KATZ MEDIA GROUP INC, 10-K, 1997-03-27

KATZ MEDIA GROUP INC
10-K, 1997-03-27
ADVERTISING

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

FORM 10-K

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

For the fiscal year ended December 31, 1996

Commission File No. 1-13674

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

Delaware 13-3779269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

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

Securities registered pursuant to Section 12( b ) of the Act:

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

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

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

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

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

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

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

<PAGE>

TABLE OF CONTENTS

Item Page
- ---- ----
PART I

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

PART II

5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................. 12
6. Selected Consolidated Financial Data................................ 12-14
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 15-23
8. Financial Statements and Supplementary Data......................... 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. 23

PART III

10. Directors and Executive Officers of the Registrant.................. 23
11. Executive Compensation.............................................. 23
12. Security Ownership of Certain Beneficial Owners and
Management.......................................................... 23
13. Certain Relationships and Related Transactions...................... 23

PART IV

14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................................ 24-26

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PART I

Item 1. Business

General
- -------

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

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

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

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

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

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

The Company has the following three-part operating strategy:

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

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

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

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

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

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

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

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

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

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

In 1996, television, cable television and radio advertising together
comprised approximately $52.4 billion or 30.2% of total U.S. advertising
expenditures. Total 1996 expenditures for national spot advertising from all
sources were estimated to be approximately $10.0 billion for broadcast and cable
television and $2.1 billion for radio, of which approximately $7.2 billion and
$1.5 billion, respectively, were commissionable billings. Cable advertising is a
much less mature market than radio or television advertising. However, the use
of exclusive representation is becoming more prevalent in the cable television
industry, which is currently served by two major national representation firms,
NCC and CNI, Inc., as well as smaller regional firms.

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

The Company is the leading radio representation firm in the country (based
on gross billings), representing on an exclusive basis over 2,000 radio stations

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throughout the United States with national spot radio billings in excess of $789
million in 1996. The Company conducts its radio representation business through
its Katz Radio, Christal Radio, Banner Radio, Eastman Radio, Sentry Radio and
Katz Hispanic Media operations. In March 1997, the Company announced the
formation of AMCAST, the Company's first client dedicated representation company
to serve ABC and the closure of Banner. Each of these six representation
operations performs autonomously within the Company and services a cross section
of stations, markets, geographic locations, demographics and formats (with the
exception of Katz Hispanic Media). This autonomy serves to heighten competition
among the six operations, which the Company believes enhances its overall
performance.

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

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

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

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

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

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

Katz Television's three operating divisions each target a particular market
segment and operate autonomously while sharing substantially all overhead
functions. The Company believes this structure enables its divisions to provide
clients with specialized expertise in the respective markets they serve. Katz
American Television represents stations affiliated with the three major networks
(ABC, CBS and NBC) ("network affiliated stations") in the 50 largest DMAs. Katz
Continental Television represents network affiliated stations in medium and
smaller markets, generally DMAs ranked 51 and higher. Katz National Television
represents large market, network- affiliated, independent and Fox, United
Paramount Network and The Warner Brothers Television Network affiliated
stations.

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

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

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

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

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

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

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

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

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established and advertisers become educated regarding the benefits of national
spot cable advertising.

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

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

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

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

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

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

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

The marketing resources of the Company include customized
audience/marketing research, sales promotion support and management services.
The customized audience/marketing research offered by the Company consists of
statistical and demographic data that support advertisers' purchases of
advertising time on the Company's client stations. This research is drawn from
all available industry information and data services (e.g., The Arbitron
Company, A.C. Nielsen Company and Simmons Market Research) and is applied in
conjunction with the advertiser's marketing goals to develop an effective
program. Whether the emphasis is on a specific geographic region or demographic
group, this research assists the advertiser in determining the effective level
of both reach and frequency for the likely users of its product. The information
may also be used to recommend specific promotions, the appropriate blending of
media for an advertising campaign or the most effective programming vehicles for
a particular advertising campaign (such as sports or weather). Sales promotion
support includes concept development and sales promotion programs. These
programs blend advertising support, merchandising and sales incentive programs.
The Company can then suggest promotional campaigns which may include
partnerships with other advertising media. The Company provides management

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services to two broad constituencies. First, it offers media consulting
assistance to advertisers, including single source media planning for radio and
television, and generates proposals for sales promotions. The other constituent
group is client stations, for whom the Company conducts educational seminars and
provides revenue forecasting and technical assistance with the rating services.

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

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

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

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

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

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

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

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

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in the Company's status as the leading media representation firm based on client
stations' billings.

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

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

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

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

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

The broadcasting industry is subject to regulation by the Federal
Communications Commission (the "FCC") under the Communications Act of 1934, as
amended (the "Communications Act"). The Telecommunications Act of 1996, which
amended various provisions of the Communications Act, directed the FCC to revise
its multiple ownership rules for television stations by eliminating the
numerical limit on the number of stations that can be owned nationwide by a
single person or entity and by increasing the national audience reach limitation
on commonly owned television stations from 25 percent to 35 percent. The FCC
adopted regulations implementing these directives in March 1996. These changes
have led, and are likely to continue to lead, to larger station groups under
common ownership which most recently has had the effect of increasing the level

9
<PAGE>

and frequency of buyouts of representation contracts. For example, in connection
with its acquisition of another station group, a television station group that
was, until recently, a significant non-exclusive client of the Company has
informed the Company that it has engaged one of the Company's competitors as its
exclusive media representation firm. Similarly, the Company has recently
acquired additional television and radio station clients as a result of
acquisitions of stations by groups that are exclusive clients of the Company. As
these groups become large enough, notwithstanding the general inability to
construct unwired networks, this consolidation may result in more station groups
forming in-house media representation units and foregoing the services of
independent media representation firms such as the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the effects of the transfer of the stations represented by United
Television Sales, Inc. ("United Television"). Moreover, even if such groups
continue to use the services of the Company, the commission rates that the
Company is able to charge may be adversely affected. The FCC is also reexamining
its rules limiting the common ownership of more than one television station in
the same market (the "television duopoly" rule). If the television duopoly rule
is relaxed, this change likely will result in further concentration of station
ownership.

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

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

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

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

Thomas F. Olson joined the Company in 1975 as a television sales executive
in the firm's Chicago office. From 1977 to 1984, he held various positions at
Katz Continental Television and in 1984 was named President of Katz Continental
Television. In 1990, he was named President of Katz Television and in April 1994
was promoted to the position of President of the Company. Mr. Olson has been
President, Chief Executive Officer and director of the Company since August
1994. Mr. Olson is immediate past Chairman of the Station Representatives
Association.

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

10
<PAGE>

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

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

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

Employees
- ---------

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

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

Item 2. Properties

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

Item 3. Legal Proceedings

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

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

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

11
<PAGE>

PART II

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

Price Range of Common Stock

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

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

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

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

Dividends
- ---------

The Company has not paid and does not intend to pay any cash dividends on
its common stock for the foreseeable future. The Company is a holding company
that has no operations except through its subsidiaries. The ability of the
Company to pay dividends on its common stock is dependent on the ability of KMC
to pay dividends or make other distributions to the Company. The terms of KMC's
credit agreement with The First National Bank of Boston, as Administrative Agent
and DLJ Capital Funding Inc., as Syndication Agent (the "New Credit Agreement");
and the indenture ("the Indenture") governing its 10 1/2% Senior Subordinated
Notes due 2007 (the "New Notes") restrict the ability of KMC to pay dividends,
repurchase stock or make loans to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

Item 6. Selected Consolidated Financial Data

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

12
<PAGE>
<TABLE>

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

Statement of Operations Data:
Operating revenues, net................ $183,239 $184,667 $81,403 $103,382 $156,936 $146,034
Operating expenses:
Salaries and related costs............. 102,920 99,477 42,730 64,866(1) 91,813 85,487
Selling, general and administrative.... 36,238(2) 39,044 15,208 23,680 32,146 30,835
Depreciation and amortization (3)...... 13,427 10,071 9,127 11,726 17,514 12,613
Provision for relocations (4).......... -- 6,400 -- -- 350 3,707
-------- -------- ------- -------- -------- --------
Total operating expenses.............. 152,585 154,992 67,065 100,272 141,823 132,642
-------- -------- ------- -------- -------- --------
Operating income....................... 30,654 29,675 14,338 3,110 15,113 13,392

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

13
</TABLE>
<PAGE>
<TABLE>

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

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

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

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

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

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

(4) Non-cash charge related primarily to the relocation of one of the Company's expanding subsidiary operations in 1995 and
abandonment of leaseholds in 1993 and 1992. See Notes 8 and 14 of Notes to Consolidated Financial Statements and Note 2 above
regarding the 1995 provision for relocations.

(5) Includes non-cash amortization of deferred financing costs of $143 in 1996, $1,960 in 1995, $3,668 in the period August 12,
1994 to December 31, 1994, $456 in the period January 1, 1994 through August 11, 1994, $754 in 1993 and $972 in 1992.

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

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

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

(9) Earnings per share data for the Predecessor Company for periods prior to the 1994 Acquisition are not presented as management
does not believe it would provide any meaningful comparison.

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

(11) Represents payments made in connection with the acquisition of station representation contracts, net of payments received in
connection with the sale of station representation contracts.
</TABLE>

14
<PAGE>

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

General
- -------

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

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

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

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

15
<PAGE>

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

16
<PAGE>

Results of Operations

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

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

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>

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

Other Data:
EBITDA (2)............................ 44,145 50,377 42,708

Percentage of Operating Revenue, Net
------------------------------------

Statement of Operations Data:
Operating revenues, net............... 100.0% 100.0% 100.0%
Operating expenses, excluding
depreciation, amortization and the
provision for relocations........... 75.9 75.0 79.3
Depreciation and amortization......... 7.3 5.5 11.3
Provision for relocations............. -- 3.5 --
Operating income...................... 16.7 16.1 9.4
Interest expense, net................. 11.4 13.6 13.9
Income (loss) before tax provision (benefit)
and extraordinary item.............. 5.3 2.5 (4.4)

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

</TABLE>

___________

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

17
<PAGE>

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

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

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating income...................... $30,654 $29,675 $17,448
Depreciation and amortization......... 13,427 10,071 20,853
Non-cash rent and other expense (a)... 1,454 2,734 1,407
Non-cash compensation related to stock
options (b)........................ 110 1,497 --
Termination payments.................. -- -- 3,000
Provision for relocations............. -- 6,400 --
Reversal of provision for relocation.. (1,500) -- --
------- ------- ------
EBITDA................................ $44,145 $50,377 $42,708
------- ------- ------
------- ------- ------
</TABLE>
_________

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

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

18
<PAGE>

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

Net operating revenues in 1996 totaled $183.2 million, a decrease of $1.5
million or 0.8%, compared to net operating revenues of $184.7 million in 1995.
This decrease reflected (i) the effects of the consolidation of station
ownership following the passage of the Telecommunications Act leading to net
client losses in television offset in part by net client gains in radio and (ii)
the mid-1995 transfer of the United Television stations (representing $3.1
million of revenues in 1995) to a new representation firm in which the Company
receives a profit distribution rather than reporting revenue and associated
expenses.

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

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

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

Interest expense, net aggregated $20.9 million for 1996, a decrease of $4.1
million compared to 1995. In 1995, the Company incurred $4.7 million of interest
and amortized deferred financing costs related to debt which was reduced or
satisfied with the net proceeds of the 1995 IPO.

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

Net loss for 1996 of $4.6 million reflects an extraordinary loss on early
extinguishment of debt of $7.0 million, net of an income tax benefit of $4.9
million, resulting from the Company's repurchase of KMC's 12 3/4% Senior
Subordinated Notes due 2002 (the "Katz Notes") and the replacement of the
Company's former senior credit facilities as described in Note 5 of Notes to the
Consolidated Financial Statements. The Company has historically experienced net
losses, principally as a result of significant interest charges and depreciation
and amortization charges. The Company expects that amortization charges related
to the buyout of station representation contracts and interest charges will
continue to have a significant impact on its results of operations.

The difference between the effective tax rate of approximately 75.7%
compared to the U.S. statutory rate of 35% is primarily attributable to
permanent differences between book and taxable income related to goodwill
amortization, other nondeductible expenses and state income taxes. For further
explanations, see Note 7 of Notes to the Consolidated Financial Statements.

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

Net operating revenues in 1995 totaled $184.7 million, a decrease of $0.1
million, compared to net operating revenues of $184.8 million in 1994. Net
operating revenues for 1995 remained relatively constant and reflect reductions
associated with (i) the deconsolidation of the cable revenues as a result of the
establishment of NCC in January 1995; (ii) the mid-1995 transfer of the United
Television stations to a new representation firm in which the Company receives a
profit distribution rather than reporting revenue and associated expenses; and
(iii) the loss of two major radio clients in late 1994 (one of which has since
returned to the Company). The effect of these items amounted to a decrease in
net operating revenues of approximately $10.6 million, or 5.7%, as compared to

19
<PAGE>

1994, which was offset almost entirely by an increase in operating revenues from
continuing and new clients. On a "constant station" basis (deleting revenues of
stations acquired or lost after December 31, 1994 for the relevant period),
operating revenues increased approximately 5.0% during 1995 as compared to 1994,
while total estimated expenditures for national spot advertising from all
sources increased by 1.7%.

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

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

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

Interest expense, net amounted to $25.0 million for 1995, a decrease of
$0.6 million compared to 1994. Included in 1995 and 1994 were $4.7 million and
$7.5 million, respectively, of interest and amortized deferred financing costs
related to the debt that was reduced or satisfied with the net proceeds of the
1995 IPO in April 1995.

Income before tax provision and extraordinary item totaled $4.6 million for
1995 compared to a $8.2 million loss for 1994. This result was due primarily to
the components enumerated above.

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

The difference between the effective tax rate of approximately 97% compared
to the U.S. statutory rate of 35% is primarily attributable to permanent
differences between book and taxable income related to goodwill amortization,
other nondeductible expenses and state income taxes. For a further explanation,
see Note 7 of the Notes to the Consolidated Financial Statements.

20
<PAGE>

Liquidity and Capital Resources

Operating activities in 1996 provided cash of $8.5 million as compared to
$15.1 million in 1995. The decrease in cash provided by operating activities in
1996 as compared to 1995 was due primarily to lower operating results in 1996,
combined with increased net working capital requirements in 1996.

Net cash used in investing activities during 1996 was $26.9 million,
compared to net cash used in investing activities during 1995 of $29.0 million.
This decrease in cash used in investing activities was primarily the result of
the increase in net payments made on the purchases of station representation
contracts in 1996 of $7.9 million as compared to 1995, offset by the 1995
investment in the Cable Joint Venture of $10.8 million.

During the three years ended December 31, 1996, 1995 and 1994, the Company
spent $41.2 million, $31.9 million and $11.9 million, respectively, on buyouts
of station representation contracts. The Company received $21.1 million, $19.8
million and $9.5 million from station representation contracts bought out in
such periods, resulting in a net cash outlay of $20.1 million, $12.2 million and
$2.4 million, respectively. Capital expenditures during the years ended December
31, 1996, 1995 and 1994 amounted to $6.8 million, $6.0 million and $2.1 million,
respectively. At December 31, 1996, the Company had liabilities to make cash
payments on station representation contracts, net of receivables on sales of
station representation contracts, of $30.0 million, as compared to $14.0 million
at December 31, 1995.

Overall cash flows from financing activities provided $21.2 million during
1996 versus $13.5 million in 1995, an increase of $7.7 million. Excluding the
effects of the Refinancing and the 1995 IPO, the cash provided by financing
activities during 1996 increased on a net basis by $19.1 million primarily as a
result of increased facility borrowings.

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

EBITDA for 1996 decreased $6.2 million, or 12.3%, to $44.1 million as
compared to $50.4 million for 1995. This decrease was primarily attributable to
lower operating revenues and higher cash expenses, including the start-up and
operating costs associated with the new Sentry Radio division and Katz
Millennium Marketing discussed above. Non-cash items in 1996 included the $1.5
million reversal of the provision for relocations relating to the Company's plan
to reduce its headquarters facility requirements, versus a non-cash provision
for relocations of $6.4 million in 1995.

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

On December 19, 1996, the Company, through KMC, its wholly-owned
subsidiary, completed the refinancing of its outstanding indebtedness (the
"Refinancing"), designed to increase the availability of funds for working
capital purposes and enhance the Company's operating and financial flexibility.
As part of the Refinancing, the Company consummated a private placement of
$100.0 million of its 10 1/2% Senior Subordinated Notes due 2007 and entered
into the New Credit Agreement providing for aggregate borrowings of up to $180.0
million. In connection with the New Credit Agreement, the Old Credit Agreement,
which provided for a revolving credit facility of up to $94.9 million, and the
Company's interim credit facility, which provided for borrowings of up to $35.0
million were terminated. The New Credit Agreement provides for term loans of
$100.0 million and revolving loans of $80.0 million. The term loans are fully
drawn. As part of the Refinancing, the Company repurchased $97.7 million of the

21
<PAGE>

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

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

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

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

Changes in Accounting Principles

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

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

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

Effects of Inflation

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

Statement Regarding Forward Looking Disclosure

Certain sections of this report include "forward-looking statements" within
the meaning of Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the level of advertising on the Company's client

22
<PAGE>

stations, the ability of the Company to obtain new clients and retain existing
clients, changes in ownership of client stations and client stations of the
Company's competitors, other developments at clients of the Company, the ability
of the Company to realize cost reductions from its cost containment efforts and
developments from recent changes in the regulatory environment for its clients.
All statements other than statements of historical facts included in this
report, including, without limitation, the statements under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere herein are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed in this report, including, without limitation, in conjunction with the
forward-looking statements included in this report and under "Business." All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.

Item 8. Financial Statements and Supplementary Data

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

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

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

Not applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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

23
<PAGE>
PART IV

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

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

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

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

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

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

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

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

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

*3.2 Bylaws of the Company.

*4.1.1 Shareholders Agreement dated August 1, 1994.

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

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

*4.2 Form of Stock Certificate of Common Stock.

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

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

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

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

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

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

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

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

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

24
<PAGE>
*10.1.3 Amended and Restated Credit Agreement dated as of September 9, 1994
among the Company, the lenders listed on the signature pages thereof,
The First National Bank of Boston, as agent and The First National
Bank of Boston and Credit Lyonnais, New York Branch, as Underwriting
Agents.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*10.8.1 Amended 1994 Stock Option Plan.

*10.8.2 Option Agreement Under 1994 Stock Option Plan.

*10.8.3 1995 Employee Stock Option Plan.

*10.8.4 Option Agreement under 1995 Employee Stock Option Plan.

*10.8.5 Non-Employee Director Stock Option Plan.

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

**10.8.7 1996 Restricted Stock Grant Plan.

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

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

25
<PAGE>

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

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

21.1 Subsidiaries of the Registrant.

23.1 Consent of Price Waterhouse LLP.

27.1 Financial Data Schedule.

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

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

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

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

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

(b)Reports on Form 8-K

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

26
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on March 27, 1997.

Katz Media Group, Inc.

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

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

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

/s/ Thomas F. Olson
- -------------------
Thomas F. Olson President, Chief Executive Officer March 27, 1997
and Director

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

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

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

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

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

27
<PAGE>

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

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

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

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

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

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

28
<PAGE>

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Katz Media Group, Inc. and Subsidiaries

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

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

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

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

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

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

Notes to Consolidated Financial Statements......................... F-8-F-33

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

______________

* Katz Media Corporation and Subsidiaries (Predecessor Company)

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

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Katz Media Group, Inc.

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

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

F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of Katz Media Corporation

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

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

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

F-3
<PAGE>

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

December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................$ 5,222 $ 2,350
Accounts receivable, net of allowance for doubtful
accounts of
$1,300 in 1996 and 1995 ....................... 68,884 61,405
Deferred costs on purchases of station representation
contracts...................................................... 21,428 13,096
Prepaid expenses and other current assets...................... 1,293 869
------ ------
Total current assets...................................... 96,827 77,720
------ ------
Fixed assets, net................................................... 15,740 12,437
Deferred income taxes............................................... 260 1,857
Deferred costs on purchases of station representation
contracts........................................................... 74,399 39,602
Intangible assets, net.............................................. 218,808 227,726
Other assets, net .................................................. 29,697 18,291
Total assets..............................................$ 435,731 $ 377,633
------ ------
------ ------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities....................... $46,800 $ 38,425
Deferred income on sales of station representation contracts... 14,548 10,700
Income taxes payable........................................... 1,811 3,178
------ ------
Total current liabilities................................. 63,159 52,303

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

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

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

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

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

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

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

Operating revenues, net............... $ 183,239 $ 184,667 $ 81,403 $ 103,382

Operating expenses:...................
Salaries and related costs............ 102,920 99,477 42,730 64,866
Selling, general and administrative... 36,238 39,044 15,208 23,680
Depreciation and amortization......... 13,427 10,071 9,127 11,726
Provision for relocations............. -- 6,400 -- --
Total operating expenses......... 152,585 154,992 67,065 100,272
---------- ---------- ---------- ---------
Operating income................. 30,654 29,675 14,338 3,110
---------- ---------- ---------- ---------
Other expense (income):...............
Interest expense...................... 21,074 25,296 14,939 10,872
Interest (income)..................... (173) (254) (131) (24)
---------- ---------- ---------- ---------
Total other expense, net......... 20,901 25,042 14,808 10,848
---------- ---------- ---------- ---------
Income (loss) before income tax provision
(benefit) and extraordinary item.. 9,753 4,633 (470) (7,738)
Income tax provision (benefit)........ 7,381 4,495 698 (1,393)
---------- ---------- ---------- ---------

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

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

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

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

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

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

Predecessor
Company Company
--------------------------------------------------------
For The Period For The Period
August 12, January 1,
For The For The 1994 1994
Year Ended Year Ended Through Through
December 31, December 31, December 31, August 11,
1996 1995 1994 1994
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) before adjustments........ ($4,621) ($663) ($1,168) ($6,345)
---------- ---------- ---------- ---------
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Extraordinary loss on early
extinguishment of debt............ 11,853 1,358 -- --
Provision for relocations.......... (1,500) 6,400 -- --
Depreciation and amortization...... 13,427 10,071 9,127 11,726
Amortization of debt issuance costs 143 1,960 3,668 456
Deferred rent...................... 1,453 2,555 548 859
Non-cash compensation expense for
stock options..................... 110 1,497 -- --
Changes in assets and liabilities:
(Increase) in accounts receivable.. (5,090) (9) (4,568) (2,690)
(Increase) in other assets........ (3,516) (4,561) (144) (215)
Increase (decrease)in deferred
taxes............................. 1,597 (389) 694 (1,710)
(Decrease)increase in accounts
payable and accrued liabilities... (2,208) (2,753) 919 (1,653)
(Decrease ) increase in income
taxes payable..................... (1,367) 952 (907) (645)
Other, net......................... (1,793) (1,309) 433 (167)
---------- ---------- ---------- ---------
Total adjustments..................... 13,109 15,772 9,770 5,961
---------- ---------- ---------- ---------
Net cash provided by (used in)
operating activities 8,488 15,109 8,602 (384)
---------- ---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures............... (6,785) (6,046) (1,002) (1,079)
Payments received on sales of station
representation contracts........ 21,094 19,779 4,746 4,755
Payments made on purchases of station
representation contracts........ (41,159) (31,945) (4,545) (7,380)
Investment in cable joint venture.. -- (10,753) -- --
Acquisition of business, net of $219
cash acquired in 1994........... -- -- (116,193) --
---------- ---------- ---------- ---------
Net cash (used in) investing
activities..................... (26,850) (28,965) (116,994) (3,704)
---------- ---------- ---------- ---------

F-6(a)
<PAGE>

Cash flows from financing activities:
Credit facilities borrowing........... 65,500 66,000 24,800 107,075
Credit facilities repayments.......... (145,500) (64,000) (23,800) (101,575)
Proceeds from Bridge Notes............ -- 4,000 70,000 --
Repayment of Bridge Notes............. -- (74,000) -- --
Restricted cash release (payment)..... -- 2,000 (2,000) --
Repurchase of notes................... (110,724) (840) (80) --
Purchase of treasury stock ........... -- (200) -- (34)
Proceeds from issuance of 10 1/2% Notes 100,000 -- -- --
Proceeds from New Credit Facility.... 117,500 -- -- --
Proceeds from issuance of common stock -- 80,519 49,000 --
Proceeds from shareholder contribution -- -- -- 3,000
Purchase of warrants and options...... -- -- -- (2,300)
Financing fees paid in connection with
credit facilities and Bridge Notes... (5,542) -- (6,801) (1,869)
---------- ---------- ---------- ---------
Net cash provided by financing
activities...................... 21,234 13,479 111,119 4,297
---------- ---------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents...................... 2,872 (377) 2,727 209
Cash and cash equivalents, beginning
of period............................. 2,350 2,727 -- 10
---------- ---------- ---------- ---------
Cash and cash equivalents, end of period $ 5,222 $ 2,350 $ 2,727 $ 219
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-7
</TABLE>
<PAGE>

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

1. ORGANIZATION

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

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

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

Operating revenues, net............................................$ 184,785
Operating Income................................................... 16,543
Interest expense................................................... 32,283
Net (loss)......................................................... (13,225)
Net loss per common share.......................................... ($1.50)

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

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

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

F-8
<PAGE>

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

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

In December 1996, the Company completed a refinancing (the "Refinancing").
As part of the Refinancing, the Company: (i) repurchased $97,800 million
aggregate principal amount of the 12 3/4% Senior Subordinated Notes due 2002
(the "Old Notes"), (ii) issued $100,000 of 10 1/2% Senior Subordinated Notes due
2007 (the "New Notes") and (iii) replaced its existing $94,875 revolving credit
agreement (the "Old Credit Agreement") and the $35,000 interim credit facility
(the "Interim Facility") with a new credit agreement (the "New Credit
Agreement") providing for loans of up to $180,000, subject to the achievement of
certain financial ratios and compliance with certain other conditions.

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

The Company does not have operations other than through the subsidiaries of
KMC. KMC is a full service media representation firm that sells national spot
advertising time for its clients in the television, radio, interactive and cable
industries. The Company's senior and subordinated credit arrangements limit KMC
from making loans, advances, cash dividends and transferring assets to its
parent. See Note 5.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

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

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

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

F-9
<PAGE>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's Omitted, Except Share and Per Share Information)--(Continued)

Operating Revenues, Net

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

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

Income resulting from the disposition of station representation contracts
and costs of obtaining station representation contracts are deferred and
amortized over the related period of benefit. Such net amortization (income)
expense was ($845), ($5,936), $1,893 and $7,077 for the years ended December 31,
1996 and 1995, the period August 12, 1994 through December 31, 1994 and the
period January 1, 1994 through August 11, 1994, respectively, and is included in
the accompanying consolidated statement of operations as a component of
depreciation and amortization.

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

Years
<S> <C>

Furniture, fixtures and equipment............... 4-10
Leasehold improvements.......................... lesser of useful life or term of lease
</TABLE>
Intangible Assets
The excess purchase price paid over the estimated fair value of the net
identifiable assets acquired ("goodwill") is amortized on a straight-line basis
over 40 years. In arriving at a 40 year amortization period the Company
considered factors including: its 109 year history, its leadership position in
the industry and its history of generating operating income.

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

Recoverability of goodwill and intangible assets is assessed regularly (at
least annually) and impairments, if any, are recognized in operating results if
a permanent diminution in value were to occur based upon an undiscounted cash
flow analysis. The Company determined that no such impairment currently exists.
The balances comprising intangible assets, are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>

Goodwill............................... $196,272 $196,272
Representation contracts............... 40,779 40,779
Covenants not to compete............... -- 6,874
-------- --------
237,051 243,925
Less: accumulated amortization (18,243) (16,199)
-------- --------
Intangible assets, net................. $218,808 $227,726
-------- --------
-------- --------
F-10
</TABLE>
<PAGE>

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

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

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

Debt Issuance Costs

Debt issuance costs incurred in connection with the Company's New Credit
Agreement and New Notes approximated $4,900 and are included in the accompanying
consolidated balance sheet at December 31, 1996 in other assets. At December 31,
1995, no unamortized debt issuance costs existed (Note 5). Debt issuance costs
are amortized over the terms of the related debt. Amortization of such costs
(included in interest expense) approximated $143, $1,960, $3,668 and $456 for
the years ended December 31, 1996 and 1995, the period August 12, 1994 through
December 31, 1994 and the period January 1, 1994 through August 11, 1994.

Earnings Per Common Share

Net loss per common share is calculated by dividing net loss by the number
of weighted average shares of common stock outstanding for the period adjusted
for the incremental shares attributed to outstanding options to purchase common
stock using the treasury stock method. Pursuant to Staff Accounting Bulletin
topic 4:D, net loss per common share for the period August 12, 1994 through
December 31, 1994 has been adjusted to give effect to stock options granted in
January 1995, and a 5-for-3 stock split authorized in March 1995 as if both
occurred as of August 12, 1994. Per share amounts for the Predecessor Company
have not been presented since management does not believe such information would
be meaningful.

Accounting Changes

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

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

F-11
<PAGE>

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

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

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

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

3. FIXED ASSETS

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

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

4. CAPITAL STOCK

Common Stock

In connection with the 1994 Acquisition, all of the Company's stockholders
at that time entered into a stockholders agreement which, among other things,
imposes significant restrictions on the rights of any stockholder to sell or
otherwise dispose of shares of common stock. The Company also has the absolute
right during the DLJ Ownership Period (as defined in the stockholders agreement)
to repurchase at the fair market value all shares owned by any management
stockholder upon the termination of such management stockholders's employment
with the Company.

Stock Options

The Company has various stock option plans under which the Company's
officers, directors and key employees may be granted options to purchase the
Company's common stock at not less than the fair market value of the shares on
the day the option is granted. Except for performance vesting options granted in
1995, options generally become exercisable one to five years from the grant date
and expire ten years after the grant date. In order for the performance options
to become exercisable, the Company must exceed certain performance measures over
the next five years. Compensation expense resulting from performance options is
computed based on the difference between the exercise price and the fair market
value at the date the performance measure has been met and is recognized in the
period when the option vests. No shares became exercisable pursuant to the

F-12
<PAGE>

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

performance vesting formula in 1996 and 129,008 shares became exercisable
pursuant to the performance vesting formula in 1995. Accordingly, no
compensation expense was recognized in 1996 and compensation expense totaling
approximately $1,500 was recognized in 1995. The performance vesting options
expire after ten years.

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

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

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

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

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

Transactions involving stock options are summarized as follows:

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

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

F-13
<PAGE>

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

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

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

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

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

1996 Restricted Stock Grant Plan
On December 12, 1995, the Board of Directors adopted the 1996 Restricted
Stock Grant Plan (the "1996 Restricted Plan"). Currently shares held in treasury
are available for grant under this plan which may be increased from time to time
at the discretion of the Board of Directors. Effective January 2, 1996 the
Compensation Committee of the Board of Directors awarded 18,750 shares of
restricted stock under the 1996 Restricted Plan to certain key executives. The
market price of the Company's common stock on the date of grant was $17 5/8. The
restrictions on such shares lapse ratably, over a three year period. As such
restrictions lapse, compensation expense will be recognized representing the
fair market value of the Company's common stock on the date of grant. During
1996, $110 of compensation expense was recognized.

5. LONG-TERM DEBT

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

1996 1995
---- ----

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

In December 1996 the Company consummated the Refinancing. As a part
thereof, the Company, through its subsidiary KMC; (i) entered into the New
Credit Agreement with an affiliate of DLJMB acting as arranger and syndication
agent, (ii) issued the New Notes, (iii) repurchased $97,700 aggregate principal
amount of the Old Notes for $109,900 including approximately $11,900 of premium,
consent fees and transaction costs and (iv) repaid the outstanding balances
under the Old Credit Agreement and Interim Facility aggregating $100,100 and
terminated the Old Credit Agreement and Interim Facility.

Under the terms of the New Credit Agreement, certain lenders provide the
Company with a secured revolving credit line and term loan facility of up to
$180,000, consisting of Tranche A term loans of up to $60,000, Tranche B term
loans of up to $40,000 and revolving loans of up to $80,000. Interest rates on
the loans are determined from time to time based on KMC's choice of formulas,
plus a margin. The amount of the margin varies depending on the Company's ratio
of total debt to earnings before interest, taxes, depreciation, amortization and

F-14
<PAGE>

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

certain other non cash charges, as defined ("EBITDA"). Interest rates on the
Tranche B term loans initially carry a higher margin than the Tranche A and
revolving credit loans. At December 31, 1996, the weighted average interest
rates for the Tranche A, Tranche B and revolving credit loans were 7.6%, 7.9%,
and 7.6%, respectively. Under the New Credit Agreement, KMC must pay a variable
quarterly commitment fee dependent on a leverage ratio, as defined, currently
3/8% per annum on its average daily unused amount. The New Credit Agreement is
secured by (i) all of the stock of KMC's domestic subsidiaries and 65% of the
stock of KMC's foreign subsidiaries, (ii) substantially all of the assets of the
subsidiaries of KMC and (iii) all of the stock of KMC held by Services. In
addition, Services and all of the domestic subsidiaries have guaranteed payment
of all borrowings under the New Credit Agreement.

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

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

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

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

F-15
<PAGE>

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

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

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

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

Year Ended December 31,
1997................................................................$ 400
1998................................................................ 400
1999................................................................ 6,400
2000................................................................ 14,400
2001................................................................ 20,400
Thereafter.......................................................... 175,622
--------
$217,622
--------
--------

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

6. EMPLOYEE BENEFIT PLANS

Savings and Profit Sharing Plan

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

F-16
<PAGE>

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

Other Postretirement Benefits

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

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

1996 1995
---- ----

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

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

Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>

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

Service cost........................... $ 64 $ 44 $ 26 $ 36
Interest cost on APBO ................. 276 237 100 145
Amortization of net gain............... -- (81) -- --
----- ----- ---- -----

Net periodic postretirement benefit cost $340 $200 $126 $181
----- ----- ---- -----
----- ----- ---- -----
</TABLE>

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

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

F-17
<PAGE>

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

7. INCOME TAXES

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

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

Domestic.......... $10,553 $5,047 ($166) ($7,714)
Foreign........... (800) (414) (304) (24)
------ ----- ----- ------
Total.......... $ 9,753 $4,633 ($470) ($7,738)
------ ----- ----- ------
------ ----- ----- ------
</TABLE>

Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>

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

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

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

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

<TABLE>

Period Period
Year Ended Year Ended August 12, 1994 January 1, 1994
December 31 December 31, Through Through
1996 1995 December 31, 1994 August 11, 1994
------------ ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% (35.0)% (35.0)%

State and local taxes, net of
federal income tax benefit.. 11.6 11.2 (4.9) (3.9)
Non deductible goodwill....... 20.6 40.6 199.0 6.2
Foreign operations............ 3.4 3.1 26.4 --
SFAS 109 valuation
allowance.----.............. -- -- (49.1) 7.4
Other......................... 5.1 7.1 12.1 7.3
---- ---- ------- -----
Total...................... 75.7% 97.0% 148.5% (18.0)%
---- ---- ------- -----
---- ---- ------- -----
</TABLE>

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

F-18(b)
<PAGE>

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

management believes that the net deferred tax asset of approximately $300 at
December 31, 1996, net of the valuation allowance of $2,500, is more likely than
not to be realized. Future reductions to the valuation allowance will effect the
purchase price allocation in the accompanying consolidated balance sheets rather
than results of operations.

The following is a summary of the components of the deferred tax accounts
in accordance with SFAS No. 109:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current deferred tax assets:
Differences between book and tax recognition of revenue...... $508 $ 988
Purchased representation contract basis differences.......... 678 --
Other differences between tax and financial statement values. 672 656
----- -----
Gross current deferred tax asset............................. 1,858 1,644
----- -----
Noncurrent deferred tax assets:
Differences between book and tax recognition of revenue...... 160 331
Provision for relocations.................................... 698 2,351
Net operating loss and tax credit carryovers................. 8,425 6,005
Amortization and depreciation................................ 2,369 2,690
Other differences between tax and financial statement values. 331 1,912
----- -----
Gross noncurrent deferred tax asset ......................... 11,983 13,289
----- -----
Total gross deferred tax asset............................... 13,841 14,933
----- -----
Current deferred tax liability:
Purchased representation contract basis differences.......... -- (2,634)
Noncurrent deferred tax liabilities:
Purchased representation contract basis differences.......... (11,084) (7,945)
------ -------
Total gross deferred tax liabilities........................ (11,084) (10,579)
------ ------
Valuation allowance......................................... (2,497) (2,497)
------ ------
Net deferred tax asset................................... $260 $ 1,857
------ ------
------ ------
</TABLE>

At December 31, 1996, the Company has a net operating loss carryover of
approximately $19,100 which will expire beginning in 1997 through the year 2011.
Approximately $11,600 of the net operating loss carryover is subject to
limitations under tax rules governing changes of ownership, for which a partial
valuation allowance for the related deferred tax benefit has been established.

8. COMMITMENTS AND CONTINGENCIES

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

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

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

F-19
<PAGE>

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

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

During the fourth quarter of 1995, the Company recorded a non-cash charge
of approximately $6,400 related primarily to the relocation of one of its
expanding subsidiary operations. The Company believes that such relocation will
permit its subsidiary to continue to expand in the most effective manner. In
addition, as a result of outsourcing its mainframe computer operation, the
Company anticipated reducing its existing headquarter facility requirements. The
provision for relocations also includes an estimate of costs related thereto.

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

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

9. RELATED PARTY TRANSACTIONS

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

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

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

Included in accounts receivable and other assets is approximately $500 and
$1,300 as of December 31, 1996 and 1995, respectively, due from NCC representing
working capital advances.

10. DERIVATIVE FINANCIAL INSTRUMENTS

KMC has entered into an interest rate cap agreement to reduce the potential
impact of increases in interest rates on its floating rate New Credit Agreement
through December 1997. KMC has not entered into this agreement for trading
purposes. The agreement entitles KMC to receive from the counterparty on a
quarterly basis the amounts, if any, by which KMC's interest payments on the
protected principal of its three month LIBOR borrowing under the Credit Facility
exceed 8.5%. The protected principal is decreased on a quarterly basis from
$22,000 on the effective date of the agreement to $10,900 on the termination

F-20
<PAGE>

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

date. Amounts receivable under the cap agreement will be recorded as a reduction
of interest expense. The Company is exposed to potential credit losses in the
event of nonperformance by the counterparty, but has no off-balance sheet credit
risk of accounting loss.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

12. SUPPLEMENTAL INFORMATION

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

1996 1995
---- ----

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

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

1996 1995
---- ----

Representation contracts payable................... $20,152 $12,429
Accrued incentive commissions...................... 4,099 3,875
Accrued interest................................... 658 2,270
Accounts payable................................... 12,096 11,150
Other.............................................. 9,765 8,701
------- ------
Total............................................. $46,770 $38,425
------- ------
------- ------

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

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

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

</TABLE>
F-21
<PAGE>

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

13. SUBSEQUENT EVENT

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

14. QUARTERLY FINANCIAL DATA (Unaudited)

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

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

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

</TABLE>

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

Operating revenues, net $51,623 $43,611 $50,324 $39,109
Operating income 10,504 (3) 7,187 10,904 1,080
Income (loss) before
extraordinary item 288 557 792 (1,499)
Net income (loss) (513) (4) 557 792 (1,499)
Income (loss) per common share:
Income (loss) before
extraordinary item $.02 $.04 $.06 ($.17)
Net income (loss) ($.04) $.04 $.06 ($.17)
</TABLE>
________________
(1) Includes the $1,500 reversal of relocation costs accrued in 1995 related to
the Company's plan to reduce headquarters facility requirements as the
Company has determined that such plan is no longer economically feasible.
See Note 8.

(2) In the fourth quarter of 1996, the company refinanced its debt, which
resulted in the recognition of an extraordinary loss of $6,993, net of
income tax benefit of $4,860. See Note 5.

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

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

F-22
<PAGE>

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

15. Condensed Consolidating Financial Statements

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

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

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

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

Assets

Current Assets:
Cash and cash equivalents.............$ 2,195 $ 3,027 $ -- $ -- $ 5,222
Accounts receivable, net.............. -- 67,859 1,025 -- 68,884
Deferred costs on purchases of station
representation contracts.............. -- 21,428 -- -- 21,428
Prepaid expenses and other current assets -- 1,293 -- -- 1,293
----- ------ ----- ----- ------
Total current assets................ 2,195 93,607 1,025 -- 96,827
----- ------ ----- ----- ------
Fixed assets, net...................... -- 15,412 328 -- 15,740
Deferred income taxes.................. -- 260 -- -- 260
Deferred costs on purchases of station
representation contracts.............. -- 74,399 -- -- 74,399
Equity investment in affiliates........ 128,900 -- -- (128,900) --
Due from affiliate..................... 173,468 -- -- (173,468) --
Intangible assets, net................. -- 218,370 438 -- 218,808
Other assets, net...................... 18,359 11,180 158 -- 29,697
----- ------ ----- ----- ------
Total assets........................ $322,922 $413,228 $ 1,949 $ (302,368) $435,731
----- ------ ----- ----- ------
----- ------ ----- ----- ------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities$ 2,154 $ 42,792 $ 1,854 $ -- $ 46,800
Deferred income on sales of station
representation contracts............. -- 14,548 -- -- 14,548
Income taxes payable.................. 167 1,644 -- -- 1,811
----- ------ ----- ----- ------
Total current liabilities 2,321 58,984 1,854 -- 63,159
Deferred income on sales of station
representation contracts.............. -- 4,787 -- -- 4,787
Long-term debt......................... 217,622 -- -- -- 217,622
Due to affiliate....................... -- 173,468 -- (173,468) --
Other liabilities...................... -- 46,627 557 -- 47,184
Stockholders' equity:..................
Common stock.......................... 137 -- 1 (1) 137
Paid-in-capital....................... 129,649 96,610 989 (97,599) 129,649
Carryover basis adjustment (20,047) -- -- -- (20,047)
(Accumulated deficit) retained earnings (6,452) 32,752 (1,452) (31,300) (6,452)
----- ------ ----- ----- ------
103,287 129,362 (462) (128,900) 103,287
Unearned stock compensation (220) -- -- -- (220)
Treasury stock......................... (88) -- -- -- (88)
Total stockholders' equity 102,979 129,362 (462) (128,900) 102,979
----- ------ ----- ----- ------
Total liabilities and stockholders'
equity............................ $322,922 $413,228 $ 1,949 $(302,368) $435,731
----- ------ ----- ----- ------
----- ------ ----- ----- ------

F-24
</TABLE>
<PAGE>

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

Assets

Current Assets:
Cash and cash equivalents.............$ 2,122 $ 187 $ 41 $ -- $ 2,350
Accounts receivable, net.............. -- 59,601 1,804 -- 61,405
Deferred costs on purchases of station
representation contracts -- 13,096 -- -- 13,096
Prepaid expenses and other current assets -- 869 -- -- 869
------ ------- ------ ------- ---------
Total current assets................. 2,122 73,753 1,845 -- 77,720
------ ------- ------ ------- ---------
Fixed assets, net...................... -- 12,068 369 -- 12,437
Deferred income taxes.................. -- 1,857 -- -- 1,857
Deferred costs on purchases of station
representation contracts.............. -- 39,602 -- -- 39,602
Equity investment in affiliates 120,199 -- -- (120,199) --
Due from affiliate..................... 151,774 -- -- (151,774) --
Intangible assets, net................. -- 227,265 461 -- 227,726
Other assets, net...................... 16,517 1,774 -- -- 18,291
------ ------- ------ ------- ---------
Total assets......................... $290,612 $356,319 $2,675 $ (271,973) $377,633
------ ------- ------ ------- ---------
------ ------- ------ ------- ---------
Liabilities and Stockholders' Equity
Current Liabilities:
Account payable and accrued liabilities $ 3,594 $33,035 $1,796 $ -- $ 38,425
Deferred income on sales of station
representation contracts............. -- 10,700 -- -- 10,700
Income taxes payable.................. 47 3,131 -- -- 3,178
------ ------- ------ ------- ---------
Total current liabilities 3,641 46,866 1,796 -- 52,303
------ ------- ------ ------- ---------
Deferred income on sales of station
representation contracts.............. -- 3,589 -- -- 3,589
Long-term debt......................... 179,530 -- -- -- 179,530
Due to affiliate....................... -- 151,774 -- (151,774) --
Other liabilities...................... -- 34,229 541 -- 34,770
Stockholders' Equity:
Common stock.......................... 137 -- 1 (1) 137
Paid-in-capital....................... 129,382 96,610 989 (97,599) 129,382
Carryover basis adjustment............ (20,047) -- -- -- (20,047)
(Accumulated deficit) Retained earnings (1,831) 23,251 (652) (22,599) (1,831)
Treasury stock, at cost 33,333 shares. (200) -- -- -- (200)
------ ------- ------ ------- ---------
Total stockholders' equity........... 107,441 119,861 338 (120,199) 107,441
------ ------- ------ ------- ---------
Total liabilities and stockholders'
equity.............................. $290,612 $356,319 $2,675 $(271,973) $377,633
------ ------- ------ ------- ---------
------ ------- ------ ------- ---------

F-25
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Information)--(Continued)

December 31, 1995
-----------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................ $ 103 $180,384 $2,752 $ -- $183,239
------- ------- ----- ------ -------
Operating expenses:
Salaries and related costs............ -- 100,540 2,380 -- 102,920
Selling, general and administrative... -- 35,170 1,068 -- 36,238
Depreciation and amortization......... 318 13,003 106 -- 13,427
------- ------- ----- ------ -------
Total operating expenses............... 318 148,713 3,554 -- 152,585
------- ------- ----- ------ -------
Operating income....................... (215) 31,671 (802) -- 30,654
Other expense (income):
Interest expense...................... 21,074 -- -- -- 21,074
Interest (income)..................... (171) -- (2) -- (173)
------- ------- ----- ------ -------
Total other expense, net............... 20,903 -- (2) -- 20,901
------- ------- ----- ------ -------
(Loss) income before income tax provision
(benefit) and extraordinary item...... (21,118) 1,671 (800) -- 9,753
Income tax (benefit) provision........ (14,789) 22,170 -- -- 7,381
Extraordinary item-(loss) on early
extinguishment of debt, net of taxes. (6,993) -- -- -- (6,993)
Equity in earnings of affiliates,
net of taxes......................... 8,701 -- -- (8,701) --
------- ------- ----- ------ -------
Net (loss) income...................... $ (4,621) $ 9,501 $ (800) $ (8,701)$ (4,621)
------- ------- ----- ------ -------
------- ------- ----- ------ -------

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

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

December 31, 1995
-----------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................$ -- $180,612 $4,055 $ -- $184,667
------- ------- ----- ------ -------
Operating expenses:
Salaries and related costs............ -- 96,338 3,139 -- 99,477
Selling, general and administrative... -- 37,828 1,216 -- 39,044
Depreciation and amortization......... -- 9,973 98 -- 10,071
Provision for relocations............. -- 6,400 -- -- 6,400
------- ------- ----- ------ -------
Total operating expenses............... -- 150,539 4,453 -- 154,992
------- ------- ----- ------ -------
Operating income....................... -- 30,073 (398) -- 29,675
Other expense (income):
Interest expense...................... 25,280 -- 16 -- 25,296
Interest (income)..................... (115) (139) -- -- (254)
------- ------- ----- ------ -------
Total other expense, net............... 25,165 (139) 16 -- 25,042
------- ------- ----- ------ -------
(Loss) income before income tax provision
(benefit) and extraordinary item...... (25,165) 30,212 (414) -- 4,633
Income tax (benefit) provision........ (10,318) 14,813 -- -- 4,495
Equity in earnings of affiliates,
net of taxes......................... 14,985 -- -- (14,985) --
------- ------- ----- ------ -------
Income (loss) before extraordinary item 138 15,399 (414) (14,985) 138
Extraordinary item..................... (801) -- -- -- (801)
------- ------- ----- ------ -------
Net (loss) income...................... $ (663)$ 15,399 $ (414) $ (14,985) $ (663)
------- ------- ----- ------ -------
------- ------- ----- ------ -------

F-27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KATZ MEDIA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Information)--(Continued)

Period August 12, 1994 through December 31, 1994
-----------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................ $ -- $79,794 $1,609 $ -- $81,403
------- ------- ----- ------ -------
Operating expenses:
Salaries and related costs............ -- 41,470 1,260 -- 42,730
Selling, general and administrative... -- 14,666 542 -- 15,208
Depreciation and amortization......... -- 9,069 58 -- 9,127
------- ------- ----- ------ -------
Total operating expenses............... -- 65,205 1,860 -- 67,065
------- ------- ----- ------ -------
Operating income....................... -- 14,589 (251) -- 14,338
Other expense (income):
Interest expense...................... 14,952 -- (13) -- 14,939
Interest (income)..................... (66) (65) -- -- (131)
------- ------- ----- ------ -------
Total other expense, net............... 14,886 (65) (13) -- 14,808
------- ------- ----- ------ -------
(Loss) income before income tax provision
(benefit)............................. (14,886) 14,654 (238) -- (470)
Income tax (benefit) provision........ (6,104) 6,802 -- -- 698
Equity in earnings of affiliates,
net of taxes......................... 7,614 -- -- (7,614) --
------- ------- ----- ------ -------
Net (loss) income...................... $(1,168) $ 7,852 $ (238) $(7,614) $ (1,168)
------- ------- ----- ------ -------
------- ------- ----- ------ -------

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

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

Period January 1, 1994 through August 11, 1994
-----------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues, net................$ -- $101,731 $1,651 $ -- $103,382
------- ------- ----- ------ -------
Operating expenses:
Salaries and related costs............ -- 63,736 1,130 -- 64,866
Selling, general and administrative... -- 23,203 477 -- 23,680
Depreciation and amortization......... -- 11,664 62 -- 11,726
------- ------- ----- ------ -------
Total operating expenses............... -- 98,603 1,669 -- 100,272
------- ------- ----- ------ -------
Operating income....................... -- 3,128 (18) -- 3,110
Other expense (income):
Interest expense...................... 10,872 -- -- -- 10,872
Interest (income)..................... -- (14) (10) -- (24)
------- ------- ----- ------ -------
Total other expense, net............... 10,872 (14) (10) -- 10,848
------- ------- ----- ------ -------
(Loss) income before income tax provision
(benefit)............................. (10,872) 3,142 (8) -- (7,738)
Income tax (benefit) provision......... (4,458) 3,065 -- -- (1,393)
Equity in earnings of affiliates,
net of taxes.......................... 69 -- -- (69) --
------- ------- ----- ------ -------
Net (loss) income...................... $(6,345) $ 77 $ (8) $ (69) $ (6,345)
------- ------- ----- ------ -------
------- ------- ----- ------ -------

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

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

Year Ended December 31, 1996
------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................ $22,343 $ 30,872 $ (41) $ -- $ 8,488
------- ------- ----- ------ -------
Investing Activities:
Capital expenditures.................. -- (6,785) -- -- (6,785)
Payments received on sales of station
representation contracts.............. -- 21,094 -- -- 21,094
Payments made on purchases of station
representation contracts.............. -- (41,159) -- -- (41,159)
------- ------- ----- ------ -------
Net cash (used in) investing activities -- (26,850) -- -- (26,850)
------- ------- ----- ------ -------
Financing Activities:
Credit facilities borrowings.......... 65,500 -- -- -- 65,500
Credit facilities repayments.......... (145,500) -- -- -- (145,500)
Increase (decrease) in due (to) from
affiliate............................. 1,182 (1,182) -- -- --
Repurchase of Notes................... (99,408) -- -- -- (99,408)
Premium on repurchase of notes........ (11,316) -- -- -- (11,316)
Proceeds from issuance of 10 1/2% Notes 100,000 -- -- -- 100,000
Proceeds from New Credit Facility.... 117,500 -- -- -- 117,500
Financing Fees paid in connection
with credit facilities and Bridge Notes (5,542) -- -- -- (5,542)
------- ------- ----- ------ -------
Net cash (used in) provided by financing
activities............................ 22,416 (1,182) -- -- 21,234
------- ------- ----- ------ -------
Net increase (decrease) in cash........ 73 2,840 (41) -- 2,872
Cash and cash equivalents, beginning of
period................................ 2,122 187 41 -- 2,350
------- ------- ----- ------ -------
Cash and cash equivalents, end of period $ 2,195 $ 3,027 $ -- $ -- $ 5,222
------- ------- ----- ------ -------
------- ------- ----- ------ -------

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

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

Year Ended December 31, 1995
------------------------------------------------------
The
The Non- Company
Company Guarantors Guarantors Eliminations Consolidated
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................ $(23,097)$ 38,123 $ 83 $ -- $15,109
------- ------- ----- ------ -------
Investing Activities:
Capital expenditures.................. -- (6,000) (46) -- (6,046)
Payments received on sales of station
representation contracts............. -- 19,779 -- -- 19,779
Payments made on purchases of station
representation contracts............. -- (31,945) -- -- (31,945)
Investment in cable joint venture..... (10,753) -- -- -- (10,753)
------- ------- ----- ------ -------
Net cash (used in) investing activities (10,753) (18,166) (46) -- (28,965)
------- ------- ----- ------ -------
Financing Activities:
Credit facilities borrowings.......... 66,000 -- -- -- 66,000
Credit facilities repayments.......... (64,000) -- -- -- (64,000)
Decrease (increase) in due from (to)
affiliate............................ 21,597 (21,597) -- -- --
Proceeds from Bridge Notes............ 4,000 -- -- -- 4,000
Repayment of Bridge Notes............. (74,000) -- -- -- (74,000)
Restricted cash release............... 2,000 -- -- -- 2,000
Purchase of Treasure Stock............ (200) -- -- -- (200)
Proceeds from issuance of common stock 80,519 -- -- -- 80,519
Repurchase of Notes and other notes... (840) -- -- -- (840)
------- ------- ----- ------ -------
Net cash provided by (used in) financing
activities............................ 35,076 (21,597) -- -- 13,479
------- ------- ----- ------ -------
Net increase (decrease) in cash........ 1,226 (1,640) 37 -- (377)
Cash and cash equivalents, beginning of
period................................ 896 1,827 4 -- 2,727
------- ------- ----- ------ -------
Cash and cash equivalents, end of period $ 2,122 $ 187 $ 41 $ -- $ 2,350
------- ------- ----- ------ -------
------- ------- ----- ------ -------

F-31
</TABLE>
<PAGE>

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

Financing Activities:
Credit facilities borrowings.......... 24,800 -- -- -- 24,800
Credit facilities repayments.......... (23,800) -- -- -- (23,800)
Decrease (increase) in due from (to
affiliate............................ 17,573 (17,573) -- -- --
Proceeds from Bridge Notes............ 70,000 -- -- -- 70,000
Restricted cash payment............... (2,000) -- -- -- (2,000)
Proceeds from issuance of common stock 49,000 -- -- -- 49,000
Financing fees paid in connection with
credit facilities and Bridge Notes... (6,801) -- -- -- (6,801)
Repurchase of other notes............. (80) -- -- -- (80)
------- ------- ----- ------ -------
Net cash provided by (used in) financing
activities........................... 128,692 (17,573) -- -- 111,119
------- ------- ----- ------ -------
Net increase in cash................... 896 1,827 4 -- 2,727
Cash and cash equivalents, beginning of
period................................ -- -- -- -- --
------- ------- ----- ------ -------
Cash and cash equivalents, end of period $ 896 $ 1,827 $ 4 $ -- $ 2,727
------- ------- ----- ------ -------
------- ------- ----- ------ -------

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

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

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

Financing Activities:
Credit facilities borrowings......... 107,075 -- -- 107,075

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

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

F-33
</TABLE>

Exhibit 21.1
Subsidiaries of the Registrant
------------------------------

Katz Media Corporation
Domicile: Delaware

Katz Media Services, Inc.
Domicile: Delaware

Katz Communications, Inc.
Domicile: Delaware

Banner Radio Sales, Inc.
Domicile: Delaware

Christal Radio Sales, Inc.
Domicile: Delaware

Eastman Radio Sales, Inc.
Domicile: Delaware

Seltel Inc.
Domicile: Delaware

Katz Millennium Marketing Inc.
Domicile: Delaware

Katz Cable Corporation
Domicile: Delaware

The National Payroll Company, Inc.
Domicile: Delaware

The Cable Company, Inc. (dormant)
Domicile: Delaware

Katz International Limited
Domicile: England

Katz Television Sales Limited
Domicile: England

Katz Radio Sales Limited
Domicile: England

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-95678, No. 33-95680, No. 33-95682,
No. 33-04781, and No. 33-04773) of Katz Media Group, Inc. (the "Company") of our
reports dated March 4, 1997 for the Company and March 10, 1995 for Katz Media
Corporation apearing on pages F-2 and F-3, respectively, of this Form 10-K.

Price Waterhouse LLP
New York, New York
March 26, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,222
<SECURITIES> 0
<RECEIVABLES> 68,884
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 96,827
<PP&E> 15,740
<DEPRECIATION> 13,427
<TOTAL-ASSETS> 435,731
<CURRENT-LIABILITIES> 63,159
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 102,842
<TOTAL-LIABILITY-AND-EQUITY> 435,731
<SALES> 183,239
<TOTAL-REVENUES> 183,239
<CGS> 152,585
<TOTAL-COSTS> 152,585
<OTHER-EXPENSES> (173)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,074
<INCOME-PRETAX> 9,753
<INCOME-TAX> 7,381
<INCOME-CONTINUING> 2,372
<DISCONTINUED> 0
<EXTRAORDINARY> (6,993)
<CHANGES> 0
<NET-INCOME> (4,621)
<EPS-PRIMARY> ($.33)
<EPS-DILUTED> 0

</TABLE>