,423                 -         -     Music
    Marquee                  3/16/99            76,945            81,728     2,103     Sports
    Livent                   8/27/99           100,809                 -         -     Theater
    Apollo                   9/17/99           218,942            37,472       980     Theater, Family Entertainment
                                                                                         & Other and Music
    EMA Telstar              10/4/99            27,857                 -         -     Music
    Mojo Works              10/21/99            40,654                 -         -     Music
    Other Acquisitions       Various           178,839            15,745       397     All segments
                                           --------------     ----------  ---------
    Total                                     $849,865         $ 154,945     3,999
                                           ==============     ==========  =========
</TABLE>

         (1)      Includes cash paid related to deferred contingent purchase
                  price agreements.

         Certain of the agreements relating to SFX's acquisitions provide for
purchase price adjustments and other future contingent payments based on the
financial performance of the acquired companies. As of June 30, 2000, SFX had
paid all amounts due related to such contingent cash payments. SFX will accrue
additional amounts related to such contingent payments if and when it is
determinable beyond a reasonable doubt that the applicable financial performance
targets will be met.

         SFX's 1999 and 2000 acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1999 and 2000
acquisitions have been preliminarily allocated to the assets acquired and
liabilities assumed and are subject to change. Operating results for the 1999
and 2000 acquisitions are included herein from their respective acquisition
dates.

         The following pro forma summary represents the consolidated results of
operations for the six months ended June 30, 2000 and 1999 as if the 1999 and
2000 acquisitions and related financings had occurred as of January 1, 1999.
These pro forma results have been included for comparative purposes only and do
not purport to be indicative of what would have occurred had the acquisitions
and related financings been made as of those dates or of the results which may
occur in the future (in thousands, except per share data).

                                                        Pro Forma
                                           Six Months Ended   Six Months Ended
                                            June 30, 2000      June 30, 1999
                                           ----------------   ----------------

Total revenue                                $ 1,058,640         $ 959,150
Net loss applicable to common shareholders      (202,402)          (51,549)
Basic and dilutive net loss per
   common share                              $     (3.08)        $   (0.79)



                                       9
<PAGE>

4. BUSINESS SEGMENTS

         SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports and family entertainment &
other. The music segment primarily consists of the promotion and production of
live entertainment events, most significantly for concerts in venues owned
(partially or entirely) and/or operated by SFX and in third party venues. The
theater segment develops and manages touring Broadway shows and other theatrical
productions and owns and operates theatrical venues. The sports segment acts as
a full-service marketing and management company specializing in the
representation of team sports athletes, as well as promoting specialized motor
sports events. The family entertainment & other segment primarily consists of
the promotion and marketing of family-oriented events, marketing and consulting
for local, regional and national live marketing programs, the subscription or
fee based radio and music industry data compilation and distribution, the
creation and distribution of network radio special events and live concert
programming and merchandising at live events.

         SFX's operations and revenues have been largely seasonal in nature,
with generally higher revenues generated in the second and third quarters. SFX's
outdoor venues are primarily used in the summer months and do not generate
substantial revenue in the late fall, winter and early spring. SFX's
entertainment marketing and consulting in connection with such outdoor venues
also predominantly generate revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes, and will continue to cause,
a significant variation in SFX's quarterly operating results.

         SFX evaluates performance based on several factors, of which the
primary financial measure is EBITDA, because this measure approximates the cash
flow generated by each segment. EBITDA is defined as earnings before interest,
taxes, investment and other income, minority interest, merger related and other
charges and depreciation and amortization, including integration and start-up
costs. The accounting policies of the segments are the same as those described
in the summary of significant accounting policies contained in SFX's Annual
Report on Form 10-K, for the year ended December 31, 1999, as amended.

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS)
                                   ------------------------------------------------------------------------
                                                                        FAMILY
                                                                     ENTERTAINMENT
                                      MUSIC       THEATER    SPORTS     & OTHER     CORPORATE       TOTAL
                                   ----------    --------   -------- -------------  ---------    ----------
<S>                                <C>           <C>        <C>         <C>         <C>          <C>
Total revenue                      $  408,253    $ 90,302   $ 36,195    $ 76,075    $      --    $  610,825
                                   ==========    ========   ========    ========    =========    ==========
EBITDA                             $   33,213    $  7,935   $  6,287    $  4,104    $  (6,795)   $   44,744
Depreciation and amortization,
   including integration and
   start-up costs of $5,264            25,398       5,909      8,696       5,621        2,576        48,200
Merger related and other charges           --          --         38          --       26,509        26,547
                                   ----------    --------   --------    --------    ---------    ----------
Income (loss) from operations      $    7,815    $  2,026   $ (2,447)   $ (1,517)   $ (35,880)   $  (30,003)
                                   ==========    ========   ========    ========    =========    ==========
Total assets as of June 30, 2000   $1,824,433    $575,723   $449,640    $187,845    $  30,798    $3,068,439
                                   ==========    ========   ========    ========    =========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
                                   ------------------------------------------------------------------------
                                                                        FAMILY
                                                                     ENTERTAINMENT
                                      MUSIC       THEATER    SPORTS     & OTHER     CORPORATE       TOTAL
                                   ----------    --------   -------- -------------  ---------    ----------
<S>                                <C>           <C>        <C>         <C>         <C>          <C>
Total revenue                      $  242,836    $ 53,990   $ 26,809    $ 84,050    $      --    $  407,685
                                   ==========    ========   ========    ========    =========    ==========
EBITDA                             $   37,095    $  4,494   $  4,611    $  8,563    $  (4,592)   $   50,171
Depreciation and amortization,
   including integration and
   start-up costs of $1,594            20,021       1,606      5,970       4,873          458        32,928
Merger related and other charges           --          --         --          --        1,164         1,164
                                   ----------    --------   --------    --------    ---------    ----------
Income (loss) from operations      $   17,074    $  2,888   $ (1,359)   $  3,690    $  (6,214)   $   16,079
                                   ==========    ========   ========    ========    =========    ==========
Total assets as of June 30, 1999   $1,131,446    $210,651   $372,257    $176,081    $  65,164    $1,955,599
                                   ==========    ========   ========    ========    =========    ==========
</TABLE>



                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                 SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS)
                                   ------------------------------------------------------------------------
                                                                        FAMILY
                                                                     ENTERTAINMENT
                                      MUSIC       THEATER    SPORTS     & OTHER     CORPORATE       TOTAL
                                   ----------    --------   -------- -------------  ---------    ----------
<S>                                <C>           <C>        <C>         <C>         <C>          <C>
Total revenue                      $  578,206    $200,803   $117,306    $137,860    $      --    $1,034,175
                                   ==========    ========   ========    ========    =========    ==========
EBITDA                             $   33,183    $ 22,422   $ 24,086    $  8,269    $ (13,117)   $   74,843
Depreciation and amortization,
   including integration and
   start-up costs of $8,998            49,265      11,864     20,059      11,599        4,433        97,220
Merger related and other charges           --          --         75          --      108,491       108,566
                                   ----------    --------   --------    --------    -------      ----------
Income (loss) from operations      $  (16,082)   $ 10,558   $  3,952    $ (3,330)   $(126,041)   $ (130,943)
                                   ==========    ========   ========    ========    =========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                 SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
                                   ------------------------------------------------------------------------
                                                                        FAMILY
                                                                     ENTERTAINMENT
                                      MUSIC       THEATER    SPORTS     & OTHER     CORPORATE       TOTAL
                                   ----------    --------   -------- -------------  ---------    ----------
<S>                                <C>           <C>        <C>         <C>         <C>          <C>
Total revenue                      $  348,990    $130,027   $ 82,558    $122,231    $      --    $  683,806
                                   ==========    ========   ========    ========    =========    ==========

EBITDA                             $   39,298    $ 12,081   $ 19,063    $ 12,290    $  (9,772)   $   72,960
Depreciation and amortization,
   including integration and
   start-up costs of $3,022            35,307       4,078      9,016       9,510        1,245        59,156
Merger related and other charges           --          --         --          --        2,147         2,147
                                   ----------    --------   --------    --------    ---------    ----------
Income (loss) from operations      $    3,991    $  8,003   $ 10,047    $  2,780    $ (13,164)   $   11,657
                                   ==========    ========   ========    ========    =========    ==========

</TABLE>

5. MERGER RELATED AND OTHER CHARGES

         Merger related and other charges for the three months ended June 30,
2000 were $26.6 million consisting of $20.0 million of non-recurring
compensation expense related to an adjustment in the purchase price of a prior
acquisition, $5.4 million of merger related expenses and $817,000 of non-cash
charges related to the issuance of options. Merger related and other charges for
the six months ended June 30, 2000 were $108.6 million consisting of $71.1
million of non-cash charges, $20.0 million of non-recurring compensation expense
related to an adjustment in the purchase price of a prior acquisition, $13.0
million of merger related expenses, primarily investment banking and legal fees
related to the merger of SFX with Clear Channel, and $4.5 million of other cash
payments, principally to settle rights to potential future payments under a
contingent purchase price agreement.

         The $71.1 million of non-cash charges during the six months ended June
30, 2000 consisted primarily of $54.3 million related to the issuance of
fully-vested options to purchase 2,102,500 shares of SFX's Class A Common Stock
at prices that were below the then current market price. The options were issued
to members of SFX's senior management group in connection with new long-term
employment agreements entered into on January 15, 2000. The non-cash charges
also included $14.7 million related to the forgiveness of loans granted under an
executive loan program and $2.1 million related to the issuance of stock
options. In connection with the above agreements, each executive agreed to
forfeit his change of control stock options provided for under his previous
employment agreement.

         Merger related and other charges for the six months ended June 30, 1999
were $2.1 million consisting of charges related to the issuance of stock
options.

6. DILUTIVE EARNINGS PER SHARE

         Outstanding stock options at June 30, 2000 and 1999 had no dilutive
effect on basic earnings per share during the three and six months ended June
30, 2000 and 1999 due to the SFX's net loss position.


                                       11
<PAGE>

7. GUARANTEES BY SUBSIDIARIES

         SFX is a holding company that has no operating assets or operations of
its own. Substantially all of SFX's subsidiaries are wholly owned and have
jointly and severally guaranteed SFX's senior subordinated notes (the
"Guarantors"). A certain subsidiary which is not wholly owned (the "Non-Wholly
Owned Guarantor Subsidiary") guarantees such indebtedness and certain
subsidiaries (the "Non-Guarantor Subsidiaries") do not guarantee such
indebtedness.

         Full financial statements of the Guarantors, Non-Guarantor Subsidiaries
and the Non-Wholly Owned Guarantor Subsidiary have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the senior subordinated notes and management
believes that the Non-Guarantor Subsidiaries and Non-Wholly Owned Guarantor are
not material to SFX on a consolidated basis. Accordingly, SFX does not believe
that the information contained in separate full financial statements of the
Guarantors, Non-Guarantor Subsidiaries or the Non-Wholly Owned Guarantor
Subsidiary would be material to investors. The following are summarized
unaudited statements setting forth certain financial information concerning the
Guarantors, the Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor
Subsidiary as of and for the three and six months ended June 30, 2000 and 1999
(in thousands).

<TABLE>
<CAPTION>
                                                         AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
                                      --------------------------------------------------------------------------------------
                                                                                  NON-WHOLLY                       SFX
                                           SFX                                       OWNED                     ENTERTAINMENT,
                                      ENTERTAINMENT,              NON-GUARANTOR    GUARANTOR                       INC.
                                           INC.       GUARANTORS   SUBSIDIARIES   SUBSIDIARY   ELIMINATIONS    CONSOLIDATED
                                      --------------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>            <C>         <C>             <C>
Current assets                          $   77,428    $  393,376     $ 91,465       $ 5,596     $         -     $  567,865
Property and equipment, net                 17,921       499,729      191,979           118               -        709,747
Goodwill, net                                  -       1,381,324      199,316         9,225               -      1,589,865
Investment in subsidiaries               2,262,563        89,057        6,013             -      (2,262,563)        95,070
Other assets                                67,075        12,082       22,229         4,506               -        105,892
                                      --------------------------------------------------------------------------------------
   Total assets                         $2,424,987    $2,375,568     $511,002       $19,445      (2,262,563)     3,068,439
                                      ======================================================================================

Current liabilities                     $   71,829    $  408,253     $131,221       $ 4,567     $      (130)    $  615,740
Long-term debt, less current portion     1,381,434        24,012        9,323             -          (7,836)     1,406,933
Other liabilities                           11,955        59,393        5,947             -               -         77,295
Minority interest                                -         3,069        3,574         2,059               -          8,702
Temporary equity                            15,126             -            -             -               -         15,126
Shareholders' equity                       944,643     1,880,841      360,937        12,819      (2,254,597)       944,643
                                      --------------------------------------------------------------------------------------
Total liabilities
   and shareholders' equity             $2,424,987    $2,375,568     $511,002       $19,445     $(2,262,563)    $3,068,439
                                      ======================================================================================


Revenue                                 $        -    $  864,033     $148,980       $21,162     $         -     $1,034,175
Operating expenses                         120,089       880,556      144,157        20,316               -      1,165,118
Interest expense, net                       63,466         3,981          528            (6)           (540)        67,429
Minority interest                                -           478          514           171               -          1,163
Gain on sale                                   178          (115)         (63)            -                              -
Provision for
   income taxes                              3,404           164          732             -               -          4,300
                                      --------------------------------------------------------------------------------------
Net (loss) income                       $ (187,137)   $  (21,031)    $  3,112       $   681     $       540     $ (203,835)
                                      ======================================================================================

Cash flows (used in) provided by
   operating activities                 $  (15,458)   $   64,616     $  4,776       $ 5,458     $         -     $   59,392
Cash flows (used in) provided by
   investing activities                   (239,074)           38       (4,134)          (38)              -       (243,208)
Cash flows provided by
   financing activities                     40,376             -            -             -               -         40,376
Effect of exchange rate                          -        (2,814)           -             -               -         (2,814)
Cash at the beginning
   of the period                           263,909        68,384       50,187           160               -        382,640
Cash at the end of the period           $   49,753    $  130,224     $ 50,829       $ 5,580     $         -     $  236,386
</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                            FOR THE THREE MONTHS ENDED JUNE 30, 2000
                                      --------------------------------------------------------------------------------------
                                                                                  NON-WHOLLY                       SFX
                                           SFX                                       OWNED                     ENTERTAINMENT,
                                      ENTERTAINMENT,              NON-GUARANTOR    GUARANTOR                       INC.
                                           INC.       GUARANTORS   SUBSIDIARIES   SUBSIDIARY   ELIMINATIONS    CONSOLIDATED
                                      --------------  ----------   ------------   ----------   ------------    ------------
<S>                                     <C>           <C>            <C>            <C>         <C>             <C>
Revenue                                 $        -    $  498,301     $ 92,476       $20,048     $         -     $  610,825
Operating expenses                          33,168       501,373       87,492        18,795               -        640,828
Interest expense, net                       32,634         2,041          253       $    (4)           (270)        34,654
Minority interest                                -            38          320           171               -            529
Gain on sale                                   178    $     (115)    $    (63)            -               -              -
Provision for income taxes                  20,695           171          692             -               -         21,558
                                      --------------------------------------------------------------------------------------
Net (loss) income                       $  (86,675)   $   (5,207)    $  3,782       $ 1,086     $       270     $  (86,744)
                                      ======================================================================================
</TABLE>

         The summarized consolidating balance sheet concerning the Guarantors,
the Non-Guarantor Subsidiaries and the Non-Wholly Owned Guarantor Subsidiaries
as of December 31, 1999 is included in SFX's Annual Report on Form 10-K for the
year ended December 31, 1999, as amended.

8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

         While SFX is involved in several lawsuits and claims arising in the
ordinary course of business, SFX is not currently a party to any legal
proceeding that management believes would have a material adverse effect on its
business, financial position or results of operations.

         Between approximately February 29 and March 10, 2000, 11 lawsuits were
filed in the Court of Chancery in the State of Delaware, New Castle County, by
various plaintiffs, all claiming to be holders of SFX Class A Common Stock,
against SFX, its directors and Clear Channel. The complaints all seek
essentially the same relief, i.e., certification as a class action, an
injunction enjoining consummation of the merger and/or damages in an amount to
be determined. The complaints allege that the difference in consideration for
the Class A and Class B Common Stock of SFX constitutes unfair consideration to
the Class B common stockholders. The complaints allege that SFX's directors have
breached their fiduciary duty in agreeing to such terms and conditions and
further allege that Clear Channel aided and abetted the actions of the directors
of SFX. To date, no answers have been filed by any of the defendants. A
plaintiff in one of the lawsuits has filed a motion for summary judgment. The
defendants have replied to that motion and it is currently pending before the
court. SFX and the other defendants intend to defend the actions vigorously and
believe they are without merit.

         On May 12, 2000, SFX and counsel to the plaintiffs in the shareholder
litigation entered into a memorandum of understanding regarding a proposed
settlement that would result in a modification of the consideration payable to
such holders in the merger. Under the proposed settlement, Clear Channel would
pay to the holders of the SFX Class A Common Stock an aggregate of $34.5
million, less the amount of fees and expenses awarded to plaintiffs' counsel by
the court. Neither SFX nor Clear Channel would be liable for any additional
legal fees or expenses of counsel for the plaintiffs. Amounts payable under the
proposed settlement may be paid either in cash or Clear Channel common stock.
The proposed settlement is subject to certain conditions, including court
approval. Documentation memorializing the proposed settlement has been submitted
to the court. A hearing regarding the proposed settlement is scheduled on August
29, 2000. There can be no assurance that the terms of the proposed settlement
will not change or that the settlement will, in fact, occur. The shareholder
litigation was the sole factor in SFX and Clear Channel agreeing to the
modifications in the terms of the merger contemplated by the proposed
settlement.


                                       13

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion of the financial condition and results of
operations of SFX should be read in conjunction with the consolidated financial
statements and related notes thereto included in this report and SFX's Annual
Report on Form 10-K for the year ended December 31, 1999, as amended. The
following discussion contains certain forward-looking statements that involve
risks and uncertainties. SFX's actual results could differ materially from those
discussed herein. SFX undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements made to reflect any future
events or circumstances.

GENERAL

         SFX operates primarily in four major business segments within the live
entertainment industry:

o        the music segment, which includes promoting and producing music events
         and tours and owning and operating concert venues;

o        the theater segment, which includes producing and promoting theatrical
         events and tours and owning and operating theatrical venues;

o        the sports segment, which includes talent representation, marketing,
         television programming and production, event management and promotion
         of motor sports events; and

o        the family entertainment & other segment, which includes producing and
         promoting family-oriented events, providing marketing and consulting
         services, publishing music related trade magazines and producing and
         distributing network radio special events and concert programming.

         SFX sells corporate sponsorships and advertising in each of its
segments.

         Music

         SFX's primary source of concert promotion revenues is from ticket sales
at events promoted by SFX. As a venue operator, SFX's primary sources of revenue
are corporate sponsorships and advertising, concessions, parking, merchandising,
ticket rebates and other ancillary services, derived principally from events
promoted by SFX.

         Revenue from ticket sales is affected primarily by the number of events
SFX promotes, the average ticket price and the number of tickets sold. The
average ticket price depends on the popularity of the artist, the size and type
of venue and the general economic conditions and consumer tastes in the market
where the event is being held. Generally, the promoter or producer will agree to
pay the artist the greater of a minimum guarantee or a profit sharing payment
based on ticket revenue less certain show expenses. The promoter generally
assumes the financial risk of ticket sales and is responsible for local
production and advertising of the event. When the promoter assumes the financial
risk, all revenue and expenses associated with the event are recorded. Revenue
received before the event date is initially recorded on the balance sheet as
deferred revenue; after the event occurs, it is recorded on the consolidated
statement of operations as gross revenue.

         SFX's most significant operating expenses are talent fees, production
costs and venue operating expenses, including rent, advertising costs and
insurance expense. The booking of talent in the concert promotion business
generally involves contracts for limited engagements, often involving a small
number of performances. As a producer, SFX is generally responsible for the
booking of talent for a larger number of events, often an artist's entire tour.
Talent fees depend primarily on the popularity of the artist, the ticket price
that the artist can command at a particular venue and the expected level of
ticket sales. Production costs and venue operating expenses have substantial
fixed cost components and variable costs primarily related to expected
attendance. Certain expenses are deferred on the consolidated balance sheet as
prepaid event expenses until the event occurs; after the event occurs, they are
recorded on the statement of operations as costs of revenues.

         Theater

         SFX's theatrical operations are directed mainly towards the
presentation of Broadway shows, the production and promotion of touring Broadway
shows and owning and operating theatrical venues. Broadway and touring Broadway
shows generate revenues primarily from ticket sales and sponsorships. Revenue
from ticket sales is primarily affected by the popularity of the production and
the general economic conditions and consumer tastes in the particular market and
venue where the production is presented. To reduce its dependency on the success
of any single touring production, SFX sells advance annual subscriptions that
provide the purchaser with tickets for all of the shows that SFX intends to tour
in the particular market during the touring season. Historically, approximately
30% of ticket sales for touring Broadway shows


                                       14
<PAGE>

presented by SFX were sold through advance annual subscriptions. Subscription
related revenues received before the event date and other advanced ticket sales
are initially recorded on the balance sheet as deferred revenue; after the event
occurs, they are recorded on the statement of operations as gross revenue.
Promotion expenses are capitalized during the year on the consolidated balance
sheet as prepaid event expenses until the event occurs. Production expenses are
capitalized on the consolidated balance sheet as prepaid event expenses until
the tour begins, at which time all costs are amortized over the expected life of
the tour, which is generally less than one year. Subscriptions for touring
Broadway shows typically cover approximately two-thirds of SFX's break-even cost
point for those shows. The principal source of revenue at owned and/or operated
venues is rental income from production companies, merchandise sales and
concession sales.

         Principal operating expenses related to touring shows include talent,
rent, advertising and royalties. Talent costs are generally fixed once a
production is cast. Rent and advertising expense may be either fixed or variable
based on the arrangement with the particular local promoter/venue operator.
Royalties are generally paid as a percentage of gross ticket sales. The
principal operating expenses related to owned or operated venues are
depreciation, building operation costs and payroll.

         SFX also makes equity investments in original Broadway productions,
principally as a means to obtain the touring rights for such shows. These
investments and investments in touring Broadway shows are generally accounted
for using either the equity method or the cost method of accounting, based on
the percentage of ownership. SFX monitors the recoverability of these
investments on a regular basis, and may be required to take write-offs if the
original production closes or if SFX determines that the production will not
recoup the investment. The timing of any write-off could materially adversely
affect the operating results of the Theater segment in a particular period.

         Sports

         SFX is a leading fully integrated sports marketing and management
company specializing in the representation of sports athletes and broadcasters,
integrated event management, television programming and production and marketing
consulting services. SFX's talent representation and marketing activities
consist principally of the representation of sports athletes and broadcasters in
contract and endorsement negotiations. SFX's principal source of revenue is from
talent representation. SFX typically receives a percentage of monies earned by
its clients and a percentage of the endorsement deals negotiated by SFX. Revenue
from these sources is recognized in the period the services are rendered and the
fee is determinable. Principal operating expenses include salaries, wages and
travel and entertainment expenses.

         SFX's motor sports activities consist principally of the production and
promotion of specialized motor sports, which generate revenues primarily from
ticket sales and sponsorships, as well as merchandising and video rights
associated with producing motor sports events. Ticket prices for these events
are generally lower than for theatrical or music concert events. Event-related
revenues received before the event date are initially recorded on the
consolidated balance sheet as deferred revenue. After the event occurs, they are
recorded on the consolidated statement of operations as gross revenue. Operating
expenses associated with motor sports activities include talent, rent, track
preparation costs, security and advertising. These operating expenses are
generally fixed costs that vary based on the type of event and venue where the
event is held. Expenses are deferred on the consolidated balance sheet as
prepaid event expenses until the event occurs. After the event occurs, it is
recorded on the consolidated statement of operations as costs of revenues.

         Family Entertainment & Other

         The family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating
events and artifact exhibits worldwide. Sources of revenue and operating
expenses are generally consistent with those for theatrical shows. SFX's other
principal businesses include the production and distribution of radio industry
trade magazines and the provision of radio airplay and music retail research
services. The primary sources of revenues from these activities include the sale
of advertising space in its publications and the sale of advertising time on
radio stations that carry its syndicated shows, subscription fees for its trade
publications and subscription fees for access to its database of radio play
lists and audience data. Revenues generally vary based on the overall
advertising environment and competition.

         SFX also provides marketing and consulting services pursuant to
contracts with individual clients for specific projects. Revenues from and costs
related to these services vary based on the type of service being provided.

MERGER WITH CLEAR CHANNEL COMMUNICATIONS, INC.

         On February 29, 2000, SFX announced that it entered into a definitive
merger agreement with Clear Channel Communications, Inc. ("Clear Channel"). On
August 1, 2000, the merger was consummated and SFX became a wholly owned
subsidiary of Clear Channel. Under the terms of the merger agreement, the Class
A stockholders of SFX received 0.60 shares of Clear Channel common stock for
each SFX share, and Class B stockholders of SFX received one share of Clear


                                       15
<PAGE>

Channel common stock for each SFX share, on a fixed exchange basis. In
connection with the merger, SFX's senior credit facility was repaid in its
entirety. In addition, as a result of the merger, SFX is required to make an
offer to repurchase the $550 million senior subordinated notes due 2008 at 101%
of the principal amount, plus accrued and unpaid interest and liquidated
damages. As of the merger date, the unamortized debt issuance costs related to
the senior credit facility and the senior subordinated notes were approximately
$16.8 million and $29.2 million, respectively.

         Under the terms of the merger agreement between Clear Channel and SFX,
certain payments and other distributions were made to senior management and
other employees of SFX, which will result in SFX recording significant
compensation expense as of the merger date.

         Clear Channel is a public company and is therefore subject to the
informational reporting requirements of the Securities Exchange Act of 1934.
Accordingly, information regarding the business and operations of Clear Channel
is filed with the Securities and Exchange Commission and is publicly available.

STOCK SPLIT

         In July of 1999, SFX completed a three-for-two split of its Class A and
Class B Common Stock. The financial and share information presented herein has
been restated, to the extent applicable, to reflect the effect of the stock
split.

1999 ACQUISITIONS

         The following table is a brief description of the acquisitions
completed by SFX in 1999. A detailed description of the 1999 acquisitions is
included in the SFX's Annual Report on Form 10-K for the year ended December 31,
1999, as amended.

<TABLE>
<CAPTION>
      (in thousands)                           Cash                        Number
                                          Consideration        Value of      of
                              Date          And Assumed         Stock      Shares                 Business
    Company                 Acquired         Debt (1)           Issued     Issued                 Segment
    --------------------    ----------    ---------------     ----------  ---------    -------------------------------
<S>                        <C>            <C>                 <C>         <C>          <C>
    Cellar Door              2/19/99          $ 79,396         $  20,000       519     Music
    Nederlander              3/16/99           126,423                 -         -     Music
    Marquee                  3/16/99            76,945            81,728     2,103     Sports
    Livent                   8/27/99           100,809                 -         -     Theater
    Apollo                   9/17/99           218,942            37,472       980     Theater, Family Entertainment
                                                                                         & Other and Music
    EMA Telstar              10/4/99            27,857                 -         -     Music
    Mojo Works              10/21/99            40,654                 -         -     Music
    Other Acquisitions       Various           178,839            15,745       397     All segments
                                           ==============     ==========  =========
    Total                                     $849,865         $154,945      3,999
                                           ==============     ==========  =========
</TABLE>

(1) Includes cash paid related to deferred contingent purchase price agreements.

          2000 ACQUISITIONS

          During the first six months of 2000, SFX completed the acquisitions of
Speakers of Sport, which represents team sports athletes, primarily professional
baseball players; the Electric Factory Concerts group of companies, the leading
concert promoter in the Philadelphia, Pennsylvania area; and certain other
companies. The total cash consideration for these acquisitions was approximately
$98.4 million in cash, $20.0 million of deferred consideration payable in stock
and $1.6 million of deferred purchase consideration payable in cash. In
addition, SFX paid $41.6 million in cash for certain equity investments. SFX
financed these acquisitions with borrowings under its senior credit facility and
cash on hand.

         Pursuant to certain of the acquisition agreements entered into by SFX
in 1998, 1999 and 2000, and other related agreements, SFX may be required to
make additional payments or repurchase shares of its Class A Common Stock.

         Although SFX is currently pursuing certain additional acquisitions, it
has not entered into any definitive agreements with respect to any significant
acquisitions, and there can be no assurance that it will do so.

         SFX's 1999 and 2000 acquisitions were accounted for using the purchase
method of accounting. The purchase price of certain of the 1999 and 2000
acquisitions has been preliminarily allocated to the assets acquired and the
liabilities assumed and are subject to change. Operating results of the 1999 and
2000 acquisitions are included in the consolidated statement of operations from
their respective acquisition dates. The goodwill created in the purchase
transactions will generally be amortized against future earnings, if any, over
periods up to 15 years. As of June 30, 2000, SFX had recorded approximately $1.6
billion

                                       16
<PAGE>

of goodwill related to its acquisitions. The amount of amortization will be
substantial and will continue to affect SFX's operating results in the future.
These expenses, however, do not result in an outflow of cash by SFX and do not
impact EBITDA.


RESULTS OF OPERATIONS

         The operating performance of entertainment companies, such as SFX, is
measured, in part, by their ability to generate EBITDA. Further, SFX uses EBITDA
as the primary indicator of its operating performance and as a measure of
liquidity. "EBITDA" is defined as earnings before interest, taxes, investment
and other income, minority interest, merger related and other charges and
depreciation and amortization, including integration and start-up costs.
Although EBITDA is not a measure of performance calculated in accordance with
GAAP, SFX believes that the entertainment industry accepts EBITDA as a generally
recognized measure of performance and analysts who report publicly on the
performance of entertainment companies use EBITDA. Nevertheless, this measure
should not be considered in isolation or as a substitute for operating income,
net income, net cash provided by operating activities or any other measure for
determining operating performance or liquidity that is calculated in accordance
with GAAP. EBITDA, as SFX calculates it, may not be comparable to calculations
of similarly titled measures presented by other companies.

         SFX's operations and revenues have been largely seasonal in nature,
with generally higher revenues generated in the second and third quarters. For
example, on a pro forma basis for all acquisitions completed in 1999, SFX
generated approximately 59% of its 1999 revenues in the second and third
quarters. SFX's outdoor venues are primarily used in the summer months and do
not generate substantial revenue in the late fall, winter and early spring.
SFX's entertainment marketing and consulting in connection with such outdoor
venues also generate a large share of revenues in the second and third quarters.
Therefore, the seasonality of SFX's business causes, and will continue to cause,
a significant variation in SFX's quarterly operating results.

Historical Results

         Three months ended June 30, 2000 as compared to the three months ended
         June 30, 1999

         During 1999 and the first six months of 2000, SFX made significant
acquisitions in each of its business segments. The 1999 and 2000 acquisitions
contributed to the changes in revenue, EBITDA and operating income, before
corporate charges, in each of the segments, for the three months ended June 30,
2000 as compared to the comparable period in 1999. The following table
summarizes each segment's operating performance for the three months ended June
30, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                     Revenue                 EBITDA (1)       Operating (loss) income
                              --------------------     --------------------   -----------------------
                                 2000       1999        2000         1999        2000          1999
                              ---------   --------     -------      -------   ---------      --------
<S>                           <C>         <C>          <C>          <C>          <C>          <C>
Segments:
     Music .................  $408,253    $242,836     $33,213      $37,095    $  7,815       $17,074
     Theater ...............    90,302      53,990       7,935        4,494       2,026         2,888
     Sports ................    36,195      26,809       6,287        4,611      (2,447)       (1,359)
     Family entertainment
        & other ............    76,075      84,050       4,104        8,563      (1,517)        3,690
                              --------    --------     -------      -------    --------       -------
Segment performance            610,825     407,685      51,539       54,763       5,877        22,293
     Corporate                      -           -       (6,795)      (4,592)    (35,880)       (6,214)
                              --------    --------     -------      -------    --------       -------
Total ......................  $610,825    $407,685     $44,744      $50,171    $(30,003)      $16,079
                              ========    ========     =======      =======    ========       =======
</TABLE>

(1)      As used in these tables, EBITDA excludes integration and start-up
         costs, and merger related and other charges. Certain segment
         information in 1999 has been reclassified to conform to the 2000
         presentation.

         Music Revenue increased by $165.5 million to $408.3 million for the
three months ended June 30, 2000, compared to $242.8 million for the three
months ended June 30, 1999. EBITDA decreased by $3.9 million to $33.2 million
from $37.1 million. Operating income decreased by $9.3 million to $7.8 million
from $17.1 million. Approximately $87.3 million of the increase in revenue was
the result of increased touring activity and increased ticket sales from
businesses owned during both periods and approximately $78.2 million of the
increase in revenue was the result of incremental revenue from the 1999 and 2000
acquisitions. The $3.9 million decrease in EBITDA primarily reflected increased
talent costs and increased bad debt expense in the second quarter of 2000,
partially offset by $5.1 million of growth from acquisition activity. Although
SFX expects that total performances at SFX's amphitheaters will increase for the
full-year 2000, there were less performances in the second quarter of 2000 than
the comparable period in 1999 due to timing differences in bookings. The
decrease in operating income of $9.3 million resulted primarily from the factors
contributing to the decrease in EBITDA and increased depreciation and
amortization expense related to acquisitions.


                                       17
<PAGE>

         Theater Revenue increased by $36.3 million to $90.3 million for the
three months ended June 30, 2000, compared to $54.0 million for the three months
ended June 30, 1999. EBITDA increased by $3.4 million to $7.9 million from $4.5
million. Operating income decreased by $862,000 to $2.0 million from $2.9
million. Approximately $30.0 million of the increase in revenue is the result of
incremental revenue from the acquisitions of Apollo and Livent which were not
owned in the 1999 period and approximately $6.3 million of the increase in
revenue was the result of increased theatrical touring activity during 2000. The
increase in EBITDA reflected a $4.8 million contribution from the 1999 theater
segment acquisitions, offset by a $1.4 million decrease resulting principally
from a $1.8 million write-off of investments in Broadway productions. The
decrease in operating income of $862,000 resulted from the increased
depreciation and amortization expense related to acquisitions partially offset
by the factors contributing to the increase in EBITDA.

         Sports   Revenue increased by $9.4 million to $36.2 million for the
three months ended June 30, 2000, compared to $26.8 million for the three months
ended June 30, 1999. EBITDA increased by $1.7 million to $6.3 million from $4.6
million. The operating loss increased by $1.1 million to $2.5 million from $1.4
million. Approximately $7.8 million of the increase in revenue resulted from
entities acquired by the sports segment in 1999 and 2000 and approximately $1.6
million of the increase related to increased motor sports activity. The increase
in EBITDA reflected a $2.1 million increase related to the sports companies
acquired during 1999 and 2000. The increase in operating loss of $1.1 million
resulted primarily from increased depreciation and amortization expense related
to acquisitions and increased integration and start-up costs, partially offset
by the factors contributing to the increase in EBITDA.

         Family Entertainment & Other Revenue decreased by $7.9 million to $76.1
million for the three months ended June 30, 2000, compared to $84.0 million for
the three months ended June 30, 1999. EBITDA decreased by $4.5 million to $4.1
million from $8.6 million. The operating loss increased by $5.2 million to $1.5
million from a $3.7 million operating profit. Approximately $15.2 million of the
decrease in revenue was the result of earning fees for certain productions in
2000, which, in 1999, SFX promoted and therefore recorded the ticket revenue and
related cost of sales related to these productions. This decrease in revenue was
partially offset by $7.3 million of incremental revenues from the acquisition of
certain Apollo businesses that were not owned in 1999. EBITDA decreased $4.5
million primarily as a result of an impairment of capitalized production costs
of a long running production and the disposition of certain operations,
partially offset by the incremental EBITDA from the Apollo acquisition. The
increase in operating loss resulted from the factors contributing to the
decrease in EBITDA and increased depreciation and amortization expense related
to acquisitions.

         Corporate   Corporate related expenses, including merger related and
other charges and depreciation and amortization were $35.9 million for the three
months ended June 30, 2000 compared to $6.2 million for the three months ended
June 30, 1999. The increase was primarily the result of an increase in merger
related and other charges. Corporate expenses related to administrative overhead
also increased to $6.8 million from $4.6 million, largely as a result of the
growth of SFX's operations.

         For the three months ended June 30, 2000, merger related and other
charges of $26.5 million consisted primarily of $20.0 million of a non-recurring
compensation expense related to the adjustment in the purchase price of a prior
acquisition, $5.4 million of merger related expenses, primarily investment
banking and legal fees related to the merger of SFX with Clear Channel, and $1.1
million of non-cash charges related to the issuance of options.

         Non-cash charges for the three months ended June 30, 1999 of $1.2
million consisted primarily of the charges related to 517,500 options which vest
over three years and have an exercise price of $3.67 per share.

         Interest expense, net of investment income, was $34.7 million for the
three months ended June 30, 2000 as compared to $19.0 million for the three
months ended June 30, 1999, primarily as a result of the additional debt
incurred to consummate the 1999 and 2000 acquisitions.

         Minority interest expense increased to $529,000 for the three months
ended June 30, 2000 as compared to $410,000 for the three months ended June 30,
1999 primarily as a result of certain companies acquired in 1999.

         SFX recorded income tax provisions of $21.6 million and $6.7 million
for the three months ended June 30, 2000 and 1999, respectively. The current
quarter provision primarily relates to the valuation allowance, state and local
income taxes and foreign income taxes. SFX established a valuation allowance
against previously recorded federal tax benefit. The income tax provision in
1999 was for federal, state and local taxes. The 1999 benefit differs from the
statutory rate primarily as a result of non-deductible goodwill.

         The net loss was $86.7 million for the three months ended June 30,
2000, compared to a net loss of $10.1 million for the three months ended June
30, 1999, due to the matters discussed above. SFX's net loss applicable to
common shares


                                       18
<PAGE>

increased to $87.5 million for the three months ended June 30, 2000, as compared
to $11.1 million for the three months ended June 30,1999.

         Six months ended June 30, 2000 as compared to the six months ended
         June 30, 1999

         During 1999 and the first six months of 2000, SFX made significant
acquisitions in each of its business segments. The 1999 and 2000 acquisitions
contributed to the changes in revenue, EBITDA and operating income, before
corporate charges, in each of the segments, for the six months ended June 30,
2000 as compared to the comparable period in 1999. The following table
summarizes each segment's operating performance for the six months ended June
30, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                       Revenue                    EBITDA (1)          Operating (loss) income
                              -------------------------     --------------------      -----------------------
                                 2000            1999         2000         1999          2000          1999
                              ----------       --------     --------     -------      ----------     --------
<S>                             <C>            <C>           <C>         <C>           <C>            <C>
Segments:
     Music ...................  $578,206       $348,990      $33,183     $39,298       $(16,082)     $ 3,991
     Theater .................   200,803        130,027       22,422      12,081         10,558        8,003
     Sports ..................   117,306         82,558       24,086      19,063          3,952       10,047
     Family entertainment
        & other ..............   137,860        122,231        8,269      12,290         (3,330)       2,780
                              ----------       --------      -------     -------      ---------     --------
Segment performance            1,034,175        683,806       87,960      82,732          4,902       24,821
    Corporate                          -              -      (13,117)     (9,772)      (126,041)     (13,164)
                              ----------       --------      -------     -------      ---------     --------
Total ....................... $1,034,175       $683,806      $74,843     $72,960      $(130,943)     $11,657
                              ==========       ========      =======     =======      =========     ========
</TABLE>

(1)      As used in these tables, EBITDA excludes integration and start-up
         costs, and merger related and other charges. Certain segment
         information in 1999 has been reclassified to conform to the 2000
         presentation.

         Music Revenue increased by $229.2 million to $578.2 million for the six
months ended June 30, 2000, compared to $349.0 million for the six months ended
June 30, 1999. EBITDA decreased by $6.1 million to $33.2 million from $39.3
million. The operating loss increased by $20.1 million to $16.1 million from
operating income of $4.0 million. Approximately $127.1 million of the increase
in revenue was the result of increased touring activity and increased ticket
sales from businesses owned during both periods and approximately $102.1 million
of the increase in revenue was the result of incremental revenue from the 1999
and 2000 acquisitions. The $6.1 million decrease in EBITDA primarily reflected
increased talent costs and increased bad debt expense in the first six months of
2000 and the timing of performances at SFX's amphitheaters, partially offset by
the incremental operating results of acquisitions. The increase in operating
loss of $20.1 million resulted primarily from increased depreciation and
amortization expense related to acquisitions.

         Theater   Revenue increased by $70.8 million to $200.8 million for the
six months ended June 30, 2000, compared to $130.0 million for the six months
ended June 30, 1999. EBITDA increased by $10.3 million to $22.4 million from
$12.1 million. Operating income increased by $2.6 million to $10.6 million from
$8.0 million. Approximately $62.6 million of the increase in revenue is the
result of incremental revenue from the acquisitions of Apollo and Livent which
were not owned in the 1999 period and approximately $8.2 million of the increase
in revenue was the result of increased theatrical touring activity during 2000.
The increase in EBITDA reflected a $12.3 million contribution from the 1999
theater segment acquisitions, offset by a $2.0 million decrease related
primarily to the write-off of $2.2 million of investments in certain Broadway
productions in 2000. The increase in operating income of $2.6 million resulted
from the factors contributing to the increase in EBITDA, partially offset by
increased depreciation and amortization expense related to acquisitions.

         Sports Revenue increased by $34.7 million to $117.3 million for the six
months ended June 30, 2000, compared to $82.6 million for the six months ended
June 30, 1999. EBITDA increased by $5.0 million to $24.1 million from $19.1
million. Operating income decreased by $6.1 million to $4.0 million from $10.1
million. Approximately $25.0 million of the increase in revenue resulted from
entities acquired by the sports segment in 1999 and 2000 and approximately $9.7
million of the increase related to increased motor sports activity. The increase
in EBITDA reflected a $3.6 million increase related to the sports companies
acquired during 1999 and 2000 and a $1.4 million improvement at companies owned
for both periods, primarily as a result of increased motor sports activity. The
decrease in operating income of $6.1 million resulted primarily from increased
depreciation and amortization expense related to acquisitions and increased
integration and start-up costs, partially offset by the factors contributing to
the increase in EBITDA.

         Family Entertainment & Other Revenue increased by $15.7 million to
$137.9 million for the six months ended June 30, 2000, compared to $122.2
million for the six months ended June 30, 1999. EBITDA decreased by $4.0 million
to $8.3 million from $12.3 million. Operating loss increased by $6.1 to $3.3
million from a $2.8 million operating profit. The increase in revenue was the
result of incremental revenues from the acquisition of certain Apollo businesses
that were not owned in 1999, partially offset by the disposition of certain
operations in 1999. EBITDA decreased $4.0 million primarily as a result of an
impairment of capitalized production costs of a long running production and a
decreased related to certain operations which were sold,


                                       19
<PAGE>

partially offset the incremental EBITDA from the Apollo acquisition. The
increase in operating loss resulted from the factors contributing to the
decrease in EBITDA and increased depreciation and amortization expense related
to acquisitions.

         Corporate Corporate related expenses, including merger related and
other charges and depreciation and amortization were $126.0 million for the six
months ended June 30, 2000 compared to $13.2 million for the six months ended
June 30, 1999. The increase was primarily the result of an increase in merger
related and other charges. Corporate expenses related to administrative overhead
also increased to $13.7 million from $9.8 million, largely as a result of the
growth of SFX's operations domestically and internationally.

         For the six months ended June 30, 2000, merger related and other
charges of $108.6 million consisted primarily of $71.1 million of non-cash
charges, $13.0 million of merger related expenses, primarily investment banking
and legal fees related to the merger of SFX with Clear Channel, $20.0 million of
a non-recurring compensation expense related to an adjustment in the purchase
price of a prior acquisition and $4.5 million of cash payments, principally to
settle potential rights to future payments under a contingent purchase price
agreement.

         The $71.1 million of non-cash charges consisted primarily of $54.3
million related to the issuance of fully-vested options to purchase 2,102,500
shares of SFX's Class A Common Stock at prices that were below the then current
market price. The options were granted to members of SFX's senior management
group in connection with new long-term employment agreements entered into on
January 15, 2000. The non-cash charges also included $14.7 million related to
the forgiveness of loans issued under an executive loan program, $1.6 million
related to the issuance of stock options to certain executive officers pursuant
to their previous employment agreements in 1998 exercisable for an aggregate of
517,500 shares of Class A Common Stock based on a stock price of $3.67 per share
and $500,000 of other non-cash charges related to the issuance of options. In
connection with the above agreements, each executive agreed to forfeit his
change of control stock options provided for under his previous employment
agreement.

         Non-cash charges for the six months ended June 30, 1999 of $2.1 million
consisted primarily of the charges related to 517,500 options which vest over
three years and have an exercise price of $3.67 per share.

         Interest expense, net of investment income, was $67.4 million for the
six months ended June 30, 2000 as compared to $37.2 million for the six months
ended June 30, 1999, primarily as a result of the additional debt incurred to
consummate the 1999 and 2000 acquisitions.

         Minority interest expense increased to $1.2 million for the six months
ended June 30, 2000 as compared to $494,000 for the six months ended June 30,
1999 primarily as a result of certain companies acquired in 1999.

         SFX recorded income tax provisions of $4.3 million and $1.6 million for
the six months ended June 30, 2000 and 1999, respectively. The current provision
primarily relates to state and local income taxes and foreign income taxes. SFX
has not recorded a federal tax benefit for its losses due to the uncertainty of
SFX utilizing such losses. The income tax provision in 1999 was for federal,
state and local taxes. The 1999 benefit differs from the statutory rate
primarily as a result of non-deductible goodwill.

         The net loss was $203.8 million for the six months ended June 30, 2000,
compared to a net loss of $27.7 million for the three months ended June 30,
1999, due to the matters discussed above. SFX's net loss applicable to common
shares increased to $205.3 million for the six months ended June 30, 2000, as
compared to $29.4 million for the six months ended June 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

         SFX's principal need for funds has been for acquisitions, cash interest
expense, working capital needs and capital expenditures. SFX's principal sources
of funds have been proceeds from note offerings, proceeds from equity offerings,
borrowings under its senior credit facility and cash flows from operations.

         Historical Cash Flows

         Net cash provided by operations was $59.4 million for the six months
ended June 30, 2000, as compared to $94.4 million for the six months ended June
30, 1999. The decrease in cash provided by operations was primarily attributable
to the increase in the net loss, which included $37.1 million of merger related
and other charges and an increase in the cash portion of interest expense of
$23.2 million. These decreases in cash from operations were partially offset by
working capital increases of $41.5 million, which reflected increased deferred
revenue, accounts payable and accrued liabilities, partially offset by increased
accounts receivable and prepaid event costs.


                                       20
<PAGE>

         Net cash used in investing activities for the six months ended June 30,
2000 was $243.2 million as compared to $335.5 million for the six months ended
June 30, 1999. The decrease in the use of funds was primarily the result of less
acquisition activity in the first six months of 2000 as compared to the first
six months of 1999.

         Net cash provided by financing activities for the six months ended June
30, 2000 was $40.4 million as compared to $292.5 million for the six months
ended June 30, 1999. During the first six months of 2000, SFX had an increase in
borrowings of $44.0 million under the senior credit facility, repurchased $3.9
million of Class A Common Stock, repaid other debt of $922,000 and issued Class
A Common Stock resulting in net proceeds of $1.2 million. During 1999, SFX
completed the February 1999 equity offering, resulting in net proceeds of $260.7
million and had net borrowings under the senior credit facility of $38.0
million.

         Potential Future Acquisitions

         Consistent with its operating strategy, SFX is currently negotiating
and expects to pursue additional acquisitions in the live entertainment business
in the future. However, SFX has not entered into any significant definitive
agreements with respect to such acquisitions and there can be no assurance that
it will do so. SFX expects that all future acquisitions will be funded by Clear
Channel.

         Indebtedness

         SFX has incurred and expects to continue to incur substantial amounts
of indebtedness to finance acquisitions, for capital expenditures and for other
corporate purposes. SFX has issued $550.0 million in aggregate principal amount
of its 9 1/8% senior subordinated notes due 2008. Interest of approximately
$16.0 million is payable on the notes on February 1 and August 1 of each year
and interest of $9.1 million is payable on the notes on June 1 and December 1 of
each year. As a result of the merger, SFX is required to make an offer to the
holders of the $550 million senior subordinated notes due 2008 to repurchase the
at an offer price of 101% of the principal amount, plus accrued and unpaid
interest and liquidated damages. As of August 1, 2000, SFX had recorded
approximately $29.2 million of unamortized debt issuance costs of related the
senior subordinated notes

         In August 1999, SFX entered into a new seven-year $1.1 billion senior
credit facility which replaced SFX's then-existing $350.0 million senior credit
facility and modified certain covenants. In connection with the merger, SFX's
senior credit facility was repaid in its entirety by Clear Channel on August 1,
2000. The $866.7 million repaid by Clear Channel will be recorded as an
intercompany loan with Clear Channel on SFX's consolidated balance sheet. As of
the merger date, the unamortized debt issuance costs related to the senior
credit facility were approximately $16.8 million.

         In addition, as of August 11, 2000, SFX had approximately $32.3
million of other debt, consisting primarily of debt and capital leases assumed
in acquisitions, and $40.9 million of deferred purchase consideration.

         SFX's senior subordinated notes contain customary covenants and other
provisions which restrict SFX's ability to, among other things:

         o sell or transfer assets;
         o incur additional debt;
         o repay other debt;
         o pay dividends;
         o make certain investments or acquisitions;
         o repurchase or redeem capital stock;
         o engage in mergers or consolidations; and
         o engage in certain transactions with subsidiaries and affiliates.

         SFX's substantial leverage could adversely affect its business.

         As of June 30, 2000, SFX was not able to satisfy the debt incurrence
test in the senior subordinate notes and, as a result, its ability to incur
indebtedness may be limited.

         Capital Expenditures

         Capital expenditures totaled $47.2 million for the six months ended
June 30, 2000. Based on its existing operations, SFX estimates capital
expenditures for 2000 to be approximately $62.0 million, including approximately
$46.5 million for the construction of three amphitheaters, which is expected to
be funded by cash flows from operations. The projected capital expenditures do
not include amounts that may be required for the potential construction of other
major new venues or potential major


                                       21
<PAGE>

renovations at existing venues. In addition, based on preliminary estimates,
SFX's expects to pay approximately $25.0 million during 2000 for leasehold
improvements at its new worldwide headquarters at the Candler Building in New
York, New York.

         Future Contingent Payments

        Certain of the agreements relating to SFX's acquisitions provide for
purchase price adjustments and other future contingent payments based on the
financial performance of the acquired companies. During the first six months of
2000, SFX paid $45.6 million related to such agreements. SFX will accrue
additional amounts related to such contingent payments if and when it is
determinable beyond a reasonable doubt that the applicable financial performance
targets will be met.

         In connection with the spin-off of SFX from SFX Broadcasting in April
1998, SFX entered into a tax sharing agreement with SFX Broadcasting. As of June
30, 2000, SFX has made estimated payments of $109.7 million in federal and state
taxes related to the spin-off. In addition, SFX remains liable for certain tax
indemnities. Management's estimates of the amount of the indemnity payment are
based on assumptions which management believes are reasonable. However, upon the
completion of all tax returns, including any potential tax audits, such
assumptions could be modified in a manner that would result in a significant
variance in the actual amount of the tax indemnity.

         No assurance can be given that SFX will have sufficient cash or other
available sources of capital to make any or all of the future or contingent
payments described above.

         Sources of Liquidity

         As of June 30, 2000, SFX's cash and cash equivalents totaled $236.4
million, and its working capital was a negative $47.9 million.

         SFX believes that its cash on hand and cash flow from operations will
be sufficient to satisfy existing commitments and plans, including those
described above. However, there can be no assurance that SFX's business will
generate sufficient cash flow from operations, to enable SFX to service its debt
and to make necessary capital or other expenditures.

YEAR 2000 COMPLIANCE

         In prior quarters, SFX discussed the nature and progress of its plans
to become Year 2000 compliant. In late 1999, SFX completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
SFX experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. SFX is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. SFX will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.

RECENT ACCOUNTING PRONOUNCEMENT

         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Holding Activities", which
is required to be adopted in years beginning after June 15, 2000 in accordance
with Statement No. 37. Because of SFX's minimal use of derivatives, management
does not anticipate that the adopting of the new statement will have a
significant effect on earnings or the financial position of SFX.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

          SFX believes that certain statements contained in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are considered prospective. The following
statements are or may constitute forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995:

o         statements before, after or including the words "may," "will,"
          "could," "should," "believe," "expect," "future," "potential,"
          "anticipate," "intend," "plan," "estimate" or "continue" or the
          negative or other variations of these words; and

o         other statements about matters that are not historical facts.


                                       22
<PAGE>

          The forward-looking statements herein include statements about the
merger between SFX and Clear Channel These statements are based on management's
current expectations are subject to uncertainty and changes in circumstances.
SFX may be unable to achieve future results covered by the forward-looking
statements. The statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from the future results
that the statements express or imply, including SFX's inability to successfully
integrate its various businesses; SFX's substantial amount of debt; SFX's
ability to complete acquisitions in the future; SFX's ability to secure
attractive artists, events and venues; potential environmental liabilities; Year
2000 issues; regulatory matters, including those relating to compliance with
applicable antitrust laws; the restrictions placed on SFX's operations by its
senior credit facility and indentures; cost related to or delays in completing
the proposed merger; failure of the stockholders of SFX to approve the proposed
merger; the inability to obtain or meet conditions imposed for, governmental or
other approvals for the proposed merger; difficulties in integrating the
operations of SFX with those of Clear Channel; and changes in general, business,
competitive and/or regulatory economic conditions that may adversely affect the
businesses in which SFX and Clear Channel are engaged and changes in the
securities markets. Please do not put undue reliance on these forward-looking
statements, which speak only as of the date of this report. The following risk
factors should be considered carefully in evaluating SFX and its business and
the forward-looking statements contained herein. SFX does not undertake to
release publicly any revisions to forward looking statements that may be made to
reflect events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events. See our Annual Report on Form 10-K for the
year ended December 31, 1999, as amended, "Safe Harbor for Forward-Looking
Statements - Risk Factors."

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         SFX has significant international operations, principally in Europe and
Canada. In the normal course of business, these operations are exposed to
fluctuations in currency values. Management does not consider the impact of
currency fluctuations to represent a significant risk. SFX does not generally
enter into derivative financial instruments in the normal course of business,
nor are such instruments used for speculative purposes.

         Market risks relating to SFX's operations result primarily from changes
in interest rates. SFX's senior subordinated notes bear interest at a fixed
rate. However, the fair market value of the fixed rate debt is sensitive to
changes in interest rates. SFX is subject to the risk that market interest rates
will decline and the interest rates under the fixed rate debt will exceed the
then prevailing market rates.



                                       23
<PAGE>


PART II.   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         Between approximately February 29 and March 10, 2000, 11 lawsuits were
filed in the Court of Chancery in the State of Delaware, New Castle County, by
various plaintiffs, all claiming to be holders of SFX Class A Common Stock,
against SFX, its directors and Clear Channel. The complaints all seek
essentially the same relief, i.e., certification as a class action, an
injunction enjoining consummation of the merger and/or damages in an amount to
be determined. The complaints allege that the difference in consideration for
the Class A and Class B common stockholders of SFX constitutes unfair
consideration to the Class B common stockholders. The complaints allege that
SFX's directors have breached their fiduciary duty in agreeing to such terms and
conditions and further allege that Clear Channel aided and abetted the actions
of the directors of SFX. To date, no answers have been filed by any of the
defendants. A plaintiff in one of the lawsuits has filed a motion for summary
judgment. The defendants have replied to that motion and it is currently pending
before the court. SFX and the other defendants intend to defend the actions
vigorously and believe they are without merit.

         On May 12, 2000, SFX and counsel to the plaintiffs in the shareholder
litigation entered into a memorandum of understanding regarding a proposed
settlement that would result in a modification of the consideration payable to
such holders in the merger. Under the proposed settlement, Clear Channel would
pay to the holders of the SFX Class A Common Stock an aggregate of $34.5
million, less the amount of fees and expenses awarded to plaintiffs' counsel by
the court. Neither SFX nor Clear Channel would be liable for any additional
legal fees or expenses of counsel for the plaintiffs. Amounts payable under the
proposed settlement may be paid either in cash or Clear Channel common stock.
The proposed settlement is subject to certain conditions, including court
approval. Documentation memorializing the proposed settlement has been submitted
to the court. A hearing regarding the proposed settlement is scheduled on August
29, 2000. There can be no assurance that the terms of the proposed settlement
will not change or that the settlement will, in fact, occur. The shareholder
litigation was the sole factor in SFX and Clear Channel agreeing to the
modifications in the terms of the merger contemplated by the proposed
settlement.

         Universal Concerts II, Inc., a California corporation formerly named
MCA Concerts II, Inc., brought suit against PACE Amphitheaters, Inc., PACE
Entertainment Group, Inc., SFX Entertainment, Inc., Brian Becker and Allen
Becker. The complaint alleged, among other things, that SFX's acquisitions of
PACE and Concert/Southern caused breaches of PACE's various agreements with
Universal. The complaint alleged that PACE is in breach of a co-promotion
agreement, that Brian Becker and Allen Becker are in breach of non-competition
agreements and that SFX has intentionally interfered with contracts between the
plaintiff and certain of the defendants. The defendants have removed the case
from the State Court to the Federal Court for the Central Division of California
and have answered the complaint denying liability. Although the lawsuit seeks
damages in an unspecified amount, in SFX management's view, the realistic amount
in controversy is not material to the business or prospects of SFX. The
defendants intend to defend the case vigorously.

         On November 20, 1998, a group of plaintiffs filed a complaint against
11 booking agencies and 29 promoters, including SFX and several of its
subsidiaries. According to the complaint, the plaintiffs are five individual
African-Americans and five corporations owned by such individuals. The complaint
alleges action by the defendants to exclude African-Americans from promoting
concerts and seeks injunctive relief and damages for civil rights and antitrust
violations. The focus of the action appears to be industry-wide, rather than
specifically directed at SFX. On May 25, 1999, the complaint was dismissed
without prejudice to plaintiffs' right to file an amended pleading. On August 9,
1999, the plaintiffs filed an amended complaint containing allegations that are
substantially the same as the original complaint. On October 1, 1999, the
defendants filed motions to dismiss the amended complaint. On June 30, 2000, the
court denied the defendant's motions to dismiss, in part, and granted them, in
part. SFX's answer to amended complaint is due on August 15, 2000. SFX intends
to defend the action vigorously.

         Although SFX is involved in several suits and claims in the ordinary
course of business, it is not currently a party to any legal proceeding that it
believes would have a material adverse effect on its business, financial
condition or results of operation.


                                       24
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

EXHIBIT
NUMBER        DESCRIPTION OF EXHIBIT
-------       ----------------------

* 10.1   Amendment No. 1 to Agreement and Plan of Merger among Clear
         Channel Communications, Inc., CCU II Merger Sub, Inc. and SFX
         Entertainment, Inc. dated February 28, 2000 (incorporated by reference
         to Exhibit 10.1 to Current Report on Form 8-K (File No. 001-14993)
         filed with the SEC on February 29, 2000.


27.1     *Financial Data Schedule

------------------------
         * filed herewith

(b)      Reports on Form 8-K

     On May 16, 2000, SFX filed a Current Report on Form 8-K to disclose the
filing of a preliminary proxy statement with the Securities and Exchange
Commission relating to the proposed merger between SFX and CCU II Merger Sub,
Inc., a subsidiary of Clear Channel Communications, Inc.



                                       25
<PAGE>

                                    SIGNATURE

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

                                            SFX ENTERTAINMENT, INC.


Date:  August 14, 2000                      By: /s/ Herbert W. Hill
                                                -------------------------------

                                                Senior Vice President
                                                And Chief Accounting Officer