<PAGE>   1
 
================================================================================
 
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-Q
 
   [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
 
               For the Quarterly Period Ended September 30, 1997
 
                                       OR
 
   [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
 
      For The Transition Period From                  to
 
                        Commission file number 333-25683
 
                      CAPSTAR BROADCASTING PARTNERS, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<C>                                            <C>
                  DELAWARE                                      75-2672663
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)
 
             600 CONGRESS AVENUE
                 SUITE 1400
                AUSTIN, TEXAS                                      78701
  (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
                                 (512) 404-6840
              (Registrant's telephone number, including area code)
 
     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 [ ]
 
     AT NOVEMBER 7, 1997, 279,632,180 SHARES OF CLASS A COMMON STOCK, PAR VALUE
$.01 PER SHARE, AND NO SHARES OF CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF CAPSTAR BROADCASTING PARTNERS, INC. (THE "REGISTRANT") WERE OUTSTANDING.
 
================================================================================
<PAGE>   2
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                          NUMBER
                                                                          ------
  <S>       <C>                                                           <C>
            PART I -- FINANCIAL INFORMATION
  Item 1.   Financial Statements:
            Consolidated Balance Sheets as of September 30, 1997
              (unaudited) and December 31, 1996.........................     2
            Consolidated Statements of Operations for the three months
              ended September 30, 1997 and 1996 (unaudited).............     3
            Consolidated Statements of Operations for the nine months
              ended September 30, 1997 and 1996 (unaudited).............     4
            Condensed Consolidated Statements of Cash Flows for the nine
              months ended September 30, 1997 and 1996 (unaudited)......     5
            Consolidated Statement of Stockholder's Equity for the nine
              months ended September 30, 1997 (unaudited)...............     6
            Notes to Consolidated Financial Statements (unaudited)......     7
  Item 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    18
            PART II -- OTHER INFORMATION
  Item 2    Changes in Securities.......................................    27
  Item 6.   Exhibits and Reports on Form 8-K............................    27
</TABLE>
 
                                        1
<PAGE>   3
 
ITEM 1. FINANCIAL STATEMENTS.
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1997             1996
                                                              -------------    ------------
                                                               (UNAUDITED)        (NOTE)
                                                                               (RESTATED)*
<S>                                                           <C>              <C>
Current assets:
  Cash and short term cash investments......................  $ 11,477,120     $  9,820,861
  Accounts receivable, net of allowance for doubtful
     accounts of $1,633,627 and $838,081 at September 30,
     1997 and December 31, 1996, respectively...............    50,120,710       17,249,395
  Note receivable...........................................     1,524,995               --
  Refundable income taxes...................................            --        1,111,940
  Prepaid expenses and other current assets.................     3,298,426          600,206
                                                              ------------     ------------
          Total current assets..............................    66,421,251       28,782,402
                                                              ------------     ------------
Property and equipment, net.................................    96,678,150       29,325,524
FCC licenses, goodwill and other intangible assets, net.....   684,535,106      294,650,605
Deposits and other assets...................................     9,368,573        3,499,655
                                                              ------------     ------------
          Total assets......................................  $857,003,080     $356,258,186
                                                              ============     ============
                           LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current portion of long-term debt and capital lease
     obligations............................................  $  3,501,707     $  3,936,317
  Accounts payable and accrued expenses.....................    19,105,996        8,637,058
  Accrued interest..........................................     8,120,427        1,846,682
  Income taxes payable......................................     1,938,359               --
  Due to Parent.............................................    32,423,393          536,738
                                                              ------------     ------------
          Total current liabilities.........................    65,089,832       14,956,795
                                                              ------------     ------------
Long-term debt and capital lease obligations, net of current
  portion...................................................   462,842,130      187,233,972
Deferred income taxes.......................................    73,208,868       37,233,863
                                                              ------------     ------------
          Total liabilities.................................   601,140,880      239,424,141
                                                              ------------     ------------
Commitments and contingencies
Redeemable preferred stock, aggregate liquidation preference
  of $103,386,301 and $27,052,500 at September 30, 1997 and
  December 31, 1996, respectively...........................    95,070,957       23,097,788
                                                              ------------     ------------
Stockholder's equity:
  Class A Common Stock, $.01 par value, 360,000,000 shares
     authorized, 279,632,180 and 94,155,000 shares issued
     and outstanding at
     September 30, 1997 and December 31, 1996,
     respectively...........................................     2,796,322          941,550
  Class B Common Stock, convertible into Class A Common
     Stock, $.01 par value, 50,000,000 shares authorized,
     none issued and outstanding at September 30, 1997 and
     December 31, 1996, respectively........................            --               --
  Additional paid-in capital................................   206,898,294      105,828,975
  Stock subscriptions receivable............................    (2,484,779)      (2,090,024)
  Accumulated deficit.......................................   (45,227,685)      (9,426,613)
  Unearned compensation.....................................            --       (1,518,120)
                                                              ------------     ------------
                                                               139,702,407       93,735,768
  Receivables from stockholders.............................    (1,190,909)              --
                                                              ------------     ------------
          Total stockholder's equity........................   160,791,243       93,735,768
                                                              ------------     ------------
          Total liabilities and stockholder's equity........  $857,003,080     $356,258,186
                                                              ============     ============
</TABLE>
 
---------------
 
Note: The consolidated balance sheet at December 31, 1996 has been derived from
      the audited consolidated financial statements at that date but does not
      include all of the information and footnotes required by generally
      accepted accounting principles for complete financial statements.
 
* Restated from previously released consolidated financial information to
  reflect the July 1997 merger with GulfStar Communications, Inc., which has
  been accounted for in a manner similar to a pooling-of-interests.
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                        2
<PAGE>   4
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                PREDECESSOR
                                                                               -------------
                                                                FOR THE THREE MONTHS ENDED
                                                              ------------------------------
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997             1996
                                                              -------------    -------------
                                                                                (RESTATED)*
<S>                                                           <C>              <C>
Gross broadcast revenue.....................................  $ 54,101,151      $21,938,614
Less: agency commissions....................................    (2,850,810)      (2,000,387)
  Net broadcast revenue.....................................    51,250,341       19,938,227
Operating expenses:
  Programming, technical and news...........................     8,411,833        4,032,623
  Sales and promotion.......................................    14,643,354        5,858,108
  General and administrative................................     7,676,934        3,657,910
  Direct programmed music and entertainment.................     3,880,232               --
Corporate expenses..........................................     4,274,920        1,687,055
Corporate expenses: non-cash stock option compensation......     4,127,420               --
Depreciation and amortization...............................     7,648,450        1,514,765
                                                              ------------      -----------
Operating income............................................       587,198        3,187,766
Other expense:
  Interest expense..........................................   (12,660,510)      (4,409,586)
  Other expenses net........................................    (7,606,421)        (998,924)
                                                              ------------      -----------
Loss before benefit for income taxes and extraordinary
  loss......................................................   (19,679,733)      (2,220,744)
Benefit for income taxes....................................            --       (1,145,794)
                                                              ------------      -----------
Loss before extraordinary item..............................   (19,679,733)      (1,074,950)
Extraordinary item, loss on early extinguishment of debt....    (2,325,929)      (1,203,761)
                                                              ------------      -----------
Net loss....................................................   (22,005,662)      (2,278,711)
Dividends and accretion on preferred stocks.................            --         (555,251)
                                                              ------------      -----------
Net loss attributable to common stock.......................  $(22,005,662)     $(2,833,962)
                                                              ============      ===========
</TABLE>
 
---------------
 
* Restated from previously released consolidated financial information to
  reflect the July 1997 merger with GulfStar Communications, Inc., which has
  been accounted for in a manner similar to a pooling-of-interests.
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                        3
<PAGE>   5
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                PREDECESSOR
                                                                               -------------
                                                                FOR THE NINE MONTHS ENDED
                                                              ------------------------------
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997             1996
                                                              -------------    -------------
                                                                                (RESTATED)*
<S>                                                           <C>              <C>
Gross broadcast revenue.....................................  $125,949,358     $ 55,659,982
Less: agency commissions....................................    (9,542,946)      (4,974,086)
                                                              ------------     ------------
  Net broadcast revenue.....................................   116,406,412       50,685,896
Operating expenses:
  Programming, technical and news...........................    19,916,085       10,405,877
  Sales and promotion.......................................    32,157,976       14,921,703
  General and administrative................................    18,713,772        9,559,771
  Direct programmed music and entertainment.................     7,973,192               --
Corporate expenses..........................................     9,092,831        2,720,066
Corporate expenses: non-cash stock option compensation......     8,247,140               --
Depreciation and amortization...............................    16,526,286        3,890,126
                                                              ------------     ------------
Operating income............................................     3,779,130        9,188,353
Other income (expense):
  Interest expense..........................................   (32,500,695)     (12,032,544)
  Other expenses, net.......................................    (4,155,353)      (2,497,893)
                                                              ------------     ------------
Loss before benefit for income taxes and extraordinary
  loss......................................................   (32,876,918)      (5,134,264)
Benefit for income taxes....................................            --          857,332
                                                              ------------     ------------
Loss before extraordinary item..............................   (32,876,918)      (4,276,932)
Extraordinary item, loss on early extinguishment of debt....    (2,924,154)      (1,203,761)
                                                              ------------     ------------
Net loss....................................................   (35,801,072)      (5,480,693)
Dividends and accretion on preferred stocks.................            --         (555,251)
                                                              ------------     ------------
Net loss attributable to common stock.......................  $(35,801,072)    $ (6,035,944)
                                                              ============     ============
</TABLE>
 
---------------
 
* Restated from previously released consolidated financial information to
  reflect the July 1997 merger with GulfStar Communications, Inc., which has
  been accounted for in a manner similar to a pooling-of-interests.
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                        4
<PAGE>   6
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                PREDECESSOR
                                                                               --------------
                                                                 FOR THE NINE MONTHS ENDED
                                                              -------------------------------
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997              1996
                                                              -------------    --------------
                                                                                (RESTATED)*
<S>                                                           <C>              <C>
Net cash (used in)/provided by operating activities.........  $   1,772,308      $  1,783,721
Cash flows from investing activities:
  Purchase of property and equipment........................     (8,620,395)       (1,428,281)
  Proceeds on sale of assets................................     50,669,464                --
  Deferred acquisition and intangible costs.................     (2,590,437)       (3,860,238)
  Acquisitions of stations and companies, net of cash
     acquired...............................................   (426,262,581)      (44,961,462)
  Other investing activities, net...........................        (87,172)          (66,256)
                                                              -------------      ------------
          Net cash used in investing activities.............   (386,891,121)      (50,316,237)
                                                              -------------      ------------
Cash flows from financing activities:
  Repurchase of common stock................................       (175,000)               --
  Proceeds from issuance of common stock....................    115,790,737
  Net proceeds from issuance of common and preferred stocks,
     net....................................................     95,018,921        34,704,452
  Proceeds from issuance of debt............................    385,766,599        18,700,000
  Proceeds from borrowings under revolving debt facility....             --         5,547,309
  Payment of debt issuance costs............................    (16,009,993)         (781,170)
  Repayment of amounts borrowed.............................   (169,583,673)      (13,210,226)
  Principal repayments on capital lease obligations.........         (9,747)          (48,142)
  Payment of merger and aborted IPO costs...................     (6,864,925)       (1,007,297)
  Dividends paid............................................    (12,365,000)               --
                                                              -------------      ------------
          Net cash provided by financing activities.........    391,567,919        43,904,926
                                                              -------------      ------------
Net increase (decrease) in cash and short term cash
  investments...............................................      6,449,106        (4,627,590)
Cash and short term cash investments, beginning of period...      5,028,014        11,111,538
                                                              -------------      ------------
Cash and short term cash investments, end of period.........  $  11,477,120      $  6,483,948
                                                              =============      ============
Supplemental disclosure of cash flow information:
  Cash payments during the year for:
     Interest...............................................  $   6,808,510      $  3,655,775
                                                              =============      ============
     Taxes..................................................  $     191,243      $    112,049
                                                              =============      ============
</TABLE>
 
---------------
 
* Restated from previously released consolidated financial information to
  reflect the July 1997 merger with GulfStar Communications, Inc., which has
  been accounted for in a manner similar to a pooling-of-interests.
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                        5
<PAGE>   7
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                               CLASS A      CLASS B     ADDITIONAL        STOCK                                     RECEIVABLES
                                COMMON      COMMON       PAID-IN      SUBSCRIPTIONS   ACCUMULATED      UNEARNED         FROM
                                STOCK        STOCK       CAPITAL       RECEIVABLE       DEFICIT      COMPENSATION   STOCKHOLDERS
                              ----------   ---------   ------------   -------------   ------------   ------------   ------------
<S>                           <C>          <C>         <C>            <C>             <C>            <C>            <C>
Balance at January 1, 1997
  (Restated)*...............  $  941,550   $      --   $105,828,975    $(2,090,024)   $(9,426,613)   $(1,518,120)   $        --
Repurchase and cancellation
  of Class A Common
  Stock.....................      (1,750)         --       (173,250)            --             --             --             --
Issuance of Class A Common
  Stock.....................   1,674,704          --     99,507,157       (299,625)            --             --     (1,596,364)
Issuance of Class B Common
  Stock.....................          --     181,818     19,818,182             --             --             --             --
Issuance of Class A Common
  Stock in exchange for
  Class B Common Stock......     181,818    (181,818)            --                            --                            --
Payments received on
  receivables from
  stockholders..............          --          --             --                            --             --        405,455
Dividends to Parent.........          --          --    (12,365,000)                           --             --             --
Payments received or
  submitted stock...........          --          --             --         35,534             --             --             --
Accrued interest or
  subscriptions
  receivable................          --          --        130,664       (130,664)            --             --             --
Dividends and accretion on
  Preferred Stock...........          --          --     (5,131,035)            --             --             --             --
Compensation expense........          --          --      4,661,460             --             --      1,518,120             --
Redemption of Preferred
  Stock.....................          --          --     (5,378,859)            --             --             --             --
Net loss....................          --          --             --             --    (35,801,072)            --             --
                              ----------   ---------   ------------    -----------    ------------   -----------    -----------
Balance at September 30,
  1997......................  $2,796,322   $      --   $206,898,294    $(2,484,779)   $(45,227,685)  $        --    $(1,190,909)
                              ==========   =========   ============    ===========    ============   ===========    ===========
 
<CAPTION>
                                  TOTAL
                              STOCKHOLDER'S
                                 EQUITY
                              -------------
<S>                           <C>
Balance at January 1, 1997
  (Restated)*...............  $ 93,735,768
Repurchase and cancellation
  of Class A Common
  Stock.....................      (175,000)
Issuance of Class A Common
  Stock.....................    99,285,872
Issuance of Class B Common
  Stock.....................    20,000,000
Issuance of Class A Common
  Stock in exchange for
  Class B Common Stock......            --
Payments received on
  receivables from
  stockholders..............       405,455
Dividends to Parent.........   (12,365,000)
Payments received or
  submitted stock...........        35,534
Accrued interest or
  subscriptions
  receivable................            --
Dividends and accretion on
  Preferred Stock...........    (5,131,035)
Compensation expense........     6,179,580
Redemption of Preferred
  Stock.....................    (5,378,859)
Net loss....................   (35,801,072)
                              ------------
Balance at September 30,
  1997......................  $160,791,243
                              ============
</TABLE>
 
---------------
 
* Restated from previously released consolidated financial information to
  reflect the July 1997 merger with GulfStar Communications, Inc., which has
  been accounted for in a manner similar to a pooling-of-interest.
 
         The accompanying notes are an integral part of the consolidated
 
                                        6
<PAGE>   8
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                  (UNAUDITED)
 
NOTE 1 -- BASIS OF PRESENTATION
 
     Information with respect to the three and nine months ended September 30,
1997 and 1996 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited interim consolidated financial statements contain all adjustments
consisting of normal recurring accruals, considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1997, are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997, or for any other interim
period.
 
     The consolidated financial statements include the accounts of Capstar
Broadcasting Partners, Inc. and its direct and indirect wholly-owned
subsidiaries (the "Company"). The direct wholly-owned subsidiary of the Company
is Capstar Radio Broadcasting Partners, Inc. (formerly named Commodore Media,
Inc.) ("Capstar Radio"). Capstar Broadcasting Corporation ("Capstar
Broadcasting") owns all of the outstanding common stock of the Company.
 
     In July 1997, the Company acquired GulfStar Communications, Inc.
("GulfStar"). GulfStar and the Company are under common control, and
accordingly, this acquisition has been accounted for in a manner similar to a
pooling of interests. All consolidated financial data and footnote information
of the Company, including the Company's previously issued consolidated financial
statements for the periods presented in this Form 10-Q, have been restated to
include the historical financial information of GulfStar in accordance with
generally accepted accounting principles.
 
     Certain amounts have been reclassified in the September 30, 1996
consolidated financial statements to conform to the current period
classifications.
 
NOTE 2 -- RECENT ACCOUNTING PRONOUNCEMENTS
 
     In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information About Capital Structure." SFAS No. 129 consolidates the existing
disclosure requirements to disclose certain information about an entity's
capital structure. The statement is effective for periods ending after December
15, 1997.
 
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
 
     Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Restated Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
 
                                        7
<PAGE>   9
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Management does not believe the implementation of SFAS No. 130 and No. 131
will have a material effect on its consolidated financial statements.
 
NOTE 3 -- CONSUMMATED ACQUISITIONS AND DISPOSITIONS (THROUGH SEPTEMBER 30, 1997)
 
     In January 1997, the Company acquired substantially all of the assets of
Triple Communications of CC, Inc., the owner of radio station KNCN-FM in Corpus
Christi, Texas. The purchase price was approximately $3.0 million in cash.
 
     In February 1997, the Company acquired substantially all of the assets of
South Plain Broadcasting Company, Inc., the owner of radio stations KZII(FM) and
KFYO(AM) in Lubbock, Texas. The purchase price was approximately $3.0 million in
cash.
 
     In February 1997, the Company acquired substantially all of the assets of
J.Thomas Development of N.M., Inc., et. al., owners of radio stations KTRA-FM
and KDAG-FM in Farmington, New Mexico, KCQL-AM in Aztec, New Mexico and KKFG-FM,
Bloomfield, New Mexico. The purchase price was approximately $3.0 million in
cash and $2.0 million in the form of a note.
 
     In February 1997, the Company acquired Osborn Communications Corporation
("Osborn"), subsequently renamed Southern Star Communications, Inc. ("Southern
Star"). Osborn owned and operated or provided services to 18 stations (12 FM and
6 AM). The purchase price of the acquisition was $118.8 million payable in cash
totaling $117 million and 1,636,361 shares of common stock (having a deemed
value of $1.10 per share).
 
     In April 1997, the Company acquired substantially all of the assets Taylor
Communications Corporation's two radio stations (one FM and one AM) in the
Tuscaloosa, Alabama market. The stations were managed by Osborn pursuant to a
local marketing agreement ("LMA") since December 1996. The purchase price of the
acquisition was approximately $1.0 million.
 
     In April 1997, the Company acquired substantially all of the assets of City
Broadcasting Co., Inc. (the "City Acquisition"), the owner and operator of two
radio stations (one FM and one AM), for approximately $3.0 million, EZY Com,
Inc., (the "EZY Acquisition"), the owner and operator of two radio stations (one
FM and one AM) for approximately $5.0 million and Roper Broadcasting, Inc. (the
"Roper Acquisition"), the owner and operator of one FM station for approximately
$4.0 million (the City Acquisition, EZY Acquisition and the Roper Acquisition
are collectively referred to as the "Space Coast Acquisitions"). The radio
stations acquired in the Space Coast Acquisitions serve the
Melbourne-Titusville-Cocoa, Florida Market.
 
     In April 1997, the Company sold substantially all of the assets of three
radio stations (two FM and one AM) in the Ft. Myers, Florida market. The sale
price was approximately $11.0 million.
 
     In May 1997, the Company acquired all of the outstanding capital stock of
Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners and operators of three
radio stations (one FM and two AM) in the Huntsville, Alabama market. The
purchase price of the acquisition was approximately $24.5 million.
 
     In May 1997, the Company acquired substantially all of the assets of Fort
Smith FM, Inc., the owner and operator of two radio stations (one FM and one AM)
in Fort Smith, Arkansas. The purchase price was approximately $3.3 million.
 
     In May 1997, the Company acquired substantially all of the assets of
Texarkana Broadcasting, Inc., the owners and operators of two FM radio stations
in Texarkana, Texas. The purchase price was approximately $4.0 million.
 
     In June 1997, Capstar Broadcasting executed an agreement with GulfStar
whereby in July 1997, Capstar Broadcasting acquired GulfStar through a merger
(the "GulfStar Merger") pursuant to which
 
                                        8
<PAGE>   10
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
each share of GulfStar's outstanding preferred and common stock was converted
into the right to receive shares of common stock of Capstar Broadcasting having
a deemed value of approximately $113.0 million, subject to a conversion ratio
calculated based on the relative value of Capstar Broadcasting and GulfStar,
principally determined by utilizing projected broadcast cash flows for the year
ending December 31, 1998. The Company also repaid approximately $119.5 million
of GulfStar's indebtedness, which was funded with the proceeds of the Preferred
Stock Offering (as hereinafter defined), the Hicks Muse GulfStar Equity
Investment (as hereinafter defined) and the Capstar BT Equity Investment (as
hereinafter defined). Subsequently, Capstar Broadcasting contributed the
surviving entity in the GulfStar Merger through the Company to Capstar Radio
(collectively with the GulfStar Merger, the "GulfStar Transaction").
 
     In July 1997, the Company acquired substantially all of the assets of
Community Pacific Broadcasting Company L.P. ("Community Pacific"), the owner and
operator of 11 radio stations (six FM and five AM) in four markets located in
the Western United States and Iowa, including Anchorage, Alaska, Modesto and
Stockton, California, and Des Moines, Iowa. The purchase price was approximately
$35.0 million.
 
     In July 1997, the Company acquired substantially all of the assets of
Cavalier Communications L.P., the owner and operator of five radio stations
(four FM and one AM) in the Roanoke/Lynchburg, Virginia market. The purchase
price was approximately $8.3 million.
 
     In August 1997, the Company acquired substantially all of the assets of
McForhun, Inc. and Livingston, Inc., the owners and operators of two radio
stations (one FM and one AM) in the Baton Rouge, Louisiana market. The purchase
price was approximately $7.4 million.
 
     In August 1997, Benchmark Communications Radio Limited Partnership, L.P.
("Benchmark") became an indirect wholly-owned subsidiary of the Company through
a series of mergers and stock purchases (the "Benchmark Acquisition"). Benchmark
owns and operates 31 radio stations (21 AM and 10 AM) in 10 markets in the
Southeastern United States, including Dover, Delaware, Salibury-Ocean City,
Maryland, Montgomery, Alabama, Shreveport, Louisiana, Jackson, Mississippi,
Statesville, North Carolina, Columbia, South Carolina, Greenville, South
Carolina, Roanoke-Lynchburg, Virginia and Westchester, Virginia markets. The
purchase price was approximately $189.7 million. Due to FCC ownership limits,
the four stations acquired in the Jackson, Mississippi market were sold in
October 1997, as discussed in Note 4.
 
     In August 1997, the Company acquired substantially all of the assets of The
Madison Radio Group, the owner and operator of six radio stations (four FM and
two AM) in the Madison, Wisconsin market. The purchase price was approximately
$41.1 million.
 
     In August 1997, the Company acquired substantially all of the assets of
Emerald City Radio Partners, L.P. used or useful in the operation of radio
station WNOK-FM. The purchase price of the acquisition was approximately $10.0
million.
 
     In August 1997, the Company acquired all of the capital stock of radio
station KIOC-FM, in Beaumont, Texas. The purchase price was approximately $2.7
million.
 
     In September 1997, the Company sold all of the outstanding capital stock of
Bryan Broadcasting Operating Company, Inc., an indirect wholly-owned subsidiary
of the Company ("BBOC"). BBOC owns and operates three radio stations (two FM and
one AM) in Bryan-College Station, Texas. The sales price was approximately
$600,000.
 
     In September 1997, the Company acquired substantially all of the assets of
WRIS, Inc., the owner and operator of an FM radio station in the Salem, Virginia
market. The purchase price was approximately $3.1 million.
 
                                        9
<PAGE>   11
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In September 1997, the Company acquired substantially all of the assets of
Booneville Broadcasting Company and Arklahoma Communications Company
(collectively, "Booneville"), the owners and operators of an FM radio station in
the Fort Smith, Arkansas market. The purchase price for Booneville was
approximately $1.5 million.
 
     In September 1997, the Company sold substantially all of the assets of
radio station WJBR-FM in Wilmington, Delaware. The sales price was approximately
$40.0 million.
 
     For financial statement purposes, all of the acquisitions described above,
except for the GulfStar Merger, were accounted for using the purchase method of
accounting, with the purchase price allocated to the assets acquired
(principally intangible assets) and the liabilities assumed based on their
estimated fair values at the dates of acquisition. Certain of the recent
transactions are based on preliminary estimates of the fair value of the net
assets acquired and subject to final adjustment. The excess purchase price over
the estimated fair value of the net assets acquired has been recorded as FCC
licenses and goodwill. The assets and liabilities of these acquisitions and the
results of their operations and cash flows for the period from the date of
acquisition are included in the accompanying consolidated financial statements.
 
     Unaudited proforma results of the Company for the aforementioned
acquisitions and dispositions which were completed during the nine months ended
September 30, 1997, as if they were purchased or sold on January 1, 1996 are as
follows:
 
<TABLE>
<CAPTION>
                                                                    NINE MONTHS ENDED
                                                              ------------------------------
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997             1996
                                                              -------------    -------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>              <C>
Net revenue.................................................    $154,409         $145,581
                                                                ========         ========
Loss before extraordinary item..............................    $(26,466)        $(39,868)
                                                                ========         ========
Net loss before dividend and accretion on preferred stock...    $(27,839)        $(43,398)
                                                                ========         ========
</TABLE>
 
NOTE 4 -- PENDING ACQUISITIONS AND DISPOSITION (AS OF SEPTEMBER 30, 1997)
 
     In January 1997, the Company agreed to acquire substantially all of the
assets of Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth").
Commonwealth owns and operates three radio stations (two FM and one AM) in Yuma,
Arizona. The purchase price will equal approximately $5.3 million payable in
cash. The Company has secured its obligation to consummate the acquisition by
placing into escrow a letter of credit in the amount of $262,500. The Company
anticipates that the acquisition will be consummated in January 1998.
 
     In March 1997, the Company acquired an option to acquire substantially all
of the assets of Noalmark Broadcasting Corporation used or held for use in the
operation of two radio stations (one FM and one AM) in Longview, Texas. The
purchase price will equal approximately $2.4 million, payable in cash, of which
$1.0 million was paid in cash by the Company on the date of the agreement and
the Company has agreed to make payments at the closing under two noncompete
agreements in an aggregate amount equal to $800,000. In most circumstances, the
option payment is not refundable. The Company may exercise its option, in its
sole discretion, on or before March 2000. The Company and Noalmark entered into
an LMA in connection with the two stations, pursuant to which the Company
provides certain sales, programming and marketing services for the stations.
 
     In June 1997, the Company agreed to acquire substantially all of the assets
of Quass Broadcasting Company ("Quass"). Quass owns and operates three radio
stations (two FM and one AM). The purchase price will equal approximately $14.9
million payable in cash. The Company has secured its
 
                                       10
<PAGE>   12
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
obligation to consummate the acquisition by placing into escrow a letter of
credit in the amount of $750,000. Subsequent to September 30, 1997, Quass has
entered into an LMA, with a third party, in connection with the AM station
referred to above. The Company anticipates that the acquisition will be
consummated in January 1998.
 
     In June 1997, the Company entered into an agreement to acquire all of the
outstanding preferred stock, common stock and common stock equivalents of
Patterson Broadcasting, Inc. ("Patterson"). The purchase price will equal
approximately $215.0 million payable in cash. The Company secured its obligation
to consummate the acquisition by placing into escrow a letter of credit in the
amount of $10 million. Patterson owns and operates 39 radio stations (25 FM and
14 AM) in the Savannah, Georgia; Allentown and Harrisburg, Pennsylvania; Fresno,
California; Honolulu, Hawaii; Battle Creek and Grand Rapids, Michigan; Reno,
Nevada; Springfield, Illinois; and Pensacola, Florida markets. FCC approval is
pending and the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, has not yet terminated. The U.S.
Department of Justice has raised an issue with the Company regarding the number
of radio stations that the Company will own in the Allentown-Bethlehem,
Pennsylvania area upon completion of the acquisition. In order to resolve this
matter, the Company has agreed with the U.S. Department of Justice to dispose of
two radio stations to be acquired from Patterson in the Allentown-Bethlehem,
Pennsylvania area. The Company has already signed an agreement with Clear
Channel Communications, Inc. to dispose of these stations. The Company
anticipates that the acquisition will be consummated in February 1998.
 
     In June 1997, the Company agreed to acquire substantially all of the assets
of Grant Radio Group, L.L.C. ("Grant"). Grant owns and operates one FM radio
station in Tuscaloosa, Alabama. The purchase price will equal approximately $3.2
million payable in cash. The Company has secured its obligation to consummate
the acquisition by placing into escrow cash in the amount of $160,000. The
Company anticipates that the acquisition will be consummated in December 1997.
 
     In June 1997, the Company agreed to acquire substantially all of the assets
of Knight Radio, Inc., Knight Communications Corporation and Knight Broadcasting
of New Hampshire, Inc. (collectively, "Knight Quality"). Knight Quality owns and
operates eight radio stations (five FM and three AM) in various markets
including Portsmouth-Rochester and Manchester, New Hampshire, Burlington,
Vermont and Worcester, Massachusetts. The purchase price will equal
approximately $55 million payable in cash. The Company anticipates that the
acquisition will be consummated in January 1998.
 
     In July 1997, the Company agreed to acquire substantially all the assets
used or useful in the operation of radio station KEPG-FM in Victoria, Texas. The
purchase price will equal approximately $32,500 payable in cash. There is
pending litigation not involving the Company regarding the FCC license for this
radio station which may affect the Company's ability to consummate the
acquisition. The Company can not predict when this matter will be resolved.
 
     In August 1997, the Company agreed to acquire all of the assets of KOSO,
Inc. used or held for use in the operation of radio station KOSO-FM, in
Patterson, California. The purchase price will equal approximately $6.8 million.
The Company has secured its obligation to consummate the acquisition by placing
into escrow a letter of credit in the amount of $400,000. The Company expects
the acquisition to be consummated in January 1998.
 
     In August 1997, the Company agreed to acquire all of the assets of KRNA,
Inc. used or held for use in the operation of a radio station in Iowa City,
Iowa. The purchase price will equal approximately $7.0 million. The Company has
secured its obligation to consummate the acquisition by placing into escrow a
letter of credit in the amount of $350,000. The Company expects the acquisition
to be consummated in January 1998.
 
                                       11
<PAGE>   13
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In August 1997, the Company agreed to acquire all of the assets of KRNA,
Inc. used or held for use in the operation of a radio station KXMX-FM, in Cedar
Rapids, Iowa. The purchase price will equal approximately $3.1 million. The
Company has secured its obligation to consummate the acquisition by placing into
escrow a letter of credit in the amount of $155,000. The Company expects the
acquisition to be consummated in January 1998.
 
     In September 1997, the Company agreed to acquire all of the assets of East
Penn Broadcasting Company, Inc., a Delaware corporation, used or held for use in
the operation of an AM radio station in Allentown, Pennsylvania. The purchase
price will equal approximately $2.1 million, with approximately $1.0 million
payable in cash at closing and approximately $1.0 million in an unsecured
promissory note payable to seller. The Company has secured its obligation to
consummate the acquisition by placing into escrow a letter of credit in the
amount of $155,000. The Company currently provides certain sales and marketing
services to this station pursuant to a Joint Sales Agreement. The Company
expects the acquisition to be consummated in January 1998.
 
     In September 1997, the Company agreed to acquire all of the assets of
McCarthy Wireless, Inc., a California corporation, used or held for use in the
operation of radio stations KNCQ-FM in Redding, California, KEWB-FM in Anderson,
California and KEGR-FM in Red Bluff, California. The purchase price will equal
approximately $6.5 million payable in cash. The Company has secured its
obligation to consummate the acquisition by placing into escrow a letter of
credit in the amount of $325,000. The Company expects the acquisition to be
consummated in January 1998.
 
     In October 1997, the Company acquired substantially all of the assets of
Ameron Broadcasting, Inc., the owner and operator of three radio stations (two
FM and one AM) in the Birmingham, Alabama market. The purchase price for the
assets of Ameron was approximately $31.5 million in cash.
 
     In October 1997, the Company acquired substantially all of the assets of
Griffith Broadcasting, Inc., the owner and operator of three FM radio stations
in the Huntsville, Alabama market. The purchase price was approximately $5.4
million in cash.
 
     In October 1997, the Company acquired substantially all of the assets of
American General Media of Texas, Inc., the owner and operator of one FM radio
station in the Lubbock, Texas market. The purchase price was approximately $3.2
million in cash.
 
     In October 1997, the Company acquired substantially all of the assets of
KLAW Broadcasting, Inc., the owner and operator of two FM radio stations in
Lawton, Oklahoma market. The purchase price was approximately $2.2 million in
cash.
 
     In October 1997, the Company acquired substantially all of the assets of
KJEM-FM, the owner and operator of one FM radio station in the Fayetteville,
Arkansas market. The purchase price was approximately $1.8 million in cash.
 
     In October 1997, the Company agreed to acquire all of the assets of Big
Chief Broadcasting Co., an Arkansas corporation, used or held for use in the
operation of radio stations KTCS-AM/FM in Ft. Smith, Arkansas. The purchase
price will equal approximately $9.0 million payable in cash. The Company has
secured its obligation to consummate the acquisition by placing into escrow a
letter of credit in the amount of $450,000. The closing is to be held after the
consent of the FCC to assign the broadcast license, and the Company expects the
acquisition to be consummated in January 1998.
 
     In October 1997, the Company agreed to acquire all of the assets of Class
Act of Texas, Inc., a Texas corporation, used or held for use in the operation
of radio stations KTBQ-FM and KSFA-AM in Lufkin, Texas. The purchase price will
equal approximately $700,000 payable in cash. The Company has secured its
obligation to consummate the acquisition by placing into escrow a letter of
credit in the
 
                                       12
<PAGE>   14
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
amount of $50,000. FCC approval is pending. The Company expects the acquisition
to be consummated in January 1998.
 
     In October 1997, the Company entered into an agreement to sell
substantially all of the assets of four stations (two FM and two AM) in the
Jackson, Mississippi market to Clear Channel Radio, Inc. for approximately $20.0
million.
 
     In October 1997, the Company agreed to acquire all of the assets of radio
station WMHS (FM) in the Montgomery, Alabama market from Joan Reynolds d/b/a
Bradley Broadcasting Associates. Currently, the Company is operating WMHS (FM)
under a LMA. The purchase price for WMHS (FM) is approximately $2.0 million. The
Company expects the acquisition to be consummated in January 1998.
 
     In November 1997, the Company agreed to acquire substantially all of the
assets of KETQ Radio, Inc. used or held for use in the operation of two radio
stations (one FM and one AM) in the Texarkana, Texas/Arkansas market. The
purchase price will equal approximately $640,000. The Company has secured its
obligation to consummate the acquisition by placing into escrow a letter of
credit in the amount of $30,000. The Company and KETQ Radio, Inc. expect to file
an application with the FCC for approval to transfer control of such radio
stations to the Company in November 1997. The Company expects the acquisition to
be consummated in the first quarter of 1998.
 
     In November 1997, the Company agreed to acquire substantially all of the
assets of Americom II used or held for use in the operation of three radio
stations (two FM and one AM) in the Fresno, California market. The purchase
price will approximate $21.0 million. The Company has secured its obligation to
consummate the acquisition by placing into escrow a letter of credit in the
amount of $1.05 million. The Company and Americom II expect to file an
application with the FCC for approval to transfer control of such radio stations
to the Company in November 1997. The Company expects the acquisition to be
consummated in the first quarter of 1998.
 
     In November 1997, the Company agreed to exchange substantially all of the
assets used or useful in the Company's operation of three radio stations (two FM
and one AM) in the Reno, Nevada market for substantially all of the assets used
in Americom Las Vegas Limited Partnership's operation of a FM radio station in
the Fresno, California market. The three stations to be exchanged by the Company
will be acquired from Patterson Broadcasting, Inc. in February 1998. The Company
has secured its obligation to consummate the exchange by placing into escrow a
letter of credit in the amount of $300,000. The Company and Americom Las Vegas
Limited Partnership expect to file an application with the FCC for approval to
transfer control of the radio stations in November 1997. The Company expects the
exchange to be consummated in the first quarter of 1998. The agreement with
Americom II and the agreement with Americom Las Vegas Limited Partnership are
conditioned upon the simultaneous consummation of the other agreement.
 
     In November 1997, the Company sold substantially all of the assets of radio
station KASH-AM in Anchorage, Alaska to Chinook Concert Broadcasting, Inc. The
selling price was approximately $135,000 in cash.
 
     In November 1997, the Company acquired substantially all of the assets of
COMCO Broadcasting, Inc. ("COMCO"), the owner and operator of six radio stations
(four FM and two AM) in the Anchorage and Fairbanks, Alaska markets. The
purchase price was approximately $6.7 million in cash.
 
     As part of the Company's ongoing acquisition strategy, the Company is
continually evaluating certain other potential acquisition opportunities. As of
November 13, 1997, the Company has entered into 11 separate nonbinding letters
of intent to acquire and/or exchange substantially all of the assets of the
respective potential sellers used or useful in the operations of each seller's
radio stations, each of
 
                                       13
<PAGE>   15
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
which is subject to various conditions, including the ability of the Company to
enter into a definitive agreement to acquire such assets. No assurances can be
given that definitive agreements will be entered into to acquire such assets or
that such acquisitions will be consummated.
 
NOTE 5 -- LONG TERM DEBT
 
     On February 20, 1997, in connection with the acquisition of Osborn, the
Company issued $277.0 million in aggregate principal amount at maturity of its
12 3/4% Senior Discount Notes due 2009. The Capstar Notes were issued at a
substantial discount from their aggregate principal amount at maturity under an
Indenture dated as of February 20, 1997 (the "Indenture"), between the Company
and U.S. Trust Company of Texas, N.A., as trustee, generating gross proceeds to
the Company of approximately $150.3 million. On September 12, 1997, the Company
exchanged its 12 3/4% Senior Discount Notes due 2009 (the "Capstar Notes"),
which were registered under the Securities Act of 1933 (the "Securities Act"),
for all of the outstanding 12 3/4% Senior Discount Notes due 2009 previously
issued on February 20, 1997. The terms of the Capstar Notes are identical in all
material respects to the discount notes issued on February 20, 1997, except that
the Capstar Notes do not bear restrictive legends restricting the transfer
thereof. The Capstar Notes are general unsecured senior obligations of the
Company, which will mature on February 1, 2009. No interest will accrue on the
Capstar Notes prior to February 1, 2002. Thereafter, interest on the Capstar
Notes will accrue at an annual rate of 12 3/4% and will be payable semi-annually
in cash on February 1 and August 1 each year, commencing on August 1, 2002 to
holders of record on the immediately preceding January 15 and July 15. The
Capstar Notes are redeemable at the option of the Company, in whole or in part,
at any time and from time to time on or after February 1, 2002 at the redemption
prices set forth in the Indenture, plus, without duplication, accrued and unpaid
interest to the redemption date. In addition, prior to February 1, 2001, the
Company, at its option, may use the net cash proceeds of one or more Public
Equity Offerings (as defined in the Indenture) or Major Asset Sales (as defined
in the Indenture) to redeem up to 25% of the aggregate principal amount at
maturity of the Capstar Notes at a redemption price of 112.75%; provided,
however, that after any such redemption, there is outstanding at least 75% of
the original aggregate principal amount at maturity of the Capstar Notes.
 
     On June 17, 1997, Capstar Radio issued (the "Capstar Radio Notes Offering")
$200.0 million in aggregate principal amount of its 9 1/4% Senior Subordinated
Notes due 2007. The proceeds from the issuance of such subordinated notes were
used to finance acquisitions by the Company during the quarter ended September
30, 1997. On September 16, 1997, the Company exchanged its 9 1/4% Senior
Subordinated Notes due 2007 (the "1997 Notes"), which were registered under the
Securities Act, for all of the outstanding 9 1/4% Senior Subordinated Notes due
2007 previously issued on June 17, 1997. The terms of the 1997 Notes are
identical in all material respects to the subordinated notes issued on June 17,
1997, except that the 1997 Notes do not bear restrictive legends restricting the
transfer thereof. The 1997 Notes, which mature on July 1, 2007, are general
unsecured obligations of Capstar Radio and rank pari passu in right of payment
to Capstar Radio's 13 1/4% Senior Subordinated Notes due 2003 (the "1995
Notes"). Interest on the 1997 Notes is payable semi-annually on January 1 and
July 1 of each year, commencing on January 1, 1998. The 1997 Notes are
redeemable at the option of Capstar Radio, in whole or in part, on or after July
1, 2002, at the redemption prices set forth in the indenture governing the 1997
Notes, plus accrued and unpaid interest to the date of redemption. In addition,
prior to July 1, 2001, Capstar Radio may, at its option, redeem up to 25% of the
aggregate principal amount of the 1997 Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings or Major Asset Sales (both as
defined in the indenture governing the 1997 Notes), at the redemption prices set
forth in the indenture; provided, however, that after any such redemption there
is outstanding at least 75% of the aggregate principal amount of the 1997 Notes
originally issued.
 
                                       14
<PAGE>   16
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     On February 20, 1997, the Company and Capstar Radio, as borrower, entered
into a credit facility (the "Former Credit Facility") with various banks and
Bankers Trust Company, as administrative agent, which consisted of a $50.0
million revolving loan facility. On August 12, 1997, the Company amended and
restated the Former Credit Facility (the "Credit Facility"). The Credit Facility
consists of a $200.0 million revolving loan facility, and an additional $150
million of multiple advancing term loans subject to future commitment
availability from the banks party to the Credit Facility. $75.0 million of the
revolving loan facility is available to Capstar Radio for the issuance of
letters of credit. Indebtedness under the Credit Facility is collateralized by
the grant of a first priority perfected pledge of Capstar Radio's assets,
including, without limitation, the capital stock of its subsidiaries. The
Company, Capstar Broadcasting and all of the direct and indirect subsidiaries of
the Company (other than Capstar Radio) have guaranteed the Credit Facility,
which guarantees have been collateralized by grants of a first priority
perfected pledge of substantially all of their assets, including Capstar
Broadcasting's pledge of capital stock of the Company and the Company's pledge
of the capital stock of Capstar Radio. Borrowings under the Credit Facility bear
interest at floating rates and require interest payments on varying dates
depending on the interest rate option selected by Capstar Radio. All loans
outstanding under the Credit Facility will mature in 2004. As of November 12,
1997, a principal balance of $72.2 million (excluding $19.9 million of
outstanding letters of credit) was outstanding under the Credit Facility and
approximately $106.7 million would have been available for borrowing thereunder.
 
NOTE 6 -- STOCKHOLDER'S EQUITY
 
     On February 20, 1997, the Company issued 31,634,527 shares of Class A
Common Stock, par value $0.1 per share ("Class A Common Stock"), of the Company
and 18,181,818 shares of Class B Common Stock, par value $.01 per share ("Class
B Common Stock"), of the Company to affiliates of Hicks, Muse, Tate & Furst
Incorporated ("Hicks Muse") at a purchase price of $1.10 per share. The proceeds
were used in part to fund the acquisition of Osborn and to retire existing
indebtedness of Capstar Radio and Osborn. In addition, on February 20, 1997, the
Company exchanged 1,636,361 shares of Class A Common Stock having a deemed value
of $1.8 million for shares of common stock of Osborn as part of the purchase
price of the acquisition of Osborn and contributed its interest in Osborn to
Capstar Radio. Additionally, the Company issued 1,327,272 shares of Class A
Common Stock to related parties in exchange for cash and receivables totaling
$1.4 million.
 
     The Company issued 2,727,272 and 909,091 shares of Class A Common Stock at
a purchase price of $1.10 per share in April and June 1997, respectively. The
proceeds of the sales of common stock of the Company are to be used in future
acquisitions and for general corporate purposes.
 
     On June 17, 1997, the Company issued (the "Preferred Stock Offering")
1,000,000 shares of its 12% Senior Exchangeable Preferred Stock. All of the
proceeds from the Preferred Stock Offering were used to finance the GulfStar
Merger. On September 12, 1997, the Company exchanged its 12% Senior Exchangeable
Preferred Stock (the "Senior Exchangeable Preferred Stock"), which was
registered under the Securities Act, for all of the outstanding 12% Senior
Exchangeable Preferred Stock previously issued on June 17, 1997. The terms of
the Senior Exchangeable Preferred Stock are identical in all material respects
to the preferred stock issued on June 17, 1997, except that the Senior
Exchangeable Preferred Stock does not bear restrictive legends restricting the
transfer of such stock. Dividends on the Senior Exchangeable Preferred Stock
accumulate from the date of issuance and are payable semi-annually, commencing
January 1, 1998, at a rate per annum of 12% of the liquidation preference per
share. Dividends may be paid, at the Company's option, on any dividend payment
date occurring on or prior to July 1, 2002 either in cash or in additional
shares of the Senior Exchangeable Preferred Stock. The liquidation preference of
the Senior Exchangeable Preferred Stock is $100.00 per share. The Senior
Exchangeable Preferred Stock is redeemable at the Company's option, in whole or
in
 
                                       15
<PAGE>   17
 
              CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
part at any time on or after July 1, 2002, at the redemption prices set forth in
the Certificate of Designation governing the Senior Exchangeable Preferred
Stock, plus, without duplication, accumulated and unpaid dividends to the date
of redemption. In addition, subject to certain exceptions, prior to July 1,
2001, the Company may, at its option, redeem the Senior Exchangeable Preferred
Stock with the net cash proceeds from one or more Public Equity or Major Asset
Sales (both as defined in the Certificate of Designation governing the Senior
Exchangeable Preferred Stock), at the redemption prices set forth in the
Certificate of Designation, plus, without duplication, accumulated and unpaid
dividends to the redemption date.
 
     Effective June 20, 1997, Capstar Broadcasting acquired all of the issued
and outstanding common stock of the Company in exchange for common stock of
Capstar Broadcasting.
 
     In July 1997, the Company received payments on receivables from
stockholders of approximately $405,000.
 
     In recording the July 1997 GulfStar acquisition (see "Item 1. Financial
Statements -- Note 4"), the Company recorded $6.1 million in compensation
expense and $5.4 million relating to the premium paid for the redemption of
GulfStar's preferred stock.
 
     In September 1997, the Company declared and paid to Capstar Broadcasting
cash dividends totaling approximately $12.4 million relating to the proceeds
from the disposition of four stations in the Wilmington, Delaware and Bryan,
Texas markets.
 
NOTE 7 -- DIRECT PROGRAMMED MUSIC AND ENTERTAINMENT
 
     The Company, through Southern Star distributes programmed music (primarily
MUZAK) in certain markets in the southeast. Revenue and costs associated with
the distribution of the programmed music are included in gross broadcast revenue
and direct programmed music and entertainment, respectively, in the 1997
consolidated statement of operations from the date of the acquisition in
February 1997.
 
NOTE 8 -- EXTRAORDINARY ITEM
 
     On February 20, 1997, in connection with the financing of the acquisition
of Osborn, the Company repaid its outstanding loan balance (including principal
and interest) under the senior credit facility (the "AT&T Credit Facility") of
Capstar Radio with AT&T Commercial Finance Corporation and recognized an
extraordinary loss of approximately $598,000 as a result of a prepayment
penalty. In July 1997 and in connection with the GulfStar merger, the Company
recorded a loss on repurchase of GulfStar's preferred stock of approximately
$5.4 million and an extraordinary loss on early extinguishment of certain
GulfStar debt of approximately $2.3 million.
 
                                       16
<PAGE>   18
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.
 
     The following discussion of the consolidated financial condition and
results of operations of the Company should be read in conjunction with the
consolidated financial statements and related notes thereto. All consolidated
financial data and footnote information of the Company, including the Company's
previously issued consolidated financial statements for the periods discussed
herein have been restated to include the historical financial information of
GulfStar. The following discussion contains certain forward-looking statements
that reflect the Company's current views with respect to future events and
financial performance and involve risks and uncertainties. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify forward
looking statements. The Company's actual results could differ materially and
adversely from those discussed herein. Factors that could cause or contribute to
such differences include, but are not limited to, risks and uncertainties
relating to leverage, the need for additional funds, consummation of the pending
acquisitions, integration of the recently completed acquisitions, the ability of
the Company to achieve certain cost savings, the ability of the Company to
compete effectively, the management of growth, the introduction of new
technology, changes in the regulatory environment, the popularity of radio as a
broadcasting and advertising medium and changing consumer tastes. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
 
THE COMPANY
 
     As of September 30, 1997, the Company currently owns and operates, provides
programming to or sells advertising on behalf of 165 radio stations located in
43 markets. This represents growth from June 3, 1997 of 95 radio stations and 25
markets. Following completion of the pending acquisitions and the pending
dispositions, the Company will own and operate, provide programming to or sell
advertising on behalf of 245 radio stations located in 61 markets.
 
     The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. "Broadcast
Cash Flow" is defined as operating income before corporate expenses, non-cash
stock option compensation expense and depreciation and amortization. Although
Broadcast Cash Flow is not a measure of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), the Company believes
that Broadcast Cash Flow is accepted by the broadcasting industry as a generally
recognized measure of performance and is used by analysts who report publicly on
the performance of broadcasting companies. Nevertheless, this measure should not
be considered in isolation or as a substitute for operating income, net income,
net cash provided by operating activities or any other measure for determining
the Company's operating performance or liquidity which is calculated in
accordance with GAAP.
 
     The primary source of the Company's revenue is the sale of advertising time
on its radio stations. The Company's most significant station operating expenses
are employee salaries and commissions, programming expenses and advertising and
promotional expenditures. The Company strives to control these expenses by
working closely with local station management.
 
     The Company's revenues are primarily affected by the advertising rates its
radio stations can obtain in the face of competition from radio and other media.
The Company's advertising rates are in large part based on a station's ability
to attract audiences in the demographic groups targeted by its advertisers, as
measured principally by Arbitron (an independent rating service) on a quarterly
basis. Because audience ratings in local markets are crucial to a station's
financial success, the Company endeavors to develop strong listener loyalty. The
Company believes that the diversification of formats on its stations helps to
insulate it from the effects of changes in the musical tastes of the public in
any particular format. The number of advertisements that can be broadcast
without jeopardizing listening levels (and the resulting ratings) is limited in
part by the format of a particular station. The Company's
 
                                       17
<PAGE>   19
 
stations strive to maximize revenue by constantly managing the number of
commercials available for sale and adjusting prices based upon local competitive
conditions. In the broadcasting industry, radio stations often utilize trade (or
barter) agreements which exchange advertising time for goods or services (such
as travel or lodging), instead of for cash. The Company seeks to minimize its
use of such agreements. The Company's advertising contracts are generally
short-term. Advertising revenue is either from local advertising or national
advertising. To generate national advertising sales, the Company engages
independent advertising sales representatives that specialize in national sales
for each of its stations.
 
     The radio broadcasting industry is highly competitive and the Company's
stations are located in highly competitive markets. The financial results of
each of the Company's stations are dependent to a significant degree upon its
audience ratings and its share of the overall advertising revenue within the
station's geographic market. Each of the Company's stations competes for
audience share and advertising revenue directly with over FM and AM radio
stations, as well as with other media, including newspapers and television,
within their respective markets. The Company's audience ratings and market share
are subject to change, and any adverse change in audience rating and market
share in any particular market could have a material and adverse effect on the
Company's net revenues. Although the Company competes with other radio stations
with comparable programming formats in most of its markets, if another station
in the market were to convert its programming format to a format similar to one
of the Company's radio stations, if a new radio station were to adopt a
competitive format, or if an existing competitor were to strengthen its
operations, the Company's stations could suffer a reduction in ratings or
advertising revenue and could require increased promotional and other expenses.
In addition, certain of the Company's stations compete, and in the future other
stations may compete, with groups of stations in a market operated by a single
operator. As a result of the Telecommunication Act of 1996 (the "Telecom Act")
the radio broadcasting industry has become increasingly consolidated, resulting
in the existence of radio broadcasting companies which are significantly larger,
with greater financial resources, than the Company. Furthermore, the Telecom Act
will permit other radio broadcasting companies to enter the markets in which the
Company operates or may operate in the future. Although the Company believes
that each of its stations is able to compete effectively in its market, there
can be no assurance that any of the Company's stations will be able to maintain
or increase current audience ratings and advertising revenue market share. The
Company's stations also compete with other advertising media such as newspapers,
television, magazines, billboard advertising, transit advertising and direct
mail advertising. Radio broadcasting is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems or the introduction of digital
audio broadcasting. The Company cannot predict the effect, if any, which these
technologies may have on the radio broadcasting industry.
 
     The Company's revenues vary throughout the year. As is typical in the radio
broadcasting industry, the Company's first calendar quarter generally produces
the lowest revenues for the year, and the fourth calendar quarter generally
produces the highest revenues for the year. The Company's radio operating
results in any period may be affected by the incurrence of advertising and
promotion expenses that do not necessarily produce commensurate revenues until
the impact of the advertising and promotion is realized in future periods. The
Company anticipates that the second and third quarters will reflect the highest
revenues from the Company's concert promotion activities.
 
     Because the Company has incurred substantial indebtedness for its
acquisitions for which it has significant debt service requirements, and because
the Company has significant charges for stock option compensation, dividends and
accretion on preferred stock and depreciation and amortization expense related
to the fixed assets and intangibles acquired in its acquisitions, the Company
expects that it will report net losses attributable to common stock for the
foreseeable future, which losses may be greater than those historically
experienced by the Company.
 
                                       18
<PAGE>   20
 
RESULTS OF OPERATIONS
 
     The Company's consolidated financial statements tend not to be directly
comparable from period to period due to acquisition and disposition activity.
The major acquisitions in 1997, all of which have been accounted for using the
purchase method of accounting, except for the GulfStar Merger, and major
dispositions were as follows:
 
     In January 1997, the Company acquired substantially all of the assets of
Triple Communications of CC, Inc., the owner of radio station KNCN-FM in Corpus
Christi, Texas. The purchase price was approximately $3.0 million in cash.
 
     In February 1997, the Company acquired substantially all of the assets of
South Plain Broadcasting Company, Inc., the owner of radio stations KZII(FM) and
KFYO(AM) in Lubbock, Texas. The purchase price was approximately $3.0 million in
cash.
 
     In February 1997, the Company acquired substantially all of the assets of
J.Thomas Development of N.M., Inc., et. al., owners of radio stations KTRA-FM
and KDAG-FM in Farmington, New Mexico, KCQL-AM in Aztec, New Mexico and KKFG-FM,
Bloomfield, New Mexico. The purchase price was approximately $3.0 million in
cash and $2.0 million in the form of a note.
 
     In February 1997, the Company acquired Osborn Communications Corporation
("Osborn"), subsequently renamed Southern Star Communications, Inc. ("Southern
Star"). Osborn owned and operated or provided services to 18 stations (12 FM and
6 AM). The purchase price of the acquisition was $118.8 million payable in cash
totaling $117 million and 1,636,361 shares of common stock (having a deemed
value of $1.10 per share).
 
     In April 1997, the Company acquired substantially all of the assets Taylor
Communications Corporation's two radio stations (one FM and one AM) in the
Tuscaloosa, Alabama market. The stations were managed by Osborn pursuant to a
local marketing agreement ("LMA") since December 1996. The purchase price of the
acquisition was approximately $1.0 million.
 
     In April 1997, the Company acquired substantially all of the assets of City
Broadcasting Co., Inc. (the "City Acquisition"), the owner and operator of two
radio stations (one FM and one AM), for approximately $3.0 million, EZY Com,
Inc., (the "EZY Acquisition"), the owner and operator of two radio stations (one
FM and one AM) for approximately $5.0 million and Roper Broadcasting, Inc. (the
"Roper Acquisition"), the owner and operator of one FM station for approximately
$4.0 million (the City Acquisition, EZY Acquisition and the Roper Acquisition
are collectively referred to as the "Space Coast Acquisitions"). The radio
stations acquired in the Space Coast Acquisitions serve the
Melbourne-Titusville-Cocoa, Florida Market.
 
     In April 1997, the Company sold substantially all of the assets of three
radio stations (two FM and one AM) in the Ft. Myers, Florida market. The sale
price was approximately $11.0 million.
 
     In May 1997, the Company acquired all of the outstanding capital stock of
Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners and operators of three
radio stations (one FM and two AM) in the Huntsville, Alabama market. The
purchase price of the acquisition was approximately $24.5 million.
 
     In May 1997, the Company acquired substantially all of the assets of Fort
Smith FM, Inc., the owner and operator of two radio stations (one FM and one AM)
in Fort Smith, Arkansas. The purchase price was approximately $3.3 million.
 
     In May 1997, the Company acquired substantially all of the assets of
Texarkana Broadcasting, Inc., the owners and operators of two FM radio stations
in Texarkana, Texas. The purchase price was approximately $4.0 million.
 
     In June 1997, Capstar Broadcasting executed an agreement with GulfStar
whereby in July 1997, Capstar Broadcasting acquired GulfStar through a merger
(the "GulfStar Merger") pursuant to which each share of GulfStar's outstanding
preferred and common stock was converted into the right to receive shares of
common stock of Capstar Broadcasting having a deemed value of approximately
 
                                       19
<PAGE>   21
 
$113.0 million, subject to a conversion ratio calculated based on the relative
value of Capstar Broadcasting and GulfStar, principally determined by utilizing
projected broadcast cash flows for the year ending December 31, 1998. The
Company also repaid approximately $119.5 million of GulfStar's indebtedness,
which was funded with the proceeds of the Preferred Stock Offering (as
hereinafter defined), the Hicks Muse GulfStar Equity Investment (as hereinafter
defined) and the Capstar BT Equity Investment (as hereinafter defined).
Subsequently, Capstar Broadcasting contributed the surviving entity in the
GulfStar Merger through the Company to Capstar Radio (collectively with the
GulfStar Merger, the "GulfStar Transaction").
 
     In July 1997, the Company acquired substantially all of the assets of
Community Pacific Broadcasting Company L.P. ("Community Pacific"), the owner and
operator of 11 radio stations (six FM and five AM) in four markets located in
the Western United States and Iowa, including Anchorage, Alaska, Modesto and
Stockton, California, and Des Moines, Iowa. The purchase price was approximately
$35.0 million.
 
     In July 1997, the Company acquired substantially all of the assets of
Cavalier Communications L.P., the owner and operator of five radio stations
(four FM and one AM) in the Roanoke/Lynchburg, Virginia market. The purchase
price was approximately $8.3 million.
 
     In August 1997, the Company acquired substantially all of the assets of
McForhun, Inc. and Livingston, Inc., the owners and operators of two radio
stations (one FM and one AM) in the Baton Rouge, Louisiana market. The purchase
price was approximately $7.4 million.
 
     In August 1997, Benchmark Communications Radio Limited Partnership, L.P.
("Benchmark") became an indirect wholly-owned subsidiary of the Company through
a series of mergers and stock purchases (the "Benchmark Acquisition"). Benchmark
owns and operates 31 radio stations (21 AM and 10 AM) in 10 markets in the
Southeastern United States, including Dover, Delaware, Salibury-Ocean City,
Maryland, Montgomery, Alabama, Shreveport, Louisiana, Jackson, Mississippi,
Statesville, North Carolina, Columbia, South Carolina, Greenville, South
Carolina, Roanoke-Lynchburg, Virginia and Westchester, Virginia markets. The
purchase price was approximately $189.7 million. Due to FCC ownership limits,
the four stations acquired in the Jackson, Mississippi market were sold in
October 1997. See "Item 1. Financial Statements -- Note 4."
 
     In August 1997, the Company acquired substantially all of the assets of The
Madison Radio Group, the owner and operator of six radio stations (four FM and
two AM) in the Madison, Wisconsin market. The purchase price was approximately
$41.1 million.
 
     In August 1997, the Company acquired substantially all of the assets of
Emerald City Radio Partners, L.P. used or useful in the operation of radio
station WNOK-FM. The purchase price of the acquisition was approximately $10.0
million.
 
     In August 1997, the Company acquired all of the capital stock of radio
station KIOC-FM, in Beaumont, Texas. The purchase price was approximately $2.7
million.
 
     In September 1997, the Company sold all of the outstanding capital stock of
Bryan Broadcasting Operating Company, Inc., an indirect wholly-owned subsidiary
of the Company ("BBOC"). BBOC owns and operates three radio stations (two FM and
one AM) in Bryan-College Station, Texas. The sales price was approximately
$600,000.
 
     In September 1997, the Company acquired substantially all of the assets of
WRIS, Inc., the owner and operator of an FM radio station in the Salem, Virginia
market. The purchase price was approximately $3.1 million.
 
     In September 1997, the Company acquired substantially all of the assets of
Booneville Broadcasting Company and Arklahoma Communications Company
(collectively, "Booneville"), the owners and operators of an FM radio station in
the Fort Smith, Arkansas market. The purchase price for Booneville was
approximately $1.5 million.
 
                                       20
<PAGE>   22
 
     In September 1997, the Company sold substantially all of the assets of
radio station WJBR-FM in Wilmington, Virginia. The sales price was approximately
$40.0 million.
 
     The following table sets forth certain consolidated summary data of the
Company for the three months ended September 30, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                              PREDECESSOR
                                                                             -------------
                                                              FOR THE THREE MONTHS ENDED
                                                            ------------------------------
                                                            SEPTEMBER 30,    SEPTEMBER 30,
                                                                1997             1996
                                                            -------------    -------------
<S>                                                         <C>              <C>
OPERATING DATA:
  Net broadcast revenue...................................   $ 51,250,341     $19,938,227
  Station operating expenses..............................     34,612,353      13,548,641
  Corporate expenses......................................      4,274,920       1,687,055
  Corporate expenses: non-cash stock option
     compensation.........................................      4,127,420              --
  Depreciation and amortization...........................      7,648,450       1,514,765
  Operating income........................................        587,198       3,187,766
  Interest expense........................................     12,660,510       4,409,586
     Net loss attributable to common stock................   $(22,005,662)    $(2,833,962)
OTHER DATA:
  Broadcast cash flow(1)..................................   $ 16,637,988     $ 6,389,586
  Broadcast cash flow margin..............................           32.5%           32.0%
  EBITDA(2)...............................................   $  8,235,648     $ 4,702,531
</TABLE>
 
---------------
 
(1) Broadcast cash flow consists of operating income before corporate expenses,
    non-cash stock option compensation expense and depreciation and
    amortization.
 
(2) EBITDA consists of operating income before depreciation and amortization.
 
  Three Months Ended September 30, 1997 Compared to Three Months Ended September
  30, 1996
 
     Net Broadcast Revenue. Net broadcast revenue increased $31.3 million or
157.0% to $51.2 million for the three months ended September 30, 1997 from $20.0
million for the three months ended September 30, 1996. Net broadcast revenue
increases are a result of the continuing acquisitions of the Company through
September 30, 1997. Net revenue included from the operations purchased in
connection with the Osborn Acquisition for the period July 1, 1997 through
September 30, 1997 comprised $12.6 million of the increase.
 
     Station Operating Expenses. Station operating expenses increased $21.1
million or 155.5% to $34.6 million for the three months ended September 30, 1997
from $13.5 million for the three months ended September 30, 1996. The increase
is primarily attributable to additional operating expenses of the operations
purchased in connection with the Osborn Acquisition of $8.8 million.
 
     Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $10.2 million or 160.4% to $16.6 million for
the three months ended September 30, 1997 from $6.4 million for the three months
ended September 30, 1996. The broadcast cash flow margin was 32.5% for the three
months ended September 30, 1997 compared to 32.0% for the three months ended
September 30, 1996.
 
     Corporate Expenses. Corporate expenses, including non-cash stock
compensation, increased approximately $6.7 million or 398.0% to approximately
$8.4 million for the three months ended September 30, 1997 from approximately
$1.7 million for the three months ended September 30, 1996. This increase was
primarily due to the corporate offices of the Company which opened in October
1996 and the additional corporate expense associated with the Osborn and other
radio station operations. During the three months ended September 30, 1997 the
Company developed an estimate of the fair value of certain outstanding stock
options. Based upon this estimate and the applicable vesting
 
                                       21
<PAGE>   23
 
periods, the Company recognized approximately $4.1 million of non-cash stock
option compensation expense.
 
     EBITDA. As a result of the factors described above, EBITDA increased
approximately $3.5 million or 75.1% to $8.2 million for the three months ended
September 30, 1997 from $4.7 million for the three months ended September 30,
1996. The EBITDA margin for the three months ended September 30, 1997 was 16.1%
compared to 23.6% for the three months ended September 30, 1996.
 
     Other Operating Expenses. Depreciation and amortization increased $6.1
million to $7.6 million for the three months ended September 30, 1997 from
approximately $1.5 million for the three months ended September 30, 1996
primarily due to the various acquisitions consummated during 1996 and 1997.
 
     Operating Income. As a result of the factors described above, the Company's
results for the three months ended September 30, 1997 reflected an operating
income of approximately $600,000 compared to $3.1 million for the three months
ended September 30, 1996.
 
     Interest Expense. Interest expense increased approximately $8.3 million or
187.1% to $12.7 million for the three months ended September 30, 1997 from $4.4
million for the three months ended September 30, 1996. The increase is primarily
attributable to additional borrowings under the Company's credit facility to
fund the Company's acquisitions.
 
     Net Loss Attributable to Common Stock. As a result of the factors described
above, net loss attributable to common stock increased approximately $19.2
million to $22.0 million for the three months ended September 30, 1997 from $2.8
million for the three months ended September 30, 1996.
 
     The following table sets forth certain consolidated summary data of the
Company for the nine months ended September 30, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                                PREDECESSOR
                                                                               -------------
                                                                FOR THE NINE MONTHS ENDED
                                                              ------------------------------
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1997             1996
                                                              -------------    -------------
<S>                                                           <C>              <C>
OPERATING DATA:
  Net broadcast revenue.....................................   $116,406,412     $50,685,896
  Station operating expenses................................     78,761,025      34,887,351
  Corporate expenses........................................      9,092,831       2,720,066
  Corporate expenses: non-cash stock option compensation....      8,247,140              --
  Depreciation and amortization.............................     16,526,286       3,890,126
  Operating income..........................................      3,779,130       9,188,353
  Interest expense..........................................     32,500,695      12,032,544
     Net loss attributable to common stock..................   $(35,801,072)    $(6,035,944)
OTHER DATA:
  Broadcast cash flow(1)....................................   $ 37,645,387     $15,798,545
  Broadcast cash flow margin................................           32.3%           31.2%
  EBITDA(2).................................................   $ 20,305,416     $13,078,479
</TABLE>
 
---------------
 
(1) Broadcast cash flow consists of operating income before corporate expenses,
    non-cash stock option compensation expense and depreciation and
    amortization.
 
(2) EBITDA consists of operating income before depreciation and amortization.
 
                                       22
<PAGE>   24
 
     Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
 
     Net Broadcast Revenue. Net broadcast revenue increased $65.7 million or
129.7% to $116 million for the nine months ended September 30, 1997 from $50.7
million for the nine months ended September 30, 1996. Net broadcast revenue
included from the operations purchased in connection with the Osborn Acquisition
for the period February 21, 1997 through September 30, 1997 comprised $27.4
million of the increase.
 
     Station Operating Expenses. Station operating expenses increased $43.9
million or 125.9% to $79.0 million for the nine months ended September 30, 1997
from $34.9 million for the nine months ended September 30, 1996. The increase is
primarily attributable to (i) additional operating expenses of the operations
purchased in connection with the acquisition of Osborn of $19.7 million, and
(ii) station operating expenses of the radio station acquisitions and the JSAs
and LMAs which contributed $5.1 million of the increase.
 
     Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $21.8 million or 138.3% to $37.6 million for
the nine months ended September 30, 1997 from $15.8 million for the nine months
ended September 30, 1996. The broadcast cash flow margin was 32.3% for the nine
months ended September 30, 1997 compared to 31.2% for the nine months ended
September 30, 1996. The broadcast cash flow provided from the acquisition of
Osborn accounted for approximately $7.7 million of the increase; the broadcast
cash flow margin from these operations was 28.1%. The inclusion of broadcast
cash flows from the remaining acquisitions and LMAs accounts for approximately
$2.3 million of the increase.
 
     Corporate Expenses. Corporate expenses, including non-cash stock
compensation, increased approximately $13.0 million or 476.5% to approximately
$17.3 million for the nine months ended September 30, 1997 from approximately
$2.7 million for the nine months ended September 30, 1996. This increase was
primarily due to the corporate offices of the Company which opened in October
1996 and the additional corporate expense associated with the Osborn and other
radio station operations. During the nine months ended September 30, 1997, the
Company developed an estimate of the fair value of certain outstanding stock
options. Based upon this estimate and the applicable vesting periods, the
Company recognized approximately $8.2 million of non-cash stock option
compensation expense.
 
     EBITDA. As a result of the factors described above, EBITDA increased
approximately $7.2 million or 55.3% to $20.3 million for the nine months ended
September 30, 1997 from $13.1 million for the nine months ended September 30,
1996. The EBITDA margin for the nine months ended September 30, 1997 was 17.4%
compared to 25.8% for the nine months ended September 30, 1996.
 
     Other Operating Expenses. Depreciation and amortization increased $12.6
million to $16.5 million for the nine months ended September 30, 1997 from
approximately $3.9 million for the nine months ended September 30, 1996
primarily due to the various acquisitions consummated during 1996 and 1997.
 
     Operating Income. As a result of the factors described above, the Company's
results for the nine months ended September 30, 1997 reflected an operating
income of $3.8 million compared to $9.2 million for the nine months ended
September 30, 1996.
 
     Interest Expense. Interest expense increased approximately $20.5 million or
170.1% to $32.5 million for the nine months ended September 30, 1997 from $12.0
million for the nine months ended September 30, 1996. The increase is primarily
attributable to additional borrowings under the Company's credit facility to
fund the Company's acquisitions.
 
     Net Loss Attributable to Common Stock. As a result of the factors described
above, net loss attributable to common stock increased approximately $29.8
million to $35.8 million for the nine months ended September 30, 1997 from $6.0
million for the nine months ended September 30, 1996.
 
                                       23
<PAGE>   25
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Pursuit of the Company's acquisition strategy has required a significant
portion of the Company's capital resources. See "Item 1. Financial
Statements -- Notes 3 and 4." As a result of the financing of its acquisitions,
the Company has a substantial amount of long-term indebtedness, and for the
foreseeable future, the Company will use a large percentage of its cash to make
payments under the Credit Facility, the Capstar Notes, the 1995 Notes and the
1997 Notes.
 
     In October 1996, the Company assumed the 1995 Notes in connection with the
acquisition of Capstar Radio. The 1995 Notes are limited in aggregate principal
amount to $76.8 million and bear interest at a rate of 13 1/4% per annum, of
which only 7 1/2% is payable in cash up to May 1, 1998. Beginning on May 1,
1998, the 1995 Notes will bear cash interest at a rate of 13 1/4% per annum
until maturity. The 1995 Notes require semi-annual cash interest payments on
each May 1 and November 1 of $2.9 million through May 1, 1998, and $5.2 million
from November 1, 1998, until maturity. On February 20, 1997, the Company issued
the Capstar Notes at a substantial discount to their aggregate principal amount
at maturity of $277.0 million. The Capstar Notes generated gross proceeds of
approximately $150.3 million and pay no cash interest until August 1, 2002.
Accordingly, the carrying value will increase through accretion until August 1,
2002. Thereafter, interest will be payable semi-annually, in cash, on February 1
and August 1 of each year. On June 17, 1997, Capstar Radio issued the 1997
Notes. Interest on the 1997 Notes is payable semi-annually on January 1 and July
1 of each year, commencing on January 1, 1998, at a rate of 9 1/4% per annum.
The 1997 Notes mature on July 1, 2007. The Company entered into the Credit
Facility in August 1997, which provides for, among other things, borrowings of
up to $200.0 million under a revolving credit facility. Borrowings under the
Credit Facility bear interest at floating rates and require interest payments on
varying dates depending on the interest rate option selected by Capstar Radio.
As of November 12, 1997, a principal balance of $72.2 million (excluding $19.9
million of outstanding letters of credit) was outstanding under the Credit
Facility and approximately $106.7 million would have been available for
borrowing thereunder.
 
     In addition to debt service, the Company's principal liquidity requirements
will be for working capital and general corporate purposes, including capital
expenditures, which are not expected to be material in amount, and to consummate
its pending acquisitions and, as appropriate opportunities arise, to acquire
additional radio stations. The Company intends to fund the aggregate purchase
price for its pending acquisitions with borrowings under the Credit Facility and
a combination of indebtedness of Capstar Broadcasting, Capstar Radio and/or the
Company and/or capital stock of Capstar Broadcasting or its subsidiaries. The
Company anticipates that it will fund the pending acquisitions with
indebtedness, rather than capital stock, to the fullest extent then permitted
under the debt incurrence covenants contained in the indentures governing the
Capstar Notes, the 1995 Notes, the 1997 Notes and the Company's 12% Subordinated
Exchange Debentures due 2009, the Certificate of Designation governing the
Senior Exchangeable Preferred Stock and the Credit Facility. The Company has not
determined the terms of any such indebtedness or capital stock. The Company's
ability to make such borrowings and issue such indebtedness and capital stock
will depend upon many factors, including, but not limited to, the Company's
success in operating and integrating its radio stations and the condition of the
capital markets at the times of consummation of its pending acquisitions. No
assurances can be given that such financings can be consummated on terms
considered to be favorable by management or at all.
 
     Management believes that the proceeds from the commitment by Hicks, Muse,
Tate & Furst Equity Fund III, L.P. ("HM Fund III") and its affiliates to invest
an additional $50.0 million in equity of Capstar Broadcasting (for which Capstar
Broadcasting has committed to issue capital stock in exchange therefor) and cash
from operating activities, together with available revolving credit borrowings
under the Credit Facility, should be sufficient to permit the Company to fund
its operations and meet its obligations under the agreements governing its
existing indebtedness. The Company may require financing for additional future
acquisitions, if any, and there can be no assurance that it would be able to
obtain such financing for on terms considered to be favorable by management.
Management evaluates potential acquisition opportunities on an on-going basis
and has
 
                                       24
<PAGE>   26
 
had, and continues to have, preliminary discussions concerning the purchase of
additional stations. The Company expects that in connection with the financing
of future acquisitions, it may consider disposing of stations in its markets.
 
     Net cash provided by operating activities was $1.8 million and $1.8 million
for the nine-month periods ended September 30, 1997 and 1996, respectively. Net
cash used in investing activities was $386.9 million and $50.3 million for the
nine-month periods ended September 30, 1997 and 1996, respectively. Net cash
provided by financing activities was $391.6 million and $43.9 million for the
nine-month periods ended September 30, 1997 and 1996, respectively. These cash
flows primarily reflect the borrowings, capital contributions and expenditures
for station acquisitions and dispositions and includes the effects of the
acquisition of Capstar Radio in October 1996.
 
EXTRAORDINARY ITEM
 
     In connection with the acquisition of Osborn, the Company repaid the AT&T
Credit Facility. The repayment of the AT&T Credit Facility resulted in a
prepayment penalty in the amount of $598,000, which was reported as an
extraordinary item. In July 1997 and in connection with the GulfStar Merger, the
Company recorded a loss on repurchase of GulfStar's preferred stock of
approximately $5.4 million and an extraordinary loss on early extinguishment of
certain GulfStar debt of approximately $2.3 million.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
 
     Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Restated Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
 
     Management does not believe the implementation of SFAS No. 130 and No. 131
will have a material effect on its consolidated financial statements.
 
                                       25
<PAGE>   27
 
                          PART II -- OTHER INFORMATION
 
ITEM 2. CHANGES IN SECURITIES.
 
     On September 12, 1997, the Company exchanged its 12% Senior Exchangeable
Preferred Stock (the "New Senior Exchangeable Preferred Stock"), which was
registered under the Securities Act of 1933, for all of the outstanding 12%
Senior Exchangeable Preferred Stock previously sold on June 17, 1997 (the
"Original Senior Exchangeable Preferred Stock") in reliance on Section 4(2) of
the Securities Act and the rules and regulations promulgated thereunder. The
terms of the New Senior Exchangeable Preferred Stock are identical in all
material respects to the Original Senior Exchangeable Preferred Stock, except
that the New Senior Exchangeable Preferred Stock does not bear restrictive
legends restricting the transfer of such stock.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
     (a) Exhibits
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           4.1           -- Amendment No. 11 to Indenture, dated as of April 21,
                            1995, among Capstar Radio Broadcasting Partners, Inc.
                            ("Capstar Radio"), IBJ Schroeder Bank & Trust Company, as
                            Trustee, and the guarantors named therein, governing
                            Capstar Radio's 13 1/4% Senior Subordinated Notes due
                            2003.*
          10.1           -- Agreement and Plan of Merger dated June 16, 1997, by and
                            among GulfStar Communications, Inc., Capstar Broadcasting
                            Corporation ("Capstar Broadcasting"), CBC-GulfStar Merger
                            Sub, Inc. and the stockholders listed therein. (1)
          10.2           -- First Amendment to Employment Agreement dated February
                            14, 1997, effective July 1, 1997, among the Registrant,
                            Capstar Broadcasting and R. Steven Hicks.*
          10.3           -- Employment Agreement dated July 1, 1997, between Capstar
                            Broadcasting and Paul D. Stone. (1)
          10.4           -- Employment Agreement dated July 1, 1997, between Capstar
                            Broadcasting and William S. Banowsky, Jr. (1)
          10.5           -- Not used.
          10.6           -- Employment Agreement dated September 22, 1997, between
                            Capstar Broadcasting and Steven Dinetz.*
          10.7           -- Employment Agreement dated September 22, 1997, between
                            Capstar Broadcasting and Eric W. Neumann.*
          27             -- Financial Data Schedule.*
</TABLE>
 
---------------
 
*   Filed herewith.
 
(1) Incorporated by reference to the Registrant's Amendment No. 1 to
    Registration Statement on Form S-4 (File No. 333-25683), dated July 8, 1997.
 
     (b) Reports on Form 8-K
 
     During the quarter ended September 30, 1997, the following reports on Form
8-K were filed:
 
     Current Report on Form 8-K/A dated May 1, 1997, relating to the Company's
acquisition of Dixie Broadcasting, Inc. and Radio WBHP, Inc. Item 7 was
reported.
 
     Current Report on Form 8-K dated July 8, 1997, relating to the Company's
acquisition of GulfStar Communications, Inc. and Community Pacific Broadcasting,
L.P. Items 2 and 7 were reported.
 
                                       26
<PAGE>   28
 
     Current Report on Form 8-K/A dated July 8, 1997, relating to the Company's
acquisition of GulfStar Communications, Inc. and Community Pacific Broadcasting,
L.P. Item 7 was reported.
 
     Current Report on Form 8-K dated August 6, 1997, relating to the Company's
acquisition of Benchmark Communications Radio Limited Partnership. Items 2 and 7
were reported.
 
                                       27
<PAGE>   29
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                            CAPSTAR BROADCASTING PARTNERS, INC.
 
                                            By:      /s/ PAUL D. STONE
                                              ----------------------------------
                                                        Paul D. Stone
                                                   Executive Vice President
 
Date: November 14, 1997
 
                                       28