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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2002

OR

For the transition period from                    to                   

Commission File Number: 001-14461

Entercom Communications Corp.
(Exact name of registrant as specified in its charter)

401 City Avenue, Suite 409
Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices and Zip Code)

(610) 660-5610
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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ENTERCOM COMMUNICATIONS CORP.

INDEX

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PART I

FINANCIAL INFORMATION

ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND SEPTEMBER 30, 2002
(amounts in thousands)
(unaudited)

ASSETS

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND SEPTEMBER 30, 2002
(amounts in thousands)
(unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
(amounts in thousands, except share and per share data)
(unaudited)

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
(amounts in thousands, except share and per share data)
(unaudited)

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
(amounts in thousands)
(unaudited)

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
(amounts in thousands)
(unaudited)

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

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ENTERCOM COMMUNICATIONS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
(amounts in thousands)
(unaudited)

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

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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY -

In connection with the issuance of an award of Restricted Stock for 5,000 shares of Class A Common Stock for the nine months ended September 30, 2002, the Company increased its additional paid-in capital by $184.

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

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ENTERCOM COMMUNICATIONS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002

1.       BASIS OF PRESENTATION

          The condensed consolidated interim unaudited financial statements included herein have been prepared by Entercom Communications Corp. and its subsidiaries, or collectively, the “Company” in accordance with (1) generally accepted accounting principles for interim financial information and (2) the instructions of the Securities and Exchange Commission (the “SEC”) to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal, recurring nature. The Company’s results are subject to seasonal fluctuations and therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.

         The Company operates under one reportable business segment, radio broadcasting, for which segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measuring of performance.

         This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements as of and for the year ended December 31, 2001, and filed with the SEC on February 11, 2002, as part of the Company’s Form 10-K.

         During February 2002, the Company filed a universal shelf registration statement with the SEC to offer up to (1) $250.0 million in aggregate offering price of its Class A Common Stock and/or its Preferred Stock and (2) $250.0 million in aggregate principal amount or initial accreted value of its debt securities consisting of debentures, notes or other types of debt. In connection with this registration statement, on February 27, 2002, the Company entered into separate equity and debt underwriting agreements for equity and debt offerings that were completed on March 5, 2002 and March 8, 2002 (see Notes 5 and 9).

         Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year’s presentation, which had no effect on the financial position, results of operations or cash flows of the Company.

Recent Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” Statement No. 141 addresses financial accounting and reporting for business combinations and supersedes Accounting Principle Board (“APB”) Opinion No. 16, “Business Combinations” and FASB Statement No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises.” Statement No. 141 is effective for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. Statement No. 141 also changes the criteria to recognize intangible assets apart from goodwill. The Company adopted this Statement on July 1, 2001. The Company has historically used the purchase method to account for all business combinations and the adoption of this Statement did not have a material impact on the Company’s financial position, cash flows or results of operations.

         In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” and SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” See Note 2 for a discussion of Statements No. 142 and No. 144.

         In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” that applies to legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and/or the normal operation of a long-lived asset. Under this Standard, guidance is provided on measuring and recording the liability. Adoption of this Statement by the Company will be effective on

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January 1, 2003. The Company does not believe that the adoption of this Statement will materially impact the Company’s financial position, cash flows or results of operations.

         In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, FASB Statement No. 64, “Extinguishments of Debt to Satisfy Sinking-Fund Requirements.” SFAS No. 145 also rescinds FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.” SFAS No. 145 amends FASB Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. In the past, the Company has reflected losses from extinguishments of debt as extraordinary items. Under SFAS No. 145, debt extinguishments are often routine, recurring transactions and in most circumstances would require treatment other than as an extraordinary item. Adoption of SFAS No. 145 by the Company will be effective on January 1, 2003. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item shall be reclassified. The Company does not believe that the adoption of SFAS No. 145 will materially impact the Company’s financial position, cash flows or results of operations.

         In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and improves financial reporting by requiring that a liability for a cost associated with an exit or disposal activity be recognized and measured at fair value only when the liability is incurred. Adoption of this Statement by the Company will be effective on January 1, 2003 and will not be retroactive to prior years. The Company does not believe that the adoption of SFAS No. 146 will materially impact the Company’s financial position, cash flows or results of operations.

2.       INTANGIBLE ASSETS AND GOODWILL

         Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” that requires that goodwill and certain intangible assets will not be amortized. Instead, these assets will be reviewed at least annually for impairment and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. As of the date of adoption, the Company reflected unamortized goodwill and unamortized broadcasting licenses in the amounts of $4.2 million and $1.2 billion, respectively. The Company determined that broadcasting licenses, which previously had been amortized over the maximum period allowed of 40 years, were deemed to have indefinite useful lives. Adoption of this accounting Standard had the impact of eliminating the Company’s non-cash amortization expense for goodwill and broadcasting licenses. For comparison purposes, for the nine months and three months ended September 30, 2001, the Company recorded amortization expense for goodwill and broadcasting licenses of $24.9 million and $8.3 million, respectively.

         The following unaudited pro forma summary presents the Company’s estimate of the effect of the adoption of SFAS No. 142 as of the beginning of the periods presented as reported income before accounting change and net income (loss) are adjusted to eliminate the amortization expense recognized in those periods related to goodwill and broadcasting licenses as goodwill and broadcasting licenses are not amortized under this new accounting Standard. The pro forma amounts for the nine and three months ended September 30, 2001 do not include any adjustments for potential write-downs of goodwill and broadcasting licenses which could have resulted had the Company adopted SFAS No. 142 as of the beginning of the periods presented and performed the required impairment tests under this Standard.

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Indefinite-Lived Intangibles

         During the first quarter of 2002, the Company completed the transitional non-amortizing intangible asset impairment test for broadcasting licenses and recorded to the statement of operations a $138.9 million impairment charge, net of a deferred tax benefit of $92.6 million, under the cumulative effect of accounting change. The amount of unamortized broadcasting licenses reflected in the balance sheet as of September 30, 2002, after recording the impairment charge, was $1.1 billion. The amount of the broadcasting licenses impairment charge was determined by relying primarily on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor were broadcasting licenses. The Company determined the reporting unit as a radio market and compared the carrying amount of the broadcasting licenses in each market to the fair value of the market’s broadcasting licenses. The required impairment tests of broadcasting licenses may result in additional future period write-downs.

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The Company has calculated the transition adjustment in accordance with tentative accounting guidance issued by the Emerging Issues Task Force (“EITF”), and therefore, the guidance could be subject to change. The EITF is a committee appointed by the FASB and assigned the responsibility of answering implementation and interpretation questions related to this new accounting standard.

Goodwill

         In order to complete the transitional assessment of goodwill as required by SFAS No. 142, the Company was required to determine by June 30, 2002, the fair value of each market and compare it to the market’s carrying amount. To the extent a market’s carrying amount exceeded its fair value, an indication would have existed that the amount of goodwill attributed to a market may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the market’s goodwill, determined by allocating the market’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS No. 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of 2002. Any transitional impairment charge will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statement of operations. The Company completed the transitional assessment of goodwill and determined that the carrying amount of goodwill for each of the Company’s markets did not exceed the fair value. Since the carrying amount of goodwill did not exceed the fair value under the transitional assessment, the Company does not need to perform the second step of the transitional impairment test and accordingly, the Company does not expect to record a goodwill impairment charge in 2002. The fair value was determined by using either an income or market approach for each market cluster. The market approach compares recent sales and offering prices of similar properties. The income approach uses the subject property’s income generated over a specified time and capitalized at an appropriate market rate to arrive at an indication of the most probable selling price. The amount of goodwill reflected in the balance sheet as of September 30, 2002 was $130.0 million. The required impairment tests of goodwill may result in future period write-downs.

         The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, are as follows:

         Effective January 1, 2002, the Company adopted SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” that addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” it removes certain assets such as deferred tax assets, goodwill and intangible assets not being amortized from its scope and retains the requirements of SFAS No. 121 regarding the recognition of impairment losses on long-lived assets held for use. SFAS No. 144 also supercedes the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. The Company believes that the adoption of SFAS No. 144 did not have a material impact on the Company’s financial position, cash flows or results of operations.

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         The Company has definite-lived intangible assets that consist of advertiser lists and customer relationships and acquired advertising contracts that are amortized in accordance with SFAS No. 142 and tested for impairment under SFAS No. 144. In accordance with SFAS No. 142, the Company reviewed the useful lives and made no changes to the useful lives of these assets, which are amortized over the period for which these assets are expected to contribute to the Company’s future cash flows. As of September 30, 2002, the Company reflected $0.2 million in unamortized definite-lived intangible assets, which amounts are included in deferred charges and other assets on the balance sheet.

3.      ACQUISITIONS, DISPOSITION, OTHER EVENTS AND UNAUDITED PRO FORMA SUMMARY

Acquisitions for the Nine Months Ended September 30, 2002

         On February 8, 2002, the Company acquired from WCCB-TV, Inc., a subsidiary of Bahakel Communications, Ltd., the assets of WOZN-FM (formerly WKSI-FM) and WPET-AM, serving the Greensboro, North Carolina radio market, for a purchase price of $20.8 million in cash, of which $1.0 million was paid as a deposit on November 29, 2001 and the balance was financed from borrowings under the Company’s reducing revolving credit facility. On December 5, 2001, the Company began operating these stations under a time brokerage agreement. The closing of this transaction increased the Company’s ownership to six radio stations in the Greensboro, North Carolina radio market. The Company recorded goodwill of $6.8 million in connection with this purchase. The Company anticipates that with this acquisition and the stations’ position in the market, the Company can compete more effectively by increasing the Company’ s cluster share of market revenues.

         The purchase price allocation for this acquisition is based on information available at this time and is subject to change. For this acquisition, the aggregate purchase price, including transaction costs of $0.1 million, was allocated as follows:

(amounts in thousands)

         On May 1, 2002, the Company acquired the assets of KALC-FM serving the Denver, Colorado radio market from Emmis Communications Corporation (“Emmis”) for $88.0 million in cash, of which $8.8 million was paid as a deposit on February 15, 2002 and the balance was paid from cash on hand. On March 16, 2002, the Company began operating this station under a time brokerage agreement. The Company recorded goodwill of $45.5 million in connection with this purchase. The Company anticipates that with the addition of KALC-FM and its position in the market, to the three other stations the Company operates in the Denver market (see the transaction with Tribune described below in this Note 3), will allow the Company to compete more effectively by increasing the Company’s cluster share of market revenues.

         The purchase price allocation for this acquisition is based on information available at this time and is subject to change. For this acquisition, the aggregate purchase price, including transaction costs of $0.2 million, was allocated as follows:

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(amounts in thousands)

         On July 24, 2002, the Company acquired the assets of KOSI-FM and KEZW-AM serving the Denver, Colorado radio market from Tribune Denver Radio, Inc. and Tribune Broadcasting Company (“Tribune”) for $125.0 million in cash. The source of the funds used to complete the transaction was as follows: (1) $110.5 million was paid from cash on hand; (2) $12.5 million of the purchase price was applied against an $18.0 million deposit made on January 2, 2002 to Tribune; and (3) $2.0 million was used from the proceeds of the sale of KQAM-FM (see below). The Option Agreement with Tribune, dated December 24, 2001, provided for the purchase of the assets of KOSI-FM, KEZW-AM and KQMT-FM (formerly KKHK-FM) serving the Denver, Colorado radio market, for a purchase price of $180.0 million in cash. On May 8, 2002, the Option Agreement was amended to facilitate the closing of KOSI-FM and KEZW-AM for $125.0 million. The Company recorded goodwill of $71.9 million in connection with this purchase. The Company anticipates that with the addition of KOSI-FM and KEZW-AM and their position in the market, to the acquisition of KALC-FM (see the transaction with Emmis described above in this Note 3) and the operation of KQMT-FM, the Company can compete more effectively by increasing the Company’s cluster share of market revenues. A time brokerage agreement, which commenced for all three stations on February 1, 2002, will continue for KQMT-FM for a period of up to approximately three years at Tribune’s option. Under the amended Option Agreement, the Company may exercise an option to close on KQMT-FM for $55.0 million in cash after the earlier of the receipt of a notice from Tribune or December 24, 2005. The closing of KQMT-FM is also conditioned on the approval of the Federal Communications Commission. Assuming the completion of the acquisition of KQMT-FM from Tribune as described under Note 8, the Company will own four radio stations serving the Denver, Colorado radio market.

         The purchase price allocation for this acquisition is based on information available at this time and is subject to change. For this acquisition, the aggregate purchase price, including transaction costs of $0.9 million, was allocated as follows:

(amounts in thousands)

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(amounts in thousands)

Disposition for the Nine Months Ended September 30, 2002

         On July 23, 2002, the Company sold the assets of KQAM-AM in Wichita, Kansas, to ABC, Inc., for $2.0 million in cash, resulting in a gain of $1.3 million. The sale of this station decreased the Company’s ownership to six radio stations serving the Wichita, Kansas radio market.

Other Events

         On February 1, 2002, the Company entered into an agreement with Classic Radio, Inc. (“Classic”) to terminate, effective February 28, 2002, the KING-FM Joint Sales Agreement (“JSA”) that was scheduled to expire on June 30, 2002. Under this agreement, the Company served as the exclusive sales agent for the Classic-owned KING-FM radio station located in Seattle Washington. The Company received all revenues from the sale of advertising time broadcast on KING-FM and was required to pay a monthly fee to Classic based upon calculations as defined in the agreement. Under the terms of the JSA, the Company was responsible for all costs incurred in selling the advertising time. Classic was responsible for all costs incurred in operating the station.

         On April 24, 2002, the Company announced that the agreement with The Baseball Club of Seattle, L.P. for the rights to broadcast the Seattle Mariners Baseball Club on the Company’s Seattle radio station would not be renewed upon expiration of the agreement on October 31, 2002.

         During August 2002, the managers and members of Local Media Internet Ventures, LLC (“LMIV”), of which the Company was an equity holder with an approximate 30% interest, agreed to discontinue operations. The Company’s investment as of December 31, 2001 was $8.7 million and the Company had recorded cumulative losses of $5.8 million for the periods through December 31, 2001 in the statement of operations under equity loss from unconsolidated affiliate. The Company’s remaining investment in LMIV was written off as of September 30, 2002 and the Company recorded a loss from unconsolidated affiliate of $2.9 million and $3.4 million for the nine months ended September 30, 2001 and 2002, respectively, and $1.0 million and $1.5 million for the three months ended September 30, 2001 and 2002, respectively. Included in the equity loss from unconsolidated affiliate for the nine months and three months ended September 30, 2002, was the Company’s pro rata share of the costs associated with closing the business in the amount of $0.4 million that was paid by the Company to LMIV on September 6, 2002. The Company expects to continue with an internal program of internet development for use by the Company’s radio stations.

Unaudited Pro Forma Summary

         The following unaudited pro forma summary presents the consolidated results of operations as if any acquisitions which occurred during the period of January 1, 2001 through September 30, 2002, had all occurred as of January 1, 2001, after giving effect to certain adjustments, including depreciation and amortization of assets and interest expense on any debt incurred to fund acquisitions which would have been incurred had such acquisitions occurred as of January 1, 2001. For a discussion of these acquisitions, please refer to the Company’s Form 10-K filed with the Securities and Exchange Commission on February 11, 2002, which should be read in conjunction with our condensed consolidated financial statements, the related notes and all other information included elsewhere in this Form 10-Q. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.

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4.      SENIOR DEBT

         The Company has a bank credit agreement (the “Bank Facility”) with a syndicate of banks which provides for senior secured credit of $650.0 million consisting of: (1) a $325.0 million reducing revolving credit facility (“Revolver”) and (2) a $325.0 million multi-draw term loan (“Term Loan”). The Revolver and Term Loan, which mature on September 30, 2007, each reduce on a quarterly basis beginning September 30, 2002, in quarterly amounts that vary from $12.2 million to $16.3 million for each loan. As of September 30, 2002, the Company had $300.6 million of borrowings outstanding under the Bank Facility’s Term Loan, in addition to $13.9 million in outstanding Letters of Credit under the Revolver. The Company used a portion of the March 5, 2002 equity offering’s net proceeds (Note 9), to reduce indebtedness outstanding in the amount of $93.5 million under the Revolver. Under the Term Loan, the Company also prepaid in September 2002, the principal in the amount of $12.2 million that is due on December 31, 2002. The Bank Facility requires the Company to comply with certain financial covenants and leverage ratios that are defined terms within the agreement and that include but are not limited to the following: (1) Total Debt to Operating Cash Flow, (2) Operating Cash Flow to Interest Expense, (3) Operating Cash Flow to Pro Forma Debt Service and (4) Operating Cash Flow to Fixed Charges. Management believes the Company is in compliance with all of the terms of the agreement. On February 6, 2002, the Company entered into a Second Amendment under the Bank Facility that further clarified the terms under which the Company can issue subordinated debt and modified certain terms, including the Operating Cash Flow to Pro Forma Debt Service ratio financial covenant. The Bank Facility also provides that any time prior to December 31, 2002 the Company may solicit incremental loans up to $350.0 million, thereby increasing the Bank Facility to a total of $1.0 billion. These incremental loans are subject to syndicate approval and are governed under the same terms as the existing Bank Facility.

         The Company enters into interest rate transactions with different banks to diversify its risk associated with interest rate fluctuations against the variable rate debt under the Bank Facility and to comply with certain covenants under the Bank Facility. Under these transactions, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount against the variable debt. The total notional amount of these transactions was $65.0 million as of September 30, 2002. These agreements, with initial terms that vary from 2.5 years to 10 years, effectively fix the interest at rates that vary from 5.8% to 8.3% on current borrowings equal to the total notional amount (see Note 7).

5.      SENIOR SUBORDINATED NOTES

         On February 27, 2002, the Company’s wholly owned subsidiary, Entercom Radio, LLC, entered into an underwriting agreement to sell $150.0 million of 7.625% Senior Subordinated Notes (“Notes”) due March 1, 2014. The Company completed this offering on March 5, 2002 and received net proceeds of $145.7 million. There were

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approximately $4.3 million in deferred offering costs recorded in connection with the sale, which are being amortized to interest expense over the life of the Notes using the effective interest rate method. The proceeds of the Notes along with the proceeds of the equity offering (see Note 9) were used to finance recent acquisitions and it is anticipated that the balance of the proceeds will be used to finance pending acquisitions and general corporate purposes, including future acquisitions and working capital needs.

         Interest on the Notes, which are in denominations of $1,000 each, accrues at the rate of 7.625% per annum and is payable semi-annually in arrears on March 1 and September 1, commencing on September 1, 2002. The Company may redeem the notes on and after March 1, 2007 at an initial redemption price of 103.813% of their principal amount plus accrued interest. In addition, before March 1, 2005, the Company may redeem up to 35% of the Notes at a redemption price of 107.625% of their principal amount plus accrued interest, using proceeds of specified equity offerings. The Notes are unsecured and rank junior to the Company’s senior indebtedness. In addition to the parent, Entercom Communications Corp., all of the Company’s other subsidiaries (excluding Entercom Communications Capital Trust, see Note 6) have fully and unconditionally guaranteed these Notes (“Subsidiary Guarantors”). Under certain covenants, the Subsidiary Guarantors are restricted from paying dividends or distributions in excess of amounts defined under the Notes and the Subsidiary Guarantors cannot incur additional indebtedness if the Leverage Ratio of Entercom Radio, LLC exceeds a specified level.

6.      CONVERTIBLE PREFERRED SECURITIES

         On October 6, 1999, the Company sold 2,500,000 Convertible Preferred Securities, Term Income Deferrable Equity Securities (“TIDES”), including underwriters’ over-allotments at an offering price of $50.00 per security. The net proceeds to the Company after deducting underwriting discounts and other offering expenses, was $120.5 million. Subject to certain deferral provisions, the issuer of the TIDES, Entercom Communications Capital Trust (“trust”), a wholly-owned subsidiary of the Company, pays quarterly calendar distributions. The first distribution was paid on December 31, 1999. The TIDES represent undivided preferred beneficial ownership interest in the assets of the trust. The trust used the proceeds to purchase from the Company an equal amount of 6.25% Convertible Subordinated Debentures due 2014 (“Debentures”). Upon the due date of the Debentures, the Company will pay the outstanding amount due to the trust and the trust will redeem all of the outstanding TIDES. The Company owns all of the common securities issued by the trust. The trust exists for the sole purpose of issuing the common securities and the TIDES. The trust’s sole assets consists of the $125.0 million aggregate principal amount of the Company’s 6.25% Convertible Subordinated Debentures due September 30, 2014. The Company has entered into several contractual arrangements for the purpose of fully, irrevocably and unconditionally guaranteeing the trust’s obligations under the TIDES. The holders of the TIDES have a preference with respect to each distribution and amounts payable upon liquidation, redemption or otherwise over the holders of the common securities of the trust. Each TIDES is convertible into shares of the Company’s Class A Common Stock at the rate of 1.1364 shares of Class A Common Stock for each TIDES. The Company completed this offering on October 6, 1999, and issued 2,500,000 TIDES at $50.00 per TIDES. As of September 30, 2002, there were 2.5 million outstanding TIDES as no holder of the TIDES had converted their shares into Class A Common Stock. The Company may elect after October 3, 2002, to redeem the Debentures in accordance with the terms of the TIDES. The TIDES are convertible into Class A Common Stock at $44.00 per share.

7.      DERIVATIVE AND HEDGING ACTIVITIES

         Effective January 1, 2001, the Company adopted SFAS No. 133 “Accounting for Derivative and Hedging Activities,” that was amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 established accounting and reporting standards for (1) derivative instruments, including certain derivative instruments embedded in other contracts, which are collectively referred to as derivatives and (2) hedging activities. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the statement of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the statement of operations when the hedged item affects net income (loss). SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as on going effectiveness assessments in order to use hedge accounting under this standard. A derivative that does not qualify as a hedge is marked to fair value

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through the statement of operations. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes relating all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively.

For the Nine Months and Three Months Ended September 30, 2001

         For those derivatives that did not qualify for hedge accounting treatment with an aggregate notional amount of $30.0 million, the Company recorded to the statement of operations: (1) for the nine months ended September 30, 2001, a $0.4 million loss under the cumulative effect of accounting change as an accumulated transition adjustment and (2) for the nine months and three months ended September 30, 2001, a $2.0 million loss and a $1.6 million loss, respectively, under net loss on derivative instruments. For those derivatives designated as cash flow hedges that qualify for hedge accounting treatment with an aggregate notional amount of $233.0 million, the Company recorded: (1) the ineffective amount of the hedges to the statement of operations for the nine months ended September 30, 2001, as a $0.6 million loss under the cumulative effect of accounting change as an accumulated transition adjustment and for the nine months and three months ended September 30, 2001, as a $0.7 million gain and a $0.2 million gain, respectively, under net loss on derivative instruments and (2) the effective amount of the hedges to the statement of other comprehensive income for the nine months ended September 30, 2001, as a $1.1 million loss under the cumulative effect of accounting change as an accumulated transition adjustment and for the nine months and three months ended September 30, 2001, as a $4.0 million loss and a $0.5 million loss, respectively, to unrealized net loss on hedged derivatives.

For the Nine Months and Three Months Ended September 30, 2002

         For those derivatives that did not qualify for hedge accounting treatment with an aggregate notional amount of $30.0 million outstanding during the nine months and three months ended September 30, 2002 and which was outstanding as of September 30, 2002, the Company recorded to the statement of operations for the nine and three months ended September 30, 2002, a $2.4 million loss and a $1.8 million loss, respectively, under loss on derivative instruments. For those derivatives designated as cash flow hedges which qualified for hedge accounting treatment with aggregate notional amounts of $233.0 million and $95.0 million (which included certain derivative notional amounts that expired during the nine months and three months ended September 30, 2002, respectively), $35.0 million was outstanding as of September 30, 2002 and the Company recorded: (1) the ineffective amount of the hedges to the statement of operations for the nine months and three months ended September 30, 2002, as a $.01 million gain and a marginal loss, respectively, under loss on derivative instruments and (2) the effective amount of the hedges to the statement of other comprehensive income (loss) as a $4.7 million gain to unrealized gain on hedged derivatives. The Company expects to record a $0.5 million gain on hedged derivatives as a reclassification to the statement of operations during the next twelve months from the adjustments that were recorded in other comprehensive income (loss). The actual amount that will be reclassified to the statement of operations during the next twelve months may vary as a result of changes in market conditions related to interest rates.

8.      COMMITMENTS AND CONTINGENCIES

Pending Acquisitions and Disposition

         The Company entered into a preliminary agreement on February 6, 1996, to acquire the assets of radio station KWOD-FM, Sacramento, California, from Royce International Broadcasting Corporation (“Royce”), subject to approval by the FCC, for a purchase price of $25.0 million. Notwithstanding the Company’s efforts to pursue this transaction, Royce has been non-responsive. On July 28, 1999, the Company commenced a legal action seeking to enforce this agreement. After a trial in November 2001, the California Superior Court ruled that the February 1996 agreement was enforceable and that the court would order specific performance of the agreement to sell KWOD. On April 30, 2002 the Court issued an Interlocutory Judgment ordering, among other things (i) that Royce sign all documents necessary to transfer the assets relating to KWOD to the Company and to complete such transfer in

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exchange for the $25.0 million purchase price, less the amount of the Company’s damages to be determined by the court, and (ii) the Company place $24.8 million in cash and a $7.5 million irrevocable standby letter of credit in an escrow account pending the transfer of the KWOD assets, the determination of the Company’s damages and the outcome of Royce’s appeal. Royce filed a petition in the California Court of Appeals challenging this Interlocutory Judgment. The California Court of Appeals has temporarily stayed the Interlocutory Judgment. The Company continues to pursue a final judgment for specific performance in this matter. The Company estimates that the impact of an unfavorable outcome will not materially impact the Company’s financial position, results of operations or cash flows. The Company cannot determine if and when the transaction might be completed.

         On December 24, 2001, the Company entered into an Option Agreement with Tribune to acquire the assets of KOSI-FM, KQMT-FM (formerly KKHK-FM) and KEZW-AM, serving the Denver, Colorado radio market, for a purchase price of $180.0 million in cash, of which $18.0 million was paid as a deposit on January 2, 2002. On July 24, 2002, the Company acquired the assets of KOSI-FM and KEZW-AM for $125.0 million in cash (see Note 3) under the Option Agreement that was amended on May 8, 2002 to facilitate the purchase of the assets under two separate transactions. A time brokerage agreement, which commenced for all three stations on February 1, 2002, will continue for KQMT-FM for a period of up to approximately three years at Tribune’s option. The amended Option Agreement also provides that the Company may exercise an option to close on KQMT-FM, for $55.0 million in cash after the earlier of the receipt of a notice from Tribune or December 24, 2005. The closing of KQMT-FM is also conditioned on the approval of the Federal Communications Commission. Assuming the completion of the acquisition of KQMT-FM from Tribune, the Company will own four radio stations serving the Denver, Colorado radio market.

Contingencies

         In October 1999, The Radio Music License Committee (“RMLC”), of which the Company is a participant, filed a motion in the New York courts against Broadcast Music, Inc. (“BMI”) commencing a rate-making proceeding, on behalf of the radio industry, seeking a determination of fair and reasonable industry-wide license fees. The trial of the rate court proceeding has been adjourned as RMLC and BMI are engaged in settlement discussions, with the outcome of this matter undetermined at this time. The RMLC is also currently in negotiations with American Society of Composers, Authors and Publishers (“ASCAP”) on behalf of the radio industry, seeking a determination of fair and reasonable industry-wide license fees. The Company is currently operating under interim license agreements with BMI and ASCAP for the periods commencing January 1, 1997 and January 1, 2001, respectively, at the rates and terms reflected in prior agreements. The Company’s management estimates that the impact of an unfavorable outcome with BMI and/or ASCAP will not materially impact the financial position, results of operations or cash flows of the Company.

         In December 2000, the U.S. Copyright Office, under the Digital Millennium Copyright Act, issued a final rule that AM and FM radio broadcast signals transmitted simultaneously over a digital communications network, are subject to the sound recording copyright owner’s exclusive right of performance, resulting in the imposition of license fees for Internet streaming and other digital media. The Company, along with other broadcasters and the NAB, filed an appeal of this ruling. The Company, which ceased Internet streaming of its broadcast signals in May 2002, paid a nominal amount in fees on October 20, 2002, covering all obligations for such fees for the period ended August 31, 2002.

         The Company is subject to various outstanding claims which arose in the ordinary course of business and to other legal proceedings. In the opinion of management, any liability of the Company which may arise out of or with respect to these matters will not materially affect the financial position, results of operations or cash flows of the Company.

9.      SHAREHOLDERS’ EQUITY

         On February 27, 2002, the Company entered into an underwriting agreement to sell 3,500,000 shares of its Class A Common Stock. The Company completed this offering on March 5, 2002 and sold 3,500,000 shares of its Class A Common Stock at a price per share of $51.25. The underwriting agreement included an option by the underwriters to purchase within 30 days up to 525,000 additional shares of Class A Common Stock to cover over-allotments. On March 6, 2002, the underwriters exercised their option to purchase 525,000 shares of Class A

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Common Stock at a price per share of $51.25 and the Company completed this offering on March 8, 2002. The net proceeds to the Company for both offerings, after deducting underwriting discounts and other offering expenses, were approximately $196.4 million. The Company used a portion of these proceeds in the amount of $93.5 million to reduce the Company’s outstanding indebtedness under the Bank Facility’s Revolver.

         On September 10, 2002, the Company’s Chairman, Joseph M. Field, adopted a Planned Diversification Program (“Program”) pursuant to SEC Rule 10b5-1 to sell through an independent broker-dealer up to one million shares of its Class B Common Stock over the course of the next twelve months. Upon public sale, the Class B Common Stock is automatically converted into shares of its Class A Common Stock. As of September 30, 2002, 344,000 shares of Class B Common Stock were sold under the Program.

10.      NET INCOME PER SHARE

         The net income per share (“EPS”) is calculated in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” which requires presentation of basic net income per share and diluted net income per share. Basic net income per share excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed in the same manner as basic net income after assuming issuance of common stock for all potentially dilutive equivalent shares, which includes (1) stock options (using the treasury stock method) and (2) the Term Income Deferrable Equity Securities (“TIDES”) after eliminating from net income the interest expense, net of taxes, on the TIDES. Anti-dilutive instruments are not considered in this calculation. For the nine months ended September 30, 2001 and 2002, stock options were included in the calculation of income before accounting changes and net income (loss) per share as they were dilutive and the TIDES, which are convertible into 2,841,000 shares of Class A Common Stock, were not included in the calculation of income before accounting changes and net income (loss) per share as their effect was anti-dilutive. For the three months ended September 30, 2001 and 2002, stock options were included in the calculation of net income per share as they were dilutive and the TIDES, which are convertible into 2,841,000 shares of Class A Common Stock, were not included in the calculation of net income per share as their effect was anti-dilutive.

         For the nine months ended September 30, 2001 and 2002, outstanding options to purchase 659,751 and 107,938 shares, respectively, of Class A Common Stock at option exercise prices ranging from $44.82 to $59.44 and from $49.28 to $57.63 per share, respectively, were excluded from the computation of diluted income before accounting change and net income (loss) per share as the options’ exercise price was greater than the average market price of the stock.

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         For the three months ended September 30, 2001 and 2002, outstanding options to purchase 791,803 and 1,886,804 shares, respectively, of Class A Common Stock at option exercise prices ranging from $43.31 to $59.44 and from $43.79 to $57.63 per share, respectively, were excluded from the computation of diluted net income per share as the options’ exercise price was greater than the average market price of the stock.

11.      GUARANTOR FINANCIAL INFORMATION

         Entercom Radio, LLC (“Radio”), a wholly-owned subsidiary of Entercom Communications Corp., is the borrower of the Company’s senior debt under the Bank Facility, described in Note 4, and is the borrower of the Company’s 7.625% Senior Subordinated Notes, described in Note 5, with Entercom Communications Corp. and Radio’s subsidiaries as the guarantors. Radio holds the ownership interest in various subsidiary companies that own the operating assets, including broadcasting licenses, permits, authorizations and cash royalties. Entercom Communications Capital Trust, the holder of the TIDES, described in Note 6, is a wholly-owned subsidiary of Entercom Communications Corp and is the holder of 6.25% Convertible Subordinated Debentures due from Entercom Communications Corp.

         Under the Bank Facility, Radio is permitted to make distributions to Entercom Communications Corp. in an amount as defined, that is required to pay Entercom Communications Corp.’s reasonable overhead costs, other costs associated with conducting the operations of Radio and its subsidiaries and interest on the TIDES. Under the Notes, Radio is permitted to make distributions to Entercom Communications Corp. in an amount, as defined, that is required to pay Entercom Communications Corp’s overhead costs and other costs associated with conducting the operations of Radio and its subsidiaries and Entercom Communications Corp’s payment of interest on the TIDES.

         The following tables set forth condensed consolidating financial information for Entercom Communications Corp., Entercom Communications Capital Trust and Entercom Radio, LLC, for the balance sheets as of December 31, 2001 and September 30, 2002, the statements of operations for the nine months and three months ended September 30, 2001 and 2002 and the statements of cash flows for the nine months ended September 30, 2001 and 2002.

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