SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           -------------------------

                                    FORM 10-K

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

For the fiscal year ended December 31, 1996





                             Katz Media Corporation
                       (formerly Katz Capital Corporation)
             (Exact name of registered as specified in its charter)


            Delaware                                    13-3779266
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)



                 125 West 55th Street, New York, New York 10019
                                 (212) 424-6000

      Securities registered pursuant to Section 12( b ) of the Act: - None

      Securities registered pursuant to Section 12 ( g ) of the Act: - None


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  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 [_] No [X]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The Registrant  does not have any equity  securities  registered  under the
Securities Act of 1933, as amended.  All  outstanding  shares of Common Stock of
the Registrant are held indirectly by the Registrant's  ultimate parent company,
Katz Media Group, Inc.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

     The officers and directors of Katz Media Corporation are identical to those
of Katz Media Group, Inc. Portions of Katz Media Group,  Inc.'s Definitive Proxy
Statement to be filed with the  Securities and Exchange  Commission  pursuant to
Regulation 14A in connection  with Katz Media Group,  Inc.'s 1997 Annual Meeting
are incorporated by reference into Part III of this Report on Form 10-K.






                                TABLE OF CONTENTS


Item                                                                      Page
----                                                                      ----

PART I

1.  Business...........................................................   2-11
2.  Properties.........................................................     11
3.  Legal Proceedings..................................................     11
4.  Submission of Matters to a Vote of Security Holders................     12

PART II

5.   Market   for   Registrant's   Common   Equity   and   Related
     Stockholder Matters...............................................     12

6.   Selected Consolidated Financial Data..............................  12-14

7.   Management's  Discussion and Analysis of Financial Condition
     and Results of Operations.........................................  15-23

8.   Financial Statements and Supplementary Data.......................     23

9.   Changes in and Disagreements  with Accountants on Accounting
     and Financial Disclosure..........................................     23


PART III

10.  Directors and Executive Officers of the Registrant.................    23

11.  Executive Compensation.............................................    23

12.  Security Ownership of Certain Beneficial Owners and Management.....    23

13.  Certain Relationships and Related Transactions.....................    23


PART IV

14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 23-25

                                       1
<PAGE>
                                     PART I

Item 1.   Business

General
-------

     Katz Media Corporation,  formerly Katz Capital Corporation,  (the "Company"
which  terms  include  the  subsidiaries  of Katz Media  Corporation  unless the
context requires  otherwise) is the only full service media  representation firm
in the United States serving  multiple types of electronic  media,  with leading
market shares in the  representation of radio and television  stations and cable
television  systems.  The  Company is  exclusively  retained by over 2,000 radio
stations,  340 television stations and 1,500 cable systems to sell national spot
advertising air time throughout the United States.  National spot advertising is
commercial  air time sold by a radio or  television  station or cable  system to
advertisers  located outside its local market. The Company conducts its business
through 65 sales offices,  located  strategically  throughout the United States,
serving  broadcast and cable clients  located in over 200 dominant market areas,
or DMAs. The Company  represents at least one radio or one television station in
each of the 50 largest DMAs and in over 97% of all DMAs.  The  Company's  client
stations include network owned, network affiliated and independent stations.

     The Company's  client  stations have a combined  national spot  advertising
market share, measured as a percentage of gross billings of media representation
firms for 1996,  of  approximately  53% of the United  States spot radio  market
(based upon a market size estimated at  approximately  $1.5 billion for the same
period),  approximately  24% of the United States spot television  market (based
upon a market size estimated at approximately  $7.0 billion for the same period)
and  approximately  59% of the United  States cable market  (based upon a market
size estimated at approximately $200 million for the same period). National spot
advertising,  which is generally purchased by national  advertisers in a variety
of local markets in the United States,  typically accounts for approximately 50%
of a television  station's  revenue and  approximately  20% of a radio station's
revenue.  Radio and  television  stations  retain  media  representation  firms,
pursuant to exclusive  representation  contracts, to sell commercial air time to
national  advertisers,  while such stations have in house staffs to handle sales
to local advertisers.  The representation  contracts generally range from one to
ten years in term and  continue  thereafter  until  terminated,  typically on at
least one year's notice.  The Company  generally can sell  advertising time on a
national  level more  efficiently  and more  economically  than  stations  could
themselves due to the Company's  national presence through 65 sales offices.  In
addition,   client   stations   benefit  from  the  Company's   highly  skilled,
professionally   trained  sales  organization  of  approximately   1,400  people
(including  the employees of NCC (as  defined)),  its extensive on line computer
services and customized marketing research.  The Company offers advertisers "one
stop shopping" for air time on the Company's  large portfolio of client stations
and cable systems.

     The Company,  with over one hundred years of service to the media industry,
has grown in recent years through  advertising revenue increases at its existing
client stations, the acquisition of representation contracts of its competitors,
and the selective  acquisition of other media representation  firms. Since 1990,
the number of radio stations represented by the Company has increased by 710 and
the number of television  stations  represented  or supported by the Company has
increased by 133. The Company has grown,  in part,  through the  acquisition  of
other media representation  firms, during a period of significant  consolidation
in the media representation  industry.  The industry  consolidation reflects the
competitive  pressures on smaller media representation firms and the decision by
certain  broadcast  station groups to take  advantage of the national  presence,
economies  of scale and  comprehensive  services  offered by  independent  media
representation firms such as the Company.

     The  Company  provides  media  representation  services  to the U.S.  cable
television  industry  exclusively  through National Cable  Communications,  L.P.
("NCC" or the  "Cable  Joint  Venture"),  a joint  venture  among  the  Company,
affiliates of Comcast Corporation  ("Comcast"),  Continental  Cablevision,  Inc.
("Continental"),  Cox Communications, Inc. ("Cox") and Time Warner Entertainment
Company,  L.P. ("Time Warner").  The Company is the general partner of the Cable
Joint Venture with a 50%  partnership  interest.  The remaining 50%  partnership
interest is divided equally among the other parties. The limited partners agreed
that  cable  systems  with  certain  minimum  levels  of  subscribers  would  be
represented  exclusively by the Cable Joint Venture.  The Cable Joint Venture is

                                       2
<PAGE>

the largest  cable  television  media  representation  firm in the United States
(based  on  gross   billings),   representing   systems  with  an  aggregate  of
approximately  38.1 million  subscribers.  The Cable Joint Venture  represents a
partnership among all Chicago area cable operators  providing for the first hard
wired,  all  subscriber,   digital   interconnect   system.  The  Chicago  Cable
Interconnect  system became  operational  in October 1996. In October 1996,  the
Cable Joint Venture  announced plans for the second such system in Detroit.  See
"Cable Television."

     In November  1995,  the Company  announced  the  formation  of Sentry Radio
Sales, a full service radio sales  representation  firm,  which is a division of
the Company. See "Radio Representation." In December 1995, the Company announced
the establishment of Katz Millennium Marketing,  its subsidiary that specializes
in  interactive  television  projects,  Internet  web  sites  and  other on line
services. See "Internet / Interactive Television."

     The Company has the following three-part operating strategy:

     Expand Market Share. To increase its market share, the Company will seek to
expand its  operations  in existing and new markets by  developing  new clients,
acquiring  representation  contracts of its competitors and selectively pursuing
the  acquisition  of  representation  firms.  The  Company  will also pursue new
opportunities in developing media technologies such as Internet marketing, where
Katz  Millennium  Marketing  provides  representation  services to Internet  web
sites,  interactive  television  projects and on line services and,  through its
Katz   International   subsidiary,   will  seek  to  increase  its  presence  in
international markets.

     Provide Highest Quality Service. To better serve its existing clients,  the
Company  will  continue  to  offer  comprehensive  advertisement,  planning  and
placement services, as well as a broad range of value added benefits,  including
marketing,  research,  consulting and programming advisory services. The Company
believes  these  services  help to improve the  ratings of its client  stations,
thereby stimulating further demand for the Company's representation services.

     Increase  Overall  Demand for  National  Spot  Advertising.  The  Company's
efforts to increase overall demand for national spot advertising are enhanced by
its continued  development of the Katz Networks.  The Katz Networks refer to the
portfolios of client radio and  television  stations and cable systems which the
Company packages  together (in various  combinations) and markets to advertisers
as informal or unwired  networks.  Advertisers are able to place  advertisements
efficiently on as few as two stations or as many as all stations  represented by
the Company to target  specific  demographic  groups or markets.  Through  these
networks of client  stations,  the Company has the ability to reach audiences in
size  equivalent to those of the major radio and television  networks.  The Katz
Networks also offer  flexibility by providing an alternative to the more limited
offerings of the traditional  broadcast networks.  The Company believes that the
breadth of the Katz Networks  cannot  presently be duplicated to the same extent
by any other  representation firm because of the large number of client stations
required to effectively  offer such a service.  In addition,  the Company is the
only  representation  firm  engaging  in  multiple  types of  electronic  media,
including radio, television, cable television and the Internet.


Background of the Company
-------------------------

     The Company is a wholly-owned indirect subsidiary of Katz Media Group, Inc.
("KMG"). The Company is the survivor of a merger (the "KCC Merger") between Katz
Capital  Corporation  ("KCC")  and the  company  formerly  known  as Katz  Media
Corporation,  its  wholly-owned  subsidiary  ("Katz Media," or the  "Predecessor
Company").   The  survivor  of  the  KCC  Merger,   Katz  Capital   Corporation,
subsequently  changed  its name to Katz Media  Corporation.  In July  1994,  DLJ
Merchant Banking Partners,  L.P. and related investors  (collectively,  "DLJMB")
and  certain  members  of  current  management  formed  KMG and  KCC as  holding
companies  to  acquire,  through  KCC,  all  of  the  outstanding  stock  of the
Predecessor  Company  from an  investor  group that  included  certain  retiring
executives.  That  acquisition  was  completed  on August  12,  1994 (the  "1994
Acquisition").  In April  1995 KMG  completed  an  initial  public  offering  of
5,500,000  shares of its common  stock (the "1995  IPO") and  contributed  $78.3
million of the proceeds to the Company. The common stock of KMG is listed on the

                                       3
<PAGE>

American  Stock  Exchange  under the symbol "KTZ".  As of March 20, 1997,  DLJMB
beneficially  owned  approximately  49.4% of the  common  stock of KMG,  and the
management   shareholders,   consisting  of  management  and  employees  of  KMG
(collectively, the "Management Shareholders"),  beneficially owned approximately
13.1% of the common  stock of KMG. KMG does not have any  significant  assets or
operations other than through the Company.


Background of the Business
--------------------------

     Media  representation  firms are retained by radio and television  stations
and cable television systems to sell commercial air time to advertisers  located
outside their local markets.  This air time is called national spot  advertising
because it is placed or  "spotted" in one or more  broadcast  or cable  markets.
This is in contrast to network  advertising,  which is broadcast  simultaneously
throughout  the  United  States  on  network  affiliated  stations,   and  local
advertising,  which is generally sold to local  advertisers  through a station's
own sales and marketing staff.  Usually,  national spot advertising time is sold
via  advertising  agencies,  which are hired by  advertisers  to plan and create
their  advertising  campaign  and to  place  such  advertising  with  radio  and
television stations, cable systems and other media.


Representation Contracts
------------------------

     Representation firms generate revenues through contractual commissions from
the sale of advertising  time on behalf of client  stations.  These revenues are
based on the station's  "net  billings"  (usually  defined as gross  advertising
billings less  customary  advertising  agency  commissions,  which are typically
15%).  Representation  contracts  are up to ten years in initial  length and are
evergreen  thereafter.  The  evergreen  period  is  the  contractual  term  of a
representation  contract  following the  expiration of the initial term thereof,
during  which period the contract is extended  until notice of  cancellation  is
given in accordance  with the notice  provisions  of the contract  (typically at
least one year). For example,  if a contract with an initial term of three years
and an evergreen  provision  is canceled  without  notice by the client  station
after  two  years,  the  representation  firm is  contractually  entitled  to be
compensated in an amount equal to 26 months of commissions  (i.e., 12 months for
the  remaining  term of the  contract,  12 months for the  advance or  evergreen
notice period and,  typically,  two  additional  months  representing  spillover
commissions for sales made prior to  cancellation).  In accordance with industry
practice,   termination   payments   are   generally   made  by  the   successor
representation  firm. The Company generally  amortizes the cost of acquiring new
contracts over the benefit period (typically  representing the initial term plus
the evergreen period of the acquired contracts), although contracts are expected
to provide  significantly  longer-term  revenue beyond this initial period.  The
Company similarly amortizes the income associated with the buyout of an existing
client's contract over the payment period (or period of benefit).

     In recent years,  and in  particular  in 1996  following the passage of the
Telecommunications Act of 1996 ("the Telecommunications  Act"), the broadcasting
industry has undergone substantial consolidation. The consolidation of broadcast
station ownership has led to the development of larger client station groups and
has increased the level and frequency of buyouts.  Station groups have tended to
negotiate  exclusive  long term  representation  contracts  with a single  media
representation firm covering all of their stations,  including stations acquired
after the date of the initial  representation  contract.  The Telecommunications
Act has eliminated  certain of the  restrictions on multiple  ownership of radio
and  television  stations  by a single  entity  and has  relaxed  certain  other
restrictions  on cross  ownership of broadcast  properties.  The Company expects
further  consolidation  of the broadcast  industry as a result of the passage of
the Telecommunications Act. See "Government Regulation."

     In 1996,  television,  cable  television  and  radio  advertising  together
comprised  approximately  $52.4  billion  or  30.2% of  total  U.S.  advertising
expenditures.  Total 1996  expenditures  for national spot  advertising from all
sources were estimated to be approximately $10.0 billion for broadcast and cable
television and $2.1 billion for radio, of which  approximately  $7.2 billion and
$1.5 billion, respectively, were commissionable billings. Cable advertising is a
much less mature market than radio or television  advertising.  However, the use

                                       4
<PAGE>

of exclusive  representation  is becoming more prevalent in the cable television
industry,  which is currently served by two major national representation firms,
NCC and CNI, Inc., as well as smaller regional firms.


Radio Representation
--------------------

     The Company is the leading radio  representation firm in the country (based
on gross billings), representing on an exclusive basis over 2,000 radio stations
throughout the United States with national spot radio billings in excess of $789
million in 1996. The Company conducts its radio representation  business through
its Katz Radio,  Christal Radio,  Banner Radio,  Eastman Radio, Sentry Radio and
Katz Hispanic  Media  operations.  Each of these six  representation  operations
performs  autonomously  within  the  Company  and  services  a cross  section of
stations,  markets,  geographic  locations,  demographics  and formats (with the
exception of Katz Hispanic Media). This autonomy serves to heighten  competition
among the six  operations,  which the  Company  believes  enhances  its  overall
performance.

     The Company provides a full range of marketing services,  grouped under KRG
Dimensions,  including sales promotion support,  and customized  audience/market
research to meet the needs of client stations and to develop new sources of spot
and unwired  radio  network  advertising  revenues.  In addition,  the Company's
research  department  continuously  analyzes a variety  of data to  provide  its
salespeople  with creative  means with which to demonstrate  radio's  advantages
over other media.  Local economic  conditions,  station  performance  levels and
qualitative marketing data are closely monitored by the research department.

     The Company's  growth in radio  representation,  aside from that  resulting
from acquisitions,  is the result of the continuing demand for radio advertising
and certain  competitive  advantages  enjoyed by the  Company,  such as the Katz
Networks. The Katz Networks refers to the Company's informal or unwired networks
of  client  stations  that the  Company  can  package  together  and  market  to
advertisers  seeking to reach specific  demographic  groups in those  geographic
markets meeting the advertisers' quantitative and qualitative criteria.

     The Company's revenues from radio representation are derived from a diverse
client base of stations  throughout  the United  States.  The Company's  largest
single client accounted for  approximately  5.5% of the Company's total 1996 net
operating revenues.  The Company's clients include the following prominent radio
broadcasting companies:

        ABC                                         Hearst Broadcasting
        American Radio Systems/                     Heftel Broadcasting
        EZ Communications                           Heritage Media
        Bonneville International                    Jacor Communications
        Cox Communications                          Tribune Broadcasting
        Evergreen Media/Chancellor Broadcasting
        Company/Viacom International


Television Representation
-------------------------

     The Company is one of the leading  television  representation  firms in the
country,  representing on an exclusive  basis over 340 television  stations with
national spot  television  billings of  approximately  $1.5 billion in 1996. The
Company conducts its television  representation  business through two autonomous
operations,  Katz  Television  (consisting  of Katz  American  Television,  Katz
Continental Television and Katz National Television) and Seltel.

     Katz Television's three operating divisions each target a particular market
segment  and operate  autonomously  while  sharing  substantially  all  overhead
functions.  The Company believes this structure enables its divisions to provide
clients with specialized  expertise in the respective  markets they serve.  Katz
American Television represents stations affiliated with the three major networks

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<PAGE>

(ABC, CBS and NBC) ("network affiliated  stations") in the 50 largest DMAs. Katz
Continental  Television  represents  network  affiliated  stations in medium and
smaller markets,  generally DMAs ranked 51 and higher. Katz National  Television
represents  large  market,  network-  affiliated,  independent  and Fox,  United
Paramount  Network  and  The  Warner  Brothers   Television  Network  affiliated
stations.

     Seltel  represents over 140 television  stations,  and the Company believes
Seltel is the largest  representative of Fox network affiliates,  which comprise
56 of Seltel's  client  stations.  Since Katz Television and Seltel are operated
independently  of one another,  the Company  generally is able to represent more
than one television station in a market.

     The Company  believes it has achieved a leading position in television spot
advertising through, among other things, the strength of its 40 television sales
offices,  its marketing  services and its unwired networking  capabilities.  The
Company  believes  it  has  the  largest  and  most   sophisticated   marketing,
programming  advisory and research  data support  capability  in the  television
representation  industry,  and utilizes unique proprietary computer applications
to help formulate and implement comprehensive media marketing plans. The Company
provides  client  stations with  marketing  research and other services that not
only can increase a station's  national spot  business,  but also can be used by
the client station to generate sales in its local market.

     The Company's  revenues from television  representation  are derived from a
diverse client base of stations throughout the United States, although there are
some regional markets which the Company does not presently service and which the
Company has targeted for future  revenue  growth.  The Company's  largest single
client  accounted  for  approximately  5.5%  of the  Company's  total  1996  net
operating revenues.  In addition,  the Company's clients are well diversified by
network  affiliation.  The Company's  clients  include the  following  prominent
television broadcasting companies:

       Abry Communications                         Lee Enterprises
       Allbritton Communications                   Maine Broadcasting
       Bahakel Broadcasting                        McKinnon Broadcasting
       Benedek Broadcast Group                     New York Times
       Clear Channel Communications                Paramount Communications
       Cosmos Broadcasting                         Pulitzer Broadcasting
       Fisher Broadcasting                         Raycom Inc.
       Granite Broadcasting                        Scripps Howard Broadcasting
       Gray Communications                         Sullivan Broadcasting Company
       Hearst Corporation                          Smith Broadcasting
       Landmark Communication


Cable Television
----------------

     The Company began servicing the cable television advertising market through
Cable Media  Corporation  ("Cable Media") in 1992.  During 1993 and 1994,  Cable
Media secured  significant  representation  contracts with Tele  Communications,
Inc.,  the nation's  largest cable system  operator,  and other well known cable
operators at the time such as Adelphia,  Multimedia,  Times Mirror,  Paragon and
Tribune,  and with the  interconnects  that serve Detroit and Miami.  In January
1995, the Company formed the Cable Joint Venture by  contributing  $10.5 million
in cash and the  assets  of Cable  Media  and  agreeing  to  conduct  all of its
existing  and future  cable  representation  activities  through the Cable Joint
Venture in exchange for a 50%  partnership  interest in the Cable Joint Venture.
The  remaining  50%  partnership  interest  is divided  equally  among  Comcast,
Continental,  Cox and Time Warner.  The limited partners  contributed all of the
assets of National Cable Advertising, L.P. ("NCA") and agreed that cable systems
with certain minimum levels of subscribers  would be represented  exclusively by
the Cable Joint  Venture.  The profits and losses of the Cable Joint Venture are
apportioned  between the partners in accordance with their respective  ownership
interests.  The Company is the general  partner of the Cable Joint Venture,  for
which it does not receive  additional  compensation.  The Cable Joint Venture is
the largest  cable  television  media  representation  firm in the United States
(based  on  gross   billings),   representing   systems  with  an  aggregate  of
approximately 38.1 million subscribers.

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<PAGE>

     Each  limited  partner or an  affiliate  is  committed to appoint the Cable
Joint Venture as its national  advertising  representative  for cable television
systems  serving an  aggregate  of at least 2 million  subscribers  (subject  to
certain exceptions).  The representation  agreements have an initial term of two
years with an  extension at the option of the Cable Joint  Venture  based on the
achievement of certain performance results.

     Cable advertising  expenditures  have grown  substantially in recent years.
Over the past  nine  years,  total  cable  advertising  billings  have more than
quadrupled.  Within  the  cable  advertising  market,  national  spot  cable has
accounted  for  an  increasingly   larger  share  of  total  cable   advertising
(approximately $200 million in 1996). This trend is expected to continue for the
foreseeable  future  as cable  matures,  more  sophisticated  interconnects  are
established and advertisers  become educated  regarding the benefits of national
spot cable advertising.

     In November  1995,  the Cable Joint Venture  announced an agreement  with a
partnership among all Chicago area cable operators  providing for the first hard
wired,  all  subscriber,   digital   interconnect   system.  The  Chicago  Cable
Interconnect  has  engaged  the Cable  Joint  Venture  on a  long-term  basis to
represent and operate the Interconnect for the cable partners. The Chicago Cable
Interconnect,  which commenced  operations in October 1996, serves as a one stop
cable television buying outlet for regional and national advertisers,  providing
for  real  time,  single  point  insertions   enabling   advertisements  to  run
simultaneously  across the  Chicago DMA or target  specific  market  zones.  The
system enables spots to be aired  instantaneously,  securing distribution to the
DMA and increasing the  attractiveness  of cable television to advertisers.  The
system has a single insertion system on 16 networks with  distribution via fiber
to the entire 1.5 million  households in the DMA and to five discrete zones. The
system significantly enhances the quality and reliability of the delivery of the
advertisement and reduces the administrative  burden of billing and payment. For
the first time, all cable systems in a given market are fiber  optically  linked
with  digital  insertion  capabilities  to  deliver  advertising  from a central
location.  The five year contract is expected to increase  advertising  sales on
cable television in the Chicago area. The Cable Joint Venture intends to explore
opportunities for interconnects in other markets as they arise.

     In October 1996,  the Cable Joint Venture  announced an agreement  with the
Detroit area cable  operators for the nation's  second hard wired cable delivery
system to provide real time,  single point advertising  insertion  capabilities.
This system will have similar  capabilities  to The Chicago Cable  Interconnect,
including state of the art fiber optic technology.  The Cable Joint Venture will
also play an integral  role in the system  upgrade in  exchange  for a long-term
contract.  The Detroit  Interconnect will have the capability to serve more than
1.4 million households in the DMA.


Internet / Interactive Television
---------------------------------

     In  December  1995,  the  Company  formed  a  new  sales  subsidiary,  Katz
Millennium Marketing,  to represent Internet web sites,  interactive  television
projects and on line services. Katz Millennium has been retained on an exclusive
basis to represent the Internet web sites for such clients as CarTalk,  Sandbox,
Better  Homes & Gardens  and Bell  South's  test of  interactive  television  in
suburban Atlanta, Georgia.


International
-------------

     In May 1993,  the Company formed Katz  International  to develop a European
media sales business.  Katz  International  currently  represents  various radio
stations  and cable  television  systems in the United  Kingdom.  The  Company's
offices are located in London, England.


Media Marketing Services
------------------------

     The    marketing    resources   of   the   Company    include    customized
audience/marketing  research,  sales promotion support and management  services.
The customized  audience/marketing  research  offered by the Company consists of
statistical  and  demographic  data  that  support  advertisers'   purchases  of
advertising time on the Company's  client stations.  This research is drawn from
all  available  industry  information  and data  services  (e.g.,  The  Arbitron

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<PAGE>

Company,  A.C.  Nielsen  Company and Simmons Market  Research) and is applied in
conjunction  with the  advertiser's  marketing  goals to  develop  an  effective
program.  Whether the emphasis is on a specific geographic region or demographic
group,  this research  assists the advertiser in determining the effective level
of both reach and frequency for the likely users of its product. The information
may also be used to recommend specific  promotions,  the appropriate blending of
media for an advertising campaign or the most effective programming vehicles for
a particular  advertising campaign (such as sports or weather).  Sales promotion
support  includes  concept  development  and  sales  promotion  programs.  These
programs blend advertising support,  merchandising and sales incentive programs.
The  Company  can  then  suggest   promotional   campaigns   which  may  include
partnerships  with other  advertising  media.  The Company  provides  management
services  to  two  broad  constituencies.  First,  it  offers  media  consulting
assistance to advertisers,  including single source media planning for radio and
television,  and generates proposals for sales promotions. The other constituent
group is client stations, for whom the Company conducts educational seminars and
provides revenue forecasting and technical assistance with the rating services.


Media Data Support Services
---------------------------

     The Company,  through an independent third party,  provides  centralized on
line  computer  services,  which are  available  for use by all of its employees
through over 2,000  terminals and its  proprietary  local area networks  located
throughout  the Company's  offices.  In addition,  the Company has developed and
maintains  proprietary PC software  applications  for use by its sales force and
client  stations.   The  Company  believes  that  no  other   independent  media
representation firm maintains a media data computer service operation similar to
that of the Company.  The  Company's on line  services  provide  innovative  and
proprietary sales systems and support to the Company's sales staff and to client
stations.  The Company believes broadcasters and cable operators need to present
the most compelling reasons for a potential  advertiser to buy national spot air
time.  Direct input is received  from client  stations and the  Company's  sales
force with what management  believes is the most thorough sales and presentation
tools available in the industry.

     The  Company  has  designed  other  applications  that help its sales force
attract a larger  share of an  advertiser's  budget.  For  example,  the Company
recently  developed  a  proprietary  system for  television  which,  among other
things,  enables  salespeople  to  determine  the  optimal  price to charge  for
television  spots on client  stations.  Another system designed  exclusively for
radio provides salespeople at the Company with instant access to strategic sales
positioning information for each client radio station. The Company's sales force
also has access to other  proprietary  systems such as  county-by-county  rating
information,  demographic  program  rankings,  a  time-period  agency system and
metered  market   overnight   ratings.   All  of  these  systems  are  available
continuously  on an on line  basis.  The  Company  believes  that no  competitor
provides its salespeople with this level of automated sales tools.


Competition
-----------

     The  Company's  success  depends on its  ability to  maintain  and  acquire
representation  contracts with radio and television  stations and cable systems.
The  media  representation  business  is  highly  competitive,  both in terms of
competition  to gain client  stations and to sell air time to  advertisers.  The
Company   competes   not  only  with  other   independent   and  network   media
representatives  but also with direct  national  advertising.  The Company  also
competes on behalf of its clients for advertising  dollars with other media such
as newspapers and magazines,  outdoor advertising,  transit advertising,  direct
response advertising, yellow page directories and point of sale advertising.

     The Company's major independent  competitors  serving  television  stations
include TeleRep/HRP (Harrington,  Richter & Parsons, Inc.)/MMT (MMT Sales, Inc.)
and Petry Inc./Blair Television; and its major competitor serving radio stations
is Interep.  The Company's only major  competitor  serving cable systems is CNI,
Inc.  The  Company  is the only full  service  representation  firm that  serves
television stations, radio stations, cable television systems and the Internet.

                                       8
<PAGE>

     The Company  believes that its ability to compete  successfully  with other
national  spot  advertising  representation  firms is based  on its  ability  to
maintain  and  acquire  representation  contracts,  the  inventory  of  time  it
represents,  its value  added  programs  and  support  services,  its ability to
provide unwired  networks in both radio and television and the experience of its
sales  personnel.  The Company believes that it competes  effectively,  in part,
through its employees' knowledge of and experience in the Company's business and
industry, and their long standing relationships with clients.

     The Company also  believes that its sales offices  located  throughout  the
United  States,  its history of service to the industry,  its status as the only
representation firm serving radio,  television,  cable and Internet clients, and
its media data systems provide it with competitive advantages that have resulted
in the Company's status as the leading media representation firm based on client
stations' billings.


Dependence on Maintenance and Buyouts of Representation Contracts and
Maintenance of Commission Rates; Competition
---------------------------------------------------------------------

     The  Company's  success  depends on its  ability to  maintain  and  acquire
representation contracts with radio and television stations and cable television
systems. Client representation contracts may be terminated prior to their stated
expiration.  Termination generally occurs in connection with a change in station
or  system   ownership,   which  tends  to  cause  a  buyout  and  a  change  of
representation  firm. As a result, the Company  continually  competes with other
representation  firms for both the acquisition of new client stations as well as
the maintenance of existing  relationships.  The  consolidation in the broadcast
and cable  industry has increased as a result of the  Telecommunications  Act of
1996, resulting in larger station groups. In addition,  the recent consolidation
in the broadcast  media  representation  industry and the recent increase in the
number of ownership  changes of broadcast  stations have increased the frequency
of the termination or buyout of representation  contracts.  Most recently,  this
has resulted in a net increase in the number of radio station  clients and a net
decrease in the number of television station clients represented by the Company.
As a result of the intense competition and volatility in the business, there can
be no assurance  that the Company will continue to acquire new contracts or that
its existing representation  contracts and level of commission rates will remain
in  place.   The  failure  of  the  Company  to  acquire  and  maintain   client
representation  contracts or to maintain the level of its commission rates would
likely  have an  adverse  effect on the  Company's  results  of  operations.  In
addition,  the  Company  competes  not only with other  independent  and network
broadcast media  representatives  but also with direct national  advertising and
the  broadcasting  industry  as a  whole.  There  can be no  assurance  that the
Company's  business will not be adversely  affected by increased  competition in
the markets in which it operates.  In 1996,  Viacom  International and Paramount
Communications,  which are  affiliated  companies,  collectively  accounted  for
approximately 5.5% of the Company's total net operating revenues.


Dependence on General Levels of Advertising; Seasonality
--------------------------------------------------------

     The  Company's   business  normally  follows  the  pattern  of  advertising
expenditures in general and is seasonal to the extent that radio, television and
cable  television  advertising  spending  increases  during the fourth  calendar
quarter in  connection  with the  Christmas  season  and tends to be  relatively
weaker during the first calendar quarter.  Radio advertising generally increases
during the summer months when school is not in session.  In addition,  broadcast
media also tends to experience  increases in the amount of advertising  revenues
as  a  result  of  special  events  such  as  Presidential  election  campaigns.
Furthermore,  the level of advertising revenues of radio and television stations
and cable  systems,  and  therefore  the level of  revenues of the  Company,  is
susceptible  to  prevailing  general and local  economic  conditions  and trends
affecting  advertising  expenditure in general, as well as market conditions and
trends affecting advertising  expenditures in specific industries.  For example,
overall levels of national spot advertising in the first half of 1996 were lower
than for the comparable period in 1995, which is reflected in the decline in the
Company's  revenues for the six months  ended June 30, 1996  compared to the six
months ended June 30, 1995.  Corresponding increases or decreases in the budgets
of  radio,   television  and  cable  advertisers  will  affect   broadcast/cable
advertising  revenues of radio,  television stations and cable systems, and thus
the revenues of the Company.

                                       9
<PAGE>

Government Regulation
---------------------

     The  broadcasting   industry  is  subject  to  regulation  by  the  Federal
Communications  Commission (the "FCC") under the  Communications Act of 1934, as
amended (the "Communications  Act"). The  Telecommunications  Act of 1996, which
amended various provisions of the Communications Act, directed the FCC to revise
its  multiple  ownership  rules  for  television  stations  by  eliminating  the
numerical  limit on the number of  stations  that can be owned  nationwide  by a
single person or entity and by increasing the national audience reach limitation
on commonly  owned  television  stations from 25 percent to 35 percent.  The FCC
adopted  regulations  implementing these directives in March 1996. These changes
have led,  and are likely to continue to lead,  to larger  station  groups under
common  ownership which most recently has had the effect of increasing the level
and frequency of buyouts of representation contracts. For example, in connection
with its acquisition of another  station group, a television  station group that
was,  until  recently,  a  significant  non-exclusive  client of the Company has
informed the Company that it has engaged one of the Company's competitors as its
exclusive  media  representation  firm.  Similarly,  the  Company  has  recently
acquired  additional  television  and  radio  station  clients  as a  result  of
acquisitions of stations by groups that are exclusive clients of the Company. As
these  groups  become large  enough,  notwithstanding  the general  inability to
construct unwired networks, this consolidation may result in more station groups
forming in- house  media  representation  units and  foregoing  the  services of
independent media  representation  firms such as the Company.  See "Management's
Discussion and Analysis of Financial  Condition and Results of Operations" for a
discussion of the effects of the transfer of the stations  represented by United
Television  Sales,  Inc. ("United  Television").  Moreover,  even if such groups
continue  to use the  services of the  Company,  the  commission  rates that the
Company is able to charge may be adversely affected. The FCC is also reexamining
its rules limiting the common  ownership of more than one television  station in
the same market (the "television  duopoly" rule). If the television duopoly rule
is relaxed,  this change likely will result in further  concentration of station
ownership.

     In 1995, the FCC commenced a rulemaking  proceeding to determine whether to
eliminate its rule prohibiting network affiliated stations that are not owned by
their  networks  from  being  represented  by  their  networks  for the  sale of
non-network  advertising  time. If the FCC eliminates its prohibition on network
representation of affiliates,  such change could adversely affect the ability of
the Company to attract and retain network  affiliates as client  stations.  This
proceeding is currently pending before the FCC. However, numerous station owners
have filed  comments and reply comments  opposing the proposed rule change.  The
Company is unable to predict the outcome of the  proceeding or its impact on the
Company.  In addition,  the United States  Congress and the FCC  regularly  have
under  consideration  and may  adopt in the  future  new laws,  regulations  and
policies regarding a wide variety of matters (including  technological  changes)
which could affect the operations and ownership of the Company's clients and, as
a result,  the Company's  business.  The Company is unable to predict if or when
such laws,  regulations  or policies  might be adopted and  implemented  and, if
implemented,  the effect they will have on the  broadcast  media  representation
industry or the future results of the Company's operations.


Executive Officers
------------------

     The following table sets forth certain information  regarding the executive
officers of the Company.

NAME                               AGE      TITLE
Thomas F. Olson..............      48       President, Chief Executive
                                            Officer and Director
James E. Beloyianis..........      47       Vice President, Secretary and
                                            Director
Richard E. Vendig............      49       Senior Vice President, Chief
                                            Financial & Administrative Officer,
                                            Treasurer
Stuart O. Olds...............      47       Vice President and Director
L. Donald Robinson...........      58       Vice President

     Thomas F. Olson joined the Company in 1975 as a television  sales executive
in the firm's Chicago  office.  From 1977 to 1984, he held various  positions at

                                       10
<PAGE>

Katz Continental  Television and in 1984 was named President of Katz Continental
Television. In 1990, he was named President of Katz Television and in April 1994
was promoted to the  position of  President  of the Company.  Mr. Olson has been
President,  Chief  Executive  Officer and  director of the Company  since August
1994.  Mr.  Olson is  immediate  past  Chairman of the  Station  Representatives
Association.

     James  E.  Beloyianis  joined  the  Company  in  1973 as a  member  of Katz
Television. He was promoted in 1991 to Senior Vice President of Katz Television,
a position he held until 1992,  when he was promoted to Executive Vice President
of Katz Television.  In April 1994, Mr.  Beloyianis was promoted to President of
Katz Television.  In August 1994, Mr.  Beloyianis was appointed to the positions
of Vice President, Secretary and director of the Company.

     Richard E.  Vendig  joined  the  Company in  December  1994 as Senior  Vice
President,  Chief Financial and Administrative Officer,  Treasurer.  Immediately
prior to joining the Company,  Mr. Vendig was Senior Vice President  Finance and
Secretary of CBI Holding Company, a privately owned pharmaceutical  distribution
company. Prior thereto, Mr. Vendig served as a Director of International Finance
at Grey Advertising Inc., and more recently was an independent  consultant.  Mr.
Vendig previously was a partner of the accounting firm of Ernst & Young LLP.

     Stuart O. Olds joined the Company in 1977 as a radio salesman in the firm's
Chicago  office.  In 1981, Mr. Olds was promoted to Vice President of Katz Radio
and in 1984 to Vice  President  of the Katz Radio  Group  Network.  Mr. Olds was
named  President  of Katz  Radio  in 1987 and was  promoted  to  Executive  Vice
President Radio in 1990 and Executive Vice  President,  General Manager Radio in
1992.  Since  August  1994,  Mr. Olds has served as  President of Radio and Vice
President and director of the Company.

     L. Donald  Robinson  joined the Company in May 1992 when Katz Media  bought
Seltel,  Inc., of which he has served as President and Chief  Executive  Officer
since 1990. In August 1994,  Mr.  Robinson was promoted to Vice President of the
Company.  Prior to 1990,  Mr.  Robinson was the  President  and Chief  Executive
Officer of Don Robinson & Co., Inc., a media consulting firm.

Employees
---------

     As of December 31, 1996, the Company (including NCC) employed approximately
1,780  persons,  of which  approximately  1,420 are sales  related.  None of the
Company's  employees  are  represented  by a union.  The  Company  believes  its
relations with its employees are excellent.

     The continued  success of the Company is dependent to a certain extent upon
the efforts of its current executive officers. The loss or unavailability of any
such executive officer could have an adverse effect on the Company.  The Company
does not  maintain  "key man"  life  insurance  with  respect  to any  executive
officers or other employees of the Company.  Moreover,  the combined success and
viability of the Company is  dependent  to a certain  extent upon its ability to
attract and retain qualified personnel in all areas of its business,  especially
management  positions.  In the event the Company is unable to attract and retain
qualified personnel, its business may be adversely affected.


Item 2.   Properties

     The Company maintains its corporate headquarters in New York, New York. The
lease agreement for approximately 186,000 square feet of corporate  headquarters
office space expires in 2012. The Company operates out of 65 sales offices in 50
separate  locations  throughout the United States (including 10 sales offices of
the Cable Joint Venture). The Company's executive and sales offices are believed
by management to be adequate for the Company's use.


Item 3.   Legal Proceedings

     The Company from time to time is involved in  litigation  brought by former
employees and other  litigation  incidental to the conduct of its business.  The
Company is not a party to any  lawsuit or  proceeding  which,  in the opinion of
management, is likely to have a material adverse effect on the Company.

                                       11
<PAGE>

Item 4.   Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of the holders of the Company's  common
stock during the fourth quarter of 1996.

                                        PART II


Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

     There is no  established  public  trading  market for the Company's  common
stock.


Dividends
---------

     The ability of the Company to pay dividends, repurchase stock or make loans
to its  parent  company  are  restricted  pursuant  to the  terms of its  credit
agreement with The First National Bank of Boston,  as  Administrative  Agent and
DLJ Capital Funding Inc., as Syndication Agent (the "New Credit Agreement"); and
the indenture ("the Indenture")  governing its 10 1/2% Senior Subordinated Notes
due 2007 (the "New Notes").  However,  such  restrictions are subject to certain
exceptions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital  Resources" and Note 5 of Notes to
Consolidated Financial Statements.


Item 6.   Selected Consolidated Financial Data

     The  following  selected  consolidated  financial  data  should  be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations," and the Consolidated Financial Statements, including
the  notes  thereto,   which  are  included   elsewhere  herein.   The  selected
consolidated  financial  data for the years ended December 31, 1996 and 1995 and
for the period  subsequent to the 1994  Acquisition from August 12, 1994 through
December 31, 1994 are derived from the audited consolidated financial statements
of the Company. The selected consolidated  financial data for the period January
1, 1994  through  August 11, 1994 and for the years ended  December 31, 1993 and
1992  are  derived  from  audited  Consolidated   Financial  Statements  of  the
Predecessor Company.  For accounting purposes,  the 1994 Acquisition was treated
as a purchase  transaction and accordingly the selected  consolidated  financial
data of the Predecessor Company is not necessarily comparable in all respects to
the selected consolidated financial data of the Company.

                                       12
<PAGE>
<TABLE>
<CAPTION>

                                Selected Consolidated Financial Data
                                       (Dollars in thousands)


                                        The Company                  The Predecessor Company
                              -------------------------------------------------------------------
                                                            Period      Period
                                                          August 12,   January 1     Year Ended
                               Year Ended    Year Ended     Through     Through     December 31,
                              December 31,  December 31, December 31, August 11,   --------------
                                  1996          1995         1994        1994      1993      1992
                              ------------  ------------ ------------ ----------   ----      ----
<S>                          <C>           <C>          <C>          <C>          <C>       <C>
Statement of Operations  Data:
Operating revenues, net......   $183,136     $184,667     $81,403      $103,382  $156,936  $146,034
Operating expenses:
Salaries and related costs...    102,920       99,477      42,730        64,866(1) 91,813    85,487
Selling, general and
 administrative..............     36,238(2)    39,044      15,208        23,680    32,146    30,835
Depreciation and amortization
  (3)........................      9,748       10,071       9,127        11,726    17,514    12,613
Provision for relocations (4)         --        6,400          --            --       350     3,707
 Total operating expenses....    148,906      154,992      67,065       100,272   141,823   132,642

Operating income.............     34,230       29,675      14,338         3,110    15,113    13,392

Interest and other expenses,
 net (5).....................     20,656       25,157      14,874        10,848    17,888     9,757
Income (loss) before income
 tax provision (benefit),
 extraordinary item and
 cumulative effect of
 accounting changes..........     13,574        4,518        (536)       (7,738)   (2,775)    3,635
Income tax provision (benefit)     8,986        4,448         671        (1,393)      603     2,815
Income (loss) before
 extraordinary item and
 cumulative effect of
 accounting changes..........      4,588           70      (1,207)       (6,345)   (3,378)      820
Extraordinary items - (loss) on
  early extinguishment of
  debt (6)...................     (6,678)        (801)         --            --        --    (3,717)
(Loss) before cumulative
  effect of accounting changes    (2,090)        (731)     (1,207)       (6,345)   (3,378)   (2,897)
Cumulative effect of accounting
  changes (7).................        --           --          --            --     5,438        --
(Loss) income before
  preferred stock dividend
  requirements................    (2,090)        (731)     (1,207)       (6,345)    2,060    (2,897)
Preferred stock dividend
  requirements (8)............        --           --          --            --        --     9,590
Net (loss) income.............   ($2,090)       ($731)    ($1,207)      ($6,345)   $2,060  ($12,487)


Other Data:
EBITDA(9).....................   $44,042      $50,377     $24,013       $18,695   $34,410   $33,677
Payments (receipts) on station
  representation contracts,
  (net) (10)..................    16,397       12,166        (201)        2,625     7,152     4,114
Capital expenditures..........     6,785        6,046       1,002         1,079     2,354     5,411

                                               13(a)
<PAGE>


Statement of Cash Flows Data:
Net cash provided by (used in)
  operating activities........    $8,626      $15,064      $8,666         $(384)   $8,373   $20,695
Net cash (used in) investing
  activities..................   (23,182)     (28,965)   (116,994)       (3,704)  (10,778)  (23,051)
Net cash provided by financing
  acitvities..................    17,355       12,298     110,519         4,297     2,395   (2,282)

Balance Sheet Data (at period end):
Working capital...............   $32,826      $24,666     $25,418            --   $16,459  $15,806
Total assets..................   437,700      375,511     326,919            --   182,517  173,428
Total debt....................   217,622      179,530     248,370            --   171,950  168,950
Common stockholders' equity
 (deficit)....................   104,710      106,690      26,786            --   (38,262) (39,717)

                                               13(b)
</TABLE>
<PAGE>

______________

(1)       Includes  $3,000 non-cash charge relating to payments made by a former
          shareholder  of the  Company to  certain  former  executives  who were
          terminated  in  connection  with the 1994  Acquisition  pursuant  to a
          preexisting agreement.

(2)       Includes  the $1,500  reversal  of  relocation  costs  accrued in 1995
          related  to  the  Company's  plan  to  reduce  headquarters   facility
          requirements as the Company has determined that such plan is no longer
          economically feasible.

(3)       Includes amortization of contract acquisition costs, net.

(4)       Non-cash  charge  related  primarily to the  relocation  of one of the
          Company's expanding  subsidiary  operations in 1995 and abandonment of
          leaseholds  in 1993 and  1992.  See  Note 8 of  Notes to  Consolidated
          Financial Statements and Note 2 above regarding the 1995 provision for
          relocations.

(5)       Includes non-cash  amortization of deferred  financing costs of $22 in
          1996, $1,960 in 1995, $3,668 in the period August 12, 1994 to December
          31, 1994,  $456 in the period January 1, 1994 through August 11, 1994,
          $754 in 1993 and $972 in 1992.

(6)       Represents loss on early  extinguishment of debt net of tax benefit of
          approximately  $4,600,  $600  and  $1,900,  in 1996,  1995  and  1992,
          respectively.   See  Note  5  of  Notes  to   Consolidated   Financial
          Statements.

(7)       Reflects a net after tax charge of approximately $1,600 resulting from
          adoption of SFAS No. 106,  "Employers'  Accounting for  Postretirement
          Benefits  Other Than  Pensions,"  and a net  benefit of  approximately
          $7,100  resulting from the adoption of SFAS No. 109,  "Accounting  for
          Income Taxes."

(8)       Preferred stock dividend  requirements  represent dividends accrued on
          preferred stock then outstanding.

(9)       EBITDA is defined as operating income, plus depreciation, amortization
          and  other  non-cash  items,  including  non-cash  rent  expense,  the
          non-cash provision for relocations,  non-cash  compensation related to
          stock   options,   plus   dividends,   if  any,  from   unconsolidated
          subsidiaries to the extent not included. See "Management's  Discussion
          and Analysis of Financial Condition and Results of Operations--Results
          of Operations"  for a  reconciliation  of EBITDA to operating  income.
          EBITDA  is  presented  because  it  is  a  widely  accepted  financial
          indicator  and is  consistent  with the  definition  used for covenant
          purposes  contained  in the New Credit  Agreement  and the  Indenture.
          EBITDA should not be considered as an  alternative  to net income as a
          measure of operating  results in accordance  with  generally  accepted
          accounting  principles or as an alternative to cash flows as a measure
          of liquidity.

(10)      Represents payments made in connection with the acquisition of station
          representation  contracts, net of payments received in connection with
          the sale of station representation contracts.

                                       14
<PAGE>


Item 7.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations

General
-------

     The following  discussion  is based upon and should be read in  conjunction
with  "Selected  Consolidated  Financial  Data" and the  Consolidated  Financial
Statements, including the notes thereto, included elsewhere herein.

     The net operating  revenues of the Company are derived from  commissions on
the sale of national spot advertising air time on behalf of clients.  Commission
rates are  negotiated  and set forth in the client's  individual  representation
contracts. The Company's success depends on, among other things, the maintenance
of its current representation contracts with client stations and the acquisition
of new representation  contracts.  The primary operating expenses of the Company
are employee salaries,  rents,  commission  related payments to employees,  data
processing  expenses and depreciation and amortization.  The Company's financial
results  have  been  impacted  by  three  significant  factors:  (i)  trends  in
advertising  expenditures,  (ii)  buyouts  and sales of  station  representation
contracts,  including  those resulting from changes in ownership of stations and
(iii)  acquisitions of representation  firms. The effect of these factors on the
Company's  financial  condition and results of operations has varied from period
to period.  Recent  changes in  regulations  affecting  ownership  of  broadcast
station  groups have led to and are likely to continue to lead to larger station
groups under common ownership,  which has the effect of increasing the level and
frequency  of buyouts  of  representation  contracts.  Most  recently,  this has
resulted  in a net  increase  in the number of radio  station  clients and a net
decrease in the number of television station clients represented by the Company.
The Company continues to pursue the representation of additional client stations
and groups in each of the media where it provides services.

     The Company  operates  as a single  segment  business  and is the only full
service media representation firm in the United States serving multiple types of
electronic media, with leading market shares in the  representation of radio and
television stations and cable systems. For the year ended December 31, 1996, the
aggregate  gross billings of the Company's  client  stations  (representing  the
aggregate dollar amount of advertising placed on client stations or systems) was
approximately  $2.4 billion,  comparable to the amount of gross billings for the
year ended December 31, 1995.  The  percentage  composition of gross billings by
broadcast media for the year ended December 31, 1996 was approximately 61.9% for
television,  31.9%  for  radio  and 6.2%  for  cable,  interactive/Internet  and
international  (on a 100% owned  basis).  The  percentage  composition  of gross
billings  for the year  ended  December  31,  1995 was  approximately  66.1% for
television,  27.8% for radio  and 6.1% for  cable and  international  (on a 100%
owned basis).  (The 1996 figures  exclude the billings of the United  Television
stations).  The commission rates that the Company charges vary between media and
within each medium.

     In recent years,  the Company has spent a  significant  amount of resources
acquiring  representation  contracts.  The decision to acquire a  representation
contract is based upon the market share opportunity presented and an analysis of
the costs and net benefits to be derived. If an existing representation contract
is canceled by a client station, the station is obligated to pay the commissions
that would have been  earned  over the  remaining  term of the  contract.  As is
typical in the industry,  the successor  representation firm bears this expense.
The  Company  amortizes  this cost over the period of  benefit  of the  acquired
contract.  The Company  continuously  seeks  opportunities to acquire additional
representation  contracts on attractive  terms,  while  maintaining  its current
client  roster.  In  addition,  the recent  changes in  ownership  of  broadcast
properties have fueled changes in client  engagements  among  independent  media
representation  firms.  These changes and the  Company's  ability to acquire and
maintain  representation  contracts  can  cause  fluctuations  in the  Company's
revenues and cash flows from period to period.

     The  Company's   business  normally  follows  the  pattern  of  advertising
expenditures in general and is seasonal to the extent that radio, television and
cable  television  advertising  spending  increases  during the fourth  calendar
quarter in  connection  with the  Christmas  season  and tends to be  relatively
weaker during the first calendar quarter.  Radio advertising generally increases
during the summer months when school is not in session.  In addition,  broadcast
media also tends to experience  increases in advertising revenues as a result of

                                       15
<PAGE>

special events such as Presidential election campaigns. Furthermore, advertising
revenues of radio and television  stations,  and therefore the level of revenues
of the  Company,  are  susceptible  to  prevailing  general  and local  economic
conditions  and  corresponding  increases  or decreases in the budgets of radio,
television  and cable  advertisers,  as well as  market  conditions  and  trends
affecting advertising expenditures in specific industries.

     The 1994  Acquisition  was  accounted  for  using  the  purchase  method of
accounting, and the purchase price was allocated to assets and liabilities based
upon their  respective  fair values.  As a result of the 1994  Acquisition,  the
financial  results of the Company are not  directly  comparable  to those of the
Predecessor Company.

                                       16
<PAGE>


 Results of Operations

     The accompanying analysis compares the results of the Company for 1996 with
the  results of the  Company  for 1995,  and the results of the Company for 1995
with the  combined  results of the Company and the  Predecessor  Company for the
year ended December 31, 1994.  The combined  results for the year ended December
31, 1994  include  the period  January 1, 1994  through  August 11, 1994 for the
Predecessor Company and the period August 12, 1994 through December 31, 1994 for
the Company.

<TABLE>
<CAPTION>

                                                                          Predecessor and
                                               The Company               Company Combined
                                               -----------             ---------------------
                                                       Year Ended December 31,
                                               ---------------------------------------------
                                                          (In thousands)

                                               1996                1995                 1994
                                               ----                ----                 ----
<S>                                           <C>                 <C>                  <C>
Statement of Operations Data:
Operating revenues, net...............      $183,136            $184,667             $184,785
Operating expenses, excluding
  depreciation, amortization and
  the provision for relocations.......       139,158(1)          138,521              146,484
Depreciation and amortization.........         9,748              10,071               20,853
Provision for relocations.............           --                6,400                 --
Operating income......................        34,230              29,675               17,448
Interest expense, net.................        20,656              25,157               25,722
Income (loss) before tax provision (benefit)
  and extraordinary item..............        13,574               4,518               (8,274)
Other Data:
EBITDA (2)............................        44,042              50,377               42,708

                                                Percentage of Operating Revenue, Net
                                                ------------------------------------
Statement of Operations Data:
Operating revenues, net...............       100.0%               100.0%                100.0%
Operating expenses, excluding
  depreciation, amortization and the
  provision for relocations...........        76.0                 75.0                  79.3
Depreciation and amortization.........         5.3                  5.5                  11.3
Provision for relocations.............         --                   3.5                   --
Operating income......................        18.7                 16.1                   9.4
Interest expense, net.................        11.3                 13.6                  13.9
Income (loss) before tax provision (benefit)
  and extraordinary item..............         7.4                  2.5                  (4.5)
Other Data:
EBITDA margin.........................        24.0                 27.3                  23.1

________________
(1)  Includes the $1,500 reversal of relocation  costs accrued in 1995 related to the Company's plan
     to reduce headquarters facility requirements as the Company has determined that such plan is no
     longer economically feasible.

                                                 17
</TABLE>
<PAGE>



(2)  The following table  reconciles  operating income to EBITDA for the periods
     indicated:

<TABLE>
<CAPTION>

                                                                          Predecessor and
                                               The Company               Company Combined
                                               -----------             ---------------------
                                                       Year Ended December 31,
                                               ---------------------------------------------
                                                          (In thousands)

                                               1996                1995                 1994
                                               ----                ----                 ----
<S>                                           <C>                 <C>                  <C>
Operating income......................       $34,230             $29,675              $17,448
Depreciation and amortization.........         9,748              10,071               20,853
Non-cash rent and other expense (a)...         1,454               2,734                1,407
Non-cash compensation related to stock
   options (b)........................           110               1,497                  --
Termination payments..................          --                   --                 3,000
Provision for relocations.............          --                 6,400                  --
Reversal of provision for relocation..        (1,500)                --                   --

EBITDA................................       $44,042             $50,377              $42,708
</TABLE>

_________

(a)       Non-cash rent expense  represents the difference  between rent expense
          recorded  pursuant to SFAS No. 13 and the portion requiring the use of
          cash or other current assets.

(b)       See Note 4 of Notes to Consolidated Financial Statements.

                                       18
<PAGE>

Comparison of 1996 to 1995
---------------------------

     Net operating  revenues in 1996 totaled $183.1 million,  a decrease of $1.5
million or 0.8%,  compared to net operating  revenues of $184.7 million in 1995.
This  decrease  reflected  (i)  the  effects  of the  consolidation  of  station
ownership  following  the passage of the  Telecommunications  Act leading to net
client losses in television offset in part by net client gains in radio and (ii)
the  mid-1995  transfer of the United  Television  stations  (representing  $3.1
million of revenues in 1995) to a new  representation  firm in which the Company
receives a profit  distribution  rather than  reporting  revenue and  associated
expenses.

     Operating  expenses,  excluding  depreciation and amortization and the $6.4
million  provision for relocations  recorded in 1995,  increased $0.7 million or
0.5% from  $138.5  million  in 1995 to $139.2  million  in 1996.  This  increase
reflects (i) an increase in salary and related  costs  related  primarily to the
establishment  of a sixth  radio  company,  Sentry  Radio,  the  creation of the
Company's  Interactive/Internet  unit,  Katz Millennium  Marketing,  plus normal
inflationary increases,  offset by a decrease in compensation expense associated
with  the  mid-1995  transfer  of the  United  Television  stations,  and (ii) a
decrease in selling,  general and administrative  costs primarily resulting from
the third quarter one-time reversal of the $1.5 million accrual of costs related
to the Company's plan to reduce its headquarters  facility  requirements,  which
the Company determined is no longer economically feasible.

     Depreciation and amortization  decreased by $0.3 million, or 3.2% for 1996,
compared to 1995, due to lower  amortization  expense related to non-competition
agreements  related to the 1994 Acquisition  which became fully amortized during
the first nine months of 1995.  Included in depreciation  and  amortization  for
1996 is a gain of approximately $3.6 million on the transfer of a representation
contract to an affiliate of the Company, Katz Media Services,  Inc. ("KMSI"), in
exchange for cash  consideration  of approximately  $4.9 million,  which reduced
depreciation and amortization expense. In connection with the Refinancing,  this
contract was repurchased by the Company for approximately $1.3 million.  No gain
or loss was recognized on the subsequent repurchase.

     Operating  income  increased to $34.2 million in 1996 from $29.7 million in
1995, or 15.3% as a result of the effects of the items mention above.

     Interest expense, net aggregated $20.7 million for 1996, a decrease of $4.5
million compared to 1995. In 1995, the Company incurred $4.7 million of interest
and  amortized  deferred  financing  costs  related to debt which was reduced or
satisfied with the net proceeds of the 1995 IPO in April 1995.

     Income before income tax  provision  and  extraordinary  item totaled $13.6
million  for 1996  compared  to $4.5  million  for  1995.  This  result  was due
primarily to the components enumerated above.

     Net loss for 1996 of $2.1 million reflects an  extraordinary  loss on early
extinguishment  of debt of $6.7  million,  net of an income tax  benefit of $4.6
million,  resulting  from the  Company's  repurchase  of  KMC's  12 3/4%  Senior
Subordinated  Notes due 2002  (the  "Katz  Notes")  and the  replacement  of the
Company's former senior credit facilities as described in Note 5 of Notes to the
Consolidated Financial Statements.  The Company has historically experienced net
losses, principally as a result of significant interest charges and depreciation
and amortization  charges. The Company expects that amortization charges related
to the buyout of station  representation  contracts  and  interest  charges will
continue to have a significant impact on its results of operations.

     The  difference  between  the  effective  tax rate of  approximately  66.2%
compared  to  the  U.S.  statutory  rate  of 35% is  primarily  attributable  to
permanent  differences  between  book and  taxable  income  related to  goodwill
amortization,  other nondeductible  expenses and state income taxes. For further
explanations, see Note 7 of Notes to the Consolidated Financial Statements.

Comparison of 1995 to 1994
--------------------------

     Net operating  revenues in 1995 totaled $184.7 million,  a decrease of $0.1
million,  compared  to net  operating  revenues of $184.8  million in 1994.  Net
operating revenues for 1995 remained  relatively constant and reflect reductions

                                       19
<PAGE>

associated with (i) the deconsolidation of the cable revenues as a result of the
establishment  of NCC in January 1995; (ii) the mid-1995  transfer of the United
Television stations to a new representation firm in which the Company receives a
profit distribution rather than reporting revenue and associated  expenses;  and
(iii) the loss of two major  radio  clients in late 1994 (one of which has since
returned to the  Company).  The effect of these items  amounted to a decrease in
net operating revenues of approximately  $10.6 million,  or 5.7%, as compared to
1994, which was offset almost entirely by an increase in operating revenues from
continuing and new clients.  On a "constant station" basis (deleting revenues of
stations  acquired or lost after  December  31, 1994 for the  relevant  period),
operating revenues increased approximately 5.0% during 1995 as compared to 1994,
while total  estimated  expenditures  for  national  spot  advertising  from all
sources increased by 1.7%.

     Operating expenses,  excluding depreciation,  amortization and the non-cash
provision for relocations of $6.4 million, decreased $8.0 million, or 5.4%, from
$146.5  million in 1994 to $138.5  million in 1995.  This decrease was primarily
attributable  to the effects of certain cost reduction  programs  implemented in
1995,  the  difference  in the  accounting  treatment  for the cable  operations
described  above,  a  one-time  non- cash  charge of $3.0  million  in the third
quarter  of 1994  related  to  payments  to  certain  former  executives  of the
Predecessor  Company  in  connection  with the 1994  Acquisition  and  decreased
compensation  expense reflecting the transfer of the United Television stations.
The provision for relocations  relates primarily to the relocation of one of the
Company's  expanding  subsidiaries  to permit its  continued  growth in the most
effective  manner and the  anticipated  reduction  of its  headquarter  facility
requirements.  Operating expenses, excluding depreciation,  amortization and the
non cash  provision  for  relocations,  as a percentage  of operating  revenues,
decreased from 79.3% for 1994 to 75.0% for 1995.

     Depreciation  and  amortization  decreased by $10.8 million,  or 51.7%, for
1995, compared to 1994, due to the significant effects of amortization of income
on certain  contracts  sold in 1994 and 1995 which were  amortized  (and  became
fully  amortized in 1995) and as a result of longer  initial  terms on contracts
acquired  in 1994 and 1995,  which  determines  the  period  for  contract  cost
amortization.  The  effect of both of these  items  was to  reduce  amortization
expense  for 1995 when  compared  to 1994.  These  items were in turn  partially
offset by the effects of additional goodwill amortization in 1995 resulting from
the 1994  Acquisition.  The Company  expects that continued  acquisitions of new
contracts  will likely  result in increases  in  depreciation  and  amortization
expenses in the future as well as  continued  increases in  liabilities  to make
payments  related  to  contract   acquisitions.   Absent   additional   contract
dispositions,  depreciation and amortization  expense is expected to increase in
future periods.

     Operating  income  increased to $29.7 million in 1995 from $17.4 million in
1994,  or 70.7%.  As a percentage of net operating  revenues,  operating  income
increased  to 16.1% for 1995,  compared to 9.4% for 1994,  due  primarily to the
items enumerated  above.  Operating income excluding the non-cash  provision for
relocations  increased to $36.1  million in 1995 from $17.4  million in 1994, or
106.8%.  As a percentage of net operating  revenues,  operating income excluding
the non-cash provision for relocations  increased to 19.5% for 1995, compared to
9.4% for 1994, due primarily to the items enumerated above.

     Interest expense net amounted to $25.2 million for 1995, a decrease of $0.6
million  compared to 1994.  Included in 1995 and 1994 were $4.7 million and $7.5
million,  respectively,  of interest  and  amortized  deferred  financing  costs
related to the debt that was reduced or  satisfied  with the net proceeds of the
1995 IPO in April 1995.

     Income before tax provision and extraordinary item totaled $4.5 million for
1995 compared to a $8.3 million loss for 1994.  This result was due primarily to
the components enumerated above.

     Net loss for 1995 of $0.7 million also  reflects an  extraordinary  loss on
early  extinguishment  of debt of $0.8 million,  net of an income tax benefit of
$0.6 million,  as a result of the Company  amending the Old Credit Agreement (as
defined)  in  1995  as  described  in Note 5 of the  Notes  to the  Consolidated
Financial Statements.  The Company and the Predecessor Company have historically
experienced net losses,  principally as a result of significant interest charges
and depreciation and amortization charges. The Company expects that amortization
charges related to the buyout of station  representation  contracts and interest
charges will continue to have a significant  impact on the Company's  results of
operations.

                                       20
<PAGE>


     The difference between the effective tax rate of approximately 98% compared
to the  U.S.  statutory  rate  of 35% is  primarily  attributable  to  permanent
differences  between book and taxable income  related to goodwill  amortization,
other nondeductible  expenses and state income taxes. For a further explanation,
see Note 7 of the Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources
-------------------------------

     Operating  activities  in 1996 provided cash of $8.6 million as compared to
$15.1 million in 1995. The decrease in cash provided by operating  activities in
1996 as compared to 1995 was due primarily to lower  operating  results in 1996,
combined with increased net working capital requirements in 1996.

     Net cash  used in  investing  activities  during  1996 was  $23.2  million,
compared to net cash used in investing  activities during 1995 of $29.0 million.
This decrease in cash used in investing  activities  was primarily the result of
the increase in net  payments  made on the  purchases of station  representation
contracts  in 1996 of $4.2  million  as  compared  to 1995,  offset  by the 1995
investment in the Cable Joint Venture of $10.8 million.

     During the three years ended December 31, 1996,  1995 and 1994, the Company
spent $42.4 million, $31.9 million and $11.9 million,  respectively,  on buyouts
of station representation  contracts.  The Company received $26.0 million, $19.8
million and $9.5  million from station  representation  contracts  bought out in
such periods, resulting in a net cash outlay of $16.4 million, $12.2 million and
$2.4 million, respectively. Capital expenditures during the years ended December
31, 1996, 1995 and 1994 amounted to $6.8 million, $6.0 million and $2.1 million,
respectively.  At December 31, 1996,  the Company had  liabilities  to make cash
payments on station  representation  contracts,  net of  receivables on sales of
station representation contracts, of $30.0 million, as compared to $14.0 million
at December 31, 1995.

     Overall cash flows from financing  activities provided $17.4 million during
1996 versus $12.3 million in 1995,  an increase of $5.1  million.  Excluding the
effects of the  Refinancing  (as defined) and the 1995 IPO, the cash provided by
financing  activities  during  1996  increased  on a net basis by $13.3  million
primarily as a result of increased facility borrowings.

     At December  31,  1996,  the Company had  approximately  $184.5  million of
unamortized  goodwill  recorded on its balance sheet.  The Company  assesses the
recoverability  of goodwill  regularly and believes the  unamortized  balance at
December 31, 1996 is fully recoverable based upon several factors, including (i)
the history of generating  positive  operating cash flows and operating  income,
(ii) the Company's proven ability to react to changes in market needs, (iii) the
long history of the Company and its leadership position in the industry and (iv)
the computed buyout value of its station representation contracts.

     EBITDA for 1996  decreased  $6.3  million,  or 12.6%,  to $44.0  million as
compared to $50.4 million for 1995. This decrease was attributable  primarily to
lower  operating  revenues and higher cash expenses,  including the start-up and
operating  costs  associated  with  the  new  Sentry  Radio  division  and  Katz
Millennium  Marketing discussed above.  Non-cash items in 1996 included the $1.5
million reversal of the provision for relocations relating to the Company's plan
to reduce its headquarters  facility  requirements,  versus a non-cash provision
for relocations of $6.4 million in 1995.

     EBITDA for 1995 amounted to $50.4 million,  an increase of $7.7 million, or
approximately  18.0%,  over the $42.7 million EBITDA for 1994. This increase was
attributed  primarily to the Company's  cost reduction  efforts  resulting in an
increase in the EBITDA  margin  from 23.1% for 1994 to 27.3% for 1995.  Non-cash
items in 1995 included $2.7 million of rent and other expenses,  $1.5 million of
compensation expense related to stock options and $6.4 million related primarily
to the relocation of one of its expanding subsidiary operations.

     On  December  19,  1996,  the  Company  completed  the  refinancing  of its
outstanding   indebtedness  (the   "Refinancing"),   designed  to  increase  the
availability  of funds for working  capital  purposes and enhance the  Company's
operating and financial  flexibility.  As part of the  Refinancing,  the Company
consummated  a  private  placement  of  $100.0  million  of its 10  1/2%  Senior
Subordinated Notes due 2007 and entered into the New Credit Agreement  providing
for aggregate  borrowings of up to $180.0  million.  In connection  with the New

                                       21
<PAGE>

Credit  Agreement,  the Old Credit  Agreement,  which  provided  for a revolving
credit facility of up to $94.9 million, was terminated. The New Credit Agreement
provides for term loans of $100.0 million and revolving  loans of $80.0 million.
The term  loans are fully  drawn.  The New  Credit  Agreement  contains  certain
restrictions  and  limitations,  including  limitations  on the  payment of cash
dividends  and  similar  restricted  payments,  other  than a certain  amount of
dividend  payments to be used to finance the possible  repurchase  by KMG of its
common stock.  The New Credit  Agreement also requires the Company to maintain a
certain ratio of EBITDA to fixed charges,  a total  interest  charge ratio and a
total debt to EBITDA ratio.

     In addition,  as part of the  Refinancing,  the Company  repurchased  $97.7
million of the Company's  $100.0 million  original  principal  amount of 12 3/4%
Senior  Subordinated  Notes due 2002 (the "Katz Notes"),  of which $97.8 million
aggregate  principal  amount was  outstanding  prior to the  Refinancing.  For a
further  description  of the  Refinancing,  including  the  mandatory  repayment
schedule of the New Credit Agreement, as well as restrictive covenants and ratio
requirements,   etc.,  see  Note  5  of  Notes  to  the  Consolidated  Financial
Statements.

     The Company's  long-term debt increased from $179.5 million at December 31,
1995 to $217.6  million at December 31,  1996.  At December 31, 1996 the Company
had $22.5  million  available  to be drawn under the New Credit  Agreement.  The
remaining  $40.0  million  will become  available  in the future  subject to the
achievement  of certain  financial  ratios and  compliance  with  certain  other
conditions.

     A substantial  portion of the Company's cash flow from  operations  will be
dedicated for the foreseeable  future to the servicing of its indebtedness under
the New Credit  Agreement  and the Notes,  the payment of rent  expenses and its
other fixed charges,  and payments in connection  with  acquisitions  of station
representation  contracts.  The degree to which the Company is  leveraged  could
make it  vulnerable  to changes in general  economic  conditions,  downturns  in
industry conditions or increases in prevailing interest rates. In addition,  the
Company's  ability to obtain additional  financing for working capital,  capital
expenditures, acquisitions or other purposes may be limited.

Changes in Accounting Principles

     Effective  January 1, 1996, the Company has adopted  Statement of Financial
Accounting  Standards  ("SFAS") No. 121,  "Accounting for the Impairment of Long
Lived  Assets."  This  statement  requires a review of  long-term  tangible  and
intangible  assets  (such as  goodwill)  for  impairment  of recorded  value and
resulting write downs if value is impaired. The adoption of SFAS No. 121 did not
have a  significant  effect on the  Company's  financial  position or results of
operations.

Effects of Inflation

     Inflation has not had a significant effect on Company operations.  However,
there can be no assurance that inflation will not have a material  effect on the
Company's operations in the future.

Statement Regarding Forward Looking Disclosure

     Certain sections of this report include "forward-looking statements" within
the  meaning  of Section  27A of the  Securities  Act,  and  Section  21E of the
Securities  Exchange Act of 1934,  as amended,  which  represent  the  Company's
expectations  or  beliefs  concerning  future  events  that  involve  risks  and
uncertainties,  including  those  associated  with the  effect of  national  and
regional economic  conditions,  the level of advertising on the Company's client
stations,  the ability of the Company to obtain new clients and retain  existing
clients,  changes in  ownership of client  stations  and client  stations of the
Company's competitors, other developments at clients of the Company, the ability
of the Company to realize cost reductions from its cost containment  efforts and
developments from recent changes in the regulatory  environment for its clients.
All  statements  other than  statements  of  historical  facts  included in this
report,  including,  without  limitation,  the statements  under  "Business" and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and elsewhere herein are  forward-looking  statements.  Although the
Company  believes  that  the  expectations  reflected  in  such  forward-looking
statements are reasonable,  it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations  ("Cautionary Statements") are

                                       22
<PAGE>

disclosed in this report, including, without limitation, in conjunction with the
forward-looking  statements  included in this report and under  "Business."  All
subsequent  written  and oral  forward-looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by the Cautionary Statements.

Item 8.   Financial Statements and Supplementary Data

     The Consolidated  Financial Statements and supplementary  information filed
as part of this Item 8 are listed under Part IV, Item 14,  "Exhibits,  Financial
Statement  Schedules and Reports on Form 8-K" and contained in this Form 10-K at
page F-1.

     Selected  quarterly  financial data required under this item is included in
Note 14 of the Notes to the Consolidated Financial Statements.

Item 9.   Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure Not applicable.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     Information regarding Directors is incorporated by reference to the section
entitled "Election of Directors - Information as to Directors" and "Nominees for
Election" in KMG's  definitive  Proxy  Statement to be filed with the Securities
and  Exchange   Commission  in  connection  with  KMG's  1997Annual  Meeting  of
Stockholders (the "Proxy Statement").  Information  regarding Executive Officers
is set forth in Item 1 of Part I of this  Report  under the  caption  "Executive
Officers."

Item 11.  Executive Compensation

     The  information  required by this item is incorporated by reference to the
sections  in the  Proxy  Statement  entitled  "Compensation  of  Directors"  and
"Compensation  Committee  Report on  Executive  Compensation,"  except  that the
Compensation Committee Report and Performance Graph are not so incorporated.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The  information  required by this item is incorporated by reference to the
sections in the Proxy Statement entitled  "Security  Ownership of Management and
Certain Beneficial Owners."

Item 13.  Certain Relationships and Related Transactions

     The  information  required by this item is incorporated by reference to the
section in the Proxy Statement entitled  "Compensation  Committee Interlocks and
Insider Participation."


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     The following documents are filed as part of this report or incorporated by
reference:

a(1)      The consolidated financial statements of the Company are listed on the
          "Index to Financial  Statements," on page F-1 to this report.

a(2)      The  consolidated  financial  statement  schedules  are  listed on the
          "Index to Financial Statements," on page F-1 to this report.

a(3)      Exhibits:  The  following  is an index to the exhibits to this report.
          Exhibits  not  incorporated  by  reference to a prior filing are filed
          herewith.

                                       23
<PAGE>

  EXHIBIT
    NO.                                       TITLE
  -------                                     -----

*2.1      Agreement  and Plan of  Merger  dated as of July 8,  1994 by and among
          DLJMB  and  Related  Investors,   Merger  Co.,  the  Company  and  the
          stockholders listed on the signature pages thereof.

*2.2      Securities  Purchase  Agreement  dated as of August 1, 1994  among the
          Company and the Buyers listed therein.

*3.1      Amended and Restated Certificate of Incorporation of the Company.

*3.2      Bylaws of the Company.

*4.3.1    Indenture among the Company,  certain  subsidiaries  thereof and First
          Fidelity Bank, National Association,  New Jersey, as Trustee, dated as
          of November 15, 1992,  relating to the Katz Notes  (including  form of
          Katz Note).

*4.3.2    Supplemental Indenture No. 1 dated May 19, 1994.

*4.3.3    Supplemental Indenture No. 2 dated August 12, 1994.

++4.3.4   Supplemental Indenture No. 3 dated December 13, 1996.

++4.3.5   Supplemental Indenture No. 4 dated December 19, 1996.

+4.3.6    Indenture relating to the 10 1/2% Senior  Subordinated Notes due 2007,
          dated as of December 19, 1996, among Katz Media Corporation,  American
          Stock Transfer & Trust Company, as trustee,  and Katz  Communications,
          Inc.,  Katz  Millennium  Marketing  Inc.,  Banner Radio  Sales,  Inc.,
          Christal Radio Sales,  Inc.,  Eastman Radio Sales,  Inc., Seltel Inc.,
          Katz Cable  Corporation  and The National  Payroll  Company,  Inc., as
          initial guarantors.

+4.3.7    Registration  Rights  Agreement,  dated as of December 19, 1996, among
          Katz  Media  Corporation,  Donaldson,  Lufkin  &  Jenrette  Securities
          Corporation and Katz Communications,  Inc.,  KatzMillennium  Marketing
          Inc., Banner Radio Sales,  Inc.,  Christal Radio Sales,  Inc., Eastman
          Radio  Sales,  Inc.,  Seltel  Inc.,  Katz  Cable  Corporation  and The
          National Payroll Company, Inc.

*10.1.1   Second Amended and Restated  Credit  Agreement  dated as of August 12,
          1994 among the Company, KCC Funding, Inc., as lender, and KCC Funding,
          Inc., as agent.

*10.1.2   Assignment  and  Acceptance  dated as of August 12, 1994 regarding the
          Second Amended and Restated Credit Agreement.

*10.1.3   Amended and Restated  Credit  Agreement  dated as of September 9, 1994
          among the Company,  the lenders listed on the signature pages thereof,
          The First  National  Bank of Boston,  as agent and The First  National
          Bank of Boston and Credit Lyonnais,  New York Branch,  as Underwriting
          Agents.

*10.1.4   Credit Agreement Side Letter dated September 9, 1994.

**10.1.5  Modification No. 1 to Credit Agreement dated December 30, 1994.

**10.1.6  Modification No. 2 to Credit Agreement dated April 10, 1995.

**10.1.7  Modification No. 3 to Credit Agreement dated September 30, 1995.

**10.1.8  Modification No. 4 to Credit Agreement dated December 22, 1995.

**10.1.9  Modification No. 5 to Credit Agreement dated March 7, 1996.

***10.1.10 Modification No. 6 to Credit Agreement dated April 29, 1996.

***10.1.11 Modification No. 7 to Credit Agreement dated September 6, 1996.

                                       24
<PAGE>

*10.2.1   Employment  Agreement  dated as of January 1, 1994  between  KCI,  the
          Company and Thomas F. Olson.

*10.2.2   Amendment  No. 1 to Employment  Agreement  dated as of August 12, 1994
          between the Company and Thomas F. Olson.

*10.3.1   Employment  Agreement  dated as of January 1, 1994  between  KCI,  the
          Company and James L. Beloyianis.

*10.3.2   Amendment  No. 1 to Employment  Agreement  dated as of August 12, 1994
          between the Company and James L. Beloyianis.

*10.4.1   Employment  Agreement  dated as of January 1, 1994  between  KCI,  the
          Company and Stuart O. Olds.

*10.4.2   Amendment  No. 1 to Employment  Agreement  dated as of August 12, 1994
          between the Company and Stuart O. Olds.

*10.5     Employment  Agreement  dated as of August 12, 1994 among the  Company,
          Seltel and L. Donald Robinson.

++10.6    Employment Agreement effective January 1, 1996 between the Company and
          Richard Vendig.

*10.7     Lease  dated as of May 9, 1991  between  the Company and Mak West 55th
          Street Associates for corporate headquarters in New York, as amended.

*10.9.1   Capital   Contribution   Agreement   By  and  Among   National   Cable
          Advertising,   L.P.,   Katz  Cable   Corporation  and  National  Cable
          Communications, L.P. dated as of January 1, 1995.

*10.9.2   First  Amended and Restated  Partnership  Agreement of National  Cable
          Communications, L.P. dated as of January 20, 1995.

+10.10    U.S.  $180,000,000  Credit  Agreement,  dated as of December 19, 1996,
          among Katz Media Corporation,  as borrower, the lenders party thereto,
          The First National Bank of Boston,  as  Administrative  Agent, and DLJ
          Capital Funding, Inc., as Syndication Agent.

21.1      Subsidiaries of the Registrant.

27.1      Financial Data Schedule.


*         Incorporated  by reference to the  Registration  Statement on Form S-1
          (Registration No. 33-87406) of Katz Media Group, Inc.

**        Incorporated  by reference  to the Annual  Report on Form 10-K of Katz
          Media Group, Inc. for the year ended December 31, 1995.

***       Incorporated  by reference to the Periodic  Report on Form 8-K of Katz
          Media Group, Inc., dated September 6, 1996.

+         Incorporated  by reference to the Periodic  Report on Form 8-K of Katz
          Media Group, Inc., dated December 19, 1996.

++        Incorporated  by reference to the  Registration  Statement on Form S-4
          (Registration No. 333-20619) of Katz Media Corporation.


(b)Reports on Form 8-K
KMG filed a Report on Form 8-K on December 19, 1996  reporting the completion of
the Company's refinancing under Item 5.

                                       25
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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,  in the City of New
York, State of New York on March 31, 1997.


                              Katz Media Corporation


                              /S/ RICHARD E. VENDIG
                              ---------------------
                              By:  Richard E. Vendig
                                   Senior Vice President
                                   Chief Financial & Administrative  Officer,
                                   Treasurer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated.


   NAME                  TITLE                              DATE
   ----                  -----                              ----
/s/ Thomas F. Olson
-------------------
Thomas F. Olson          President, Chief Executive Officer March 31,  1997
                         and Director
/s/ James E. Beloyianis
-----------------------
James E. Beloyianis      Vice President, Secretary and      March 31, 1997
                         Director

/s/ Richard E. Vendig
---------------------
Richard E. Vendig        Senior Vice President, Chief       March 31, 1997
                         Financial & Administrative Officer,
                         Treasurer (Principal Financial
                         and Accounting Officer)
/s/ Stuart O. Olds
--------------------
Stuart O. Olds           Vice President, Assistant          March 31, 1997
                         Secretary and Director

/s/ L. Donald Robinson
---------------------
L. Donald Robinson       Vice President                     March 31, 1997


/s/ Thompson Dean
--------------------
Thompson Dean            Chairman of the Board of Directors March 31, 1997

                                       26
<PAGE>

   NAME                  TITLE                              DATE
   ----                  -----                              ----
/s/ Michael Connelly
----------------------
Michael Connelly         Director                           March 31, 1997

/s/ Thomas J. Barry
----------------------
Thomas J. Barry          Director                           March 31, 1997


----------------------
Steven J. Gilbert        Director                           March 31, 1997

/s/ Bob Marbut
----------------------
Bob Marbut               Director                           March 31, 1997

/s/ David M. Wittels
----------------------
David M. Wittels         Director                           March 31, 1997

                                       27
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS


                                                                           PAGE
                                                                           ----

Katz Media Corporation and Subsidiaries

    Report of Independent Accountants..................................    F-2

    Report of Independent Accountants..................................    F-3

    Consolidated Balance Sheets at December 31, 1996 and 1995..........    F-4

    Consolidated Statements of Operations for the years ended
    December 31, 1996 and 1995, the period August 12, 1994
    through December 31, 1994 and the period January 1,
    1994 through August 11, 1994*......................................    F-5

    Consolidated Statements of Cash Flows for the years ended
    December 31, 1996 and 1995, the period August 12, 1994
    through December 31, 1994 and the period January 1, 1994
    through August 11, 1994*...........................................    F-6

    Consolidated Statements of Stockholders' Equity for the
    years ended December 31, 1996 and 1995 and the period
    August 12, 1994 through December 31, 1994..........................    F-7

    Notes to Consolidated Financial Statements......................... F-8-F-32

    Schedule II........................................................    S-1


_____________________

*    The financial  statements for the period January 1, 1994 through August 11,
     1994 are those of the Predecessor Company.

                                      F-1

<PAGE>

                           REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholder
of Katz Media Corporation

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial position of Katz
Media Corporation and its subsidiaries,  formerly Katz Capital  Corporation (the
"Company")  at December 31, 1996 and 1995,  and the results of their  operations
and their cash flows for each of the two years ended  December 31, 1996 and 1995
and the period August 12, 1994 through  December 31, 1994,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


Price Waterhouse LLP
New York, New York
March 4, 1997

                                      F-2

<PAGE>


                           REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholder
of Katz Media Corporation

In our opinion, the consolidated  financial statements of Katz Media Corporation
and its  subsidiaries  (the  "Predecessor  Company")  listed in the accompanying
index present fairly, in all material respects,  the results of their operations
and their cash flows for the period  January 1, 1994 through August 11, 1994, in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements are the responsibility of the Predecessor Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.

As  further  described  in  Note  1 to  the  financial  statements,  all  of the
outstanding common stock,  options and warrants of the Predecessor  Company were
acquired by Katz Media Corporation, formerly Katz Capital Corporation, on August
12, 1994.


Price Waterhouse LLP
New York, New York
March 10, 1995

                                      F-3

<PAGE>
<TABLE>
<CAPTION>


                               KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                       (000's Omitted, Except Share and Per Share Information)


                                                                            December 31,
                                                                         -----------------
                                                                         1996         1995
                                                                         -----------------
<S>                                                                     <C>          <C>
Assets
Current assets:
   Cash and cash equivalents........................................$    3,027   $     228
   Accounts receivable, net of allowance for doubtful accounts of
     $1,300 in 1996 and 1995........................................    68,884      61,405
      Deferred costs on purchases of station representation contracts   21,428      13,096
      Prepaid expenses and other current assets ....................     1,293         869
                                                                      --------     -------
          Total current assets......................................    94,632      75,598
                                                                      --------     -------

Fixed assets, net...................................................    15,740      12,437
Deferred income taxes...............................................       --        1,857
Deferred costs on purchases of station representation contracts.....    74,399      39,602
Intangible assets, net..............................................   218,808     227,726
Other assets, net ..................................................    34,121      18,291
                                                                      --------     -------
          Total assets..............................................$  437,700   $ 375,511
                                                                      --------     -------
                                                                      --------     -------

Liabilities and Stockholders' Equity Current liabilities:
    Accounts payable and accrued liabilities........................$   45,447   $  37,101
    Deferred income on sales of station representation contracts....    14,548      10,700
     Income taxes payable...........................................     1,811       3,131
                                                                      --------     -------
          Total current liabilities.................................    61,806      50,932
                                                                      --------     -------

Deferred income on sales of station representation contracts........     4,787       3,589
Deferred income taxes payable.......................................     1,568         --
Long-term debt......................................................   217,622     179,530
Other liabilities,  principally deferred rent and representation
  contracts payable.................................................    47,207      34,770

Commitments and contingencies.......................................       --          --

                                               F-4(a)
<PAGE>


                               KATZ MEDIA CORPORATION AND SUBSIDIARIES
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (000's Omitted, Except Share and Per Share Information)-(Continued)


Stockholders' equity
   Common stock, $.01 par  value, 1,000 shares authorized,
       issued and outstanding.......................................       --           --
   Paid-in-capital..................................................   128,785     128,675
   Carryover basis adjustment.......................................   (20,047)    (20,047)
   Accumulated deficit..............................................    (4,028)     (1,938)
                                                                      --------     -------

        Total stockholders' equity..................................   104,710     106,690
                                                                      --------     -------

        Total liabilities and stockholders' equity..................  $437,700   $ 375,511
                                                                      --------     -------
                                                                      --------     -------


      The accompanying notes are an integral part of these consolidated financial statements.

                                               F-4(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                               KATZ MEDIA CORPORATION AND SUBSIDIARIES
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (000's Omitted, Except Share and Per Share Information)-(Continued)


                                                                                 Predecessor
                                                     Company                       Company
                                      ----------------------------------------------------------
                                                                For The Period  For The Period
                                                                  August 12,       January 1,
                                       For The         For The       1994             1994
                                      Year Ended     Year Ended     Through         Through
                                     December 31,   December 31,  December 31,      August 11,
                                        1996            1995         1994             1994
                                     ------------   ------------  ------------      ----------
<S>                                 <C>            <C>           <C>               <C>
Operating revenues, net............... $  183,136    $  184,667   $    81,403    $  103,382
                                       ----------    ----------   -----------    ----------

Operating expenses:...................
Salaries and related costs............    102,920        99,477        42,730        64,866
Selling, general and administrative...     36,238        39,044        15,208        23,680
Depreciation and amortization.........      9,748        10,071         9,127        11,726
Provision for relocations.............       --           6,400         --            --
                                       ----------    ----------   -----------    ----------
     Total operating expenses.........    148,906       154,992        67,065       100,272
                                       ----------    ----------   -----------    ----------
     Operating income.................     34,230        29,675        14,338        3,110
                                       ----------    ----------   -----------    ----------
Other expense (income):...............
Interest expense......................     20,775        25,296        14,939        10,872
Interest (income).....................       (119)         (139)          (65)          (24)
                                       ----------    ----------   -----------    ----------
     Total other expense, net.........     20,656        25,157        14,874        10,848
                                       ----------    ----------   -----------    ----------
Income (loss) before income tax provision
    (benefit) and extraordinary item .     13,574         4,518          (536)       (7,738)
Income tax provision (benefit)........      8,986         4,448           671        (1,393)
                                       ----------    ----------   -----------    ----------

Income (loss) before extraordinary item     4,588            70        (1,207)       (6,345)
Extraordinary item - (loss) on early
    extinguishment of debt, net of taxes   (6,678)         (801)        --            --
                                       ----------    ----------   -----------    ----------
          Net (loss) .................    ($2,090)        ($731)      ($1,207)      ($6,345)
                                       ----------    ----------   -----------    ----------
                                       ----------    ----------   -----------    ----------


         The accompanying notes are an integral part of these consolidated financial statements.

                                                  F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                    KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (000's Omitted, Except Share and Per Share Information)-(Continued)


                                                                                                Predecessor
                                                                    Company                       Company
                                                  -----------------------------------------------------------
                                                                               For The Period  For The Period
                                                                                 August 12,       January 1,
                                                      For The         For The       1994             1994
                                                     Year Ended     Year Ended     Through         Through
                                                    December 31,   December 31,  December 31,      August 11,
                                                       1996            1995         1994             1994
                                                  ------------   ------------  ------------      ------------
<S>                                              <C>            <C>           <C>               <C>
Cash flows from operating activities:
  Net (loss) before adjustments...............         ($2,090)         ($731)     ($1,207)         ($6,345)
                                                      --------        -------     --------         --------
  Adjustments to reconcile net (loss) to net cash
    provided by (used in) operating activities:
     Extraordinary loss on early extinguishment
      of debt.................................          11,316          1,358          --               --
     Provision for relocations................          (1,500)         6,400          --               --
     Depreciation and amortization............           9,748         10,071        9,127           11,726
     Amortization of debt issuance costs......              22          1,960        3,668              456
     Deferred rent............................           1,453          2,555          548              859
     Non-cash compensation expense for stock
      options.................................             110          1,497          --               --
     Changes in assets and liabilities:
      (Increase) in accounts receivable.......          (5,090)        (1,047)      (5,823)          (5,331)
      (Increase) in other assets..............          (3,418)        (4,561)        (144)            (215)
      Increase  (decrease) in deferred taxes..           3,425           (389)         694           (1,710)
         (Decrease) increase in accounts payable
          and accrued liabilities.............          (2,237)        (1,672)       2,304              988
         (Decrease ) increase in income taxes
          payable.............................          (1,320)           932         (934)            (645)
         Other, net...........................          (1,793)        (1,309)         433             (167)
                                                      --------        -------     --------         --------
       Total adjustments......................          10,716         15,795        9,873            5,961
                                                      --------        -------     --------         --------
       Net cash provided by (used in)
        operating activities..................           8,626         15,064        8,666             (384)
                                                      --------        -------     --------         --------
Cash flows from investing activities:
     Capital expenditures.....................          (6,785)        (6,046)      (1,002)          (1,079)
     Payments received on sales of station
      representation contracts................          26,018         19,779        4,746            4,755
     Payments made on purchases of station

                                                    F-6(a)

<PAGE>

                                    KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (000's Omitted, Except Share and Per Share Information)-(Continued)



        representation contracts..............         (42,415)       (31,945)       (4,545)         (7,380)
     Investment in cable joint venture........             --         (10,753)         --               --
    Acquisition of business, net of $219
        cash acquired.........................             --            --        (116,193)            --
    Net cash  (used in) investing activities..         (23,182)       (28,965)     (116,994)         (3,704)
                                                      --------        -------     --------         --------
Cash flows from financing activities:
  Credit facilities borrowing.................          59,900         66,000        24,800         107,075
  Credit facilities repayments................        (139,900)       (64,000)      (23,800)       (101,575)
  Proceeds from Bridge Notes..................            --            4,000        70,000             --
  Repayment of Bridge Notes...................            --          (74,000)         --               --
  Restricted cash release (payment)..........             --            2,000        (2,000)            --
  Repurchase of notes.........................        (110,724)          (840)          (80)            --
  Loan to Parent..............................          (4,520)          --            --               --
  Purchase of treasury stock .................            --             --            --              (34)
  Proceeds from issuance of 10 1/2% Notes.....         100,000           --            --               --
  Proceeds from  New Credit Facility..........         117,500           --            --               --
  Proceeds from issuance of common stock......            --           79,138        48,040             --
  Proceeds from shareholder contribution......            --             --            --             3,000
  Purchase of warrants and options............            --             --            --            (2,300)
  Financing fees paid in connection with
   credit facilities and Bridge Notes.........          (4,901)          --          (6,801)         (1,869)
                                                      --------        -------     --------         --------
          Net cash provided by financing activities     17,355         12,298       110,159           4,297
                                                      --------        -------     --------         --------
Net increase (decrease) in cash and cash equivalents     2,799         (1,603)        1,831             209
Cash and cash equivalents, beginning of period             228          1,831          --                10
                                                      --------        -------     --------         --------
Cash and cash equivalents, end of period...... $         3,027     $      228   $     1,831       $     219
                                                      --------        -------     --------         --------
                                                      --------        -------     --------         --------

            The accompanying notes are an integral part of these consolidated financial statements.

                                                    F-6(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                    KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            (000's Omitted, Except Share and Per Share Information)


                                         COMMON STOCK
                               ---------------------------------
                                                                      CARRYOVER
                                                         PAID IN        BASIS        ACCUMULATED
                              SHARES        AMOUNT       CAPITAL      ADJUSTMENT       DEFICIT      TOTAL
                              ------        ------       -------      ----------     -----------    -----
<S>                          <C>           <C>          <C>          <C>            <C>

Initial issuance
of common stock
to Group
on August 12, 1994            1,000          $ --     $  48,040       ($20,047)                   $ 27,993

Net (loss)                      --             --           --             --         ($1,207)      (1,207)
                             ------         ------      -------        --------        -------     --------
Balance at
December 31, 1994             1,000            --        48,040        (20,047)        (1,207)      26,786

Capital Contribution
from Group                      --             --        80,635            --              --       80,635

Net (loss)                      --             --           --             --            (731)        (731)
                             ------         ------      -------        --------        -------     --------
Balance at
December 31, 1995             1,000            --       128,675        (20,047)        (1,938)     106,690

Capital Contribution
from Group                      --             --           110             --             --          110

Net (loss)                      --             --           --              --         (2,090)      (2,090)
                             ------         ------      -------        --------        -------     --------
Balance at
December 31, 1996             1,000            --      $128,785       ($20,047)       ($4,028)    $104,710
                             ------         ------      -------        --------        -------     --------
                             ------         ------      -------        --------        -------     --------

            The accompanying notes are an integral part of these consolidated financial statements.

                                                     F-7
</TABLE>
<PAGE>


                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (000's Omitted, Except Share and Per Share Information)


1. ORGANIZATION

     Katz Media Corporation,  formerly Katz Capital  Corporation (the "Company")
is a wholly  owned  subsidiary  of Katz  Media  Group,  Inc.  ("Group")  and was
organized  to acquire  (the "1994  Acquisition")  all of the common stock of the
company  formerly  known as Katz Media  Corporation  and its  subsidiaries  (the
"Predecessor  Company").  Group is controlled by DLJ Merchant Banking  Partners,
L.P. ("DLJMB").  The Company did not have any significant  activity prior to the
1994   Acquisition.   In  connection  with  the  refinancing  of  the  Company's
outstanding indebtedness,  the Predecessor Company was merged with and into Katz
Capital Corporation,  with the surviving company renamed Katz Media Corporation.
Group  then  transferred  all of its  ownership  of the  Company  to Katz  Media
Services, Inc. ("Services") a wholly owned subsidiary of Group.

     On August 12, 1994,  the Company  acquired  100% of the common stock of the
Predecessor Company, a company whose origins date back to 1888, for an aggregate
net  purchase  price  of  approximately  $97,600.  The  total  cost of the  1994
Acquisition   including   severance  paid  pursuant  to  the  merger  agreement,
non-competition  payments to former  shareholders and financing and other direct
costs  aggregated  $121,300.  The 1994  Acquisition  was accounted for using the
purchase  method of  accounting.  The  purchase  price  allocation  required  an
adjustment for the continuing  interest  attributable to management's  ownership
interest in the  Predecessor  Company  carried over in connection  with the 1994
Acquisition.  As a result,  a charge to  stockholders'  equity  of  $20,047  was
recorded which represents the difference between the fair value of the Company's
assets and the related book value attributable to the interest of the continuing
shareholders'  investment in the  Predecessor  Company.  The remaining  purchase
price has been allocated to assets and liabilities based upon estimates of their
respective fair values as determined by management.  The estimated fair value of
assets and  liabilities  acquired was $122,300 and $220,900,  respectively.  The
excess of the purchase  price to be  allocated  over the  estimated  fair market
value of the net assets  acquired was  approximately  $199,900,  which is hereby
amortized on a straight- line basis over 40 years.

The following unaudited pro forma 1994 consolidated  information for the Company
has been prepared  assuming the 1994  Acquisition  had taken place on January 1,
1994:

      Operating revenues, net.............................    $184,785
      Operating Income....................................      16,543
      Interest expense....................................      32,349
      Net (loss)..........................................     (13,264)


     The pro forma  information does not purport to be indicative of the results
that would actually have been obtained if the 1994  Acquisition  had occurred at
the beginning of the period nor is it indicative of future results.

     On January 20, 1995, Katz Cable Corporation  ("Katz Cable"), a newly formed
wholly owned  subsidiary of the Company,  entered into a  partnership  agreement
wherein Katz Cable became the general  partner with a 50%  partnership  interest
and Continental Cablevision  Investments,  Inc., Cox Cable NCC Inc., Time Warner
Cable,  a  division  of  Time  Warner   Entertainment  L.P.  and  Comcast  Cable
Communications, Inc. became limited partners. The business of the partnership is
to provide media representation  services to the cable television  industry.  In
connection with the transaction,  the Company,  through Katz Cable,  made a cash
contribution to the partnership of $10,450,  a contribution of certain operating
assets having a fair value of $1,250, and agreed to conduct all cable television
representation activities through the partnership.

                                      F-8

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


     On April 18, 1995,  Group sold 5,500,000  shares of its newly issued common
stock  in an  initial  public  offering  at a  price  of $16  per  share.  Group
contributed  $78,280 of its net proceeds  from the offering to the Company which
was used to reduce debt incurred in  connection  with the 1994  Acquisition  and
reduce bank debt.

     In December 1996, the Company completed a refinancing (the  "Refinancing").
As part of the  Refinancing,  the Company:  (i)  repurchased  $97,800  aggregate
principal  amount of the 12 3/4%  Senior  Subordinated  Notes due 2002 (the "Old
Notes"), (ii) issued $100,000 of 10 1/2% Senior Subordinated Notes due 2007 (the
"New Notes") and (iii) replaced its existing $94,875  revolving credit agreement
(the "Old  Credit  Agreement")  with a new  credit  agreement  (the "New  Credit
Agreement") providing for loans of up to $180,000, subject to the achievement of
certain financial ratios and compliance with certain other conditions.

     The Company is a full service media representation firm that sells national
spot advertising time for its clients in the television,  radio, interactive and
cable  industries.  The Company's  senior and subordinated  credit  arrangements
limit the Company from making loans,  advances,  cash dividends and transferring
assets to its parent. See Note 5.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
the Company and its wholly owned  subsidiaries  for the years ended December 31,
1996 and 1995 and for the period  August 12, 1994 through  December 31, 1994 and
the Predecessor Company and its wholly owned subsidiaries for the period January
1, 1994  through  August 11, 1994.  All  significant  intercompany  accounts and
transactions have been eliminated.

     A  vertical  line has  been  used to  separate  the  post-1994  Acquisition
consolidated  financial  statements of the Company from the pre-1994 Acquisition
consolidated financial statements of the Predecessor Company. The effects of the
1994  Acquisition and related  financings  resulted in a new basis of accounting
reflecting the estimated fair values of assets and liabilities at that date. The
financial statements of the Predecessor Company are presented at the Predecessor
Company's  historical  cost.  Information for the period January 1, 1994 through
August 11, 1994 relates to the Predecessor Company.

     The 1994 results for the Company and the Predecessor  Company include, on a
consolidated  basis,  the  accounts of the former  cable  operations  which were
contributed  to the  cable  partnership  mentioned  above.  As a  result  of the
contribution  of the cable  operations to a joint venture in 1995, the Company's
investment in such operation is accounted for using the equity method.



Consolidated Statement of Cash Flows
     For purposes of the consolidated statement of cash flows, all highly liquid
investments  with an original  maturity  of three  months or less at the time of
purchase are considered to be cash equivalents.

                                      F-9

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


Operating Revenues, Net

     Net operating revenues are derived from commissions on sales of advertising
time for radio  and  television  stations  and cable  television  systems  under
representation contracts. Net operating revenues are generally recognized in the
month the advertisement is broadcast.

     Station  representation  contracts  generally  may be  terminated by either
party upon written  notice one year after receipt of such notice.  In accordance
with industry practice, in lieu of termination,  an arrangement is normally made
for the  purchase of such  contracts  by a successor  representation  firm.  The
purchase  price  paid by the  successor  representation  firm is based  upon the
historic  commission  income  projected  over  the  remaining  contract  period,
including the evergreen notice period, plus two-months.

     Income resulting from the disposition of station  representation  contracts
and  costs of  obtaining  station  representation  contracts  are  deferred  and
amortized over the related  period of benefit.  Such net  amortization  (income)
expense was ($4,524),  ($5,936),  $1,893 and $7,077 for the years ended December
31, 1996 and 1995, the period August 12, 1994 through  December 31, 1994 and the
period January 1, 1994 through August 11, 1994, respectively, and is included in
the  accompanying  consolidated  statement  of  operations  as  a  component  of
depreciation and amortization.

Fixed Assets

     Furniture,   fixtures  and  leasehold  improvements  are  stated  at  cost.
Depreciation  and  amortization  are provided on these assets on a straight-line
basis over the estimated useful lives of the assets as follows:


                                                        Years
                                                        -----
Furniture, fixtures and equipment.......                4-10
Leasehold improvements.................. lesser of useful life or term of lease


Intangible Assets

     The excess  purchase  price paid over the  estimated  fair value of the net
identifiable assets acquired  ("goodwill") is amortized on a straight-line basis
over  40  years.  In  arriving  at a 40 year  amortization  period  the  Company
considered factors including:  its 109 year history,  its leadership position in
the industry and its history of generating operating income.

     Intangible  assets  acquired  consist  of   representation   contracts  and
covenants  not to  compete.  Representation  contracts  were  recorded  at their
estimated  fair value as  determined  by an "excess  earnings"  approach and are
being amortized on a straight-line  basis over their estimated period of benefit
of 15 years.  Covenants  not to compete are amortized on a  straight-line  basis
over their estimated benefit periods of up to 4 years.

     Recoverability of goodwill and intangible assets is assessed  regularly (at
least annually) and impairments,  if any, are recognized in operating results if
a permanent  diminution in value were to occur based upon an  undiscounted  cash
flow analysis.  The Company determined that no such impairment currently exists.

                                      F-10

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

The balances comprising intangible assets, are as follows:

                                             December 31,          December 31,
                                                 1996                 1995
                                             ------------          ------------
 Goodwill...............................       $196,272              $196,272
 Representation contracts...............         40,779                40,779
 Covenants not to compete...............           --                   6,874
                                               --------              --------
                                                237,051               243,925
 Less: accumulated amortization.........        (18,243)              (16,199)
                                               --------              --------
 Intangible assets, net.................       $218,808              $227,726
                                              --------              --------
                                              --------              --------

     The amount  recorded  for  goodwill  was reduced in 1995 for  certain  post
acquisition  purchase  price  adjustments.  These  adjustments  related  to  the
recognition of the fair value of certain  assets  contributed to the Cable Joint
Venture (Note 1) and certain post  acquisition  tax  adjustments to increase the
net deferred tax asset recorded in connection with the 1994 Acquisition.

     Related amortization expense was approximately  $8,900,  $11,300 and $4,900
for the years ended  December 31, 1996 and 1995,  and the period August 12, 1994
through  December  31,  1994,  respectively.  Amortization  expense  related  to
intangible assets of the Predecessor  Company was  approximately  $2,200 for the
period January 1, 1994 through August 11, 1994.

Debt Issuance Costs

     Debt issuance  costs  incurred in connection  with the Company's New Credit
Agreement and New Notes approximated $4,900 and are included in the accompanying
consolidated balance sheet at December 31, 1996 in other assets. At December 31,
1995, no  unamortized  debt issuance costs existed (Note 5). Debt issuance costs
are  amortized  over the terms of the related debt.  Amortization  of such costs
(included in interest  expense) were $22, $1,960,  $3,668 and $456 for the years
ended  December 31, 1996 and 1995,  the period August 12, 1994 through  December
31, 1994 and the period January 1, 1994 through August 11, 1994.

Earnings Per Common Share

     Earnings  per  share  information  is not  presented  for the  years  ended
December 31, 1996 and 1995, and the period August 12, 1994 through  December 31,
1994 as the Company is a wholly owned subsidiary of Group. Per share amounts for
the  Predecessor  Company  have not been  presented  since  management  does not
believe such information would be meaningful.

Accounting Changes

     During 1995,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
Of," which the Company adopted in 1996. Management reviews long-lived assets and
the  related  intangible  assets for  impairment  whenever  events or changes in
circumstances   indicate  the  carrying   amount  of  such  assets  may  not  be
recoverable.  Recoverability  of these assets is  determined  by  comparing  the
forecasted  undiscounted  net cash  flows of the  operation  to which the assets
relate,  to the carrying amount including  associated  intangible assets of such
operation.  If the  operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first, followed by
the other  long-lived  assets of the  operation,  to fair  value.  Fair value is
determined  based on discounted cash flows or appraised  values,  depending upon
the  nature  of the  assets.  The  adoption  of SFAS  No.  121  did  not  have a
significant effect on the Company's  consolidated  financial position or results
of operations.

                                      F-11

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

Income taxes

     The Company  computed the  provision  (benefit) for income taxes under SFAS
No.  109,  "Accounting  for Income  Taxes."  SFAS No. 109  requires an asset and
liability  approach  to  accounting  for income  taxes for  financial  reporting
purposes.  Deferred tax assets and liabilities are determined based on tax rates
expected to be in effect when taxes will actually be paid or refunds received.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could subsequently differ from those estimates.

3.  FIXED ASSETS

     Fixed assets at December 31, 1996 and 1995 consist of the following:

                                                     1996               1995
                                                    ------             ------
  Furniture, fixtures and equipment..............  $18,703            $15,405
  Leasehold improvements.........................    1,977                360
                                                    ------             ------
                                                    20,680             15,765
  Less: accumulated depreciation and amortization   (4,940)            (3,328)
                                                    ------             ------
  Fixed assets, net..............................  $15,740            $12,437
                                                    ------             ------
                                                    ------             ------

4. CAPITAL STOCK

Common Stock

     In connection with the 1994 Acquisition, the Company issued 1,000 shares of
common stock to Group for an initial capital contribution of $48,040,  which was
used to finance  the  purchase  of 100% of the common  stock of the  Predecessor
Company.  See Note 1.

     In January 1995, Group  contributed an additional $858 to the Company which
formed part of the cash  contribution  that the Company  made to the Cable Joint
Venture. See Note 1.

     In connection with the initial public  offering  completed by the Company's
parent,  Group, $78,280 was contributed to the Company. Of this amount,  $74,000
was  used to  repay  the  Bridge  Notes  issued  in  connection  with  the  1994
Acquisition  (see Note 5), with the  remaining  amount  being used to reduce the
Company's bank debt.

Stock Options

     On January 3, 1995,  Group granted 661,794  performance  vesting options to
various employees of the Company.  All options granted have an exercise price of
$6.00 per share. The Company must exceed certain  performance  measures over the
next five  years in order for the  performance  options  to become  exercisable.
Compensation expense resulting from performance options is computed based on the
difference  between the exercise price and the fair market value at the date the
performance measure has been met and is recognized in the period when the option
vests. No shares became exercisable  pursuant to the performance vesting formula
in 1996 and  129,008  shares  became  exercisable  pursuant  to the  performance
vesting formula in 1995. Accordingly,  no compensation expense was recognized in
1996 and  compensation  expense  totaling  $1,497 was  recognized in 1995 and is
reflected as a capital  contribution  from Group.

                                      F-12

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

     In January 1996, Group awarded 18,750 shares of restricted stock to certain
key  executives of the Company.  The market price of Group's common stock on the
date of grant was $17 5/8. The restrictions on such shares lapse ratably, over a
three year period.  As such  restrictions  lapse,  compensation  expense will be
recognized  representing  the fair market  value of Group's  common stock on the
date of grant and will be reflected as a capital contribution from Group. During
1996, $110 of compensation  expense was recognized and is reflected as a capital
contribution from Group.

5.   LONG-TERM DEBT

     The  composition  of  long-term  debt at  December  31, 1996 and 1995 is as
follows:

                                                      1996              1995
                                                     ------            ------
 10 1/2 % Senior Subordinated Notes due 2007..     $100,000            $  --
 New Credit Agreement.........................      117,500               --
 Old Credit Agreement.........................         --               80,000
 12 3/4 % Senior Subordinated Notes due 2002..          122             99,530
                                                     ------            -------
                                                   $217,622           $179,530
                                                     ------            -------
                                                     ------            -------

     In  December  1996  the  Company  consummated  the  Refinancing.  As a part
thereof, the Company (i) entered into the New Credit Agreement with an affiliate
of DLJMB acting as arranger and  syndication  agent,  (ii) issued the New Notes,
(iii)  repurchased  $97,700  aggregate  principal  amount  of the Old  Notes for
$109,900  including   approximately   $11,300  of  premium,   consent  fees  and
transaction costs and (iv) repaid the outstanding  balances  aggregating $94,500
and terminated the Old Credit Agreement.

     Under the terms of the New Credit  Agreement,  certain  lenders provide the
Company  with a secured  revolving  credit line and term loan  facility of up to
$180,000,  consisting  of Tranche A term loans of up to $60,000,  Tranche B term
loans of up to $40,000 and revolving  loans of up to $80,000.  Interest rates on
the loans are  determined  from time to time  based on the  Company's  choice of
formulas,  plus a margin.  The  amount of the  margin  varies  depending  on the
Company's ratio of total debt to earnings before interest, taxes,  depreciation,
amortization and certain other non-cash charges, as defined ("EBITDA"). Interest
rates on the  Tranche B term  loans  initially  carry a higher  margin  than the
Tranche A and revolving credit loans. At December 31, 1996, the weighted average
interest rates for the Tranche A, Tranche B and revolving  credit loans were 7.6
%, 7.9%, and 7.6 %,  respectively.  Under the New Credit Agreement,  the Company
must pay a variable  quarterly  commitment fee dependent on a leverage ratio, as
defined,  currently 3/8% per annum on its average daily unused  amount.  The New
Credit  Agreement is secured by (i) all of the stock of the  Company's  domestic
subsidiaries and 65% of the stock of the Company's  foreign  subsidiaries,  (ii)
substantially all of the assets of the subsidiaries of the Company and (iii) all
of the stock of the Company held by Services. In addition, Services, the Company
and all of the Company's  domestic  subsidiaries have guaranteed  payment of all
borrowings under the New Credit Agreement.

     At December 31, 1996,  amounts  outstanding  under the Tranche A, Tranche B
and revolving  credit loans were $60 million,  $40 million,  and $17.5  million,
respectively.  Under the New Credit  Agreement,  the Company is required to make
principal  payments  commencing in 1997 through  December,  2004.  Under the New
Credit  Agreement,  mandatory  reductions in the  committed  amounts are $400 in
1997, $400 in 1998, $6,400 in 1999, $8,150 in 2000,  $15,025 in 2001, $22,775 in
2002,  $32,350  in 2003 and  $32,000  on the final  maturity  of the New  Credit
Agreement in 2004. As the Company should have sufficient  availability under the
New Credit Agreement,  the 1997 mandatory  reduction amount ($400) is classified
as long term debt.  Drawings under the New Credit Agreement are limited based on
the requirement to maintain a total debt to EBITDA ratio of not more than 5.5 to
1. At December 31, 1996, an aggregate of $62,500 was  available  for  additional
borrowing  under the New Credit  Agreement  of which  approximately  $22,500 was
immediately  available  with the  remaining  $40,000  becoming  available in the
future  subject to the  achievement of certain  financial  ratios and compliance
with  certain  other  conditions.  The New  Credit  Agreement  contains  certain
restrictions  and  limitations,  including  limitations  on the  payment of cash

                                      F-13

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

dividends  and  similar  restricted  payments,  other  than a certain  amount of
payments  to be used to  finance  possible  repurchases  by Group of its  common
stock.  In  addition,  the New Credit  Agreement  also  requires  the Company to
maintain ratios related to interest,  debt  outstanding and restricted  payments
(as defined).

     The New Notes issued as part of the  Refinancing are $100,000 face value 10
1/2%  Senior   Subordinated  Notes  due  January  15,  2007  and  are  unsecured
obligations  of the Company.  Payment of principal and interest is guaranteed by
all present and future  domestic  subsidiaries  of the Company and the New Notes
are subordinate to the obligations under the New Credit  Agreement.  Interest on
the New  Notes  is  payable  semiannually.  The New  Notes  are  governed  by an
indenture which provides for, among other things,  certain  covenants  including
limitations on the Company's  ability to incur  additional debt, make restricted
investments  and pay  dividends,  other than a certain  amount of payments to be
used to finance the possible repurchase by Group of its common stock.

     The New Notes are redeemable at the option of the Company after January 15,
2002,  at a redemption  price equal to specified  percentages  of the  principal
amount  thereof  (ranging from  approximately  105% in 2002 declining to 100% in
2006) plus accrued  interest and  liquidated  damages (as  defined).  At anytime
prior to  January  15,  2000,  the  Company  may  redeem up to 35% in  aggregate
principal  amount of the Notes with the  proceeds  of an  offering  of equity or
other  securities  of the Company,  Services or Group at a  redemption  price of
approximately  110%,  provided  that  at  least  65% of the  original  aggregate
principal amount remains outstanding immediately after such redemption. Upon the
occurrence of a change in control, as defined, the holders of the New Notes have
the right to require the Company to  repurchase  all or any part of such holders
New Notes at a price of 101% plus accrued interest.

     The Old Notes are unsecured  obligations of the Company that are guaranteed
by all the subsidiaries of the Company.  The Old Notes are subordinated in right
of  payment  to the New  Notes and New  Credit  Agreement.  The Old  Notes  bear
interest at the rate of 12 3/4 % per annum, payable semiannually.  The Old Notes
are  redeemable  at the option of the Company  after  November  15,  1997,  at a
redemption price equal to specified  percentages of the principal amount thereof
(ranging from approximately 106% in 1997 declining to 100% in 2000) plus accrued
interest. In connection with the Refinancing,  the Company amended the indenture
covering the Old Notes which eliminated  certain  restrictions on the ability of
the Company to incur  additional  debt,  pay dividends or make other  restricted
payments or investments.  In connection with the repurchase of $97,700 principal
amount  of Old  Notes as part of the  December  1996  Refinancing,  the  Company
recorded  an  extraordinary  charge of $6,678,  net of a related  tax benefit of
$4,646.

                                      F-14(a)

<PAGE>


                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


     Scheduled  maturities  of long-term  debt maturing over the next five years
are as follows:

 Year Ended December 31,
 -----------------------
 1997.............................................................$       400
 1998.............................................................        400
 1999.............................................................      6,400
 2000.............................................................      8,150
 2001.............................................................     15,025
 Thereafter.......................................................    187,247
                                                                      -------
                                                                     $217,622
                                                                      -------
                                                                      -------

     In connection with the 1994  Acquisition,  the Company entered into the Old
Credit  Agreement with an affiliate of DLJMB. On September 9, 1994 this facility
was amended with  unaffiliated  banks. In December 1995 the Old Credit Agreement
was amended to provide for quarterly  mandatory  reductions  in the  committment
amount of funds available  beginning  January 1, 1998 rather than currently (see
below).  In addition,  certain  other terms were  modified,  including  interest
rates. Such amendments constituted a significant  modification of the Old Credit
Agreement.  Accordingly,  the  Company  wrote  off  as an  extraordinary  charge
deferred  financing costs aggregating $800 net of an income tax benefit of $600,
at an effective tax rate of 41%.  Borrowings under the Old Credit Agreement bear
interest at different  rates.  The rates varied based on the Company's  ratio of
debt to EBITDA (as defined).  The weighted average interest rate at December 31,
1995 was 7.6%.  The Old Credit  Agreement  was fully repaid from the proceeds of
the Refinancing.

                                    F-14(b)

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


6.  EMPLOYEE BENEFIT PLANS

Savings and Profit Sharing Plan

     The Company has two defined  contribution  retirement plans, The Katz Media
Corporation  Savings and Profit Sharing Plan and the Seltel, Inc. Profit Sharing
Plan.  Both plans are profit  sharing plans under Section 401(a) of the Internal
Revenue Code of 1986 (the "Code") that include a "cash or deferred  arrangement"
under Section 401(k) of the Code and together cover  substantially all employees
of the Company with greater than six months of service.  Both plans  provide for
the Company to match a percentage of a participant's contribution up to a stated
maximum  percentage  of an  employee's  salary.  Amounts  charged  to  operating
expenses  approximated  $900,  $800,  $500 and $500 for both plans for the years
ended  December 31, 1996 and 1995,  the period August 12, 1994 through  December
31, 1994 and the period January 1, 1994 through August 11, 1994, respectively.

Other Postretirement Benefits

     The  Company  provides  for  certain  medical,  dental  and life  insurance
benefits for employees who retire beginning at age 55 with a minimum of 15 years
of service and for  employees who retire at age 65 with a minimum of 10 years of
service.

     Summary  information on the plans providing  postretirement  benefits other
than pensions at December 31, 1996 and 1995 is as follows:

                                                          1996        1995
                                                         ------      ------
Accumulated postretirement benefit obligations ("APBO"):
 Retirees............................................... $2,645      $2,319
 Fully eligible, active plan participants...............    406         392
 Other active plan participants.........................    787         911
                                                         ------      ------
        Total...........................................  3,838       3,622
 Unrecognized actuarial (loss)..........................   (297)       (171)
                                                         ------      ------
 Accumulated postretirement benefit obligation.......... $3,541      $3,451
                                                         ------      ------
                                                         ------      ------

     As of December 31, 1996 and 1995, the Company and its subsidiaries have not
funded any portion of the accumulated postretirement benefit obligation.


                                      F-15

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


     Net periodic postretirement benefit cost includes the following components:

<TABLE>
<CAPTION>

                                                                     Period         Period
                                                                    August 12,     January 1,
                                                                       1994           1994
                                      Year Ended      Year Ended      Through       Through
                                     December 31,    December 31,  December 31,    August 11,
                                         1996            1995          1994           1994
                                     ------------    ------------  ------------    ----------
<S>                                 <C>             <C>           <C>             <C>
Service cost........................  $     64         $    44      $    26         $  36
Interest cost on APBO ..............       276             237          100           145
Amortization of net gain............       --              (81)          --           --
                                      --------         --------     -------         -----
Net periodic postretirement benefit
 cost...............................  $    340         $   200      $   126         $ 181
                                      --------         --------     -------         -----
                                      --------         --------     -------         -----
</TABLE>


     The APBO was determined  using an assumed  discount rate of 7.50% and 7.25%
at December 31, 1996 and 1995, respectively.  The assumed health care cost trend
rate for medical  benefits  used in  measuring  the  accumulated  postretirement
benefit  obligation  was 7.5% in 1996  declining  ratably to an ultimate rate of
4.5% in 2005.

     If the health care cost trend rate  assumptions  were  increased by 1%, the
accumulated  postretirement  benefit  obligation  as of December  31, 1996 would
increase by  approximately  18%.  The effect of this change on the  aggregate of
service and interest cost in 1996 would be an increase of approximately 19%.

7.  INCOME TAXES

     The Company  has been  included in  consolidated  federal,  state and local
income tax returns filed by Group. No tax sharing agreement or accounting policy
exists for the allocation of tax expense  between the Company and Group,  and no
intercompany payments have been made between the companies with regard to income
taxes.  The tax provision for the years ended December 31, 1996 and 1995 and the
period  August 12, 1994  through  December 31, 1994 and the current and deferred
tax  balances  at  December  31,  1996 and 1995  reflected  in the  accompanying
consolidated financial statements have been computed as though the Company filed
its income tax returns separately from Group.

     Income (loss) before income tax provision  (benefit) and extraordinary item
is attributable to the following jurisdictions:

                                    F-16(a)

<PAGE>
<TABLE>
<CAPTION>


                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

                                                                Period             Period
                                                            August 12, 1994   January 1, 1994
                       Year Ended          Year Ended           Through           Through
                    December 31, 1996   December 31, 1995  December 31, 1994  August 11, 1994
                    -----------------   -----------------  -----------------  ---------------
<S>                <C>                 <C>                <C>                <C>

Domestic..........        $14,374           $4,932             ($232)            ($7,714)
Foreign...........           (800)            (414)             (304)                (24)
                          --------          -------            ------            --------
   Total..........        $13,574           $4,518             ($536)            ($7,738)
                          --------          -------            ------            --------
                          --------          -------            ------            --------

                                    F-16(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                               KATZ MEDIA CORPORATION AND SUBSIDIARIES
                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (000's Omitted, Except Share and Per Share Information)-(Continued)


     Components of the provision (benefit) for income taxes are as follows:

                                                                Period             Period
                                                            August 12, 1994   January 1, 1994
                       Year Ended          Year Ended           Through           Through
                    December 31, 1996   December 31, 1995  December 31, 1994  August 11, 1994
                    -----------------   -----------------  -----------------  ---------------
<S>                <C>                 <C>                <C>                <C>
Current:  Federal         $3,497            $1,242
          State            1,969             1,050                              $   317

Deferred: Federal          2,769             1,893               $569            (1,480)
          State              751               263                102              (230)
                          ------            ------               ----           --------
   Total Provision        $8,986            $4,448               $671           ($1,393)
                          ------            ------               ----           --------
                          ------            ------               ----           --------
</TABLE>

     A reconciliation  of the U.S.  federal  statutory tax rate to the effective
tax  rate on the  income  (loss)  before  income  tax  provision  (benefit)  and
extraordinary item is as follows:

<TABLE>
<CAPTION>

                                                              Period              Period
                            Year Ended     Year Ended     August 12, 1994    January 1, 1994
                               1996           1995       December 31, 1994   August 11, 1994
                            ----------     ----------    -----------------   ---------------
<S>                        <C>            <C>           <C>                 <C>
U.S. statutory tax rate          35.0%       35.0%            (35.0)%             (35.0)%
State and local taxes, net of
  federal income tax benefit     10.3        11.3              (5.0)               (3.9)
Non deductible goodwill...       14.8        41.6             174.4                 6.2
Foreign operations.......         2.4         3.2              23.1                  --
SFAS 109 valuation
  allowance...............       --           --              (43.1)                7.4
Other....................         3.7         7.4              10.8                 7.3
   Total................         66.2%       98.5%            125.2%              (18.0)%
</TABLE>



     As of  December  31,  1996 and  December  31,  1995,  the Company had total
deferred  tax assets of  approximately  $12,000 and $14,900,  respectively,  and
total   deferred  tax   liabilities  of   approximately   $11,100  and  $10,600,
respectively. Realization of the deferred tax assets is dependent on the Company
generating  sufficient  taxable  income in future  years to utilize the recorded
asset.  A portion  of the 1996 and 1995  deferred  tax asset  was  reduced  by a
valuation allowance of approximately $2,500, representing the amount of deferred
tax assets  which are not  expected to be  realized.  Future  reductions  to the
valuation   allowance  will  effect  the  purchase   price   allocation  in  the
accompanying consolidated balance sheets rather than results of operations.

                                      F-17

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

     The  following is a summary of the  components of the deferred tax accounts
in accordance with SFAS No. 109:

<TABLE>
<CAPTION>


                                                                         1996         1995
                                                                         ----         ----
   <S>                                                                  <C>         <C>

    Current deferred tax assets:
        Differences between book and tax recognition of revenue.....    $  508       $  988
        Purchased representation contract basis differences.........       678          --
        Other differences between tax and financial statement values       672          656
                                                                        ------       ------
        Gross current deferred tax asset............................     1,858        1,644
                                                                        ------       ------
    Noncurrent deferred tax assets:
        Differences between book and tax recognition of revenue.....       160          331
        Provision for relocations...................................       698        2,351
        Net operating loss and tax credit carryovers..............       6,597        6,005
        Amortization and depreciation...............................     2,369        2,690
        Other differences between tax and financial statement values       331        1,912
                                                                        ------       ------
        Gross noncurrent deferred tax asset ........................    10,155       13,289
                                                                        ------       ------
        Total gross deferred tax asset..............................    12,013       14,933
    Current deferred tax liabilility:
        Purchased representation contract basis differences.........       --        (2,634)
                                                                        ------       ------
    Noncurrent deferred tax liabilities:
        Purchased representation contract basis differences.........   (11,084)      (7,945)
                                                                        ------       ------
        Total gross deferred tax liabilities........................   (11,084)     (10,579)
                                                                        ------       ------
        Valuation allowance.........................................    (2,497)      (2,497)
                                                                        ------       ------
           Net deferred tax (liability) asset.......................   ($1,568)   $   1,857
                                                                        ------       ------
                                                                        ------       ------
</TABLE>

     At December 31, 1996,  the Company has a net  operating  loss  carryover of
approximately $14,900 which will expire beginning in 1997 through the year 2011.
Approximately  $11,600  of the  net  operating  loss  carryover  is  subject  to
limitations under tax rules governing changes of ownership,  for which a partial
valuation allowance for the related deferred tax asset has been established.

                                    F-18(a)
<PAGE>

8. COMMITMENTS AND CONTINGENCIES

     The Company is committed  under  operating  leases  principally  for office
space,  which expire at various dates through 2012. At December 31, 1996, rental
commitments  under such operating  leases for each year in the five-year  period
ended  December 31, 2001  approximate  $16,200,  $17,000,  $17,200,  $16,500 and
$15,900, respectively.  Rental commitments beginning after January 1, 2002 total
approximately  $147,000.

     Rent expense under operating  leases was  approximately  $15,400,  $15,700,
$6,100 and $9,400 for the years ended  December  31,  1996 and 1995,  the period
August 12, 1994 through December 31, 1994 and the period January 1, 1994 through
August 11, 1994.

     The Company has recorded  deferred rent which consists of rent  concessions
and future rent escalations  recognized on a straight-line  basis over the lives
of the  respective  leases  and  fair  market  adjustments  in  connection  with
acquisitions.  Deferred rent of approximately $12,400 and $11,000 as of December
31,  1996 and  1995,  respectively,  is  included  in other  liabilities  in the
accompanying  consolidated  balance  sheets.

     The Company  also has  entered  into  employment  agreements  with  several
members of its senior management.

  During the fourth quarter of 1995, the Company  recorded a non-cash  charge of
approximately $6,400 related primarily to the relocation of one of its expanding
subsidiary operations. The Company believes that such relocation will permit its
subsidiary to continue to expand in the most effective manner. In addition, as a

                                     F-18(b)

<PAGE>


                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

result of outsourcing its mainframe computer operation,  the Company anticipated
reducing its existing  headquarter  facility  requirements.  The  provision  for
relocations also includes an estimate of costs related thereto.

     In the  third  quarter  of  1996,  the  Company  reevaluated  the  economic
feasibility of its plan to sublet a portion of its headquarter facilities.  Upon
reevaluation, the Company has determined that such a program is not economically
feasible due to a change in market conditions,  and accordingly has reversed the
related  accrual of  approximately  $1,500 which has been classified in selling,
general and administrative  expense in the accompanying  statement of operations
for the year ended December 31, 1996.

     The  Company is  involved in various  legal  actions  arising in the normal
course of business.  Ultimate liability with respect to all contingencies is not
presently  determinable  but will not,  in the  opinion  of  management,  have a
material adverse effect on the business or financial condition of the Company.

9. RELATED PARTY TRANSACTIONS

     In connection  with the 1994  Acquisition,  the Company paid  financing and
commitment  fees  totalling  approximately  $6,400 to the DLJ  Bridge  Fund,  an
affiliate  of  DLJMB.  Additionally,  Donaldson  Lufkin  &  Jenrette  Securities
Corporation ("DLJSC"), also an affiliate of DLJMB, acted as financial advisor to
the Company in  connection  with the  structuring  of the 1994  Acquisition  and
received  aggregate  fees of  $3,000  for such  services.  DLJSC  also  acted as
co-underwriter for the Company's initial public offering of its Common Stock and
received aggregate fees of approximately $2,600 for such services. In connection
with  the  1994  Acquisition,  the  Company  retained  DLJSC  as  its  exclusive
investment  banker  for a  period  of five  years  from  the  date  of the  1994
Acquisition  for a fee of $200 per annum.  Interest  payments  of  approximately
$4,600 and $2,300 were paid to the DLJ Bridge  Fund for the year ended  December
31, 1995 and the period August 12, 1994 through December 31, 1994, respectively.


     In connection  with the  Refinancing,  the Company paid  financing  fees of
$2,800 to DLJSC  relating to the repurchase of the Old Notes and the issuance of
the New Notes.  Additional  financing  fees of $1,500  were paid to DLJ  Capital
Funding, Inc. and DLJSC relating to the New Credit Agreement.

     A director of the Company is also a director of Argyle  Television Inc. and
was a  director  of Argyle  Television  Operations  Inc.,  clients  of KMC.  KMC
generated  approximately  $1,400,  $1,500, $1,400 and $1,800 in revenues for the
years ended  December  31,  1996 and 1995,  the period  August 12, 1994  through
December  31,  1994 and the period  January  1, 1994  through  August 11,  1994,
respectively, from these clients.

     In September 1996, the Company sold a representation  contract for a single
station to Services.  The purchase  price of $4,900 paid by Services  represents
the historic commission income projected over the remaining contract period plus
two months. The Company recognized a gain of $3,600 on this contract, consisting
of the $4,900  purchase  price less the $1,300  carrying  value of the contract,
which is  included  as a  component  of  depreciation  and  amortization  in the
accompanying   consolidated  statement  of  operations.   The  Company  provided
representation  services for this  contract in exchange for a fee equal to 76.8%
of  commissions  received.  For the year ended  December 31,  1996,  the Company
received fees of $79,  which are reflected as revenues.  In connection  with the
Refinancing,  the Company repurchased this contract from Services for a purchase
price of $1,300.

                                      F-19

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)

     In April 1996, the Company sold $2,100 of trade  receivables  to Group.  No
gain or loss was  recognized on this sale. At December 31, 1996 all amounts were
collected by the Company and remitted to Group. Also as part of the Refinancing,
the Company provided for a loan to Group aggregating  approximately $4,500. This
loan  receivable  bears  interest  at 6.6% per  annum and is  included  in other
non-current  assets in the  accompanying  balance  sheet.  Included  in accounts
receivable and other assets is approximately  $500 and $1,300 as of December 31,
1996 and 1995, respectively, due from NCC representing working capital advances.

10.  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company has entered into an interest  rate cap  agreement to reduce the
potential  impact of increases in interest rates on its floating rate New Credit
Agreement through December 1997. The Company has not entered into this agreement
for trading  purposes.  The  agreement  entitles the Company to receive from the
counterparty  on a quarterly  basis the amounts,  if any, by which the Company's
interest payments on the protected  principal of its three month LIBOR borrowing
under the Credit Facility exceed 8.5%. The protected principal is decreased on a
quarterly  basis from $22,000 on the effective  date of the agreement to $10,900
on the  termination  date.  Amounts  receivable  under the cap agreement will be
recorded as a reduction of interest expense. The Company is exposed to potential
credit losses in the event of  nonperformance  by the  counterparty,  but has no
off-balance sheet credit risk of accounting loss.

11.   FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company defines the fair value of a financial  instrument as the amount
at which the  instrument  could be  exchanged in a current  transaction  between
willing parties.

     Management  believes that, except for the New Notes and Old Notes, the fair
value of financial  instruments of the Company  approximates the respective book
values.  The fair value of the New Notes,  based upon quoted market prices,  was
approximately $102,500 at December 31, 1996 and the fair value of the Old Notes,
based upon quoted market prices, was approximately $134 and $105,500 at December
31, 1996 and 1995, respectively.

12.   SUPPLEMENTAL INFORMATION

     The  following  amounts at December  31, 1996 and 1995,  respectively,  are
included under the accounts receivable caption in the accompanying  consolidated
balance sheet:

<TABLE>
<CAPTION>

                                                                         1996        1995
                                                                       -------     -------
       <S>                                                            <C>         <C>


        Accounts receivable, trade...............................      $54,231     $49,370
        Representation contracts receivable....................         14,653      12,035
                                                                       -------     -------
                                                                       $68,884     $61,405
                                                                       -------     -------
                                                                       -------     -------
</TABLE>

  The  following  amounts  at  December  31,  1996 and 1995,  respectively,  are
included  under the  accounts  payable  and accrued  liabilities  caption in the
accompanying consolidated balance sheet:

                                    F-20(a)
<PAGE>

<TABLE>
<CAPTION>

                                                                         1996         1995
                                                                       --------     --------
       <S>                                                            <C>          <C>
        Representation contracts payable......................         $20,152     $12,429
        Accrued incentive commissions.........................           4,099       3,875
        Accrued interest......................................             658       2,270
        Accounts payable......................................          12,096      11,150
        Other      ...........................................           8,442       7,377
                                                                       --------     --------
           Total   ...........................................         $45,447     $37,101
                                                                       --------     --------
                                                                       --------     --------
</TABLE>

     The provision for bad debts was approximately $1,600, $700, $600 and $1,000
for the years  ended  December  31,  1996 and 1995,  the period  August 12, 1994
through  December  31, 1994 and the period  January 1, 1994  through  August 11,
1994, respectively.

                                     F-20(b)

<PAGE>
                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


     Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>

                                                                 Period             Period
                                                             August 12, 1994   January 1, 1994
                        Year Ended         Year Ended            Through           Through
                     December 31, 1996  December 31, 1995   December 31, 1994  August 11, 1994
                     -----------------  -----------------   -----------------  ---------------
<S>                 <C>                <C>                 <C>                <C>

Cash Payments
        Interest......    $22,078            $23,771           $9,019             $9,482
        Income taxes-net
           of refunds     $ 2,290            $   105           $  764             $  962

</TABLE>

13.  QUARTERLY FINANCIAL DATA (Unaudited)

     Unaudited  summarized  financial  data by  quarter  for 1996 and 1995 is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>


                                                          Quarter Ended
                                -----------------------------------------------------------
    1996                         December 31         September 30       June 30    March 31
    ----                         -----------         ------------       -------    --------
   <S>                          <C>                 <C>                <C>        <C>

    Operating revenues, net        $53,210             $43,529         $48,115     $38,282
    Operating income                12,013              11,079 (1)       9,490       1,648
    Income (loss) before
     extraordinary item              1,914               2,314           1,585      (1,225)
    Net (loss) income               (4,764) (2)          2,314           1,585      (1,225)


                                                          Quarter Ended
                                ----------------------------------------------------------
    1995                         December 31         September 30       June 30    March 31
    ----                         -----------         ------------       -------    --------
    Operating revenues, net        $51,623             $43,611         $50,324     $39,109
    Operating income                10,504  (3)          7,187          10,904       1,080
    Income (loss) before
     extraordinary item                271                 541             775      (1,517)
    Net income (loss)                 (530) (4)            541             775      (1,517)
</TABLE>



(1)  Includes the $1,500 reversal of relocation costs accrued in 1995 related to
     the Company's  plan to reduce  headquarters  facility  requirements  as the
     Company has determined that such plan is no longer  economically  feasible.
     See Note 8.

(2)  In the fourth  quarter of 1996,  the  company  refinanced  its debt,  which
     resulted in the  recognition  of an  extraordinary  loss of $6,679,  net of
     income tax benefit of $4,640. See Note 5.

(3)  The fourth  quarter of 1995  includes a non-cash  charge of $6,400  related
     primarily to the relocation of one of its expanding  subsidiary  operations
     and costs associated with reducing headquarters facility requirements.  See
     Note 8.

(4)  In the fourth quarter of 1995, the company  significantly  modified the Old
     Credit  Agreement,  which resulted in the  recognition of an  extraordinary
     loss of $800, net of income tax benefit of $600. See Note 5.

                                      F-21

<PAGE>

                     KATZ MEDIA CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (000's Omitted, Except Share and Per Share Information)-(Continued)


14. Condensed Consolidating Financial Statements

     The following condensed  consolidating  financial  statements for the years
ended December 31, 1996 and 1995 and the period August 12, 1994 through December
31, 1994 present the  financial  position,  the results of  operations  and cash
flows for the Company  (carrying any investments in guarantor and  non-guarantor
subsidiaries under the equity method), guarantor subsidiaries of the Company and
non-guarantor  subsidiaries of the Company,  and the  eliminations  necessary to
arrive at the  information  for the Company on a consolidated  basis.  Condensed
financial  statements  for the period  January 1, 1994  through  August 11, 1994
present the results of  operations  and cash flows for the  Predecessor  Company
(carrying any investments in guarantor and non-guarantor  subsidiaries under the
equity  method),   guarantor   subsidiaries  of  the  Predecessor   Company  and
non-guarantor  subsidiaries of the  Predecessor  Company,  and the  eliminations
necessary  to  arrive  at the  information  for  the  Predecessor  Company  on a
consolidated basis.

                                      F-22

<PAGE>

                        KATZ MEDIA CORPORATION AND SUBSIDIARIES
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  (In Thousands, Except Share Information)--(Continued)

<TABLE>
<CAPTION>

                                                               December 31, 1996
                                             ------------------------------------------------------
                                                                                             The
                                                The                 Non-                  Company
                                             Company Guarantors Guarantors Eliminations Consolidated
                                             ------- ---------- ---------- ------------ ------------
<S>                                         <C>     <C>        <C>        <C>          <C>
                     Assets

Current Assets:
 Cash and cash equivalents.............   $    --  $  3,027      $   --  $      --   $   3,027
 Accounts receivable, net..............        --    67,859       1,025         --      68,884
 Deferred costs on purchases of station
 representation contracts..............        --    21,428          --         --      21,428
 Prepaid expenses and other current assets.    --     1,293          --         --       1,293
                                          -------  --------      ------  ---------   ---------
   Total current assets................        --    93,607       1,025         --      94,632
                                          -------  --------      ------  ---------   ---------
Fixed assets, net......................        --    15,412         328         --      15,740
Deferred income taxes..................        --        --          --         --          --
Deferred costs on purchases of station
 representation contracts..............        --    74,399          --         --      74,399
Equity investment in affiliates........   131,851        --          --  (131,851)          --
Due from affiliate.....................   168,356        --          --  (168,356)          --
Intangible assets, net.................        --   218,370         438         --     218,808
Other assets, net......................    22,783    11,180         158         --      34,121
                                          -------  --------      ------  ---------   ---------
   Total assets........................  $322,990  $412,968     $ 1,949 $(300,207)    $437,700
                                          -------  --------      ------  ---------   ---------
                                          -------  --------      ------  ---------   ---------

   Liabilities and Stockholders' Equity

Current Liabilities:
 Accounts payable and accrued liabilities.$   658  $42,935      $ 1,854 $     --      $ 45,447
 Deferred income on sales of station
  representation contracts.............        --   14,548           --       --        14,548
 Income taxes payable..................        --    1,811           --       --         1,811
                                          -------  --------      ------  ---------   ---------
   Total current liabilities...........       658   59,294        1,854       --        61,806
                                          -------  --------      ------  ---------   ---------
Deferred income on sales of station
 representation contracts..............        --    4,787           --       --         4,787
Deferred income taxes payable..........        --    1,568           --       --         1,568
Long-term debt.........................   217,622       --           --       --       217,622
Due to affiliate.......................        --  168,356           -- (168,356)           --
Other liabilities......................        --   46,650          557       --        47,207
Stockholders' equity:..................
 Common stock..........................        --       --            1       (1)           --
 Paid-in-capital.......................   128,785   96,610          989  (97,599)      128,785
 Carryover basis adjustment............   (20,047)      --           --       --       (20,047)
 (Accumulated deficit) retained earnings . (4,028)   35,703      (1,452) (34,251)       (4,028)
                                          -------  --------      ------  ---------   ---------
   Total stockholders' equity..........   104,710   132,313        (462)(131,851)      104,710
                                          -------  --------      ------  ---------   ---------
   Total liabilities and stockholders'
     equity............................  $322,990  $412,968    $  1,949$(300,207)     $437,700
                                          -------  --------      ------  ---------   ---------

                                                  F-23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)



                                                               December 31, 1995
                                             ------------------------------------------------------
                                                                                             The
                                                The                 Non-                  Company
                                             Company Guarantors Guarantors Eliminations Consolidated
                                             ------- ---------- ---------- ------------ ------------
<S>                                         <C>     <C>        <C>        <C>          <C>
              Assets
Current Assets:
 Cash and cash equivalents.............   $      --  $     187  $     41  $      --       $    228
 Accounts receivable, net..............          --     59,601     1,804         --         61,405
 Deferred costs on purchases of station
   representation contracts............          --     13,096        --         --         13,096
 Prepaid expenses and other current assets.      --        869        --         --            869
                                          ---------  ---------   -------  ---------       --------
  Total current assets.................          --     73,753     1,845         --         75,598
                                          ---------  ---------   -------  ---------       --------
Fixed assets, net......................          --     12,068       369         --         12,437
Deferred income taxes..................          --      1,857        --         --          1,857
Deferred costs on purchases of station
 representation contracts..............          --     39,602        --         --         39,602
Equity investment in affiliates........     120,199         --        --   (120,199)            --
Due from affiliate.....................     151,774         --        --   (151,774)            --
Intangible assets, net.................          --    227,265       461         --        227,726
Other assets, net......................      16,517      1,774        --         --         18,291
                                          ---------  ---------   -------  ---------       --------
  Total assets.........................  $  288,490  $ 356,319   $ 2,675  $(271,973)     $ 375,511
                                          ---------  ---------   -------  ---------       --------
                                          ---------  ---------   -------  ---------       --------

  Liabilities and Stockholders' Equity
Current Liabilities:
 Account payable and accrued liabilities.$    2,270  $  33,035   $ 1,796  $      --      $  37,101
 Deferred income on sales of station
  representation contracts.............          --     10,700        --         --         10,700
 Income taxes payable..................          --      3,131        --         --          3,131
                                          ---------  ---------   -------  ---------       --------
  Total current liabilities............       2,270     46,866     1,796         --         50,932
                                          ---------  ---------   -------  ---------       --------
Deferred income on sales of station
 representation contracts.............  .        --      3,589        --         --          3,589
Long-term debt.........................     179,530         --        --         --        179,530
Due to affiliate.......................          --    151,774        --   (151,774)            --
Other liabilities......................          --     34,229       541         --         34,770
Stockholders' Equity:
 Common stock..........................          --         --         1         (1)            --
 Paid-in-capital.......................     128,675     96,610       989    (97,599)       128,675
 Carryover basis adjustment............     (20,047)        --        --         --        (20,047)
 (Accumulated deficit) retained earnings.    (1,938)    23,251      (652)   (22,599)        (1,938)
                                          ---------  ---------   -------  ---------       --------
  Total stockholders' equity...........     106,690    119,861       338   (120,199)       106,690
                                          ---------  ---------   -------  ---------       --------
  Total liabilities and stockholders'
   equity.                              $   288,490  $ 356,319   $ 2,675  $(271,973)     $ 375,511
                                          ---------  ---------   -------  ---------       --------
                                          ---------  ---------   -------  ---------       --------

                                                  F-24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)



                                                               December 31, 1996
                                             ------------------------------------------------------
                                                                                             The
                                                The                 Non-                  Company
                                             Company Guarantors Guarantors Eliminations Consolidated
                                             ------- ---------- ---------- ------------ ------------
<S>                                         <C>     <C>        <C>        <C>          <C>
Operating revenues, net................   $    --    $ 180,384  $  2,752   $   --       $ 183,136
                                          -------    ---------  --------   ------       ---------
Operating expenses:
 Salaries and related costs............        --      100,540     2,380       --         102,920
 Selling, general and administrative...        --       35,170     1,068       --          36,238
 Depreciation and amortization.........        --        9,642       106       --           9,748
                                          -------    ---------  --------   ------       ---------
Total operating expenses...............        --      145,352     3,554       --         148,906
                                          -------    ---------  --------   ------       ---------
Operating income.......................        --       35,032      (802)      --          34,230
Other expense (income):
 Interest expense......................    20,775           --        --       --          20,775
 Interest (income).....................        --         (117)       (2)      --            (119)
                                          -------    ---------  --------   ------       ---------
Total other expense, net...............    20,775         (117)       (2)      --          20,656
                                          -------    ---------  --------   ------       ---------
(Loss) income before income tax provision
 (benefit) and extraordinary item......   (20,775)      35,149      (800)      --          13,574
 Income tax (benefit) provision........   (13,711)      22,697        --       --           8,986
Equity in earnings of affiliates,
  net of taxes.........................    11,652           --        --  (11,652)             --
                                          -------    ---------  --------   ------       ---------
Income (loss) before extraordinary item.    4,588       12,452      (800) (11,652)          4,588
Extraordinary item.....................    (6,678)          --        --       --          (6,678)
                                          -------    ---------  --------   ------       ---------
Net  (loss) income.....................  $ (2,090)   $  12,452   $  (800)$(11,652)      $  (2,090)
                                          -------    ---------  --------   ------       ---------
                                          -------    ---------  --------   ------       ---------

                                                  F-25

</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)


                                                               December 31, 1995
                                             ------------------------------------------------------
                                                                                             The
                                                The                 Non-                  Company
                                             Company Guarantors Guarantors Eliminations Consolidated
                                             ------- ---------- ---------- ------------ ------------
<S>                                         <C>     <C>        <C>        <C>          <C>
Operating revenues, net................      $   --  $180,612   $4,055     $      --    $184,667
                                             ------  --------   ------     ---------    --------
Operating expenses:
 Salaries and related costs............          --    96,338    3,139            --      99,477
 Selling, general and administrative...          --    37,828    1,216            --      39,044
 Depreciation and amortization.........          --     9,973       98            --      10,071
 Provision for relocations.............          --     6,400       --            --       6,400
                                             ------  --------   ------     ---------    --------
Total operating expenses...............          --   150,539    4,453            --     154,992
                                             ------  --------   ------     ---------    --------
Operating income.......................          --    30,073     (398)           --      29,675
Other expense (income):
 Interest expense......................      25,280        --       16            --      25,296
 Interest (income).....................          --      (139)      --            --        (139)
                                             ------  --------   ------     ---------    --------
Total other expense, net...............      25,280      (139)      16            --      25,157
                                             ------  --------   ------     ---------    --------
(Loss) income before income tax provision
 (benefit) and extraordinary item......     (25,280)   30,212     (414)           --       4,518
 Income tax (benefit) provision........     (10,365)   14,813       --            --       4,448
 Equity in earnings of affiliates,
  net of taxes.........................      14,985        --       --       (14,985)         --
                                             ------  --------   ------     ---------    --------
Income (loss) before extraordinary item.         70    15,399     (414)      (14,985)         70
Extraordinary item.....................        (801)       --       --            --        (801)
                                             ------  --------   ------     ---------    --------
Net (loss) income......................     $  (731) $ 15,399   $ (414)    $ (14,985)    $  (731)
                                             ------  --------   ------     ---------    --------
                                             ------  --------   ------     ---------    --------

                                                  F-26

</TABLE>
<PAGE>
<TABLE>
<CAPTION>




                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)

                                                 Period August 12, 1994 through December 31, 1994
                                             ------------------------------------------------------
                                                                                             The
                                                The                 Non-                  Company
                                             Company Guarantors Guarantors Eliminations Consolidated
                                             ------- ---------- ---------- ------------ ------------
<S>                                         <C>     <C>        <C>        <C>          <C>

Operating revenues, net................ $      --   $79,794   $1,609       $  --        $81,403
                                        ---------   -------   ------       -----        -------
Operating expenses:
 Salaries and related costs............        --    41,470    1,260          --         42,730
 Selling, general and administrative...        --    14,666      542          --         15,208
 Depreciation and amortization.........        --     9,069       58          --          9,127
                                        ---------   -------   ------       -----        -------
Total operating expenses...............        --    65,205    1,860          --         67,065
                                        ---------   -------   ------       -----        -------
Operating income.......................        --    14,589     (251)         --         14,338
Other expense (income):
 Interest expense......................    14,952        --      (13)         --         14,939
 Interest (income).....................        --       (65)      --          --            (65)
                                        ---------   -------   ------       -----        -------
Total other expense, net...............    14,952       (65)     (13)         --         14,874
                                        ---------   -------   ------       -----        -------
(Loss) income before income tax provision
 (benefit).............................   (14,952)   14,654     (238)         --           (536)
 Income tax (benefit) provision........    (6,131)    6,802       --          --            671
 Equity in earnings of affiliates,
  net of taxes.........................     7,614        --       --      (7,614)            --
                                        ---------   -------   ------       -----        -------
Net (loss) income......................   $(1,207) $  7,852  $  (238)    $(7,614)       $(1,207)
                                        ---------   -------   ------       -----        -------
                                        ---------   -------   ------       -----        -------

                                                  F-27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)

                                             Period January  1, 1994 through August 11, 1994
                                         ------------------------------------------------------
                                                                                             The
                                            The                 Non-                  Company
                                         Company Guarantors Guarantors Eliminations Consolidated
                                         ------- ---------- ---------- ------------ ------------
<S>                                     <C>     <C>        <C>        <C>          <C>

Operating revenues, net................  $     --  $101,731   $1,651 $        --    $103,382
                                         --------  --------   ------ -----------    --------
Operating expenses:
 Salaries and related costs............        --    63,736    1,130          --      64,866
 Selling, general and administrative...        --    23,203      477          --      23,680
 Depreciation and amortization.........        --    11,664       62          --      11,726
                                         --------  --------   ------ -----------    --------
Total operating expenses...............        --    98,603    1,669          --     100,272
                                         --------  --------   ------ -----------    --------
Operating income.......................        --     3,128      (18)         --       3,110
Other expense (income):
 Interest expense......................    10,872        --       --          --      10,872
 Interest (income).....................        --       (14)     (10)         --         (24)
                                         --------  --------   ------ -----------    --------
Total other expense, net...............    10,872       (14)     (10)         --      10,848
                                         --------  --------   ------ -----------    --------
(Loss) income before income tax provision
 (benefit).............................   (10,872)    3,142       (8)         --      (7,738)
Income tax (benefit) provision.........    (4,458)    3,065       --          --      (1,393)
Equity in earnings of affiliates,
 net of taxes..........................        69        --       --        (69)          --
                                         --------  --------   ------ -----------    --------
Net (loss) income......................   $(6,345)$     77  $    (8)  $     (69) $    (6,345)
                                         --------  --------   ------ -----------    --------
                                         --------  --------   ------ -----------    --------

                                                  F-28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)


                                                      Year Ended December 31, 1996
                                         -----------------------------------------------------
                                                                                         The
                                             The                 Non-                  Company
                                         Company Guarantors Guarantors Eliminations Consolidated
                                         ------- ---------- ---------- ------------ ------------
<S>                                     <C>     <C>        <C>        <C>          <C>
Net cash provided by (used in) operating
 activities............................ $(22,386)  $ 31,053   $ (41)     $  --     $   8,626
                                        ---------  --------   ------     -----     ---------
 Investing Activities:
 Capital expenditures..................        --    (6,785)      --        --        (6,785)
 Payments received on sales of station
 representation contracts..............        --    26,018       --        --        26,018
 Payments made on purchases of station
 representation contracts..............        --   (42,415)      --        --       (42,415)
                                        ---------  --------   ------     -----     ---------
Net cash (used in) investing activities.       --   (23,182)      --        --       (23,182)
                                        ---------  --------   ------     -----     ---------
Financing Activities:
 Credit facilities borrowings..........    59,900        --       --        --        59,900
 Credit facilities repayments..........  (139,900)       --       --        --      (139,900)
 Decrease (increase) in due from (to)
 affiliate.............................     5,031    (5,031)      --        --            --
 Repurchase of Notes...................  (110,724)       --       --        --      (110,724)
 Loan to Parent........................    (4,520)       --       --        --        (4,520)
 Proceeds from issuance of  10 1/2% Notes.100,000        --       --        --       100,000
 Proceeds from  New Credit Facility....   117,500        --       --        --       117,500
 Financing Fees paid in connection
   with credit facilities and Bridge Notes.(4,901)                --        --        (4,901)
                                        ---------  --------   ------     -----     ---------
Net cash provided by (used in) financing
 activities............................    22,386    (5,031)      --        --        17,355
                                        ---------  --------   ------     -----     ---------
Net increase (decrease) in cash........        --     2,840     (41)        --         2,799
Cash and cash equivalents, beginning of
 period................................        --       187       41        --           228
                                        ---------  --------   ------     -----     ---------
Cash and cash equivalents, end of period.$     --   $ 3,027   $   --     $  --     $   3,027
                                        ---------  --------   ------     -----     ---------
                                        ---------  --------   ------     -----     ---------

                                                  F-29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)

                                                      Year Ended December 31, 1995
                                         -----------------------------------------------------
                                                                                         The
                                             The                 Non-                  Company
                                         Company Guarantors Guarantors Eliminations Consolidated
                                         ------- ---------- ---------- ------------ ------------
<S>                                     <C>     <C>        <C>        <C>          <C>

Net cash (used in) provided by operating
 activities............................  $(23,142) $ 38,123    $  83     $  --       $15,064
                                         --------- --------    -----     -----       -------
Investing Activities:
 Capital expenditures..................        --   (6,000)     (46)        --        (6,046)
 Payments received on sales of station
  representation contracts.............        --    19,779       --        --        19,779
 Payments made on purchases of station
  representation contracts.............        --  (31,945)       --        --       (31,945)
 Investment in cable joint venture.....   (10,753)       --       --        --       (10,753)
                                         --------- --------    -----     -----       -------
Net cash (used in) investing activities.  (10,753) (18,166)     (46)        --       (28,965)
                                         --------- --------    -----     -----       -------
Financing Activities:
 Credit facilities borrowings..........    66,000        --       --        --        66,000
 Credit facilities repayments..........   (64,000)       --       --        --       (64,000)
 Decrease (increase) in due from (to)
  affiliate............................    21,597  (21,597)       --        --           --
 Proceeds from Bridge Notes............     4,000        --       --        --         4,000
 Repayment of Bridge Notes.............   (74,000)       --       --        --       (74,000)
 Restricted cash release...............     2,000        --       --        --         2,000
 Proceeds from  issuance of common stock.  79,138        --       --        --        79,138
 Repurchase of Notes and other notes...      (840)       --       --        --          (840)
                                         --------- --------    -----     -----       -------
Net cash provided by (used in) financing
 activities............................    33,895  (21,597)       --        --        12,298
                                         --------- --------    -----     -----       -------
Net increase (decrease) in cash........        --   (1,640)       37        --        (1,603)
Cash and cash equivalents, beginning of
 period................................        --     1,827        4        --         1,831
                                         --------- --------    -----     -----       -------
Cash and cash equivalents, end of period.  $   --$      187  $    41    $   --      $    228
                                         --------- --------    -----     -----       -------
                                         --------- --------    -----     -----       -------

                                                  F-30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)


                                              Period August 12, 1994 through December 31, 1994
                                          ------------------------------------------------------
                                                                                          The
                                             The                 Non-                  Company
                                          Company Guarantors Guarantors Eliminations Consolidated
                                          ------- ---------- ---------- ------------ ------------
<S>                                      <C>      <C>       <C>        <C>          <C>
Net cash (used in) provided by operating
 activities............................$ (11,539)$   19,877  $   328       $  --   $  8,666
                                       --------- ----------  -------       -----   -------
Investing Activities:
 Capital expenditures..................       --       (678)    (324)         --     (1,002)
 Payments received on sales of station
   representation contracts............       --      4,746       --          --      4,746
 Payments made on purchases of station
  representation contracts.............       --     (4,545)      --          --     (4,545)
 Acquisition of business, net of $219 cash
  acquired in 1994..................... (116,193)        --       --          --   (116,193)
                                       --------- ----------  -------       -----   -------
Net cash (used in) investing activities.(116,193)      (477)    (324)         --   (116,994)
                                       --------- ----------  -------       -----   -------

Financing Activities:
 Credit facilities borrowings..........   24,800         --       --          --     24,800
 Credit facilities repayments..........  (23,800)        --       --          --    (23,800)
 Decrease (increase) in due from (to
  affiliate............................   17,573    (17,573)      --          --         --
 Proceeds from Bridge Notes............   70,000         --       --          --     70,000
 Restricted cash payment...............   (2,000)        --       --          --     (2,000)
 Proceeds from issuance of common stock.  48,040         --       --          --     48,040
 Financing fees paid in connection with
  credit facilities and Bridge Notes...   (6,801)        --       --          --     (6,801)
 Repurchase of other notes.............      (80)        --       --          --        (80)
                                       --------- ----------  -------       -----   -------
Net cash provided by (used in) financing
  activities...........................  127,732    (17,573)      --          --    110,159
                                       --------- ----------  -------       -----   -------

Net increase in cash...................       --      1,827        4          --      1,831
Cash and cash equivalents, beginning of
 period................................       --         --       --          --         --
                                       --------- ----------  -------       -----   -------
Cash and cash equivalents, end of period.$    --  $   1,827  $     4      $   --  $   1,831
                                       --------- ----------  -------       -----   -------
                                       --------- ----------  -------       -----   -------

                                                  F-31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                 KATZ MEDIA CORPORATION AND SUBSIDIARIES
                                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          (In Thousands, Except Share Information)--(Continued)

                                               Period January  1, 1994 through August 11, 1994
                                         ------------------------------------------------------------
                                                                                             The
                                            The                   Non-                      Company
                                         Company    Guarantors   Guarantors Eliminations  Consolidated
                                         -------    ----------   ---------- ------------  ------------
<S>                                     <C>        <C>          <C>        <C>           <C>
Net cash (used in) provided by operating
 activities............................$  (8,945)$    8,557      $    4      $  --        $   (384)
                                       --------- ----------      ------      -----        ---------

Investing Activities:
 Capital expenditures..................       --     (1,079)         --         --          (1,079)
 Payments received on sales of station
  representation contracts.............       --      4,755          --         --           4,755
 Payments made on purchases of station
  representation contracts.............       --     (7,380)         --         --          (7,380)
                                       --------- ----------      ------      -----        ---------
Net cash (used) in investing activities       --     (3,704)         --         --          (3,704)
                                       --------- ----------      ------      -----        ---------

Financing Activities:
 Credit facilities borrowings..........   107,075                    --         --         107,075
 Credit facilities repayments..........  (101,575)                   --         --        (101,575)
 Increase (decrease) in due from (to)
  affiliate............................     4,648    (4,648)         --         --              --
 Purchase of treasury stock............      (34)                    --         --             (34)
 Proceeds from shareholder contribution    3,000                     --         --           3,000
 Purchase of warrants and options......   (2,300)                    --         --          (2,300)
 Financing fees paid in connection with
  credit facilities....................   (1,869)                    --         --          (1,869)
                                       --------- ----------      ------      -----        ---------
Net cash provided by (used in) financing
 activities............................    8,945     (4,648)         --         --           4,297
                                       --------- ----------      ------      -----        ---------

Net increase in cash...................       --        205           4         --             209
Cash and cash equivalents, beginning of
 period................................       --         10          --         --              10
                                       --------- ----------      ------      -----        ---------
Cash and cash equivalents, end of period$     -- $      215      $    4     $   --         $   219
                                       --------- ----------      ------      -----        ---------
                                       --------- ----------      ------      -----        ---------

                                                  F-32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                    SCHEDULE II

                            KATZ MEDIA CORPORATION AND SUBSIDIARIES
                               Valuation and Qualifying Accounts
                                        (000's omitted)


                                                     ADDITIONS
                                                  --------------
                                    BALANCE AT            CHARGED TO               BALANCE AT
                                    BEGINNING    CHARGED    OTHER                      END
                                    OF PERIOD    TO SG&A   ACCOUNTS   DEDUCTIONS   OF PERIOD
                                    ---------    -------   --------   ----------   ---------
<S>                                <C>          <C>       <C>        <C>          <C>

Allowance for Doubtful Accounts

Company
-------
For the year ended December 31, 1996 $1,300        --      $  1,550    $1,550 (1)    $1,300

For the year ended December 31, 1995 $1,600        --       $   700    $1,000 (1)    $1,300

For the period August 12, 1994
through December 31, 1994.........   $1,600        --      $   613    $   613 (1)    $1,600

Predecessor Company
-------------------
For the period January 1, 1994
through August 11, 1994...........   $1,600        --       $   985   $   985 (1)    $1,600

Valuation Allowance - Deferred Tax Asset

Company
-------
For the year ended December 31, 1996 $2,497        --          --           --       $2,497

For the year ended December 31, 1995 $3,836        --          --      $1,339 (2)    $2,497

For the period August 12, 1994
through December 31, 1994.........   $4,635        --          --     $  799 (3)     $3,836

Predecessor Company
-------------------
For the period January 1, 1994
through August 11, 1994...........   $2,021        --        $4,933         --       $6,954


_______________

(1)  Write off Uncollected / Unrealized Accounts

(2)  Reduction in valuation allowance due to purchase price adjustment to Goodwill.

(3)  Reduction in valuation allowance due to decrease in deferred tax asset

                                              S-1
</TABLE>