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

                           Commission File No. 1-13674


                             Katz Media Group, Inc.
             (Exact name of registered as specified in its charter)


           Delaware                                     13-3779269
(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:

                                                     Name of Each Exchange
Title of Each Class                                  on which Registered
-------------------                                  ------------------- 
Common Stock, $.01 par value                         The American Stock Exchange

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 [X] No [_] 

     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]

     Based on the closing sales price on March 20, 1997,  the  aggregate  market
value  of  the  Common  Stock  held  by  non-affiliates  of the  Registrant  was
approximately $35 million.

     At March 20, 1997 - 13,492,396 shares of the Registrant's common stock were
outstanding.

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the  Registrant's  Definitive  Proxy Statement to be filed with
the Securities and Exchange  Commission pursuant to Regulation 14A in connection
with its 1997 Annual Meeting are incorporated by reference into Part III of this
Report on Form 10-K.

<PAGE>


                                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.................    11

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............................................................  24-26












                                       1
<PAGE>


                                     PART I

Item 1. Business

General
-------

     Katz Media Group,  Inc.  (the  "Company" or "Katz," which terms include the
subsidiaries of Katz Media Group, Inc. 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
the largest  cable  television  media  representation  firm in the United States

                                       2
<PAGE>

(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  holding  company  that was  formed  in July 1994 by DLJ
Merchant Banking Partners,  L.P. and related investors  (collectively,  "DLJMB")
and certain  members of current  management  to acquire  all of the  outstanding
stock of the company formerly known as Katz Media  Corporation  ("Katz Media" or
the "Predecessor Company") from an investor group that included certain retiring
executives,  which  acquisition  was  completed  on August  12,  1994 (the "1994
Acquisition").  The Company  completed an initial  public  offering of 5,500,000
shares of its common stock in April 1995 (the "1995 IPO"). As of March 20, 1997,
DLJMB beneficially owned approximately 49.4% of the common stock of the Company,
and the management  shareholders,  consisting of management and employees of the
Company  (collectively,  the  "Management  Shareholders"),   beneficially  owned
approximately  13.1% of the common stock of the Company.  In December 1996, Katz
Media merged with and into Katz Capital  Corporation,  a wholly owned subsidiary
of the Company,  and the  surviving  company was renamed Katz Media  Corporation
("KMC").  The Company does not have any significant  assets or operations  other
than through its subsidiary, KMC.

                                       3
<PAGE>


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
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

                                       4
<PAGE>

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.  In March  1997,  the Company  announced  the
formation of AMCAST, the Company's first client dedicated representation company
to  serve  ABC and the  closure  of  Banner.  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
(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.

                                       5
<PAGE>

     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.

     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

                                       6
<PAGE>

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
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

                                       7
<PAGE>

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.

     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

                                       8
<PAGE>

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 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.


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

                                       9
<PAGE>

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
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.

                                       10
<PAGE>


     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.


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.

                                       11
<PAGE>


                                     PART II

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


Price Range of Common Stock

     The Company's  common stock trades on The American Stock Exchange under the
symbol "KTZ". The following table sets forth the high and low sale prices of the
common stock as reported by The American Stock Exchange for each of the quarters
since the  commencement  of the Company's  initial public  offering of 5,500,000
shares  of  common  stock in April  1995 at a public  offering  price of $16 per
share.

        1996                             High                  Low
        ----                             ----                  ----
        Fourth Quarter                   11 1/2                8 1/8
        Third Quarter                    14 1/8                8 3/8
        Second Quarter                   16 1/2               13 1/2
        First Quarter                    17 3/4               13 1/2

        1995                             High                  Low
        ----                             ----                  ----
        Fourth Quarter                   20 1/4               14 7/8
        Third Quarter                    21 7/8               15 7/8
        Second Quarter                   17 1/8               14 5/8

     On March 20, 1997,  the last reported  sale price of the  Company's  common
stock on The American  Stock  Exchange  was $6 5/8. As of March 20, 1997,  there
were approximately 348 stockholders of record of the Company's common stock.


Dividends
---------

     The Company has not paid and does not intend to pay any cash  dividends  on
its common stock for the  foreseeable  future.  The Company is a holding company
that has no  operations  except  through  its  subsidiaries.  The ability of the
Company to pay  dividends on its common stock is dependent on the ability of KMC
to pay dividends or make other distributions to the Company.  The terms of KMC's
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")  restrict the ability of KMC to pay  dividends,
repurchase stock or make loans to the Company. See "Management's  Discussion and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital Resources."


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>


                                                              Selected Consolidated Financial Data
                                                        (Dollars in thousands, except share and per share
                                                                          information)


<CAPTION>

                                                                         Period         Period
                                                                       August 12,      January 1
                                         Year Ended     Year Ended       Through        Through      Year Ended      Year Ended
                                        December 31,   December 31,   December 31,     August 11,    December 31,    December 31,
                                            1996           1995          1994             1994           1993           1992
<S>                                    <C>            <C>            <C>              <C>           <C>             <C>

Statement of Operations  Data:
Operating revenues, net................  $183,239       $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)......    13,427         10,071          9,127          11,726          17,514         12,613
Provision for relocations (4)..........      --            6,400           --              --               350          3,707
                                         --------       --------        -------        --------        --------       --------
 Total operating expenses..............   152,585        154,992         67,065         100,272         141,823        132,642
                                         --------       --------        -------        --------        --------       --------
Operating income.......................    30,654         29,675         14,338           3,110          15,113         13,392

Interest and other expenses, net (5)...    20,901         25,042         14,808          10,848          17,888          9,757
                                         --------       --------        -------        --------        --------       --------
Income (loss) before income tax
  provision (benefit), extraordinary item
  and cumulative effect of accounting
  changes..............................     9,753          4,633           (470)         (7,738)         (2,775)         3,635
Income tax provision (benefit).........     7,381          4,495            698          (1,393)            603          2,815
Income (loss) before extraordinary
  item and cumulative effect of
  accounting changes...................     2,372            138         (1,168)         (6,345)         (3,378)           820
Extraordinary items - (loss) on
  early extinguishment of debt (6).....    (6,993)          (801)          --              --               --          (3,717)
                                         --------       --------        -------        --------        --------       --------
(Loss) before cumulative
  effect of accounting changes.........    (4,621)          (663)        (1,168)         (6,345)         (3,378)        (2,897)
Cumulative effect of accounting
  changes (7)..........................      --             --             --              --             5,438            --
(Loss) income before
  preferred stock dividend
  requirements.........................    (4,621)          (663)        (1,168)         (6,345)          2,060         (2,897)
Preferred stock dividend
  requirements (8).....................      --             --             --              --              --            9,590
                                         --------       --------        -------        --------        --------       --------
Net (loss) income......................   ($4,621)         ($663)       ($1,168)        ($6,345)         $2,060       ($12,487)
                                         --------       --------        -------        --------        --------       --------
                                         --------       --------        -------        --------        --------       --------
Per Share Data (9):
Income (loss) before extraordinary
  item.................................      $.17           $.01          ($.13)          N/A             N/A            N/A
Extraordinary (loss) on early
  extinguishment of debt...............      (.50)          (.06)          --             N/A             N/A            N/A
                                         --------       --------        -------        --------        --------       --------
Net (loss).............................     ($.33)         ($.05)         ($.13)          N/A             N/A            N/A
                                         --------       --------        -------        --------        --------       --------
                                         --------       --------        -------        --------        --------       --------
Weighted average common shares.........13,857,214     12,379,541      8,808,243           N/A             N/A            N/A
                                         --------       --------        -------        --------        --------       --------
                                         --------       --------        -------        --------        --------       --------
Other Data:
EBITDA(10).............................   $44,145        $50,377        $24,013         $18,695         $34,410        $33,677
 Payments (receipts) on station
  representation contracts, (net) (11).    20,065         12,166           (201)          2,625           7,152          4,114
Capital expenditures...................     6,785          6,046          1,002           1,079           2,354          5,411

                                                                               13
</TABLE>
<PAGE>
<TABLE>


                                               Selected Consolidated Financial Data
                                         (Dollars in thousands, except share and per share
                                                           information)


<CAPTION>

                                                                         Period         Period
                                                                       August 12,      January 1
                                         Year Ended     Year Ended       Through        Through      Year Ended      Year Ended
                                        December 31,   December 31,   December 31,     August 11,    December 31,    December 31,
                                            1996           1995          1994             1994           1993           1992
<S>                                    <C>            <C>            <C>              <C>           <C>             <C>
Statement of Cash Flows Data:
Net cash provided by (used in)
 operating activities..............     $    8,488     $  15,109      $   8,602         ($384)       $    8,373      $  20,695
Net cash (used in) inventing activities    (26,850)      (28,965)      (116,994)       (3,704)          (10,778)       (23,051)
Net cash provided by financing 
 activities........................         21,234        13,479        111,119         4,297             2,395         (2,282)

Balance Sheet Data (at period end):
Working capital....................     $   33,668     $  25,417      $  26,417           --         $   16,459      $  15,806
Total assets.......................        435,731       377,633        327,815           --            182,517        173,428
Total debt.........................        217,622       179,530        248,370           --            171,950        168,950
Common stockholders' equity (deficit)      102,955       107,441         27,785           --            (38,262)       (39,717)
___________

(1)  Includes  $3,000 non-cash  charge  relating to payments made by a former  shareholder of the  Predecessor  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 Notes 8 and 14 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 $143 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  $4,900,  $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)  Earnings per share data for the Predecessor Company for periods prior to the 1994 Acquisition are not presented as management
     does not believe it would provide any meaningful comparison.

(10) 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.

(11) 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.
</TABLE>

                                       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,  interactive/Internet  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.

                                       15
<PAGE>

     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
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...............        $183,239          $184,667          $184,785
Operating expenses, excluding
  depreciation, amortization and
  the provision for relocations.......         139,158(1)        138,521           146,484
Depreciation and amortization.........          13,427            10,071            20,853
Provision for relocations.............           --                6,400             --
Operating income......................          30,654            29,675            17,448
Interest expense, net.................          20,901            25,042            25,656
Income (loss) before tax provision (benefit)
  and extraordinary item..............           9,753             4,633            (8,208)

Other Data:
EBITDA (2)............................          44,145            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...........           75.9              75.0             79.3
Depreciation and amortization.........            7.3               5.5             11.3
Provision for relocations.............            --                3.5              --
Operating income......................           16.7              16.1              9.4
Interest expense, net.................           11.4              13.6             13.9
Income (loss) before tax provision (benefit)
  and extraordinary item..............            5.3               2.5             (4.4)

Other Data:
EBITDA margin.........................           24.1              27.3             23.1

</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.

                                       17
<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......................       $30,654            $29,675          $17,448
Depreciation and amortization.........        13,427             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................................       $44,145            $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 $183.2 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 increased by $3.3 million, or 33.3% for 1996,
compared to 1995,  due to  relatively  higher  amounts of net  amortization  for
representation  contracts  acquired  in the second  half of 1995 and early 1996,
partially  offset  by lower  amortization  expense  related  to  non-competition
agreements  related to the 1994 Acquisition  which became fully amortized during
the first nine months of 1995.

     Operating  income  increased to $30.7 million in 1996 from $29.7 million in
1995, or 3.3% as a result of the effects of the items mention above.

     Interest expense, net aggregated $20.9 million for 1996, a decrease of $4.1
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.

     Income  before income tax  provision  and  extraordinary  item totaled $9.8
million  for 1996  compared  to $4.6  million  for  1995.  This  result  was due
primarily to the components enumerated above.

     Net loss for 1996 of $4.6 million reflects an  extraordinary  loss on early
extinguishment  of debt of $7.0  million,  net of an income tax  benefit of $4.9
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  75.7%
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
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

                                       19
<PAGE>

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 $25.0  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 $4.6 million for
1995 compared to a $8.2 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.

     The difference between the effective tax rate of approximately 97% 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.

                                       20
<PAGE>

Liquidity and Capital Resources

     Operating  activities  in 1996 provided cash of $8.5 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  $26.9  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 $7.9  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 $41.2 million, $31.9 million and $11.9 million,  respectively,  on buyouts
of station representation  contracts.  The Company received $21.1 million, $19.8
million and $9.5  million from station  representation  contracts  bought out in
such periods, resulting in a net cash outlay of $20.1 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 $21.2 million during
1996 versus $13.5 million in 1995,  an increase of $7.7  million.  Excluding the
effects of the  Refinancing  and the 1995 IPO,  the cash  provided by  financing
activities  during 1996 increased on a net basis by $19.1 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  $6.2  million,  or 12.3%,  to $44.1  million as
compared to $50.4 million for 1995. This decrease was primarily  attributable 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,   through  KMC,  its   wholly-owned
subsidiary,  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 Credit Agreement,  the Old Credit Agreement,
which provided for a revolving  credit facility of up to $94.9 million,  and the
Company's interim credit facility,  which provided for borrowings of up to $35.0
million were  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. As part of the Refinancing,  the Company repurchased $97.7 million of the

                                       21
<PAGE>

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, 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.

     In February 1997, the Company announced a share repurchase  program whereby
the Company will purchase on an  opportunities  basis up to 2 million  shares of
its common stock in open-market or negotiated  transactions.  Repurchased shares
will be held as  treasury  stock and will be  available  for  general  corporate
purposes.

     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.

     Also  effective  January 1, 1996,  the Company  has  adopted  SFAS No. 123,
"Accounting For  Stock-Based  Compensation."  This statement  establishes a fair
value based method of accounting for compensation costs related to stock options
and other  forms of stock  based  compensation  plans;  however,  companies  can
continue to measure  compensation cost for these plans using the intrinsic value
based  method of  accounting  prescribed  by APB Opinion No. 25 ("APB No.  25"),
"Accounting for Stock Issued to Employees," if certain proforma  disclosures are
provided.  The Company will continue to measure  compensation cost for its stock
option plans using the intrinsic value based method prescribed by APB No. 25 and
will make the required proforma disclosure.

     During  February 1997, the FASB issued SFAS No. 128,  "Earnings per Share,"
which shall be effective  for financial  statements  for both interim and annual
periods  ending after December 15, 1997.  Earlier  application is not permitted,
therefore, the Company will adopt SFAS No. 128 at December 31, 1997. The Company
is  evaluating  the impact of SFAS No.  128,  and it is not  expected  to 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

                                       22
<PAGE>

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
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 the  Company's  definitive  Proxy  Statement  to be filed with the
Securities and Exchange Commission in connection with the 1997 Annual 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."

                                       23
<PAGE>
                                     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.

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.

*4.1.1    Shareholders Agreement dated August 1, 1994.

**4.1.2   Amendment  No. 1 to  Shareholders  Agreement  dated  March  24,  1995.

**4.1.3   Amendment No. 2 to Shareholders Agreement dated January 22, 1996. 

*4.2      Form of Stock Certificate of Common Stock.  

*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., 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.

*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.

                                       24
<PAGE>
*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. 

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

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

***10.1.12U.S.  $35,000,000  Credit Agreement dated September 6, 1996 among Katz
          Media Services,  Inc., as borrower, the Lenders party thereto, and The
          First National Bank of Boston, as Agent.  

*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.

*10.8.1   Amended 1994 Stock Option Plan.

*10.8.2   Option Agreement Under 1994 Stock Option Plan.

*10.8.3   1995 Employee Stock Option Plan.

*10.8.4   Option Agreement under 1995 Employee Stock Option Plan.

*10.8.5   Non-Employee Director Stock Option Plan.

*10.8.6   Option Agreement under Non-Employee Director Stock Option Plan.

**10.8.7  1996 Restricted Stock Grant Plan.

**10.8.8  Grant letter under 1996 Restricted Stock Grant Plan.

*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.

                                       25
<PAGE>

*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.

23.1      Consent of Price Waterhouse LLP.

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

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




















                                       26
<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 27, 1997.


                              Katz Media Group, Inc.


                              /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 27, 1997
                    and Director

/s/ James E. Beloyianis
-----------------------
James E. Beloyianis Vice President, Secretary and Director       March 27, 1997


/s/ Richard E. Vendig
---------------------
Richard E. Vendig   Senior Vice President, Chief Financial &     March 27, 1997
                    Administrative Officer, Treasurer
                    (Principal Financial and Accounting
                    Officer)

/s/ Stuart O. Olds
------------------
Stuart O. Olds      Vice President, Assistant Secretary         March 27, 1997
                    and Director                     

/s/ L. Donald Robinson
----------------------
L. Donald Robinson  Vice President                              March 27, 1997

/s/ Thompson Dean
-----------------
Thompson Dean       Chairman of the Board of Directors          March 27, 1997

                                       27
<PAGE>

  NAME              TITLE                                             DATE
  ----              -----                                             ----

/s/ Michael Connelly
--------------------
Michael Connelly    Director                                    March 27, 1997

/s/ Thomas J. Barry
-------------------
Thomas J. Barry     Director                                    March 27, 1997



---------------------
Steven J. Gilbert   Director                                    March 27, 1997

/s/ Bob Marbut
--------------
Bob Marbut          Director                                    March 27, 1997

/s/ David M. Wittels
--------------------
David M. Wittels    Director                                    March 27, 1997


                                       28
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

                                                                           PAGE
                                                                           ----

Katz Media Group, Inc. 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-33

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


______________

*    Katz Media Corporation and Subsidiaries (Predecessor Company)

**   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 Stockholders
of Katz Media Group, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial position of Katz
Media Group,  Inc. and its subsidiaries (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  (Katz Media)  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 Katz Media'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 Katz Media were acquired by
Katz Media Group, Inc. on August 12, 1994.


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




                                      F-3
<PAGE>

<TABLE>
<CAPTION>


                          KATZ MEDIA GROUP, INC. 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........................................$      5,222      $    2,350
   Accounts receivable, net of allowance for doubtful
accounts of
     $1,300 in 1996 and 1995                 .......................      68,884          61,405
     Deferred costs on purchases of station representation 
     contracts......................................................      21,428          13,096
     Prepaid expenses and other current assets......................       1,293             869
                                                                          ------          ------
          Total current assets......................................      96,827          77,720
                                                                          ------          ------
Fixed assets, net...................................................      15,740          12,437
Deferred income taxes...............................................         260           1,857
Deferred costs on purchases of station representation
contracts...........................................................      74,399          39,602
Intangible assets, net..............................................     218,808         227,726
Other assets, net ..................................................      29,697          18,291
          Total assets..............................................$    435,731      $  377,633
                                                                          ------          ------
                                                                          ------          ------
Liabilities and Stockholders' Equity 
Current liabilities:
     Accounts payable and accrued liabilities.......................     $46,800      $   38,425
     Deferred income on sales of station representation contracts...      14,548          10,700
     Income taxes payable...........................................       1,811           3,178
                                                                          ------          ------
          Total current liabilities.................................      63,159          52,303

Deferred income on sales of station representation contracts........       4,787           3,589
Long-term debt......................................................     217,622         179,530
Other liabilities,  principally deferred rent and
representation contracts payable....................................      47,184          34,770

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

Stockholders' equity
   Preferred stock,  $.01 par value, 4,000,000 shares authorized,
     no shares issued or outstanding................................        --               --
   Common stock, $.01 par  value, 26,000,000 shares authorized, 
     13,680,879  shares issued and 13,673,700  shares issued
     at December 31, 1996 and 1995, respectively....................         137             137
   Paid-in-capital..................................................     129,649         129,382
   Carryover basis adjustment.......................................     (20,047)        (20,047)
   Accumulated deficit..............................................      (6,452)         (1,831)
                                                                         103,287         107,641
   Unearned stock compensation......................................        (220)           --
   Treasury stock, at cost, 14,583 shares in 1996 and 33,333
shares in 1995......................................................         (88)           (200)
                                                                          ------          ------
         Total  stockholders' equity................................     102,979         107,441

         Total liabilities and stockholders' equity.................$    435,731      $  377,633


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




                                           F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                         KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (000's Omitted, Except Share and Per Share Information)




                                                                                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............... $  183,239    $  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.........     13,427        10,071         9,127        11,726
Provision for relocations.............       --           6,400         --            --
     Total operating expenses.........    152,585       154,992        67,065       100,272
                                       ----------    ----------    ----------     ---------
     Operating income.................     30,654        29,675        14,338         3,110
                                       ----------    ----------    ----------     ---------
Other expense (income):...............
Interest expense......................     21,074        25,296        14,939        10,872
Interest (income).....................       (173)         (254)         (131)          (24)
                                       ----------    ----------    ----------     ---------
     Total other expense, net.........     20,901        25,042        14,808        10,848
                                       ----------    ----------    ----------     ---------
Income (loss) before income tax provision
    (benefit) and extraordinary item..      9,753         4,633          (470)       (7,738)
Income tax provision (benefit)........      7,381         4,495           698        (1,393)
                                       ----------    ----------    ----------     ---------

Income (loss) before extraordinary item     2,372           138        (1,168)       (6,345)
Extraordinary item - (loss) on early
    extinguishment of debt, net of taxes   (6,993)         (801)         --            --
                                       ----------    ----------    ----------     ---------
          Net (loss) income............   ($4,621)        ($663)      ($1,168)      ($6,345)
                                       ----------    ----------    ----------     ---------
                                       ----------    ----------    ----------     ---------

Income (loss) before extraordinary item
   per common share...................       $.17          $.01         ($.13)          N/A
Extraordinary (loss) on early extinguishment
 of debt per common  share............      ($.50)        ($.06)        --              N/A
                                       ----------    ----------    ----------
Net (loss) per common share...........      ($.33)        ($.05)        ($.13)          N/A
                                       ----------    ----------    ----------
                                       ----------    ----------    ----------

Weighted average common shares........ 13,857,214    12,379,541     8,808,243           N/A


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

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



                                         KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (000's omitted)
                                                       Predecessor


                                                                                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........   ($4,621)        ($663)      ($1,168)       ($6,345)
                                       ----------    ----------    ----------      ---------
  Adjustments to reconcile net (loss) 
     to net cash provided by (used in)
     operating activities:
    Extraordinary loss on early 
     extinguishment of debt............    11,853         1,358         --             --
    Provision for relocations..........    (1,500)        6,400         --             --
    Depreciation and amortization......    13,427        10,071        9,127         11,726
    Amortization of debt issuance costs       143         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)           (9)      (4,568)        (2,690)
    (Increase) in  other assets........    (3,516)       (4,561)        (144)          (215)
    Increase (decrease)in deferred
     taxes.............................     1,597          (389)         694         (1,710)
    (Decrease)increase in accounts 
     payable and accrued liabilities...    (2,208)       (2,753)         919         (1,653)
    (Decrease ) increase in income 
     taxes payable.....................    (1,367)          952         (907)          (645)
    Other, net.........................    (1,793)       (1,309)         433           (167)
                                       ----------    ----------    ----------      ---------
 Total adjustments.....................    13,109        15,772        9,770          5,961
                                       ----------    ----------    ----------      ---------
 Net cash provided by (used in) 
  operating  activities                     8,488        15,109        8,602           (384)
                                       ----------    ----------    ----------      ---------
Cash flows from investing activities:
     Capital expenditures...............   (6,785)      (6,046)      (1,002)         (1,079)
     Payments received on sales of station
        representation contracts........   21,094       19,779        4,746           4,755
     Payments made on purchases of station
        representation contracts........  (41,159)     (31,945)      (4,545)         (7,380)
     Investment in cable joint venture..    --         (10,753)         --              --
    Acquisition of business, net of $219
        cash acquired in 1994...........    --            --       (116,193)            --
                                       ----------    ----------    ----------      ---------
        Net cash  (used in) investing 
         activities.....................  (26,850)     (28,965)    (116,994)         (3,704)
                                       ----------    ----------    ----------      ---------

                                                          F-6(a)
<PAGE>

Cash flows from financing activities:
  Credit facilities borrowing...........   65,500       66,000        24,800        107,075
  Credit facilities repayments.......... (145,500)     (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)          --
  Purchase of treasury stock ...........    --            (200)          --             (34)
  Proceeds from issuance of 10 1/2% Notes 100,000          --            --            --
  Proceeds from  New Credit Facility....  117,500          --            --            --
  Proceeds from issuance of common stock    --          80,519        49,000           --
  Proceeds from shareholder contribution    --             --            --          3,000
  Purchase of warrants and options......    --             --            --         (2,300)
  Financing fees paid in connection with
   credit facilities and Bridge Notes...   (5,542)         --         (6,801)       (1,869)
                                       ----------    ----------    ----------      ---------
        Net cash provided by financing 
        activities......................   21,234       13,479       111,119         4,297 
                                       ----------    ----------    ----------      ---------
Net increase (decrease) in cash and 
  cash equivalents......................    2,872         (377)        2,727           209
Cash and cash equivalents, beginning 
  of period.............................    2,350        2,727          --              10
                                       ----------    ----------    ----------      ---------
Cash and cash equivalents, end of period $  5,222   $    2,350    $    2,727       $   219
                                       ----------    ----------    ----------      ---------
                                       ----------    ----------    ----------      ---------

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

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

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


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

Initial issuance
of common stock
on August 12, 1994    8,166,676  $  82  $  48,918    ($20,047)                                           $ 28,953

Net (loss).......            --     --         --          --      ($1,168)                                (1,168)
                      ---------   ----   ---------   ---------     --------                               --------
Balance at
December 31, 1994     8,166,676     82     48,918     (20,047)      (1,168)                                27,785

Public offering
of Common Stock
at $16.00 per share
net of issuance
costs of  $7,523      5,500,000     55     80,422          --           --                                 80,477

Exercise of stock
options..........         7,024     --         42          --           --                                     42

Purchase of treasury
stock............            --     --         --          --           --               33,333  ($200)      (200)

Net (loss).......            --     --         --          --         (663)                 --      --       (663)
                      ---------   ----   ---------   ---------     --------              ------   -----   --------
Balance at
December 31, 1995    13,673,700    137    129,382     (20,047)      (1,831)              33,333   (200)    107,441

Issuance of
restricted stock
on January 2, 1996           --     --        218          --           --     ($330)   (18,750)   112          --

Compensation
earned on
restricted stock             --     --         --          --           --       110        --      --         110

Exercise of
stock options...          7,179     --         49          --           --        --        --      --          49

Net (loss).......            --     --         --          --       (4,621)       --        --      --      (4,621)
                      ---------   ----   ---------   ---------     --------     ------   ------   -----   --------

Balance at
December 31, 1996    13,680,879   $137    $129,649    ($20,047)    ($6,452)      ($220)  14,583   ($88)   $102,979
                      ---------   ----   ---------   ---------     --------     ------   ------   -----   --------
                      ---------   ----   ---------   ---------     --------     ------   ------   -----   --------

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

                                                          F-7
</TABLE>
<PAGE>


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


1. ORGANIZATION

     Katz Media Group,  Inc. (the "Company") was incorporated in Delaware by DLJ
Merchant  Banking  Partners,  L.P.,  ("DLJMB")  in July 1994 for the  purpose of
acquiring  (the  "1994  Acquisition")  all of the  common  stock of the  company
formerly known as Katz Media  Corporation and its subsidiaries (the "Predecessor
Company")  through the Company's wholly owned  subsidiary,  the company formerly
known as Katz  Capital  Corporation.  The Company  did not have any  significant
activity prior to the Acquisition.

     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...................................................   32,283
Net (loss).........................................................  (13,225)
Net loss per common share..........................................   ($1.50)

     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.

     In March 1995,  the Company's  Board of Directors,  in  anticipation  of an
initial public offering of the Company's  common stock,  approved an increase in
the Company's  authorized capital stock to 26,000,000 shares of common stock and
4,000,000  shares of  preferred  stock and also  authorized a split on a 5-for-3
basis,  with par value  $.01,  of all issued  common  stock.  All common  stock,
options  and related per share data,  reflected  in the  accompanying  financial
statements  and notes  thereto,  have been  presented as if all such changes had
occurred as of August 12, 1994.

                                      F-8
<PAGE>

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


     On April 18, 1995,  the Company sold  5,500,000  shares of its newly issued
common stock in an initial public offering at a price of $16 per share.  The net
proceeds  from the  offering of  approximately  $80,500 were used to reduce debt
incurred in connection  with the August 12, 1994  acquisition,  reduce bank debt
and the balance was retained for general corporate purposes.

     In December 1996, the Company completed a refinancing (the  "Refinancing").
As part  of the  Refinancing,  the  Company:  (i)  repurchased  $97,800  million
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")  and the $35,000 interim credit facility
(the  "Interim   Facility")  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.

     In connection  with the  consummation  of the  Refinancing of the Company's
outstanding  indebtedness,  Katz Media Corporation was merged with and into Katz
Capital  Corporation,  with the surviving company renamed Katz Media Corporation
("KMC").  The Company then transferred all of its ownership of KMC to Katz Media
Services, Inc. ("Services") a wholly owned subsidiary of the Company.

     The Company does not have operations other than through the subsidiaries of
KMC. KMC 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 KMC
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 GROUP, INC. 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 ($845), ($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:
<TABLE>
<CAPTION>
 
                                                                        Years
<S>                                                                    <C>

     Furniture, fixtures and equipment...............                   4-10
     Leasehold improvements.......................... lesser of useful life or term of lease
</TABLE>
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.
The balances comprising intangible assets, are as follows:
<TABLE>
<CAPTION>
                                                    December 31,         December  31,
                                                        1996                  1995
                                                    ------------         -------------
<S>                                                <C>                  <C>

       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
                                                   --------               --------
                                                   --------               --------
                                                F-10
</TABLE>
<PAGE>

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

     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  December  31,  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)  approximated $143,  $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

     Net loss per common share is  calculated by dividing net loss by the number
of weighted  average shares of common stock  outstanding for the period adjusted
for the incremental shares attributed to outstanding  options to purchase common
stock using the treasury  stock method.  Pursuant to Staff  Accounting  Bulletin
topic 4:D,  net loss per common  share for the period  August 12,  1994  through
December 31, 1994 has been adjusted to give effect to stock  options  granted in
January  1995,  and a 5-for-3  stock split  authorized  in March 1995 as if both
occurred as of August 12, 1994.  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.

     Effective   January  1,  1996,  the  Company  also  adopted  SFAS  No.  123
"Accounting  for Stock Based  Compensation."  This statement  establishes a fair
value based method of accounting for compensation costs related to stock options
and other  forms of stock  based  compensation  plans;  however,  companies  can
continue to measure  compensation cost for these plans using the intrinsic value
method of accounting  prescribed by Accounting  Principles  Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," if certain pro forma
disclosures  are  provided.  The  Company  will  continue to apply APB No. 25 in
accounting for its plans. See Note 4.

                                      F-11
<PAGE>

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


Recent Accounting Pronouncements
     During  February 1997, the FASB issued SFAS No. 128,  "Earnings per Share,"
which shall be effective  for financial  statements  for both interim and annual
periods  ending after December 15, 1997.  Earlier  application is not permitted,
therefore, the Company will adopt SFAS No. 128 at December 31, 1997. The Company
is  evaluating  the  impact  of SFAS No.  128 and it is not  expected  to have a
significant effect on the Company's financial position or results of operations.

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,  all of the Company's stockholders
at that time entered into a stockholders  agreement  which,  among other things,
imposes  significant  restrictions  on the rights of any  stockholder to sell or
otherwise  dispose of shares of common stock.  The Company also has the absolute
right during the DLJ Ownership Period (as defined in the stockholders agreement)
to  repurchase  at the fair  market  value all  shares  owned by any  management
stockholder  upon the termination of such management  stockholders's  employment
with the Company.

Stock Options

     The Company  has  various  stock  option  plans  under which the  Company's
officers,  directors and key  employees  may be granted  options to purchase the
Company's  common  stock at not less than the fair market value of the shares on
the day the option is granted. Except for performance vesting options granted in
1995, options generally become exercisable one to five years from the grant date
and expire ten years after the grant date. In order for the performance  options
to become exercisable, the Company must exceed certain performance measures over
the next five years.  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

                                      F-12
<PAGE>

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

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
approximately  $1,500 was recognized in 1995. The  performance  vesting  options
expire after ten years.

     In accordance  with the provisions of SFAS No. 123, the Company applies APB
No. 25 and related interpretations in accounting for its plans. Had compensation
cost for the Company's  stock option plans been  determined  based upon the fair
market value at the grant date, consistent with the methodology prescribed under
SFAS No. 123,  the  Company's  net income and earnings per share would have been
reduced  by  approximately  $930,  or $.07 per  share in 1996 and  increased  by
approximately  $70 or $.01 per share in 1995. These pro forma amounts may not be
representative of future disclosures  because the estimated fair market value of
stock  options is amortized to expense  over the vesting  period and  additional
options may be granted in future years.

     Using  the  Black-Scholes  option-pricing  model,  the  estimated  weighted
average fair market value of options granted during 1996 and 1995 were $4.20 and
$4.40 on the date of grant, respectively.  The Black-Scholes model was developed
for use in  estimating  the fair market  value of traded  options  which have no
vesting restrictions and are fully transferable.  In addition,  option valuation
models  require  the  input  of  subjective   assumptions,   including  expected
volatility.  Because the Company's  employee stock options have  characteristics
significantly  different from those of traded  options,  and because  changes in
assumptions   can  materially   affect  the  estimated  fair  market  value,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair market value of its employee stock options.

     The fair  value  of  options  at date of  grant  was  estimated  using  the
Black-Scholes model with the following weighted average assumptions:

                                                    1996             1995
                                                    ---------------------

       Risk-free interest rate                      6.27%            7.68%
       Expected life of options in years              6                6
       Expected stock price volatility             37.77%           37.77%
       Assumed forfeiture rate                      8.67%            8.66%
       Expected dividend yield                       0%               0%


Transactions involving stock options are summarized as follows:

                               Options                          Weighted Average
                               Available       Under Option       Exercise price
January 1, 1995
Authorized...............       1,641,513
Granted..................      (1,372,063)         1,372,063             $8.81
Exercised................              --            (7,024)              6.00
Cancelled................          10,775           (35,188)              9.06
                               ----------          ---------            

December 31, 1995........         280,225         1,329,851               8.81
Granted..................        (322,864)           322,864              9.04
Exercised................              --            (9,846)              6.00
Cancelled................          46,950          (111,679)             10.28
                               ----------          ---------            
December 31, 1996........           4,311         1,531,190              $8.77
                               ----------          ---------            
                               ----------          ---------            

                                      F-13
<PAGE>

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

                                         Range of exercise prices
                                         ------------------------ 

                                         $6-$10         $11-18           Total
                                         ------         ------           -----

Options Outstanding
-------------------
Number outstanding                     1,192,865       338,325        1,531,190
Weighted average remaining
contractual life, in years                8.5            8.4             8.5
Weighted average exercise price          $6.71         $16.04           $8.77
Options Exercisable
-------------------
Number exercisable                       231,139       107,530          338,669
Weighted average exercise price          $6.00         $16.11           $9.21

     Of those  options  outstanding  but not  exercisable  at December 31, 1996,
476,228 relate to the performance options described above.

1996 Restricted Stock Grant Plan
     On December 12, 1995,  the Board of Directors  adopted the 1996  Restricted
Stock Grant Plan (the "1996 Restricted Plan"). Currently shares held in treasury
are available for grant under this plan which may be increased from time to time
at the  discretion  of the Board of  Directors.  Effective  January  2, 1996 the
Compensation  Committee  of the  Board of  Directors  awarded  18,750  shares of
restricted  stock under the 1996 Restricted Plan to certain key executives.  The
market price of the Company'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 the  Company's  common  stock on the date of grant.  During
1996, $110 of compensation expense was recognized.

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,  through its  subsidiary  KMC;  (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 $11,900 of premium,
consent  fees and  transaction  costs and (iv) repaid the  outstanding  balances
under the Old Credit  Agreement and Interim  Facility  aggregating  $100,100 and
terminated the Old Credit Agreement and Interim Facility.

     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 KMC'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

                                      F-14
<PAGE>

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


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, KMC 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 KMC's  domestic  subsidiaries  and 65% of the
stock of KMC's foreign subsidiaries, (ii) substantially all of the assets of the
subsidiaries  of KMC and  (iii)  all of the  stock of KMC held by  Services.  In
addition,  Services and all of the 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, KMC is required to make principle
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
dividends  and  similar  restricted  payments,  other  than a certain  amount of
payments to be used to finance possible repurchases by the Company of its common
stock.  In  addition,  the New Credit  Agreement  also  requires KMC to maintain
certain 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 KMC.  Payment of  principle  and interest is  guaranteed  by all
present  and  future  domestic  subsidiaries  of  KMC  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 KMC'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 the Company of its common stock.

     The New Notes are  redeemable  at the option of KMC 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, KMC may redeem up to 35% in aggregate  principal amount of the
Notes with the  proceeds of an offering  of equity or other  securities  of KMC,
Services or the Company 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  KMC to
repurchase  all or any part of such  holders  New  Notes at a price of 101% plus
accrued interest.

     In September 1996, the Company,  through a subsidiary as borrower,  entered
into the Interim Facility with a group of lenders. The Interim Facility provided
for  borrowings  of up to  $35,000  and had a maturity  date of March 31,  1998.
Borrowings  under the  Interim  Facility  bore  interest at various  rates.  The
Company  borrowed  $5,600 under the Interim  Facility.  In  connection  with the
Refinancing,  all amounts  outstanding under the Interim Facility were repaid in
full and the Interim Facility was terminated.  Upon the early  extinguishment of

                                      F-15
<PAGE>

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

the Interim Facility,  the Company recorded an extraordinary charge of $315, net
of a related tax benefit of $214,  which represents the write-off of unamortized
debt issuance costs relating to the Interim Facility.

     The Old Notes are unsecured  obligations  of KMC that are guaranteed by all
the  subsidiaries of KMC. 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 KMC 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,
other than a certain  amount of payments to finance the possible  repurchase  by
KMG of its common  stock.  As a result of the  December  1996  Refinancing,  the
Company recorded an extraordinary charge of $6,678, net of a related tax benefit
of $4,646.

   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................................................................     14,400
2001................................................................     20,400
Thereafter..........................................................    175,622
                                                                       --------
                                                                       $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  commitment
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.

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.

                                      F-16
<PAGE>

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

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.

  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%.

                                      F-17
<PAGE>

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

7.  INCOME TAXES

     Income (loss) before income tax provision  (benefit) and extraordinary item
is attributable to the following jurisdictions:
<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>
                
Domestic..........        $10,553           $5,047             ($166)            ($7,714)
Foreign...........           (800)            (414)             (304)                (24)
                           ------            -----              -----             ------
   Total..........       $  9,753           $4,633             ($470)            ($7,738)
                           ------            -----              -----             ------
                           ------            -----              -----             ------
</TABLE>

Components of the provision (benefit) for income taxes are 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>

Current:  Federal         $2,143            $1,282
          State            2,018             1,057            $     4           $  317

Deferred: Federal          2,871             1,893                592           (1,480)
          State              349               263                102             (230)
                           -----             -----                ---            ------
   Total Provision        $7,381            $4,495               $698          ($1,393)
                           -----             -----                ---            ------
                           -----             -----                ---            ------

     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:

                                                          F-18(a)
</TABLE>
<PAGE>

<TABLE>

                                                              Period             Period
                            Year Ended     Year Ended     August 12, 1994   January 1,  1994
                             December 31    December 31,     Through           Through
                               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..    11.6        11.2             (4.9)               (3.9)
Non deductible goodwill.......    20.6        40.6            199.0                 6.2
Foreign operations............     3.4         3.1             26.4                  --
SFAS 109 valuation
  allowance.----..............     --           --            (49.1)                7.4
Other.........................     5.1         7.1             12.1                 7.3
                                  ----        ----            -------              -----
   Total......................    75.7%       97.0%           148.5%              (18.0)%
                                  ----        ----            -------              -----
                                  ----        ----            -------              -----
</TABLE>

     As of  December  31,  1996 and  December  31,  1995,  the Company had total
deferred  tax assets of  approximately  $13,900 and $14,900,  respectively,  and
total   deferred  tax   liabilities  of   approximately   $11,100  and  $10,600,
respectively.  The 1996 and  1995  net  deferred  tax  asset  was  reduced  by a
valuation  allowance of  approximately  $2,500.  Realization of the deferred tax
assets is  dependent  on the Company  generating  sufficient  taxable  income in
future years to utilize the recorded asset. Although realization is not assured,

                                      F-18(b)
<PAGE>


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

management  believes  that the net deferred tax asset of  approximately  $300 at
December 31, 1996, net of the valuation allowance of $2,500, is more likely than
not 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.

     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.................   8,425        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 .........................  11,983       13,289
                                                                        -----        -----
        Total gross deferred tax asset...............................  13,841       14,933
                                                                        -----        -----
    Current deferred tax liability:
        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 asset...................................     $260    $  1,857
                                                                       ------       ------
                                                                       ------       ------
</TABLE>

     At December 31, 1996,  the Company has a net  operating  loss  carryover of
approximately $19,100 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 benefit has been established.

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.

                                      F-19
<PAGE>

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

     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 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.

     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

     KMC 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.  KMC has not entered  into this  agreement  for trading
purposes.  The  agreement  entitles  KMC to receive from the  counterparty  on a
quarterly  basis the amounts,  if any, by which KMC'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

                                      F-20
<PAGE>

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

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
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:

                                                             1996        1995
                                                             ----        ----

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

     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:

                                                              1996        1995
                                                              ----        ----

 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..............................................          9,765       8,701
                                                            -------     ------ 
  Total.............................................        $46,770     $38,425
                                                            -------     ------ 
                                                            -------     ------ 

     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.

     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             $22,257           $23,771               $9,019           $9,482
     Income taxes-net
     of refunds......     $ 2,290           $   105               $  764           $  962

</TABLE>
                                                F-21
<PAGE>

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

13.  SUBSEQUENT EVENT

     On February  13, 1997,  the Board of  Directors  approved a program for the
repurchase of up to 2,000 shares of the Company's Common Stock in open market or
negotiated  transactions.  The  timing  and  terms  of the  purchases  are to be
determined by management based on market conditions.  Repurchased shares will be
held as treasury stock and will be available for general corporate purposes.  As
of March 4,  1997,  approximately  175,000  shares  had been  repurchased  at an
average market price per share of $7.75.

14.  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        $53,288             $43,554         $48,115     $38,282
    Operating income                12,051               7,465 (1)       9,490       1,648
    Income (loss) before
     extraordinary item              1,086                 890           1,603      (1,207)
    Net income (loss)               (5,907) (2)            890           1,603      (1,207)
    Income (loss) per common share:
     Income (loss) before
       extraordinary item             $.08                $.06            $.12      ($.09)
     Net income (loss)               ($.42)               $.06            $.12      ($.09)

</TABLE>

<TABLE>
<CAPTION>
                                                        Quarter Ended
                                  -----------------------------------------------------------
1995                              December 31      September 30      June 30         March 31
----                              -----------      ------------      -------         --------
<S>                              <C>              <C>               <C>            <C>

    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                288                 557             792      (1,499)
    Net income (loss)                 (513) (4)            557             792      (1,499)
    Income (loss) per common share:
     Income (loss) before
       extraordinary item             $.02                $.04            $.06       ($.17)
     Net income (loss)               ($.04)               $.04            $.06       ($.17)
</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 $6,993,  net of
     income tax benefit of $4,860. 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-22
<PAGE>

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

15. 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-23
<PAGE>
<TABLE>
<CAPTION>



                               KATZ MEDIA GROUP, INC. 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>

                     Assets


Current Assets:
 Cash and cash equivalents.............$    2,195  $  3,027  $     --  $      -- $     5,222
 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................     2,195    93,607     1,025         --      96,827
                                            -----    ------     -----      -----      ------
Fixed assets, net......................        --    15,412       328         --      15,740
Deferred income taxes..................        --       260        --         --         260
Deferred costs on purchases of station
 representation contracts..............        --    74,399        --         --      74,399
Equity investment in affiliates........   128,900        --        --   (128,900)         --
Due from affiliate.....................   173,468        --        --   (173,468)         --
Intangible assets, net.................        --   218,370       438         --     218,808
Other assets, net......................    18,359    11,180       158         --      29,697
                                            -----    ------     -----      -----      ------
   Total assets........................  $322,922  $413,228  $  1,949 $ (302,368)   $435,731
                                            -----    ------     -----      -----      ------
                                            -----    ------     -----      -----      ------
   Liabilities and Stockholders' Equity
Current Liabilities:
 Accounts payable and accrued liabilities$   2,154 $ 42,792  $  1,854  $     --    $  46,800
 Deferred income on sales of station
  representation contracts.............        --    14,548        --         --      14,548
 Income taxes payable..................       167     1,644        --         --       1,811
                                            -----    ------     -----      -----      ------
 Total current liabilities                   2,321   58,984      1,854        --      63,159
Deferred income on sales of station
 representation contracts..............        --     4,787        --         --       4,787
Long-term debt.........................   217,622        --        --         --     217,622
Due to affiliate.......................        --   173,468        --  (173,468)          --
Other liabilities......................        --    46,627       557         --      47,184
Stockholders' equity:..................
 Common stock..........................       137        --         1        (1)         137
 Paid-in-capital.......................   129,649    96,610       989   (97,599)     129,649
 Carryover basis adjustment               (20,047)       --        --         --     (20,047)
 (Accumulated deficit) retained earnings   (6,452)  32,752     (1,452)  (31,300)     (6,452)
                                            -----    ------     -----      -----      ------
                                          103,287   129,362      (462) (128,900)    103,287
Unearned stock compensation                  (220)       --        --        --        (220)
Treasury stock.........................       (88)       --        --        --         (88)
   Total stockholders' equity             102,979   129,362      (462) (128,900)    102,979
                                            -----    ------     -----      -----      ------
   Total liabilities and stockholders'
     equity............................  $322,922  $413,228  $  1,949 $(302,368)   $435,731
                                            -----    ------     -----      -----      ------
                                            -----    ------     -----      -----      ------

                                                F-24
</TABLE>
<PAGE>

                               KATZ MEDIA GROUP, INC. 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.............$    2,122   $    187  $    41    $    --   $   2,350
 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.................     2,122     73,753    1,845         --      77,720
                                           ------    -------   ------    -------   ---------
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.........................  $290,612  $356,319    $2,675 $ (271,973)   $377,633
                                           ------    -------   ------    -------   ---------
                                           ------    -------   ------    -------   ---------
  Liabilities and Stockholders' Equity
Current Liabilities:
 Account payable and accrued liabilities $  3,594   $33,035    $1,796 $       --    $ 38,425
 Deferred income on sales of station
  representation contracts.............        --    10,700        --         --      10,700
 Income taxes payable..................        47     3,131        --         --       3,178
                                           ------    -------   ------    -------   ---------
  Total current liabilities                 3,641    46,866     1,796         --      52,303
                                           ------    -------   ------    -------   ---------
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..........................       137        --         1         (1)        137
 Paid-in-capital.......................   129,382    96,610       989    (97,599)    129,382
 Carryover basis adjustment............   (20,047)       --        --         --     (20,047)
 (Accumulated deficit) Retained earnings   (1,831)   23,251      (652)   (22,599)     (1,831)
 Treasury stock, at cost 33,333 shares.      (200)       --        --         --        (200)
                                           ------    -------   ------    -------   ---------
  Total stockholders' equity...........   107,441   119,861       338   (120,199)    107,441
                                           ------    -------   ------    -------   ---------
  Total liabilities and stockholders' 
   equity..............................  $290,612  $356,319    $2,675  $(271,973)   $377,633
                                           ------    -------   ------    -------   ---------
                                           ------    -------   ------    -------   ---------

                                                F-25
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                               KATZ MEDIA GROUP, INC. 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................  $    103  $180,384   $2,752     $    --    $183,239
                                          -------   -------    -----      ------     -------
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.........       318    13,003      106          --      13,427
                                          -------   -------    -----      ------     -------
Total operating expenses...............       318   148,713    3,554          --     152,585
                                          -------   -------    -----      ------     -------
Operating income.......................      (215)   31,671     (802)         --      30,654
Other expense (income):
 Interest expense......................    21,074        --       --          --      21,074
 Interest (income).....................      (171)       --       (2)         --        (173)
                                          -------   -------    -----      ------     -------
Total other expense, net...............    20,903        --       (2)         --      20,901
                                          -------   -------    -----      ------     -------
(Loss) income before income tax provision
 (benefit) and extraordinary item......   (21,118)    1,671     (800)         --       9,753
 Income tax (benefit) provision........   (14,789)   22,170       --          --       7,381
 Extraordinary item-(loss) on early
  extinguishment of debt, net of taxes.    (6,993)       --       --          --      (6,993)
 Equity in earnings of affiliates,
  net of taxes.........................     8,701        --       --      (8,701)         --
                                          -------   -------    -----      ------     -------
Net (loss) income...................... $  (4,621) $  9,501  $  (800) $   (8,701)$    (4,621)
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

                                                F-26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                               KATZ MEDIA GROUP, INC. 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).....................      (115)     (139)      --          --        (254)
                                          -------   -------    -----      ------     -------
Total other expense, net...............    25,165      (139)      16          --      25,042
                                          -------   -------    -----      ------     -------
(Loss) income before income tax provision
 (benefit) and extraordinary item......   (25,165)   30,212     (414)         --       4,633
 Income tax (benefit) provision........   (10,318)   14,813       --          --       4,495
 Equity in earnings of affiliates,
  net of taxes.........................    14,985        --       --     (14,985)         --
                                          -------   -------    -----      ------     -------
Income (loss) before extraordinary item       138    15,399     (414)    (14,985)        138
Extraordinary item.....................      (801)       --       --          --        (801)
                                          -------   -------    -----      ------     -------
Net (loss) income......................   $  (663)$  15,399   $ (414)  $ (14,985)    $  (663)
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

                                                F-27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               KATZ MEDIA GROUP, INC. 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).....................       (66)      (65)      --          --        (131)
                                          -------   -------    -----      ------     -------
Total other expense, net...............    14,886       (65)     (13)         --      14,808
                                          -------   -------    -----      ------     -------
(Loss) income before income tax provision
 (benefit).............................   (14,886)   14,654     (238)         --        (470)
 Income tax (benefit) provision........    (6,104)    6,802       --          --         698
 Equity in earnings of affiliates,
  net of taxes.........................     7,614        --       --     (7,614)          --
                                          -------   -------    -----      ------     -------
Net (loss) income......................   $(1,168) $  7,852  $  (238)   $(7,614)    $ (1,168)
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

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

                               KATZ MEDIA GROUP, INC. 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-29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                               KATZ MEDIA GROUP, INC. 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............................   $22,343 $ 30,872   $ (41)     $  --    $    8,488
                                          -------   -------    -----      ------     -------
Investing Activities:
 Capital expenditures..................        --   (6,785)      --         --        (6,785)
 Payments received on sales of station
 representation contracts..............        --   21,094       --         --        21,094
 Payments made on purchases of station
 representation contracts..............        --  (41,159)      --         --       (41,159)
                                          -------   -------    -----      ------     -------
Net cash (used in) investing activities        --  (26,850)      --         --       (26,850)
                                          -------   -------    -----      ------     -------
Financing Activities:
 Credit facilities borrowings..........    65,500       --       --         --        65,500
 Credit facilities repayments..........  (145,500)      --       --         --      (145,500)
 Increase (decrease) in due (to) from
 affiliate.............................     1,182   (1,182)      --         --            --
 Repurchase of Notes...................   (99,408)      --       --         --       (99,408)
 Premium on repurchase of notes........   (11,316)      --       --         --       (11,316)
 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 (5,542)      --       --         --        (5,542)
                                          -------   -------    -----      ------     -------
Net cash (used in) provided by financing
 activities............................    22,416   (1,182)      --         --        21,234
                                          -------   -------    -----      ------     -------
Net increase (decrease) in cash........        73    2,840      (41)        --         2,872
Cash and cash equivalents, beginning of
 period................................     2,122      187       41         --         2,350
                                          -------   -------    -----      ------     -------
Cash and cash equivalents, end of period $  2,195 $  3,027    $  --      $  --     $   5,222
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

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

                               KATZ MEDIA GROUP, INC. 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............................  $(23,097)$  38,123    $  83     $  --       $15,109
                                          -------   -------    -----      ------     -------
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
 Purchase of Treasure Stock............      (200)       --       --        --          (200)
 Proceeds from  issuance of common stock   80,519        --       --        --        80,519
 Repurchase of Notes and other notes...      (840)       --       --        --          (840)
                                          -------   -------    -----      ------     -------
Net cash provided by (used in) financing
 activities............................    35,076   (21,597)      --        --        13,479
                                          -------   -------    -----      ------     -------
Net increase (decrease) in cash........     1,226    (1,640)      37        --          (377)
Cash and cash equivalents, beginning of
 period................................       896     1,827        4        --         2,727
                                          -------   -------    -----      ------     -------
Cash and cash equivalents, end of period $  2,122 $     187    $  41    $   --    $    2,350
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

                                                F-31
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                               KATZ MEDIA GROUP, INC. 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............................$   (11,603)$  19,877$     328      $  --  $    8,602
                                          -------   -------    -----      ------     -------
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     49,000        --       --         --      49,000
 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...........................    128,692    (17,573)     --         --     111,119
                                          -------   -------    -----      ------     -------
Net increase in cash...................        896      1,827       4         --       2,727
Cash and cash equivalents, beginning of
 period................................         --         --      --         --          --
                                          -------   -------    -----      ------     -------
Cash and cash equivalents, end of period $     896   $  1,827  $    4       $ --   $   2,727
                                          -------   -------    -----      ------     -------
                                          -------   -------    -----      ------     -------

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

                               KATZ MEDIA GROUP, INC. 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-33
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