10-K 1 w46237e10-k.txt FORM 10-K - ENTERCOM COMMUNICATIONS CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to ___________ COMMISSION FILE NUMBER: 001-14461 Entercom Communications Corp. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1701044 (State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.) 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) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED Class A Common Stock, New York Stock Exchange par value $.01 per share 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K [ ] As of March 14, 2001, the aggregate market value of the Class A common stock held by non-affiliates of the registrant was $1,220,447,304 based on the closing price of $42.71 on the New York Stock Exchange on such date. Class A Common Stock, $.01 par value 34,527,685 Shares Outstanding as of March 14, 2001 Class B Common Stock, $.01 par value 10,531,805 Shares Outstanding as of March 14, 2001 Class C Common Stock, $.01 par value 195,669 Shares Outstanding as of March 14, 2001 DOCUMENT INCORPORATED BY REFERENCE Proxy Statement for the 2001 Annual Meeting of Stockholders 2 ENTERCOM COMMUNICATIONS CORP. TABLE OF CONTENTS

Page PART I Item 1. Business............................................................................................. 1 Item 2. Properties and Facilities............................................................................ 14 Item 3. Legal Proceedings.................................................................................... 14 Item 4. Submission of Matters to a Vote of Security Holders.................................................. 15 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................................ 16 Item 6. Selected Financial Data.............................................................................. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 21 Item 7a. Quantitative and Qualitative Disclosures about Market Risk........................................... 34 Item 8. Financial Statements and Supplementary Data.......................................................... 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 35 PART III Item 10. Directors and Executive Officers of the Registrant................................................... 35 Item 11. Executive Compensation............................................................................... 35 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 35 Item 13. Certain Relationships and Related Transactions....................................................... 35 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 36

CERTAIN DEFINITIONS Unless the context requires otherwise, all references in this report to "Entercom," "we," "us," "our" and similar terms refer to Entercom Communications Corp. and its consolidated subsidiaries, excluding Entercom Communications Capital Trust. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future results and events. We use the words "believes," "expects," "intends," "plans," "anticipates," "likely," "will" and similar expressions to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond our control, which could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. These risks, uncertainties and factors include, but are not limited to: - the risks associated with our acquisition strategy generally; - the highly competitive nature of, and uncertain effect of new technologies on, the radio broadcasting industry; - our dependence on our Seattle radio stations; - our continued control by Joseph M. Field and members of his immediate family; - our risk of changes in federal legislation or regulatory policy; and - the other factors described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." i 3 You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report. We undertake no obligation to update these statements or publicly release the result of any revisions to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. INFORMATION ABOUT STATION AND MARKET DATA For this report: - We obtained the following data from Duncan's Radio Market Guide (2000 ed.): - 1999 market rank by metro population; and - 1999 market rank by radio revenue. - We derived audience share and audience rank in target demographic data from surveys of persons, listening Monday through Sunday, 6 a.m. to 12 midnight, in the indicated demographic, as set forth in the Fall 2000 Radio Market Report published by The Arbitron Ratings Company. - Our rank in the radio broadcasting industry is derived from figures recently published by BIA Consulting, Inc. ii 4 PART I ITEM 1. BUSINESS OVERVIEW We are the fifth largest radio broadcasting company in the United States based upon revenues. We have assembled a nationwide portfolio of 95 stations in 18 markets, including 12 of the country's top 50 markets. Our station groups rank among the top three in revenue market share in 15 of the 16 measured markets in which we operate. Entercom operates a wide range of formats in geographically diverse markets across the United States. Our largest markets, in order of revenues, are Seattle, Boston, Kansas City, Portland, Sacramento and New Orleans. During 2000, we successfully integrated our acquisition of 45 stations from Sinclair Broadcast Group, Inc. We also completed the acquisition of 10 additional stations during 2000 from various sellers. Entercom has established itself as one of the nation's fastest growing radio broadcasting companies. In 2000, we grew our overall net revenues by 52.0% and our broadcast cash flow by 63.7%. On a same station basis, our revenue growth was 12.7% and our broadcast cash flow growth was 25.4%. OUR ACQUISITION STRATEGY Since October 1, 1996, in over 25 transactions, we acquired 93 radio stations and divested, for strategic or regulatory reasons, 14 radio stations. Through our disciplined acquisition strategy, we seek to (1) build top-three station clusters principally in large growth markets and (2) acquire underdeveloped properties that offer the potential for significant improvements in revenues and broadcast cash flow through the application of our operational expertise. Although our focus has been on radio stations in top 50 markets, we also acquire stations in top 75 markets which meet the above criteria. OUR OPERATING STRATEGY The principal components of our operating strategy are to: - Develop Market Leading Station Clusters. We are among the three largest clusters, based on gross revenues, in 17 of our 18 markets. To enhance our competitive position, we strategically align our stations' formats and sales efforts within each market to optimize their performance, both individually and collectively. We seek to maximize the ratings, revenue and broadcast cash flow of our radio stations by tailoring their programming to optimize aggregate audience delivery. - Acquire And Develop Underperforming Stations. We seek to acquire and develop underperforming stations, which has enabled us to build a long-term track record of achieving superior same station revenue and broadcast cash flow growth. We utilize a variety of techniques to develop underachieving properties. These techniques include: strategic market research and analysis; management enhancements; expenditure reductions; improved sales training and techniques; technical upgrades; programming and marketing enhancements; and facility consolidations. - Build Strongly-Branded Franchises. We analyze market research and competitive factors to identify the format opportunity, music selection and rotation, presentation and other key programming attributes that we believe will best position each station to develop a distinctive identity and to strengthen the stations' local "brand" or "franchise" value. We believe that this will enable us to maximize our audience share and consequently our revenues and broadcast cash flow. - Leverage Station Clusters To Capture Greater Share Of Advertising Revenue. We believe radio will continue to gain revenue share from other media as a result of deregulation in the broadcasting industry, which allows broadcasters to create larger clusters in their markets and offers advertisers a means to reach larger audiences in a cost-effective manner. As a result of deregulation in the radio broadcasting industry, operators can now create radio station clusters that have the critical mass of audience reach and marketing resources necessary to pursue incremental advertising and promotional revenues more aggressively. We continue to capitalize on this opportunity by developing specialized teams in many of our markets to work with non-traditional radio advertisers to create and develop marketing programs and solutions. - Maximize Technical Capabilities. We seek to operate stations with the strongest signals in their respective markets. In addition, on various occasions we have identified opportunities to acquire and upgrade low-powered or out-of-market stations and transform them into competitive signals, thus increasing their value significantly. 1 5 - Recruit, Develop, Motivate And Retain Superior Employees. We believe that station operators differentiate themselves from their peers primarily through their ability to recruit, develop, motivate and retain superior management, programming and sales talent. Accordingly, we strive to establish a compelling corporate culture that is attractive to superior performers. We encourage our stations to build strong community bonds through local and company-wide community service programs, which facilitate strong local business relationships and provide employees with opportunities for enhanced job fulfillment. We offer competitive pay packages with performance-based incentives for our key employees. In addition, we provide employees with opportunities for personal growth and advancement through extensive training, seminars and other educational programs. OUR CORPORATE HISTORY Our Chairman of the Board and Chief Executive Officer, Joseph M. Field, founded Entercom in 1968 on the conviction that FM broadcasting, then in its infancy, would surpass AM broadcasting as the leading aural medium. In the mid-1980's, with FM at critical mass, we began a deliberate multi-year effort to enhance our operations at both the corporate and station levels by changing or adjusting program formats to appeal to mainstream audiences in order to compete for greater shares of audience and advertising dollars in our markets. With the advent of the duopoly rules in 1992, which permitted expansion of ownership in a market from one to two stations in each radio medium, we began to "double up" in our markets. Since the passage of the Telecommunications Act of 1996, which permitted ownership of up to eight radio stations in most major markets, we have pursued a creative acquisition and development strategy by which we have acquired multiple stations in markets where we identified opportunities to improve station operating performance and to develop market leading clusters. OUR STATION PORTFOLIO The following table sets forth selected information about our portfolio of radio stations: 2 6 1999 MARKET RANK

METRO RADIO YEAR MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT ------------------ ---------- ------- -------- ------ BOSTON, MA........... 8 8 WEEI-AM 1998 Sports Talk WVEI-AM(2) 1999 WRKO-AM 1998 Talk WAAF-FM 1999 Active Rock WQSX-FM 1999 Rhythmic AC SEATTLE, WA(3)....... 14 13 KBSG-AM/FM 1996 Oldies KIRO-AM 1997 News/Talk/Sports KQBZ-FM 1997 Talk KISW-FM 1997 Active Rock KMTT-FM 1973 Adult Rock KNWX-AM 1997 News/Business KNDD-FM 1996 Modern Rock PORTLAND, OR......... 25 22 KFXX-AM 1998 Sports Talk KSLM-AM(4) 1998 KGON-FM 1995 Classic Rock KKSN-AM 1995 Nostalgia KKSN-FM 1998 Oldies KNRK-FM 1995 Modern Rock KRSK-FM 1998 Hot Adult Contemporary SACRAMENTO, CA....... 29 27 KCTC-AM 1998 Nostalgia KRXQ-FM 1997 Active Rock KSEG-FM 1997 Classic Rock KSSJ-FM 1997 Smooth Jazz KDND-FM 1997 Contemporary Hit Radio KANSAS CITY, MO...... 30 30 KMBZ-AM 1997 News/Talk/Sports KUDL-FM 1998 Adult Contemporary KYYS-FM 1997 Album Oriented Rock WDAF-AM 1998 Country KXTR-AM 1999 Classical KQRC-FM 2000 Active Rock KCIY-FM 2000 Smooth Jazz KRBZ-FM 2000 Hot Adult Contemporary MILWAUKEE, WI ....... 31 34 WEMP-AM 1999 Religious WMYX-FM 1999 Adult Contemporary WXSS-FM 1999 Contemporary Hit Radio

AUDIENCE AUDIENCE SHARE RANK TARGET IN TARGET IN TARGET MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC ------------------ ----------- ----------- ----------- BOSTON, MA........... WEEI-AM Men 25-54 7.2 2 WVEI-AM(2) WRKO-AM Adults 25-54 2.5 16 WAAF-FM Men 18-34 11.7 4 WQSX-FM Women 25-54 4.9 5 SEATTLE, WA(3)....... KBSG-AM/FM Adults 25-54 5.6 3 KIRO-AM Men 25-54 8.3 1 KQBZ-FM Men 25-54 5.1 3 KISW-FM Men 25-54 4.7 5 KMTT-FM Adults 25-54 4.0 9 KNWX-AM Adults 35-64 1.1 22 KNDD-FM Men 18-34 10.4 1 PORTLAND, OR......... KFXX-AM Men 25-54 3.2 13 (tie) KSLM-AM(4) KGON-FM Men 25-54 7.9 2 KKSN-AM Adults 35-64 1.3 16 (tie) KKSN-FM Adults 25-54 6.2 4 (tie) KNRK-FM Men 18-34 7.8 4 KRSK-FM Women 18-34 8.0 4 SACRAMENTO, CA....... KCTC-AM Adults 35-64 2.2 14 KRXQ-FM Men 18-34 15.9 1 KSEG-FM Men 24-54 8.3 2 KSSJ-FM Adults 25-54 4.7 6 KDND-FM Women 18-34 8.8 2 KANSAS CITY, MO...... KMBZ-AM Men 25-54 7.2 4 KUDL-FM Women 25-54 7.9 2 (tie) KYYS-FM Men 25-54 6.9 5 WDAF-AM Adults 35-64 5.6 6 KXTR-AM Adults 25-54 0.8 20 KQRC-FM Men 18-34 20.1 1 KCIY-FM Adults 25-54 4.7 13 KRBZ-FM Women 18-34 10.8 2 (tie) MILWAUKEE, WI ....... WEMP-AM Adults 35-64 nmf nmf WMYX-FM Women 25-54 8.8 1 (tie) WXSS-FM Women 18-34 14.2 2

3 7 1999 MARKET RANK

METRO RADIO YEAR MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT ------------------ ---------- ------- -------- ------ NORFOLK, VA.......... 36 42 WPTE-FM 1999 Modern Adult Contemporary WWDE-FM 1999 Adult Contemporary WVKL-FM 1999 Urban Adult Contemporary WNVZ-FM 1999 Contemporary Hit Radio NEW ORLEANS, LA...... 44 39 WSMB-AM 1999 Talk/Sports WWL-AM 1999 News/Talk/Sports WEZB-FM 1999 Contemporary Hit Radio WLMG-FM 1999 Soft Adult Contemporary WKZN-FM 1999 Hot Adult Contemporary WTKL-FM 1999 Oldies GREENSBORO, NC....... 42 50 WMQX-FM 1999 Oldies WJMH-FM 1999 Urban Contemporary WEAL-AM 1999 Gospel WQMG-FM 1999 Urban Adult Contemporary BUFFALO, NY.......... 45 43 WBEN-AM 1999 News/Talk WTSS-FM 1999 Adult Contemporary WWKB-AM 1999 Business News WKSE-FM 1999 Contemporary Hit Radio WGR-AM 1999 Sports WWWS-AM 1999 Urban Oldies MEMPHIS, TN.......... 46 40 WMBZ-FM 1999 Modern Adult Contemporary WJCE-AM 1999 Adult Standards WRVR-FM 1999 Adult Contemporary ROCHESTER, NY........ 52 54 WBZA-FM 1998 80's - based Adult Contemporary WBEE-FM 1998 Country WBBF-AM/FM 1998 Oldies

AUDIENCE AUDIENCE SHARE RANK TARGET IN TARGET IN TARGET MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC ------------------ ----------- ----------- ----------- NORFOLK, VA.......... WPTE-FM Adults 18-34 7.0 4 WWDE-FM Women 25-54 11.1 1 WVKL-FM Women 25-54 nmf(7) nmf(7) WNVZ-FM Women 18-34 11.3 2 NEW ORLEANS, LA...... WSMB-AM Men 25-54 2.3 13 WWL-AM Men 25-54 11.7 1 WEZB-FM Women 18-34 7.6 4 WLMG-FM Women 25-54 9.9 2 WKZN-FM Women 18-49 7.3 4 WTKL-FM Adults 25-54 6.3 5 (tie) GREENSBORO, NC....... WMQX-FM Adults 25-54 6.2 7 WJMH-FM Adults 18-34 17.0 1 WEAL-AM Adults 35-64 1.2 14 (tie) WQMG-FM Adults 25-54 9.0 1 BUFFALO, NY.......... WBEN-AM Men 25-54 6.7 4 WTSS-FM Women 25-54 11.5 2 WWKB-AM Adults 35-64 0.4 20 WKSE-FM Women 18-34 18.6 1 WGR-AM Men 25-54 5.8 5 (tie) WWWS-AM Adults 25-54 1.8 13 MEMPHIS, TN.......... WMBZ-FM Women 18-34 nmf(7) nmf(7) WJCE-AM Adults 25-54 0.8 20 (tie) WRVR-FM Women 25-54 9.2 2 (tie) ROCHESTER, NY........ WBZA-FM Women 25-54 nmf(7) nmf(7) WBEE-FM Adults 25-54 9.2 3 WBBF-AM/FM Adults 25-54 4.2 9

4 8 1999 MARKET RANK

METRO RADIO YEAR MARKET (1)/STATION POPULATION REVENUE ACQUIRED FORMAT ------------------ ---------- ------- -------- ------ GREENVILLE/ SPARTANBURG, SC....... 58 58 WFBC-FM 1999 Contemporary Hit Radio WSPA-FM 1999 Soft Adult Contemporary WYRD-AM(5) 1999 News/Talk WORD-AM(5) 1999 WSPA-AM 1999 Full Service/ Talk WOLI-FM(5) 1999 80's - based Adult WOLT-FM(5) 1999 Contemporary WILKES-BARRE /SCRANTON, PA......... 64 69 WGBI-AM(6) 1999 News/Talk/Sports WOGY-AM(6) 1999 WILK-AM(6) 1999 WGGI-FM(6) 1999 Country WGGY-FM(6) 1999 WKRZ-FM(6) 1999 Contemporary Hit Radio WKRF-FM(6) 2000 WSHG-FM(6) 1999 80's - based Adult WWFH-FM(6) 1999 Contemporary WICHITA, KS........... 84 68 KEYN-FM 2000 Oldies KFBZ-FM 2000 80's - based Adult Contemporary KQAM-AM 2000 Sports KFH-AM 2000 Talk KNSS-AM 2000 News KDGS-FM 2000 Rhythmic CHR KWSJ-FM 2000 Smooth Jazz GAINESVILLE/OCALA, FL. 90 127 WKTK-FM 1986 Adult Contemporary WSKY-FM 1998 News/Talk MADISON, WI........... 120 71 WOLX-FM 2000 Oldies WMMM-FM 2000 Adult Alternative WBZU-FM 2000 80's - based Adult Contemporary LONGVIEW/KELSO, OR.... n/a n/a KBAM-AM 1998 Country KEDO-AM 1997 Oldies KLYK-FM 1997 Adult Contemporary KRQT-FM 1998 Classic Rock

AUDIENCE AUDIENCE SHARE RANK TARGET IN TARGET IN TARGET MARKET (1)/STATION DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC ------------------ ----------- ----------- ----------- GREENVILLE/ SPARTANBURG, SC....... WFBC-FM Women 18-49 11.4 2 WSPA-FM Women 25-54 10.2 3 WYRD-AM(5) Adults 25-54 1.5 13 WORD-AM(5) WSPA-AM Adults 25-54 0.5 18 (tie) WOLI-FM(5) Women 25-54 nmf(7) nmf(7) WOLT-FM(5) WILKES-BARRE /SCRANTON, PA......... WGBI-AM(6) Adults 35-64 2.2 11 WOGY-AM(6) WILK-AM(6) WGGI-FM(6) Adults 25-54 9.4 4 WGGY-FM(6) WKRZ-FM(6) Adults 18-49 14.9 1 WKRF-FM(6) WSHG-FM(6) Women 25-54 nmf(7) nmf(7) WWFH-FM(6) WICHITA, KS........... KEYN-FM Adults 25-54 7.5 2 KFBZ-FM Women 25-54 nmf(7) nmf(7) KQAM-AM Men 25-54 3.6 13 (tie) KFH-AM Men 25-54 6.2 4 KNSS-AM Adults 25-54 3.9 11 (tie) KDGS-FM Adults 18-34 9.9 2 KWSJ-FM Women 25-54 2.4 14 GAINESVILLE/OCALA, FL. WKTK-FM Women 25-54 11.6 1 WSKY-FM Adults 25-54 5.9 4 (tie) MADISON, WI........... WOLX-FM Adults 25-54 5.8 5 (tie) WMMM-FM Adults 25-54 8.7 2 WBZU-FM Women 25-54 nmf(7) nmf(7) LONGVIEW/KELSO, OR.... KBAM-AM Adults 25-54 n/a n/a KEDO-AM Adults 25-54 n/a n/a KLYK-FM Women 25-54 n/a n/a KRQT-FM Men 25-54 n/a n/a

5 9 ------------------------ (1) Our stations are in some instances licensed to communities other than the named principal community for the market. (2) Station competes in the adjacent community of Worcester, Massachusetts and simulcasts virtually all of the programming of WEEI-AM. (3) We also sell substantially all of the advertising time of a sixth FM station in the Seattle market under a joint sales agreement. (4) KSLM-AM is licensed to Salem, Oregon, within the Portland market and simulcasts KFXX-AM programming. (5) WYRD-AM and WORD-AM simulcast their programming and WOLI-FM and WOLT-FM simulcast their programming. (6) WGBI-AM, WOGY-AM and WILK-AM simulcast their programming; WGGI-FM and WGGY-FM simulcast their programming; WWFH-FM and WSHG-FM simulcast their programming and WKRZ-FM and WKRF-FM simulcast their programming. (7) Ratings data not meaningful for Fall 2000 due to a recent change in format. COMPETITION; CHANGES IN BROADCASTING INDUSTRY The radio broadcasting industry is highly competitive. The success of each of our stations depends largely upon its audience ratings and its share of the overall advertising revenue within its market. Our stations compete for listeners and advertising revenue directly with other radio stations within their respective markets. Radio stations compete for listeners primarily on the basis of program content that appeals to a particular demographic group. By building a strong listener base consisting of a specific demographic group in each of our markets, we are able to attract advertisers seeking to reach those listeners. The following are some of the factors that are important to a radio station's competitive position: - management experience; - the station's local audience rank in its market; - transmitter power; - assigned frequency; - audience characteristics; - local program acceptance; and - the number and characteristics of other radio stations and other advertising media in the market area. In addition, we attempt to improve our competitive position with promotional campaigns aimed at the demographic groups targeted by our stations and by sales efforts designed to attract advertisers. Despite the competitiveness within the radio broadcasting industry, some barriers to entry exist. The operation of a radio broadcast station requires a license from the FCC. The number of radio stations that can operate in a given market is limited by strict AM interference criteria and the availability of FM radio frequencies allotted by the FCC to communities in that market. The number of stations that a single entity may operate in a market is further limited by the FCC's multiple ownership rules that regulate the number of stations serving the same area that may be owned or controlled by a single entity. However, changes in the Communications Act and the FCC's policies and rules permit increased ownership and operation of multiple local radio stations. Our stations compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media such as newspapers, magazines, over-the-air and cable television, outdoor advertising and direct mail. In addition, the radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced such as (1) satellite-delivered digital audio radio service, which could result in the near term introduction of new subscriber based satellite radio services with numerous niche formats; (2) audio programming by cable systems, direct broadcast satellite systems, Internet content providers, personal communications services and other digital audio broadcast formats; and (3) in-band on-channel digital radio, which 6 10 provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services. The FCC adopted a plan in 1999 for the establishment of "microbroadcasting" stations, low-powered FM stations that will be designed to serve small localized areas and that in some localized areas may cause interference with regular broadcasts by existing radio stations. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurances, however, that this historical growth will continue or that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcasting industry. The FCC has adopted licensing and operating rules for satellite delivered audio and in April 1997 awarded two licenses for this service. Satellite delivered audio may provide a medium for the delivery by satellite or supplemental terrestrial means of multiple new audio programming formats to local and/or national audiences. Digital technology also may be used in the future by terrestrial radio broadcast stations either on existing or alternate broadcasting frequencies, and the FCC has stated that it will consider making changes to its rules to permit AM and FM radio stations to offer digital sound following industry analysis of technical standards. In addition, the FCC has authorized an additional 100 kHz of bandwidth for the AM band and has allotted frequencies in this new band to certain existing AM station licensees that applied for migration to the expanded AM band, subject to the requirement that at the end of a transition period, those licensees return to the FCC either the license for their existing AM band station or the license for the expanded AM band station. We cannot predict what other matters might be considered in the future by the FCC, nor can we assess in advance what impact, if any, the implementation of any of these proposals or changes might have on our business. FEDERAL REGULATION OF RADIO BROADCASTING The radio broadcasting industry is subject to extensive and changing regulation of, among other things, program content, advertising content, technical operations and business and employment practices. The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC. Among other things, the FCC: - assigns frequency bands for broadcasting; - determines the particular frequencies, locations, operating power, and other technical parameters of stations; - issues, renews, revokes and modifies station licenses; - determines whether to approve changes in ownership or control of station licenses; - regulates equipment used by stations; and - adopts and implements regulations and policies that directly affect the ownership, operation and employment practices of stations. The FCC has the power to impose penalties for violations of its rules or the Communications Act, including the imposition of monetary forfeitures, the issuance of short-term licenses, the imposition of a condition on the renewal of a license, and the revocation of operating authority. The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. This summary is not a comprehensive listing of all of the regulations and policies affecting radio stations. For further information concerning the nature and extent of federal regulation of radio stations, you should refer to the Communications Act, FCC rules and FCC public notices and rulings. FCC LICENSES. Radio stations operate pursuant to renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. The FCC licenses for our stations are held by some of our subsidiaries. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. During the periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public and interest groups. The FCC is required to hold hearings on a station's renewal application if a substantial or material question of fact exists as to whether the station has served the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet certain requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, FCC licenses have generally been renewed. We have no reason to believe that our licenses will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of one or more of our licenses could have a material adverse effect on our business. 7 11 The FCC classifies each AM and FM station. An AM station operates on either a clear channel, regional channel or local channel. A clear channel is one on which AM stations are assigned to serve wide areas. Clear channel AM stations are classified as either: Class A stations, which operate on an unlimited time basis and are designed to render primary and secondary service over an extended area; Class B stations, which operate on an unlimited time basis and are designed to render service only over a primary service area; or Class D stations, which operate either during daytime hours only, during limited times only or on an unlimited time basis with low nighttime power. A regional channel is one on which Class B and Class D AM stations may operate and serve primarily a principal center of population and the rural areas contiguous to it. A local channel is one on which AM stations operate on an unlimited time basis and serve primarily a community and the suburban and rural areas immediately contiguous thereto. Class C AM stations operate on a local channel and are designed to render service only over a primary service area that may be reduced as a consequence of interference. The minimum and maximum facilities requirements for an FM station are determined by its class. FM class designations depend upon the geographic zone in which the transmitter of the FM station is located. In general, commercial FM stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1, CO and C. The FCC has recently adopted a new rule that subjects Class C FM stations that do not meet certain antenna-height parameters to an involuntary downgrade in class to Class CO under certain circumstances. The following table sets forth the market, call letters, FCC license classification, antenna height above average terrain ("HAAT"), power, frequency and FCC license expiration date of each of the stations that we own or operate.

EXPIRATION DATE FCC HAAT POWER IN OF MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE --------- ------------- ----- ----------- --------- ------------ ----------- Boston, MA...... WEEI-AM B * 850 kHz 50 April 1, 2006 WRKO-AM B * 680 kHz 50 April 1, 2006 WAAF-FM B 239 107.3 MHz 20 April 1, 2006 WQSX-FM B 179 93.7 MHz 34 April 1, 2006 WVEI-AM B * 1440 kHz 5 April 1, 2006 Seattle, WA..... KBSG-AM B * 1210 kHz 27.5-D February 1, 2006 10-N KBSG-FM C 729 97.3 MHz 55 February 1, 2006 KIRO-AM A * 710 kHz 50 February 1, 2006 KISW-FM C 714 99.9 MHz 58 February 1, 2006 KMTT-FM C 714 103.7 MHz 58 February 1, 2006 KQBZ-FM C 714 100.7 MHz 58 February 1, 2006 KNWX-AM B * 770 kHz 50-D February 1, 2006 5-N KNDD-FM C 714 107.7 MHz 58 February 1, 2006 Portland, OR.... KFXX-AM B * 910 kHz 5 February 1, 2006 KGON-FM C 386 92.3 MHz 100 February 1, 2006 KKSN-AM B * 1520 kHz 50-D February 1, 2006 15-N KKSN-FM C 386 97.1 MHz 100 February 1, 2006 KNRK-FM C2 259 94.7 MHz 17 February 1, 2006 KRSK-FM C 576 105.1 MHz 100 February 1, 2006 KSLM-AM B * 1390 kHz 5-D February 1, 2006 0.69-N Sacramento, CA.. KCTC-AM B * 1320 kHz 5 December 1, 2005 KRXQ-FM B 151 98.5 MHz 50 December 1, 2005 KSEG-FM B 152 96.9 MHz 50 December 1, 2005 KSSJ-FM B1 99 94.7 MHz 25 December 1, 2005 KDND-FM B 123 107.9 MHz 50 December 1, 2005 Kansas City, MO. KMBZ-AM B * 980 kHz 5 February 1, 2005 KUDL-FM C 303 98.1 MHz 100 June 1, 2005 KYYS-FM C 308 99.7 MHz 100 February 1, 2005 WDAF-AM B * 610 kHz 5 February 1, 2005 KXTR-AM(3) B * 1250 kHz 25-D June 1, 2005 3.7-N KQRC-FM C 322 98.9 MHz 100 February 1, 2005 KCIY-FM C1 299 106.5 MHz 100 February 1, 2005 KRBZ-FM C 300 96.5 MHz 100 February 1, 2005

8 12

EXPIRATION DATE FCC HAAT POWER IN OF MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE --------- ------------- ----- ----------- --------- ------------ ----------- Milwaukee, WI... WEMP-AM B * 1250 kHz 5 December 1, 2003 WMYX-FM B 137 99.1 MHz 50 December 1, 2003 WXSS-FM B 257 103.7 MHz 19.5 December 1, 2003 Norfolk, VA..... WPTE-FM B 152 94..9 MHz 50 October 1, 2003 WWDE-FM B 152 101.3 MHz 50 October 1, 2003 WVKL-FM B 268 95.7 MHz 40 October 1, 2003 WNVZ-FM B 146 104.5 MHz 50 October 1, 2003 New Orleans, LA. WSMB-AM B * 1350 kHz 5 June 1, 2004 WWL-AM A * 870 kHz 50 June 1, 2004 WEZB-FM C 300 97.1 MHz 100 June 1, 2004 WLMG-FM C 300 101.9 MHz 100 June 1, 2004 WKZN-FM C1 275 105.3 MHz 100 June 1, 2004 WTKL-FM C 300 95.7 MHz 100 June 1, 2004 Greensboro, NC.. WMQX-FM C 335 93.1 MHz 100 December 1, 2003 WJMH-FM C 367 102.1 MHz 100 December 1, 2003 WEAL-AM D * 1500 kHz 1-D December 1, 2003 WQMG-FM C 375 97.1 MHz 100 December 1, 2003 Buffalo, NY..... WBEN-AM B * 930 kHz 5 June 1, 2006 WTSS-FM B 408 102.5 MHz 110 June 1, 2006 WWKB-AM A * 1520 kHz 50 June 1, 2006 WKSE-FM B 128 98.8 MHz 46 June 1, 2006 WGR-AM B * 550 kHz 5 June 1, 2006 WWWS-AM C * 1400 kHz 1 June 1, 2006 Memphis, TN..... WMBZ-FM C2 144 94.1 MHz 50 August 1, 2004 WJCE-AM B * 680 kHz 10-D August 1, 2004 5-N WRVR-FM C1 229 104.5 MHz 100 August 1, 2004 Rochester, NY... WBZA-FM B 172 98.9 MHz 37 June 1, 2006 WBEE-FM B 152 92.5 MHz 50 June 1, 2006 WBBF-AM B * 950 kHz 1 June 1, 2006 WBBF-FM A 119 93.3 MHz 4 June 1, 2006 Greenville/ Spartanburg, SC WFBC-FM C 564 93.7 MHz 100 December 1, 2003 WSPA-FM C 580 98.9 MHz 100 December 1, 2003 WYRD-AM B 184 1330 kHz 5 December 1, 2003 WORD-AM B * 910 kHz 3.6-D December 1, 2003 0.89-N WSPA-AM B * 950 kHz 5 December 1, 2003 WOLI-FM A 100 103.9 MHz 6 December 1, 2003 WOLT-FM A 151 103.3 MHz 2.7 December 1, 2003 Wilkes-Barre/ Scranton, PA.. WGBI-AM B * 910 kHz 1-D August 1, 2006 0.5-N WOGY-AM B * 1300 kHz 5-D August 1, 2006 0.5-N WILK-AM B * 980 kHz 5-D August 1, 2006 1-N WGGI-FM A 100 95.9 MHz 6 August 1, 2006 WGGY-FM B 338 101.3 MHz 7 August 1, 2006 WKRZ-FM B 357 98.5 MHz 8.7 August 1, 2006 WKRF-FM A 267 107.9 MHz 0.84 August 1, 2006 WSHG-FM A 22 102.3 MHz 5.8 August 1, 2006 WWFH-FM A 207 103.1 MHz 0.73 August 1, 2006 Wichita, KS..... KEYN-FM C1 262 103.7 MHz 100 June 1, 2005 KFBZ-FM C 301 105.3 MHz 100 June 1, 2005 KQAM-AM B * 1480 kHz 5-D June 1, 2005 1-N KFH-AM B * 1330 kHz 5-D June 1, 2005 5-N KNSS-AM C * 1240 kHz 0.63 June 1, 2005 KDGS-FM C3 100 93.9 MHz 25 June 1, 2005 KWSJ-FM C2 150 98.7 MHz 50 June 1, 2005

9 13

EXPIRATION DATE FCC HAAT POWER IN OF MARKET(1) STATION CLASS (IN METERS) FREQUENCY KILOWATTS(2) FCC LICENSE --------- ------------- ----- ----------- --------- ------------ ----------- Gainesville/ Ocala, FL..... WKTK-FM C1 299 98.5 MHz 100 February 1, 2004 WSKY-FM C2 289 97.3 MHz 13.5 February 1, 2004 Madison, WI..... WOLX-FM B 396 94.9 MHz 37 December 1, 2004 WMMM-FM A 175 105.5 MHz 2 December 1, 2004 WBZU-FM A 74 105.1 MHz 6 December 1, 2004 Longview/Kelso, WA............ KBAM-AM D * 1270 kHz 5-D February 1, 2006 0.083-N KEDO-AM C * 1400 kHz 1 February 1, 2006 KLYK-FM A 262 105.5 MHz 0.7 February 1, 2006 KRQT-FM C3 528 107.1 MHz 0.74 February 1, 2006

* Not applicable for AM transmission facilities. (1) Metropolitan market served; city of license may differ. (2) Pursuant to FCC rules and regulations, many AM radio stations are licensed to operate at a reduced power during the nighttime broadcasting hours, which results in reducing the radio station's coverage during the nighttime hours of operation. Both power ratings are shown, where applicable. For FM stations, the maximum effective radiated power in the main lobe is given. (3) KXTR-AM also has a construction permit to broadcast with call letters KWSJ-AM at 1660 kHz in the expanded AM band with 10 kw-D and 1 kw-N. The FCC rules require that at the end of a five year transition period we must elect to operate on either the 1250 kHz frequency or the 1660 kHz frequency and surrender the other frequency to the FCC. TRANSFERS OR ASSIGNMENT OF LICENSES. The Communications Act prohibits the assignment of broadcast licenses or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee (and proposed licensee), including: - compliance with the various rules limiting common ownership of media properties in a given market; - the "character" of the licensee and those persons holding "attributable" interests in the licensee; and - compliance with the Communications Act's limitations on alien ownership as well as compliance with other FCC regulations and policies. To obtain FCC consent to assign or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a "substantial change" in ownership or control, the application must be placed on public notice for not less than 30 days during which time petitions to deny or other objections against the application may be filed by interested parties, including members of the public. Informal objections to assignment and transfer of control applications may be filed any time up until the FCC acts on the application. If the application does not involve a "substantial change" in ownership or control, it is a "pro forma" application. The "pro forma" application is nevertheless subject to having informal objections filed against it. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer of the broadcast license to any party other than the assignee or transferee specified in the application. If the FCC grants an assignment or transfer application, interested parties have 30 days from public notice of the grant to seek reconsideration of that grant. The FCC usually has an additional ten days to set aside the grant on its own motion. MULTIPLE OWNERSHIP RULES. The Communications Act and FCC rules impose specific limits on the number of commercial radio stations an entity can own in a single market. These rules may preclude us from acquiring certain stations we might otherwise seek to acquire. The rules also effectively prevent us from selling stations in a market to a buyer that has reached its ownership limit in the market. The local radio ownership rules are as follows: 10 14 - in markets with 45 or more commercial radio stations, ownership is limited to eight commercial stations, no more than five of which can be either AM or FM; - in markets with 30 to 44 commercial radio stations, ownership is limited to seven commercial stations, no more than four of which can be either AM or FM; - in markets with 15 to 29 commercial radio stations, ownership is limited to six commercial stations, no more than four of which can be either AM or FM; and - in markets with 14 or fewer commercial radio stations, ownership is limited to five commercial stations or no more than 50% of the market's total, whichever is lower, and no more than three of which can be either AM or FM. The FCC is also reportedly considering proposing a policy that would give special review to a proposed transaction if it would enable a single owner to attain a high degree of revenue concentration in a market. In connection with this, the FCC has invited comment on the impact of concentration in public notices concerning proposed transactions, and has delayed or refused its consent in some cases because of revenue concentrations. The FCC has revised its radio/television cross-ownership rule to allow for greater common ownership of television and radio stations. The revised radio/television cross-ownership rule permits a single owner to own up to two television stations, consistent with the FCC's rules on common ownership of television stations, together with one radio station in all markets. In addition, an owner will be permitted to own additional radio stations, not to exceed the local ownership limits for the market, as follows: - in markets where 20 media voices will remain after the consummation of the proposed transaction, an owner may own an additional 5 radio stations, or, if the owner only has one television station, an additional 6 radio stations; and - in markets where 10 media voices will remain after the consummation of the proposed transaction, an owner may own an additional 3 radio stations. A "media voice" includes each independently-owned, full power television and radio station and each daily newspaper, plus one voice for all cable television systems operating in the market. In addition to the limits on the number of radio stations that a single owner may own, the FCC's broadcast/newspaper cross-ownership rule prohibits the same owner from owning a broadcast station and a daily newspaper in the same geographic market. The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations directly or indirectly controlling broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's voting stock are generally attributable. In addition, certain passive investors are attributable if they hold 20% or more of the corporation's voting stock. The FCC recently revoked a rule that formerly provided that interests of minority shareholders in a corporation were not attributable if a single entity or individual held 50% or more of that corporation's voting stock. In revoking the rule, the FCC has, however, grandfathered as non-attributable those minority stock interests that were held as of the date of the FCC's order. The FCC has adopted a rule, known as the equity-debt-plus or EDP rule that causes certain creditors or investors to be attributable owners of a station, regardless of whether there is a single majority shareholder. Under this rule, a major programming supplier or a same-market owner will be an attributable owner of a station if the supplier or owner holds debt or equity, or both, in the station that is greater than 33% of the value of the station's total debt plus equity. A major programming supplier includes any programming supplier that provides more than 15% of the station's weekly programming hours. A same-market owner includes any attributable owner of a media company, including broadcast stations, cable television and newspapers, located in the same market as the station, but only if the owner is attributable under an FCC attribution rule other than the EDP rule. The attribution rules limit the number of radio stations we may acquire or own in any market. ALIEN OWNERSHIP RULES. The Communications Act prohibits the issuance or holding of broadcast licenses by aliens, including any corporation if more than 20% of its capital stock is owned or voted by aliens. In addition, the FCC may prohibit any corporation from holding a broadcast license if the corporation is directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by aliens, if the FCC finds that the prohibition is in the public interest. These restrictions apply in modified form to other forms of business organizations, including partnerships and LLCs. Our articles of incorporation prohibit the ownership, voting and transfer of our capital stock in violation of the FCC restrictions, and prohibit the issuance of capital stock or the voting rights such capital stock represents to or for the account of aliens or corporations otherwise subject to domination or control by aliens in excess of the FCC limits. The articles of incorporation authorize our board of directors to enforce these prohibitions. In addition, the articles of incorporation provide that shares of our capital stock determined by our board of directors to be owned beneficially by an 11 15 alien or an entity directly or indirectly owned by aliens in whole or in part shall be subject to redemption by us by action of the board of directors to the extent necessary, in the judgment of the board of directors, to comply with these alien ownership restrictions. TIME BROKERAGE AGREEMENTS. Over the past few years, a number of radio stations have entered into what have commonly been referred to as time brokerage agreements. While these agreements may take varying forms, under a typical time brokerage agreement, separately owned and licensed radio stations agree to enter into cooperative arrangements of varying types, subject to compliance with the requirements of antitrust laws and with FCC's rules and policies. Under these arrangements, separately-owned stations could agree to function cooperatively in programming, advertising sales and similar matters, subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station. One typical type of time brokerage agreement is a programming agreement between two separately-owned radio stations serving a common service area, whereby the licensee of one station provides substantial portions of the broadcast programming for airing on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during those program segments. The FCC's rules provide that a radio station that brokers more than 15% of the weekly broadcast time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of FCC's multiple ownership limits. As a result, in a market where we own a radio station, we would not be permitted to enter into a time brokerage agreement with another radio station in the same market if we could not own the brokered station under the multiple ownership rules, unless our programming on the brokered station constituted 15% or less of the brokered station's programming time on a weekly basis. FCC rules also prohibit a broadcast station from duplicating more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) through a time brokerage agreement where the brokered and brokering stations which it owns or programs serve substantially the same area. PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the "public interest." The FCC gradually has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. A licensee continues to be required, however, to present programming that is responsive to issues of the station's community of license and to maintain records demonstrating this responsiveness. Complaints from listeners concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although listener complaints may be filed at any time, are required to be maintained in the station's public file and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on human exposure to radio frequency radiation. The FCC restricts the broadcast of indecent programming and prohibits the broadcast of obscene programming. On January 20, 2000, the FCC adopted new rules prohibiting employment discrimination by broadcast stations on the basis of race, religion, color, national origin, and gender; and requiring broadcasters to implement programs to promote equal employment opportunities at their stations. The rules generally require broadcast stations to disseminate information about job openings widely so that all qualified applicants, including minorities and women, have an adequate opportunity to compete for the job. Broadcasters may fulfill this requirement by sending the station's job vacancy information to organizations that request it, participating in community outreach programs, or designing an alternative recruitment program. Broadcasters with five or more full-time employees must place in their public files annually a report detailing their recruitment efforts and must file a statement with the FCC certifying compliance with the rules every two years. Broadcasters with ten or more full-time employees must file their annual reports with the FCC midway through their license term. Broadcasters also must file employment information with the FCC annually for statistical purposes. The FCC recently suspended the effectiveness of its EEO rules in response to a January 16, 2001 decision of the Court of Appeals for the District of Columbia district that vacated the FCC rules. The FCC recently issued a decision holding that a broadcast station may not deny a candidate for federal political office a request for broadcast advertising time solely on the grounds that the amount of time requested is not the standard length of time which the station offers to its commercial advertisers. This decision is currently being reconsidered by the FCC. The effect that this FCC decision will have on our programming and commercial advertising is uncertain. We employ a number of on-air personalities and generally enter into employment agreements with these personalities to protect our interests in those relationships that we believe to be valuable. The loss of some of these personalities could result in a short-term loss of audience share, but we do not believe that the loss would have a material adverse effect on our business. PROPOSED AND RECENT CHANGES. Congress and the FCC may in the future consider and adopt new laws, regulations and policies regarding a wide variety of matters that could (1) affect, directly or indirectly, the operation, ownership and profitability of our radio stations, (2) result in the loss of audience share and advertising revenues for our radio stations, and (3) affect our ability to acquire additional radio stations or to finance those acquisitions. Such matters may include: - regulatory fees, spectrum use fees, or other fees on FCC licenses; 12 16 - foreign ownership of broadcast licenses; - restatement in revised form of FCC's equal employment opportunity rules and revisions to the FCC's rules relating to political broadcasting, including free air time to candidates; - technical and frequency allocation matters; - proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; and - changes in the FCC's cross-interest, multiple ownership and attribution policies, including the definition of the local market for multiple ownership purposes. The FCC currently is considering standards for evaluating, authorizing, and implementing terrestrial digital audio broadcasting technology, including In-Band On-Channel(TM) technology for FM radio stations. The advantages of digital audio broadcasting over traditional analog broadcasting technology include improved sound quality and the ability to offer a greater variety of auxiliary services. In-Band On-Channel(TM) technology would permit an FM station to transmit radio programming in both analog and digital formats, or in digital only formats, using the bandwidth that the radio station is currently licensed to use. It is unclear what regulations the FCC will adopt regarding digital audio broadcasting or In-Band On-Channel(TM) technology and what effect such regulations would have on our business or the operations of our radio stations. On January 20, 2000, the FCC voted to adopt rules creating a new low power FM radio service. The new low power stations will operate at a maximum power of between 10 and 100 watts in the existing FM commercial and non-commercial band. Low power stations may be used by governmental and non-profit organizations to provide noncommercial educational programming or public safety and transportation radio services. No existing broadcaster or other media entity, including us, will be permitted to have an ownership interest or enter into any program or operating agreement with any low power FM station. During the first two years of the new service, applicants must be based in the area that they propose to serve. Applicants will not be permitted to own more than one station nationwide during the initial two year period. After the initial two year period, entities will be allowed to own up to five stations nationwide, and after three years, the limit will be raised to ten stations nationwide. A single person or entity may not own two low power stations whose transmitters are less than seven miles from each other. The authorizations for the new stations will not be transferable. The FCC has begun to accept applications for new low power FM stations. At this time it is difficult to assess the competitive impact of these new stations. Although the new low power stations must comply with certain technical requirements aimed at protecting existing FM radio stations from interference, we cannot be certain of the level of interference that low power stations will cause after they begin operating. Moreover, if low power FM stations are licensed in the markets in which we operate, the low power stations may compete for listeners and advertisers. The low power stations may also limit our ability to obtain new licenses or to modify our existing facilities, or cause interference to areas of existing service that are not protected by the FCC's rules, any of which may have a material adverse affect on our business. Finally, the FCC has adopted procedures for the auction of broadcast spectrum in circumstances where two or more parties have filed for new or major change applications which are mutually exclusive. Such procedures may limit our efforts to modify or expand the broadcast signals of our stations. We cannot predict what other matters might be considered in the future by the FCC or Congress, nor can we judge in advance what impact, if any, the implementation of any of these proposals or changes might have on our business. FEDERAL ANTITRUST LAWS. The agencies responsible for enforcing the federal antitrust laws, the Federal Trade Commission or the Department of Justice, may investigate certain acquisitions. We cannot predict the outcome of any specific Department of Justice or Federal Trade Commission investigation. Any decision by the Federal Trade Commission or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms. For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino Act requires the parties to file Notification and Report Forms with the Federal Trade Commission and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition. If the investigating agency raises substantive issues in connection with a proposed transaction, then the parties frequently engage in lengthy discussions or negotiations with the investigating agency concerning possible means of addressing those issues, including restructuring the proposed acquisition or divesting assets. In addition, the investigating agency could file suit in federal court to enjoin the acquisition or to require the divestiture of assets, among other remedies. Acquisitions that are not required to be reported under the Hart-Scott-Rodino Act may be investigated by the Federal Trade Commission or the Department of Justice under the antitrust laws before or after consummation. In addition, private parties may under certain circumstances bring legal action to challenge an acquisition under the antitrust laws. 13 17 As part of its increased scrutiny of radio station acquisitions, the Department of Justice has stated publicly that it believes that local marketing agreements, joint sales agreements, time brokerage agreements and other similar agreements customarily entered into in connection with radio station transfers could violate the Hart-Scott-Rodino Act if such agreements take effect prior to the expiration of the waiting period under the Hart-Scott-Rodino Act. Furthermore, the Department of Justice has noted that joint sales agreements may raise antitrust concerns under Section 1 of the Sherman Act and has challenged joint sales agreements in certain locations. The Department of Justice also has stated publicly that it has established certain revenue and audience share concentration benchmarks with respect to radio station acquisitions, above which a transaction may receive additional antitrust scrutiny. However, to date, the Department of Justice has also investigated transactions that do not meet or exceed these benchmarks, and has cleared transactions that do exceed these benchmarks. EMPLOYEES On February 28, 2001, we had a staff of 1541 full-time employees and 610 part-time employees. We are a party to collective bargaining agreements with the American Federation of Television and Radio Artists (AFTRA), which apply to some of our programming personnel, and we are a party to a collective bargaining agreement with the International Brotherhood of Electrical Workers (IBEW), which applies to some of our engineering personnel. The Seattle AFTRA collective bargaining agreement will expire January 31, 2002. The Kansas City AFTRA collective bargaining agreement will expire on September 29, 2001 and our Boston AFTRA collective bargaining agreement, as extended, expired on September 14, 1999. We are currently renegotiating this agreement and cannot predict the outcome of this negotiation. The Boston IBEW collective bargaining agreement expires April 30, 2001. We believe that our relations with our employees are good. ENVIRONMENTAL As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds. SEASONALITY Seasonal revenue fluctuations are common in the radio broadcasting industry and are due primarily to fluctuations in advertising expenditures by retailers. Our revenues and broadcast cash flows are typically lowest in the first calendar quarter. ITEM 2. PROPERTIES AND FACILITIES The types of properties required to support each of our radio stations include offices, studios and transmitter/antenna sites. We typically lease our studio and office space with lease terms that expire in five to ten years, although we do own some of our facilities. A station's studios are generally housed with its offices in downtown or business districts. We generally consider our facilities to be suitable and of adequate size for our current and intended purposes. We own many of our main transmitter and antenna sites and lease the remainder of our transmitter/antenna sites with lease terms that expire, including renewal options, in periods generally ranging up to twenty years. The transmitter/antenna site for each station is generally located so as to provide maximum market coverage, consistent with the station's FCC license. In general, we do not anticipate difficulties in renewing facility or transmitter/antenna site leases or in leasing additional space or sites if required. We own substantially all of our other equipment, consisting principally of transmitting antennae, transmitters, studio equipment and general office equipment. The towers, antennae and other transmission equipment used by our stations are generally in good condition, although opportunities to upgrade facilities are continuously reviewed. Substantially all of the property that we own secures our borrowings under our credit facility. ITEM 3. LEGAL PROCEEDINGS We currently and from time to time are involved in litigation incidental to the conduct of our business, but we are not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us. We 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, subject to approval by the FCC, for a purchase price of $25.0 million. Notwithstanding our efforts to pursue this transaction, the seller was nonresponsive. On July 28, 1999, we commenced a legal action seeking to enforce this agreement, and subsequently the seller filed a cross-complaint against us asking for damages, an injunction and costs and filed a separate action against our president. This separate action against our president was dismissed without leave to amend in February 2000. We are pursuing our legal action against the seller and seeking dismissal of the cross-complaint. We estimate that the impact of an unfavorable outcome will not materially impact our financial position, results of operations or cash flows. We cannot determine if and when the transaction might occur. 14 18 In October 1999, The Radio Music License Committee, of which we are a participant, filed a motion in the New York courts against Broadcast Music, Inc. commencing a rate-making proceeding, on behalf of the radio industry, seeking a determination of fair and reasonable industry-wide license fees. We are currently operating under interim license agreements for the period commencing January 1, 1997 at the rates and terms reflected in prior agreements. We estimate that the impact of an unfavorable outcome of the motion will not materially impact our financial position, results of operations or cash flows. In December 2000, the U.S. Copyright Office, under the Digital Millennium Copyright Act, issued a final rule which provides 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. This would result in the imposition of license fees for Internet streaming and other digital media. As a result of this decision, we must now participate in an arbitration proceeding at the U.S. Copyright Office to determine the amount of the fees that are due from the use of sound recordings in Internet streaming. We, along with other broadcasters and the National Association of Broadcasters, previously commenced a legal action in New York challenging the imposition of these license fees. In addition, we, along with other radio broadcasters, have commenced a legal action seeking declaratory relief as to the impact of the final rule of the Copyright Office. We intend to pursue these actions. However, we cannot determine the likelihood of success. We estimate that the impact of an unfavorable determination will not materially impact our financial position, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2000. 15 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS PRICE RANGE OF OUR CLASS A COMMON STOCK Our Class A common stock is listed on The New York Stock Exchange under the symbol "ETM." The table below shows, for the quarters indicated, the reported high and low trading prices of our Class A common stock on The New York Stock Exchange.

PRICE RANGE HIGH LOW Calendar Year 1999 First Quarter (beginning January 29)....... $35.38 $28.31 Second Quarter............................. 42.75 31.75 Third Quarter.............................. 41.94 35.00 Fourth Quarter............................. 67.75 35.13 Calendar Year 2000 First Quarter.............................. 68.69 38.13 Second Quarter............................. 50.75 35.81 Third Quarter.............................. 50.56 25.31 Fourth Quarter............................. 39.81 25.31 Calendar Year 2001 First Quarter (through March 14)........... 50.50 32.75

The initial public offering of our Class A common stock was priced on January 28, 1999 at a price of $22.50 per share. As of March 14, 2001, there were approximately 69 shareholders of record of our Class A common stock, $.01 par value. This number does not include the number of shareholders whose shares are held of record by a broker or clearing agency but does include each such brokerage house or clearing agency as one record holder. Based upon available information, we believe we have approximately 6,000 beneficial owners of our Class A common stock. There are 3 shareholders of record of our Class B common stock, $.01 par value, and 1 shareholder of record of our Class C common stock, $.01 par value. Since becoming a public company in January 1999, we have not declared any dividends on our common stock. We have no plans to declare or pay cash dividends in the foreseeable future because we intend to retain our earnings, if any, to finance the expansion of our business and for general corporate purposes. Any payment of future dividends will be at the discretion of the board of directors and will depend upon, among other factors, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions, including the provisions of our credit facility and provisions applicable to the 6.25% Convertible Preferred Securities Term Income Deferrable Equity Securities (TIDES) of our subsidiary trust, and other considerations that the board of directors deems relevant. On February 3, 1999, we sold 11,300,000 shares of our Class A common stock and one of our shareholders sold 2,327,500 shares of our Class A common stock in our initial public offering pursuant to a Registration Statement on Form S-1 (Registration No. 333-61381), which was declared effective by the Securities and Exchange Commission on January 28, 1999. Credit Suisse First Boston Corporation was the managing underwriter. The net proceeds to us were approximately $236.2 million, all of which we used to reduce outstanding indebtedness under our credit facility and to pay other corporate obligations. On October 6, 1999, we sold 8,000,000 shares of our Class A Common Stock and some of our shareholders sold an aggregate of 750,000 shares of our Class A common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-86397), which was declared effective by the Commission on September 30, 1999. Credit Suisse First Boston Corporation was the managing underwriter. The net proceeds to us were approximately $276.1 million, all of which was used to reduce outstanding debt and to fund the Sinclair acquisition. On October 6, 1999, we sold $125.0 million in aggregate principal amount of TIDES pursuant to a Registration Statement on Form S-1 (Registration No. 333-86843), which was declared effective by the Commission on September 30, 1999. Credit Suisse First Boston Corporation was the managing underwriter. The net proceeds to us were approximately $120.5 million, all of which was used to reduce outstanding debt and to fund the Sinclair acquisition. RECENT SALES OF UNREGISTERED SECURITIES 16 20 In January 1999, we effected a 185 for one stock split of our outstanding shares of voting and non-voting common stock. Each share of prior common stock held by Joseph M. Field, our Chairman of the Board and Chief Executive Officer, and David J. Field, our President and Chief Operating Officer, was exchanged for one share of Class B common stock and each share of prior common stock held by all other shareholders was exchanged for one share of Class A common stock. On January 28, 1999, we converted a 7% Subordinated Convertible Note due 2003 in the principal amount of $25.0 million held by Chase Equity Associates, L.P., an affiliate of Chase Capital Partners, into 2,327,500 shares of Class A common stock and 1,995,669 shares of Class C common stock. Both transactions were intended to be exempt from the registration requirements of the Securities Act by virtue of Section 3(a)(9) thereof. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - Historically, we operated with an October 1st to September 30th fiscal year. Effective January 1, 1999, we changed for financial reporting purposes from a fiscal year ending September 30th to a fiscal year ending December 31st. Accordingly, the selected historical financial data includes information as of and for the three-month transition period ended December 31, 1998, and, for comparison purposes, the three months ended December 31, 1997 and the twelve months ended December 31, 1998. - Immediately prior to our initial public offering in January 1999, Chase Capital converted a 7% Subordinated Convertible Note due 2003 in the principal amount of $25 million into 2,327,500 shares of our Class A common stock and 1,995,669 shares of our Class C common stock. The Chase Capital convertible subordinated note has been retired and we have no further obligation with respect to the note. - Before completing our initial public offering, we were an S corporation, and accordingly, we were not liable for federal and certain state corporate income taxes. Instead, our shareholders included our taxable income or loss in their federal and those state income tax returns. Immediately before our initial public offering, we became a C corporation, and accordingly, we are now subject to federal and state corporate income taxes. The pro forma amounts shown in the table reflect provisions for state and federal income taxes, applied to income before income taxes and extraordinary item and the effect of the adjustment to reflect indexing of the Chase Capital convertible subordinated note (the amount of this adjustment is not tax deductible), as if we had been taxed as a C corporation. - As a result of our becoming a C corporation immediately prior to our initial public offering, generally accepted accounting principles required us to provide for deferred income taxes of $79.8 million to reflect the cumulative temporary differences between book and income tax bases of our assets and liabilities. - For purposes of our historical financial statements, the term "pro forma" refers solely to the adjustments necessary to reflect our status as if we were a C corporation rather than an S corporation as of the beginning of the periods presented. - All per share data gives effect to our recapitalization, which we consummated immediately prior to our initial public offering. In the recapitalization, we effected a 185 for one stock split and the exchange of our prior common stock for Class A common stock and Class B common stock. - Broadcast cash flow consists of operating income before depreciation and amortization, net expense (income) from time brokerage agreement fees, corporate general and administrative expenses, and gains on sale of assets. - Broadcast cash flow margin represents broadcast cash flow as a percentage of net revenue. - EBITDA before net expense (income) from time brokerage agreement fees consists of operating income plus depreciation and amortization, non-cash compensation expense (which is otherwise included in corporate general and administrative expenses), net expense (income) from time brokerage agreement fees and the elimination of gains and losses on sale of assets. - After tax cash flow consists of income (loss) before extraordinary item, plus the following: depreciation and amortization, non-cash compensation expense (which is otherwise included in corporate general and administrative expense), deferred tax provision, the elimination of any gains or losses on sale of assets, investments and derivative instruments (net of current tax) and the elimination of any adjustments to reflect the indexing of the convertible subordinated note. Pro forma after tax cash 17 21 flow consists of pro forma income (loss) before extraordinary item, to reflect taxes as if we were a C corporation during the periods presented. - The data is presented in thousands, other than earnings per share. Although broadcast cash flow, EBITDA before net expense (income) from time brokerage agreement fees and after tax cash flow are not measures of performance or liquidity calculated in accordance with generally accepted accounting principles, we believe that these measures are useful to an investor in evaluating our performance because they are widely used in the broadcast industry to measure a radio company's operating performance. However, you should not consider broadcast cash flow, EBITDA before net expense (income) from time brokerage agreement fees and after tax cash flow in isolation or as substitutes for operating income, cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. In addition, because broadcast cash flow, EBITDA before net expense (income) from time brokerage agreement fees and after tax cash flow are not calculated in accordance with generally accepted accounting principles, they are not necessarily comparable to similarly titled measures employed by other companies. 18 22

TWELVE MONTHS THREE MONTHS ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ----------------------------------- ---------------------- ------------- 1996 1997 1998 1997 1998 1998 --------- --------- --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) OPERATING DATA: Net revenues ................................ $ 48,675 $ 93,862 $ 132,998 $ 28,399 $ 47,363 $ 151,962 Operating expenses (income): Station operating expenses ............... 31,659 61,280 88,599 18,868 29,990 99,721 Depreciation and amortization ............ 2,960 7,685 13,066 2,880 4,358 14,544 Corporate general and administrative expenses ............................... 2,872 3,249 4,527 849 1,850 5,528 Net expense (income) from time brokerage agreement fees ......................... (879) (476) 2,399 -- 1,236 3,635 Gains on sale of assets .................. (119) (197,097) (8,661) (43) (69,648) (78,266) --------- --------- --------- --------- --------- --------- Total operating expenses (income) ..... 36,493 (125,359) 99,930 22,554 (32,214) (45,162) --------- --------- --------- --------- --------- --------- Operating income ............................ 12,182 219,221 33,068 5,845 79,577 106,800 Other expense (income): Interest expense ......................... 5,196 11,388 14,663 2,996 5,732 17,399 Financing cost of Entercom - obligated mandatorily redeemable convertible preferred securities of Entercom Communications Capital Trust ........... -- -- -- -- -- -- Adjustment to reflect indexing of the convertible subordinated note .......... -- 29,070 8,841 14,903 29,503 23,441 Equity loss from unconsolidated investee . -- -- -- -- -- -- Loss on investments ...................... -- -- -- -- -- -- Interest income .......................... -- (482) (410) (127) (146) (429) Other non-operating expenses (income) .... (67) 1,986 82 25 723 780 --------- --------- --------- --------- --------- --------- Total other expense ................... 5,129 41,962 23,176 17,797 35,812 41,191 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item ........................ 7,053 177,259 9,892 (11,952) 43,765 65,609 Income taxes ................................ 274 489 453 81 310 682 --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item ..... 6,779 176,770 9,439 (12,033) 43,455 64,927 Extraordinary item, net of taxes ............ 539 -- 2,376 -- -- 2,376 --------- --------- --------- --------- --------- --------- Net income (loss) ........................... $ 6,240 $ 176,770 $ 7,063 $ (12,033) $ 43,455 $ 62,551 ========= ========= ========= ========= ========= ========= Net Income (Loss) Per Share - Basic: Income (loss) before extraordinary item ..... Extraordinary item, net of taxes ............ Net income (loss) per share - basic ......... Net Income (Loss) Per Share - Diluted: Income (loss) before extraordinary item ..... Extraordinary item, net of taxes ............ Net income (loss) per share - diluted ....... PRO FORMA DATA: Income (loss) before income taxes and extraordinary item ........................ $ 7,053 $ 177,259 $ 9,892 $ (11,952) $ 43,765 $ 65,609 Pro forma income taxes ...................... 2,680 78,405 7,119 1,121 27,842 33,840 --------- --------- --------- --------- --------- --------- Pro forma income (loss) before extraordinary item ...................................... 4,373 98,854 2,773 (13,073) 15,923 31,769 Extraordinary item, net of pro forma taxes .. 348 -- 1,488 -- -- 1,488 --------- --------- --------- --------- --------- --------- Pro forma net income (loss) ................. $ 4,025 $ 98,854 $ 1,285 $ (13,073) $ 15,923 $ 30,281 ========= ========= ========= ========= ========= ========= Pro forma basic income (loss) per share before extraordinary item ................ $ 0.20 $ 4.59 $ 0.12 $ (0.61) $ 0.64 $ 1.32 Pro forma diluted income (loss) per share before extraordinary item .......... $ 0.20 $ 4.59 $ 0.12 $ (0.61) $ 0.64 $ 1.32 Weighted average common shares outstanding - basic .................................... 21,534 21,534 22,239 21,534 24,742 24,104 Weighted average common shares outstanding - diluted .................................. 21,534 21,534 22,239 21,534 24,742 24,104 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ................... $ 5,292 $ 3,626 $ 6,666 $ 3,497 $ 6,469 $ 6,469 Intangibles and other assets ................ 119,269 300,029 428,763 313,889 504,825 504,825 Total assets ................................ 150,575 364,743 522,945 378,138 681,034 681,034 Senior debt, including current portion ...... 111,000 117,000 253,784 127,000 330,281 330,281 Total shareholders' equity .................. 5,079 179,019 182,970 166,986 225,467 225,467 OTHER DATA: Broadcast cash flow ......................... $ 17,016 $ 32,582 $ 44,399 $ 9,531 $ 17,373 $ 52,241 Broadcast cash flow margin .................. 35.0% 34.7% 33.4% 33.6% 36.7% 34.4%

YEAR ENDED DECEMBER 31, -------------------------- 1999 2000 ----------- ----------- OPERATING DATA: Net revenues ................................ $ 215,001 $ 352,025 Operating expenses (income): Station operating expenses ............... 135,943 206,608 Depreciation and amortization ............ 21,564 43,475 Corporate general and administrative expenses ............................... 8,100 12,497 Net expense (income) from time brokerage agreement fees ......................... 652 11 Gains on sale of assets .................. (1,986) (41,465) ----------- ----------- Total operating expenses (income) ..... 164,273 221,126 ----------- ----------- Operating income ............................ 50,728 130,899 Other expense (income): Interest expense ......................... 11,182 37,760 Financing cost of Entercom - obligated mandatorily redeemable convertible preferred securities of Entercom Communications Capital Trust ........... 1,845 7,813 Adjustment to reflect indexing of the convertible subordinated note .......... -- -- Equity loss from unconsolidated investee . -- 1,100 Loss on investments ...................... -- 5,688 Interest income .......................... (3,253) (512) Other non-operating expenses (income) .... -- -- ----------- ----------- Total other expense ................... 9,774 51,849 ----------- ----------- Income (loss) before income taxes and extraordinary item ........................ 40,954 79,050 Income taxes ................................ 100,913 31,796 ----------- ----------- Income (loss) before extraordinary item ..... (59,959) 47,254 Extraordinary item, net of taxes ............ 918 -- ----------- ----------- Net income (loss) ........................... $ (60,877) $ 47,254 =========== =========== Net Income (Loss) Per Share - Basic: Income (loss) before extraordinary item ..... $ (1.58) $ 1.05 Extraordinary item, net of taxes ............ $ .03 $ -- ----------- ----------- Net income (loss) per share - basic ......... $ (1.61) $ 1.05 =========== =========== Net Income (Loss) Per Share - Diluted: Income (loss) before extraordinary item ..... $ (1.58) $ 1.04 Extraordinary item, net of taxes ............ $ .03 $ -- ----------- ----------- Net income (loss) per share - diluted ....... $ (1.61) $ 1.04 =========== =========== PRO FORMA DATA: Income (loss) before income taxes and extraordinary item ........................ $ 40,954 Pro forma income taxes ...................... 20,278 ----------- Pro forma income (loss) before extraordinary item ...................................... 20,676 Extraordinary item, net of pro forma taxes .. 918 ----------- Pro forma net income (loss) ................. $ 19,758 =========== Pro forma basic income (loss) per share before extraordinary item ................ $ 0.55 Pro forma diluted income (loss) per share before extraordinary item .......... $ 0.54 Weighted average common shares outstanding - basic .................................. 37,922 45,209 Weighted average common shares outstanding - diluted .................................. 38,238 45,614 BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents ................... $ 11,262 $ 13,257 Intangibles and other assets ................ 1,225,335 1,276,921 Total assets ................................ 1,396,048 1,473,928 Senior debt, including current portion ...... 465,770 461,260 Total shareholders' equity .................. 686,611 735,701 OTHER DATA: Broadcast cash flow ......................... $ 79,058 $ 145,417 Broadcast cash flow margin .................. 36.8% 41.3%

19 23

TWELVE MONTHS THREE MONTHS ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ----------------------------------- ---------------------- ------------- 1996 1997 1998 1997 1998 1998 --------- --------- --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) EBITDA before net expense (income) from time brokerage agreement fees .......... $ 14,144 $ 29,333 $ 39,872 $ 8,682 $ 15,523 $ 46,713 After tax cash flow ...................... 7,311 16,590 21,028 5,003 7,985 24,010 Cash flows related to: Operating activities ................... 12,773 8,859 23,019 7,341 11,158 26,836 Investing activities ................... (96,502) (13,695) (153,651) (17,470) (86,894) (223,075) Financing activities ................... 87,457 3,170 133,672 10,000 75,539 199,211

YEAR ENDED DECEMBER 31, -------------------------- 1999 2000 ----------- ----------- EBITDA before net expense (income) from time brokerage agreement fees .......... $ 71,419 $ 133,577 After tax cash flow ...................... 52,465 89,721 Cash flows related to: Operating activities ................... 40,700 69,475 Investing activities ................... (712,323) (64,684) Financing activities ................... 676,416 (2,796)

20 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL A radio broadcasting company derives its revenues primarily from the sale of broadcasting time to local and national advertisers. The advertising rates that a radio station is able to charge and the number of advertisements that can be broadcast without jeopardizing listener levels largely determine those revenues. Advertising rates are primarily based on three factors: - a station's audience share in the demographic groups targeted by advertisers, as measured principally by quarterly reports issued by The Arbitron Ratings Company; - the number of radio stations in the market competing for the same demographic groups; and - the supply of and demand for radio advertising time. In fiscal 2000, we generated 75.6% of our gross revenues from local advertising, which is sold primarily by each individual local radio station's sales staff, and 22.7% from national spot advertising, which is sold by independent advertising sales representatives. We generated the balance of our 2000 revenues principally from network advertising, event revenue and rental income from tower sites. We include revenues recognized under a time brokerage agreement or a similar sales agreement for stations operated by us prior to acquiring the stations in net revenues, while we reflect operating expenses associated with these stations in station operating expenses. Consequently, there is no difference in the method of revenue and operating expense recognition between a station operated by us under a time brokerage agreement or similar sales agreement and a station owned and operated by us. Several factors may adversely affect a radio broadcasting company's performance in any given period. In the radio broadcasting industry, seasonal revenue fluctuations are common and are due primarily to variations in advertising expenditures by local and national advertisers. Typically, revenues are lowest in the first calendar quarter of the year. We generally incur advertising and promotional expenses to increase "listenership" and Arbitron ratings. However, because Arbitron reports ratings quarterly, any increased ratings and therefore increased advertising revenues tend to lag behind the incurrence of advertising and promotional spending. We calculate "same station" growth by comparing the performance of stations operated by us throughout the relevant period to the comparable performance in the prior year's corresponding period, adjusted for significant changes to sports contracts, excluding the effect of barter revenues and expenses. For purposes of the following discussion, pro forma net income represents historical income before income taxes and extraordinary item adjusted as if we were treated as a C corporation during all relevant periods at an effective tax rate of 38%, applied to income before income taxes and extraordinary item and the effect of the adjustment to reflect indexing of the convertible subordinated note (the amount of this adjustment is not tax deductible). RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results in conjunction with our consolidated financial statements and related notes included elsewhere in this report. Historically, we operated with an October 1st to September 30th fiscal year. Effective January 1, 1999, we changed for financial reporting purposes from a fiscal year ending September 30th to a fiscal year ending December 31st. Accordingly, the following results of operations include a discussion of the year ended December 31, 2000 compared to the year ended December 31, 1999 and a discussion of the year ended December 31, 1999 compared to the twelve months ended December 31, 1998. In addition, the following results of operations includes a discussion of the three-month transition period ended December 31, 1998 compared to the three months ended December 31, 1997. Our results of operations represent the operations of the radio stations owned or operated pursuant to time brokerage agreements or joint sales agreements during the relevant periods. Our results of operations for the year ended December 31, 2000 as compared to the year ended December 31, 1999, were heavily impacted by our acquisition of 45 radio stations from Sinclair Broadcast Group, Inc. in 1999 and 2000. YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) NET REVENUES $ 215,001 $352,025 Increase of $ 137,024 or 63.7% ---------------------------------------------------------------

21 25 Net revenues increased 63.7% to $352.0 million for the year ended December 31, 2000 from $215.0 million for the year ended December 31, 1999. Of the increase, $101.5 million is attributable to stations that we acquired or that we were in the process of acquiring since January 1, 1999, offset by $5.2 million for stations that we divested (including $1.8 million in revenues from a sports contract for which we discontinued selling advertising) during the same period. On a same station basis, net revenues increased 12.7% to $338.4 million from $300.4 million. Same station revenue growth was led by increases in Sacramento, Milwaukee, Norfolk, Greenville and Boston due to improved selling efforts.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) STATION OPERATING EXPENSES $ 135,943 $ 206,608 Increase of $ 70,665 or 52.0% ------------------------------------------------------------------------ Percentage of Net Revenues 63.2% 58.7%

Station operating expenses increased 52.0% to $206.6 million for the year ended December 31, 2000 from $135.9 million for the year ended December 31, 1999. Of the increase, $63.6 million is attributable to stations that we acquired or that we were in the process of acquiring since January 1, 1999, offset by $6.6 million for stations that we divested (including $4.4 million in expenses from a sports contract for which we discontinued selling advertising) during the same period. On a same station basis, station operating expenses increased 5.1% to $195.9 million from $186.3 million.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) DEPRECIATION AND AMORTIZATION $ 21,564 $ 43,475 Increase of $ 21,911 or 101.6% ----------------------------------------------------------------------- Percentage of Net Revenues 10.0% 12.3%

Depreciation and amortization increased 101.6% to $43.5 million for the year ended December 31, 2000 from $21.6 million for the year ended December 31, 1999. The increase was mainly attributable to our acquisitions since January 1, 1999, offset by divestitures during the same period.

YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 8,100 $ 12,497 Increase of $ 4,397 or 54.3% ---------------------------------------------------------------------- Percentage of Net Revenues 3.8% 3.6%

Corporate general and administrative expenses increased 54.3% to $12.5 million for the year ended December 31, 2000 from $8.1 million for the year ended December 31, 1999. The increase was mainly attributable to higher administrative expenses associated with supporting our growth. Also included in the years ended December 31, 2000 and 1999 is $0.7 million and $0.5 million, respectively, in non-cash stock-based compensation expense.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) INTEREST EXPENSE (INCLUDING THE FINANCING COST OF TIDES) $ 13,027 $ 45,573 Increase of $ 32,546 or 249.8% ------------------------------------------------------------------------------------- Percentage of Net Revenues 6.1% 12.9%

Interest expense, including the financing cost on our 6.25% Convertible Preferred Securities Term Income Deferrable Equity Securities (TIDES), increased 249.8% to $45.6 million for the year ended December 31, 2000 from $13.0 million for the year ended December 31, 1999. The increase in interest expense was mainly attributable to: (1) an overall increase in outstanding indebtedness used to fund the acquisition of radio station assets; and (2) the financing cost of the TIDES, offset by (1) a reduction in the outstanding indebtedness due to the use of the proceeds from our October 1999 Class A Common Stock and TIDES offerings; and (2) a reduction in outstanding indebtedness due to the use of the proceeds from the disposition of radio station assets. 22 26

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 40,954 $ 79,050 Increase of $ 38,096 or 93.0% ------------------------------------------------------------------------------------- Percentage of Net Revenues 19.0% 22.5%

Income before income taxes and extraordinary item increased 93.0% to $79.1 million for the year ended December 31, 2000 from $41.0 million for the year ended December 31, 1999. The increase was mainly attributable to (1) an increase in gains on sale of assets of $41.5 million primarily from the gain on the disposition of two radio stations in the current period; and (2) an increase in operating income, exclusive of the gains on sale of assets, of $40.7 million due to increases in revenues from existing and newly acquired stations and improved expense management from newly acquired stations, offset by: (1) an increase of $32.5 million in net interest expense and financing costs as a result of the factors described above under interest expense; (2) an increase in expense of $6.8 million from the recognition of a loss on investments and an equity loss from an unconsolidated affiliate; and (3) a decrease in interest income of $2.7 million as a result of the absence this year of excess cash available from our October 1999 Class A Common Stock and TIDES offerings during the period prior to the closing on December 16, 1999, of the acquisition of 42 radio stations from Sinclair, including a radio station under a time brokerage agreement. EXTRAORDINARY ITEM, NET OF TAXES The extraordinary item for the year ended December 31, 1999 resulted from the write-off of $1.5 million ($0.9 million, net of taxes) of unamortized finance charges due to the early extinguishment of debt. The early extinguishment of debt resulted from the refinancing of our previous credit facility.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) NET INCOME (LOSS) $ (60,877) $ 47,254 Increase of $ 108,131 ---------------------------------------------------------------------------------

Net income increased to $47.3 million for the year ended December 31, 2000 from a net loss of $60.9 million for the year ended December 31, 1999. The increase was mainly attributable to: (1) the absence this year of an adjustment made during the prior year to record a one-time non-cash deferred income tax expense of $79.8 million as a result of the revocation of our S Corporation election and our conversion to a C Corporation (we recorded this expense to reflect the cumulative effect of temporary differences between the tax and financial reporting bases of our assets and liabilities attributable to our conversion to a C Corporation); (2) a net increase in gain on sale of assets of $24.9 million, net of tax, primarily from the disposition of two radio stations in the current period; and (3) an improvement in operating income, excluding gains on sale of assets, of $24.4 million, net of tax, primarily as a result of an improvement in revenues of existing and newly acquired stations and an improvement in expense management of newly acquired stations, offset by: (1) an increase in interest expense of $19.5 million, net of tax, for the reasons described under interest expense; (2) an increase in expense of $4.0 million, net of tax, from the recognition of a loss on investments and an equity loss from an unconsolidated affiliate and (3) a decrease in interest income of $1.6 million, net of tax, as a result of the absence this year of excess cash available from our October 1999 Class A Common Stock and TIDES offerings during the period prior to the closing on December 16, 1999, of the acquisition of 42 radio stations from Sinclair, including a radio station under a time brokerage agreement.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) NET INCOME TO PRO FORMA NET INCOME $ 19,758 $ 47,254 Increase of $ 27,496 or 139.2% ---------------------------------------------------------------------------------

Net income increased 139.2% to $47.3 million for the year ended December 31, 2000 from pro forma net income of $19.8 million for the year ended December 31, 1999. The increase was primarily attributable to all of the factors described under net income (loss) above, except for the adjustment to record a one-time non-cash deferred income tax expense of $79.8 million, which is excluded from the definition of pro forma net income. 23 27

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 OTHER DATA (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW $ 79,058 $ 145,417 Increase of $ 66,359 or 83.9% ---------------------------------------------------------------------------------

Broadcast cash flow increased 83.9% to $145.4 million for the year ended December 31, 2000 from $79.1 million for the year ended December 31, 1999. Of the increase, $38.0 million is attributable to stations that we acquired or that we were in the process of acquiring since January 1, 1999 and $2.6 million is attributable to the elimination of a broadcast cash flow deficit from a sports contract for which we discontinued selling advertising, offset by $1.2 million for stations that we divested during the same period. On a same station basis, broadcast cash flow increased 25.4% to $140.7 million from $112.3 million.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW MARGIN 36.8% 41.3% Increase of 4.5% or 12.3% ---------------------------------------------------------------------------------

Our broadcast cash flow margin increased to 41.3% for the year ended December 31, 2000 from 36.8% for the year ended December 31, 1999. The increase is attributable to improved revenues and expense management. On a same station basis, our broadcast cash flow margin increased to 41.6% from 37.4%.

YEAR ENDED ---------- DECEMBER 31, 1999 DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS) AFTER TAX CASH FLOW TO PRO FORMA AFTER TAX CASH FLOW $ 52,465 $ 89,721 Increase of $ 37,256 or 71.0% ---------------------------------------------------------------------------------

After tax cash flow increased 71.0% to $89.7 million for the year ended December 31, 2000 from pro forma after tax cash flow of $52.5 million for the year ended December 31, 1999. The increase is attributable to improved operations of existing stations and the net effect of newly acquired properties, taking into consideration pro forma income taxes as though we had reported as a C corporation during the prior period. The amount of the deferred income tax expense was $33.0 million for the year ended December 31, 2000 and the amount of the pro forma deferred income tax expense was $11.0 million for the year ended December 31,1999. The amount of the deferred income tax expense attributable to the gains on sale of assets, loss on investments and equity loss from an unconsolidated affiliate was $13.9 million for the year ended December 31, 2000 and $27,000 for the year ended December 31, 1999. YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 1998

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) NET REVENUES $ 151,962 $215,001 Increase of $ 63,039 or 41.5% ---------------------------------------------------------------------------------

Net revenues increased 41.5% to $215.0 million for the year ended December 31, 1999 from $152.0 million for the twelve months ended December 31, 1998. Of the increase, $40.0 million is attributable to stations acquired or that we were in the process of acquiring since January 1, 1998, offset by $3.0 million for stations that we divested or that we were in the process divesting during the same period. On a same station basis, net revenues increased 18.3% to $209.2 million from $176.9 million. Same station revenue growth was led by increases in Boston and Seattle due to improved selling efforts. A strategic realignment of station formats in Sacramento resulted in significant gains in ratings and revenues.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) STATION OPERATING EXPENSES $ 99,721 $ 135,943 Increase of $ 36,222 or 36.3% --------------------------------------------------------------------------------- Percentage of Net Revenues 65.6% 63.2%

24 28 Station operating expenses increased 36.3% to $135.9 million for the year ended December 31, 1999 from $99.7 million for the twelve months ended December 31, 1998. Of the increase, $31.1 million is attributable to stations that we acquired or that we were in the process of acquiring since January 1, 1998, offset by $2.9 million for stations that we divested or that we were in the process of divesting during the same period. On a same station basis, station operating expenses increased 7.7% to $131.7 million from $122.3 million.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) DEPRECIATION AND AMORTIZATION $ 14,544 $ 21,564 Increase of $ 7,020 or 48.3% --------------------------------------------------------------------------------- Percentage of Net Revenues 9.6% 10.0%

Depreciation and amortization increased 48.3% to $21.6 million for the year ended December 31, 1999 from $14.5 million for the twelve months ended December 31, 1998. The increase was mainly attributable to our acquisitions net of divestitures since January 1, 1998.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 5,528 $ 8,100 Increase of $ 2,572 or 46.5% --------------------------------------------------------------------------------- Percentage of Net Revenues 3.6% 3.8%

Corporate general and administrative expenses increased 46.5% to $8.1 million for the year ended December 31, 1999 from $5.5 million for the twelve months ended December 31, 1998. The increase was mainly attributable to higher administrative expenses associated with supporting our growth and increasing staff and expenses to operate as a public company. Also included in the years ended December 31, 1999 is $0.5 million in non-cash stock-based compensation expense.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) INTEREST EXPENSE (INCLUDING THE FINANCING COST OF TIDES) $ 17,399 $ 13,027 Decrease of $ (4,372) or (25.1)% --------------------------------------------------------------------------------- Percentage of Net Revenues 11.4% 6.1%

Interest expense, including the financing cost of TIDES, decreased 25.1% to $13.0 million for the year ended December 31, 1999 from $17.4 million for the twelve months ended December 31, 1998. The decrease was mainly attributable to (1) a reduction in outstanding indebtedness due to the use of the proceeds of our initial public offering and the proceeds of our October 1999 Class A Common Stock and TIDES offerings and (2) a reduction due to the elimination of the 7% stated interest on the conversion of the convertible subordinated note, offset by an increase in outstanding indebtedness used to fund the acquisition of radio station assets and the interest expense on the TIDES.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ 65,609 $ 40,954 Decrease of $ (24,655) or (37.6)% --------------------------------------------------------------------------------- Percentage of Net Revenues 43.2% 19.0%

Income before income taxes and extraordinary item decreased 37.6% to $41.0 million for the year ended December 31, 1999 from $65.6 million for the twelve months ended December 31, 1998. Of the decrease, $76.3 million is attributable to a decrease in gains on sale of assets, offset by: (1) $17.2 million due to increases in revenues from existing stations and improved revenues and expense management from newly acquired stations; (2) $23.4 million resulting from the conversion of the convertible subordinated note, which in the prior period had caused a $23.4 million decrease in income to reflect indexing; (3) $4.4 million due to a decrease in interest expense for the reasons described under interest expense; (5) $3.0 million due to a decrease in net expense (income) from time brokerage agreement fees; and (6) an increase in interest income of $2.8 million as a result of excess cash available from our October 1999 Class A Common Stock and TIDES offerings during the period prior to the closing of the Sinclair acquisition. 25 29 EXTRAORDINARY ITEM, NET OF TAXES The extraordinary item for the year ended December 31, 1999 resulted from the write-off of $1.5 million ($0.9 million, net of taxes) of unamortized finance charges due to the early extinguishment of debt. The early extinguishment of debt resulted from the refinancing of our previous credit facility.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) PRO FORMA NET INCOME $ 30,281 $ 19,758 Decrease of $ (10,523) or (34.8)% ---------------------------------------------------------------------------------

As a result of the factors described above, pro forma net income decreased 34.8% to $19.8 million for the year ended December 31, 1999 from $30.3 million for the twelve months ended December 31, 1998. Of the decrease, $46.8 million, net of tax, is attributable to a decrease in gains on sale of assets, offset by; (1) $10.5 million, net of tax, due to increases in revenues from existing stations and improved revenues and expense management from newly acquired stations; (2) $23.4 million resulting from the conversion of the convertible subordinated note, which in the prior period had caused a $23.4 million decrease in income to reflect indexing; (3) $2.7 million, net of tax, due to a decrease in interest expense for the reasons described under interest expense; (4) $1.8 million, net of tax, due to a decrease in net expense (income) from time brokerage agreement fees; and (5) an increase in interest income of $1.7 million, net of tax, as a result of excess cash available from our October 1999 Class A Common Stock and TIDES offerings during the period prior to the Sinclair acquisition.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 OTHER DATA (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW $ 52,241 $ 79,058 Increase of $ 26,817 or 51.3% ---------------------------------------------------------------------------------

Broadcast cash flow increased 51.3% to $79.1 million for the year ended December 31, 1999 from $52.2 million for the twelve months ended December 31, 1998. Of the increase, $7.7 million is attributable to stations that we acquired or that we were in the process of acquiring since January 1, 1998, offset by $0.1 million for stations that we divested or that we were in the process of divesting during the same period. On a same station basis, broadcast cash flow increased 41.9% to $77.5 million from $54.6 million.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW MARGIN 34.4% 36.8% Increase of 2.4% or 7.0% ---------------------------------------------------------------------------------

Our broadcast cash flow margin increased to 36.8% for the year ended December 31, 1999 from 34.4% for the twelve months ended December 31, 1998. The increase is attributable to improved revenues and expense management. On a same station basis, our broadcast cash flow margin increased to 37.1% from 30.9%.

TWELVE MONTHS ENDED YEAR ENDED ------------------- ---------- DECEMBER 31, 1998 DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS) PRO FORMA AFTER TAX CASH FLOW $ 24,010 $ 52,465 Increase of $ 26,455 or 118.5% ---------------------------------------------------------------------------------

Pro forma after tax cash flow increased 118.5% to $52.5 million for the year ended December 31, 1999 from $24.0 million for the twelve months ended December 31, 1998. The increase is attributable to improved operations of existing stations and the net effect of newly acquired properties, taking into consideration pro forma income taxes as though we had reported as a C corporation during the periods presented. The amount of the deferred pro forma income tax expense was $11.0 million for the year ended December 31, 1999 and $5.7 million for the twelve months ended December 31,1998. 26 30 THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1997

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) NET REVENUES $ 28,399 $ 47,363 Increase of $ 18,964 or 66.8% ---------------------------------------------------------------------------------

Net revenues increased 66.8% to $47.4 million for the three months ended December 31, 1998 from $28.4 million for the three months ended December 31, 1997. Of the increase, $17.9 million is attributable to stations that we acquired or that we were in the process of acquiring since October 1, 1997, offset by $2.7 million for stations that we divested or that we were in the process of divesting during the same period. On a same station basis, net revenues increased 16.5% to $46.9 million from $40.3 million. Same station revenue growth was led by increases in Boston, Seattle, Kansas City and Portland due to improved selling efforts.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) STATION OPERATING EXPENSES $ 18,868 $ 29,990 Increase of $ 11,122 or 58.9% --------------------------------------------------------------------------------- Percentage of Net Revenues 66.4% 63.3%

Station operating expenses increased 58.9% to $30.0 million for the three months ended December 31, 1998 from $18.9 million for the three months ended December 31, 1997. Of the increase, $11.3 million is attributable to stations that we acquired or that we were in the process of acquiring since October 1, 1997, offset by $1.6 million for stations that we divested or that were in the process of divesting during the same period. On a same station basis, station operating expenses increased 3.4% to $29.4 million from $28.4 million.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) DEPRECIATION AND AMORTIZATION $ 2,880 $ 4,358 Increase of $ 1,478 or 51.3% --------------------------------------------------------------------------------- Percentage of Net Revenues 10.1% 9.2%

Depreciation and amortization increased 51.3% to $4.4 million for the three months ended December 31, 1998 from $2.9 million for the three months ended December 31, 1997. The increase was mainly attributable to our acquisitions net of divestitures since October 1, 1997.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES $ 849 $ 1,850 Increase of $ 1,001 or 117.9% --------------------------------------------------------------------------------- Percentage of Net Revenues 3.0% 3.9%

Corporate general and administrative expenses increased 117.9% to $1.9 million for the three months ended December 31, 1998 from $0.8 million for the three months ended December 31, 1997. The increase was mainly attributable to higher administrative expenses associated with supporting our growth and increasing staff and expenses in anticipation of operating as a public company.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) INTEREST EXPENSE $ 2,996 $ 5,732 Increase of $ 2,736 or 91.3% --------------------------------------------------------------------------------- Percentage of Net Revenues 10.5% 12.1%

Interest expense increased 91.3% to $5.7 million for the three months ended December 31, 1998 from $3.0 million for the three months ended December 31, 1997. The increase was mainly attributable to indebtedness that we incurred in connection with acquisitions. 27 31

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $ (11,952) $ 43,765 Increase of $ 55,717 --------------------------------------------------------------------------------- Percentage of Net Revenues (42.1)% 92.4%

Income (loss) before income taxes and extraordinary item increased to $43.8 million for the three months ended December 31, 1998 from a loss of $12.0 million for the three months ended December 31, 1997. Of the increase, $69.6 million is attributable to gains on the sale of assets from our disposition of stations in the Tampa radio market during the three months ended December 31, 1998, offset by $14.6 million which is attributable to an increase in expense resulting from an adjustment to reflect indexing of the convertible subordinated note.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) PRO FORMA NET INCOME (LOSS) $ (13,073) $ 15,923 Increase of $ 28,996 ---------------------------------------------------------------------------------

As a result of the factors described above, pro forma net income (loss) increased to $15.9 million for the three months ended December 31, 1998 from a loss of $13.1 million for the three months ended December 31, 1997. Of the increase, $43.2 million is attributable to gains on the sale of assets from the disposition of stations in the Tampa radio market during the three months ended December 31, 1998, offset by $14.6 million which is attributable to an increase in expense resulting from an adjustment to reflect indexing of the convertible subordinated note.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 OTHER DATA (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW $ 9,531 $ 17,373 Increase of $ 7,842 or 82.3% ---------------------------------------------------------------------------------

Broadcast cash flow increased 82.3% to $17.4 million for the three months ended December 31, 1998 from $9.5 million for the three months ended December 31, 1997. Of the increase, $6.9 million is attributable to stations that we acquired or that we were in the process of acquiring since October 1, 1997, offset by $1.1 million for stations that we divested or that we were in the process of divesting during the same period. On a same station basis, broadcast cash flow increased 48.0% to $17.5 million from $11.8 million.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) BROADCAST CASH FLOW MARGIN 33.6% 36.7% Increase of 3.1% or 9.3% ---------------------------------------------------------------------------------

The broadcast cash flow margin increased to 36.7% for the three months ended December 31, 1998 from 33.6% for the three months ended December 31, 1997. The increase in broadcast cash flow margin is attributable to improved revenues and expense management associated with newly acquired stations. On a same station basis, our broadcast cash flow margin increased to 37.4 % from 29.4%.

THREE MONTHS ENDED ------------------ DECEMBER 31, 1997 DECEMBER 31, 1998 (AMOUNTS IN THOUSANDS) PRO FORMA AFTER TAX CASH FLOW $ 5,003 $ 7,985 Increase of $ 2,982 or 59.6% ---------------------------------------------------------------------------------

Pro forma after tax cash flow increased 59.6% to $8.0 million for the three months ended December 31, 1998 from $5.0 million for the three months ended December 31, 1997. The increase is attributable to improved operations of existing stations and the net effect of newly acquired properties, taking into consideration pro forma income taxes as though we had reported as a C corporation during the periods presented. The amount of the deferred pro forma income tax expense was $0.2 million and $0.3 million for the three months ended December 31, 1998 and 1997, respectively. 28 32 LIQUIDITY AND CAPITAL RESOURCES We use a significant portion of our capital resources to consummate acquisitions. These acquisitions are funded from one or a combination of the following sources: (1) our bank facility (described below); (2) the sale of securities; (3) the swapping of our radio stations in transactions which qualify as "like-kind" exchanges under Section 1031 of the Internal Revenue Code; and (4) internally-generated cash flow. Our results of operations for the year ended December 31, 2000 as compared to the year ended December 31, 1999, were heavily impacted by our acquisition of 45 radio stations from Sinclair in 1999 and 2000. Operating Activities Net cash flows provided by operating activities were $69.5 million for the year ended December 31, 2000, as compared to $40.7 million and $26.8 million for the year ended December 31,1999 and the twelve months ended December 31, 1998, respectively. Changes in our net cash flows provided by operating activities are primarily a result of changes in advertising revenues and station operating expenses, which are affected by the acquisition and disposition of stations during those periods. For the year ended December 31, 2000, cash flows provided by operating activities were positively affected primarily by: (1) the acquisition of 45 radio stations from Sinclair (42 radio stations on December 16, 1999, including one station under a time brokerage agreement that we subsequently acquired in 2000, and three radio stations on July 20, 2000, excluding the station we acquired from Sinclair and immediately sold) and (2) other radio station acquisitions, offset by (1) the required divestiture of two radio stations in Kansas City, excluding the station we acquired from Sinclair and immediately sold; and (2) an increase in accounts receivable on acquired stations, net of the Kansas City divestiture. Investing and Financing Activities Net cash flows used by investing activities were $64.7 million for the year ended December 31, 2000, as compared to $712.3 million and $223.1 million for the year ended December 31, 1999 and the twelve months ended December 31, 1998, respectively, as a result of the net impact of acquisitions, divestitures and capital expenditures. Net cash flows used by financing activities were $2.8 million for the year ended December 31, 2000, as compared to net cash flows provided by financing activities of $676.4 million and $199.2 million for the year ended December 31, 1999 and the twelve months ended December 31, 1998, respectively. The cash flows for the year ended December 31, 2000, reflect (1) acquisitions and investments consummated and the related borrowings and (2) the proceeds from the disposition of the Kansas City stations. The cash flows for the year ended December 31, 1999, reflect (1) acquisitions consummated and the related borrowings; (2) net proceeds from our initial public offering and the related payment of long-term debt; (3) net proceeds from our October 1999 Class A Common Stock and TIDES offerings and the related payment of long-term debt; and (4) the distribution to our S corporation shareholders of $88.1 million primarily from the funds available from the sale of our Tampa stations. Our business generally does not require substantial investment of capital. Our capital expenditures totaled $9.5 million in the year ended December 31, 2000, as compared to $14.4 million and $8.6 million in the year ended December 31, 1999 and the twelve months ended December 31, 1998, respectively. Despite an increase in the average number of radio stations owned throughout this year as compared to the average number of radio stations owned throughout the prior year, primarily from the acquisition of 45 radio stations from Sinclair, and despite the continued consolidation and relocation of studio facilities in certain markets, our capital expenditures declined in the year ended December 31, 2000 as compared to the prior year. On February 3, 1999, upon the consummation of our initial public offering, we received net proceeds of $236.2 million, after deducting expenses, underwriting discounts and commissions. We used these proceeds to reduce outstanding indebtedness under our former credit facility and to pay other corporate obligations. Shortly after reducing indebtedness under our former credit facility, in February 1999 we borrowed approximately $58.0 million to purchase three Boston radio stations from CBS. On October 6, 1999, we completed our Class A Common Stock and TIDES offerings and received $276.1 million and $120.5 million in proceeds, respectively, after deducting discounts, commissions, fees and expenses. The proceeds were used to reduce outstanding indebtedness. We used the net proceeds from our October 1999 Class A Common Stock offering and the TIDES offering, together with cash on hand and proceeds from our bank facility, to finance the $700.4 million in cash to consummate the purchase of 41 stations from Sinclair on December 16, 1999. In addition to debt service and quarterly distributions under the TIDES, our principal liquidity requirements will be for working capital and general corporate purposes, including capital expenditures, and, if appropriate opportunities arise, acquisitions of additional radio stations. For fiscal year 2001, we estimate that capital expenditures will be between $10.0 million and $12.0 million. The estimated amount for capital expenditures includes a $2.0 million commitment as of December 31, 2000, to fund construction of a studio relocation. We are also committed to fund certain strategic investments in the amount of approximately $9.7 million as of December 31, 2000, for which we are existing equity partners. We believe that cash flow from operating activities, together with available revolving and term credit borrowings under our bank facility, should be sufficient to permit us to meet our financial obligations and fund our operations. However, we may require additional financing for future acquisitions, if any, and there can be no assurance that we would be able to obtain such financing on terms acceptable to us. As of December 31, 2000, we had approximately $461.0 million of borrowings outstanding under our bank facility (in addition to an outstanding letter of credit in the amount of $5.8 million), of which most of the outstanding debt was assumed in connection with the acquisition of the 45 radio stations from Sinclair. 29 33 Upon closing the Sinclair acquisition on December 16, 1999, our effective tax rate increased from 38% to 40% as a result of adding stations in additional states which on average have higher income tax rates than in those states in which we were already operating. For the year ended December 31, 1999, we also recorded a non-cash deferred income tax expense of approximately $3.9 million to reflect the increase in the effective tax rate and its effect on previously reported temporary differences between the tax and financial reporting bases of our assets and liabilities. We entered into our bank facility, dated as of December 16, 1999, with a syndicate of banks for $650.0 million in senior secured credit consisting of: (1) $325.0 million in a reducing revolving credit facility; and (2) $325.0 million in a multi-draw term loan that was fully drawn as of September 30, 2000. Our bank facility was established to: (1) refinance our existing indebtedness; (2) provide working capital; and (3) fund corporate acquisitions. At our election, interest on any outstanding principal accrues at a rate based on either LIBOR plus a spread which ranges from 0.75% to 2.375% or on KeyBank N.A.'s base rate plus a spread of up to 1.125%, depending on our leverage ratio. Although we may borrow, repay and re-borrow under the revolving credit facility, the aggregate maximum amount that we can have outstanding at any one time is reduced on a quarterly basis beginning on September 30, 2002 in amounts that vary from $12.2 million to $16.3 million for each loan. Under the bank facility, the reducing revolving credit facility and multi-draw term loan mature on September 30, 2007. Our bank facility requires us to comply with certain financial covenants and leverage ratios that are defined terms within the agreement. We believe we are in compliance with the covenants and leverage ratios. We expect to use the credit available under the revolving credit facility to fund pending and future acquisitions. Our bank facility also provides that at any time prior to December 31, 2001 we may solicit additional incremental loans of up to $350.0 million, and we will be governed under the same terms as the term loan. However, there can be no guarantee that, upon request, we will receive commitments for any of the incremental loans. The amount available under the bank facility was $183.2 million as of December 31, 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, which are collectively referred to as derivatives, and for 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, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the income statement when the hedged item affects earnings. 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. A derivative that does not qualify as a hedge will be marked to fair value through earnings. In June 1999, the FASB issued SFAS No. 137 which extended the effective date of SFAS No. 133 to fiscal quarters of fiscal years beginning after June 15, 2000 and should not be applied retroactively to financial statements of prior periods. In June 2000, the FASB issued SFAS No. 138, an amendment to SFAS No. 133. As of January 1, 2001, we will record a $0.4 million loss as an accumulated transition adjustment to earnings relating to derivative instruments that do not qualify for hedge accounting. In addition, as of January 1, 2001, we will record a $0.6 million loss as an accumulated transition adjustment to earnings and a $1.1 million loss as an accumulated transition adjustment to OCI for designated cash flow hedges. We calculated the transition adjustment in accordance with tentative accounting guidance issued by the Derivatives Implementation Group, and therefore, the guidance could be subject to change. The Derivatives Implementation Group is a committee appointed by the FASB and assigned the responsibility of answering implementation and interpretation questions related to this new accounting standard. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, SAB 101 entitled, "Revenue Recognition in Financial Statements," as amended, effective as of October 1, 2000, which summarizes the Commission's views in applying generally accepted accounting principles to revenue recognition. The adoption of this bulletin had no effect on our financial statements. In March 2000, the FASB issued Financial Accounting Standards Board Interpretation No. 44 entitled "Accounting for Certain Transactions involving Stock Compensation," which provides clarification to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." This interpretation is effective on a prospective basis from July 1, 2000. The adoption of this interpretation had no effect on our financial statements. INFLATION Inflation has affected our performance in terms of higher costs for radio station operating expenses, including wages, and equipment. Although the exact impact is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations. 30 34 RISK FACTORS Many statements contained in this report are forward-looking in nature. These statements are based on current expectations and actual results could differ materially. Among the factors that could cause actual results to differ are the following: INTEGRATING ACQUISITIONS IS DIFFICULT. We have acquired 93 radio stations since January 1, 1997 and we expect to make acquisitions of other stations and station groups in the future. The integration of acquisitions involves numerous risks, including: - difficulties in the integration of operations and systems and the management of a large and geographically diverse group of stations; - the diversion of management's attention from other business concerns; and - the potential loss of key employees of acquired stations. We cannot assure you that we will be able to integrate successfully any operations, systems or management that might be acquired in the future. In addition, in the event that the operations of a new business do not meet expectations, we may restructure or write-off the value of some or all of the assets of the new business. WE MAY NOT BE SUCCESSFUL IN IDENTIFYING AND CONSUMMATING FUTURE ACQUISITIONS, WHICH IS AN IMPORTANT ELEMENT OF OUR BUSINESS STRATEGY. We pursue growth, in part, through the acquisition of individual radio stations and groups of radio stations. Our consummation of all future acquisitions will be subject to various conditions, including FCC and other regulatory approvals. The FCC must approve any transfer of control or assignment of broadcast licenses. In addition, acquisitions may encounter intense scrutiny under federal and state antitrust laws. Our future acquisitions may be, subject to notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and to a waiting period and possible review by the Department of Justice and the Federal Trade Commission. Any delays, injunctions, conditions or modifications by any of these federal agencies could have a negative effect on us and result in the abandonment of all or part of attractive acquisition opportunities. We cannot predict whether we will be successful in identifying future acquisition opportunities or what the consequences will be of any acquisitions. Depending on the nature, size and timing of future acquisitions, we may require additional financing. We cannot assure you that additional financing will be available to us on acceptable terms. Radio broadcasting is a rapidly consolidating industry, with many companies seeking to consummate acquisitions and increase their market share. In this environment, we compete and will continue to compete with many other buyers for the acquisition of radio stations. Some of those competitors may be able to outbid us for acquisitions because they have greater financial resources. As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain. WE MUST RESPOND TO THE RAPID CHANGES IN TECHNOLOGY, SERVICES AND STANDARDS THAT CHARACTERIZE OUR INDUSTRY IN ORDER TO REMAIN COMPETITIVE. The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services. We cannot assure you that we will have the resources to acquire new technologies or to introduce new services that could compete with these new technologies. Several new media technologies and services are being developed or introduced, including the following: - satellite delivered digital audio radio service, which could result in the introduction of new subscriber based satellite radio services with numerous niche formats; - audio programming by cable systems, direct broadcast satellite systems, personal communications systems, Internet content providers and other digital audio broadcast formats; - in-band on-channel digital radio, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and 31 35 - low-power FM radio, which could result in additional FM radio broadcast outlets. We cannot predict the effect, if any, that competition arising from new technologies or regulatory change may have on the radio broadcasting industry or on the financial condition and results of operations of our company. WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD HAVE IMPORTANT CONSEQUENCES TO YOU. We have indebtedness that is substantial in relation to our shareholders' equity. At December 31, 2000, we had long-term indebtedness of $461.2 million and shareholders' equity of $735.7 million. In addition to our obligations on our long-term indebtedness, we have quarterly interest obligations on the debentures held by the trust that fund distributions on the TIDES. These obligations are substantial in amount and could have a substantial impact on you. For example, these obligations could: - require us to dedicate a substantial portion of our cash flow from operations to debt service, thereby reducing the availability of cash flow for other purposes, including funding future expansion and ongoing capital expenditures; - impair our ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate or other purposes; - limit our ability to compete, expand and make capital improvements; - increase our vulnerability to economic downturns, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and - limit or prohibit our ability to pay dividends and make other distributions. Moreover, we may borrow up to an additional $183.2 million under our existing bank facility. In addition, at any time prior to December 31, 2001, we may solicit incremental loans up to $350.0 million. Any additional borrowings would further increase the amount of our indebtedness and the associated risks. THE COVENANTS IN OUR CREDIT FACILITY RESTRICT OUR FINANCIAL AND OPERATIONAL FLEXIBILITY. Our credit facility contains covenants that restrict, among other things, our ability to borrow money, make particular types of investments or other restricted payments, swap or sell assets, or merge or consolidate. An event of default under our bank facility could allow the lenders to declare all amounts outstanding to be immediately due and payable. We have pledged substantially all of our consolidated assets and the stock of our subsidiaries to secure the debt under our credit facility. If the amounts outstanding under the credit facility were accelerated, the lenders could proceed against our consolidated assets and the stock of our subsidiaries. Any event of default, therefore, could have a material adverse effect on our business. Our bank facility also requires us to maintain specified financial ratios. Our ability to meet these financial ratios can be affected by events beyond our control, and we cannot assure you that we will meet those ratios. We also may incur future debt obligations that might subject us to restrictive covenants that could affect our financial and operational flexibility or subject us to other events of default. BECAUSE OF OUR HOLDING COMPANY STRUCTURE, WE DEPEND ON OUR SUBSIDIARIES FOR CASH FLOW, AND OUR ACCESS TO THIS CASH FLOW IS RESTRICTED. We operate as a holding company. All of our radio stations are currently owned and operated by our subsidiaries. Entercom Radio, our wholly owned subsidiary, is the borrower under our credit facility and all of our station-operating subsidiaries are subsidiaries of Entercom Radio. Further, we guaranteed Entercom Radio's obligations under the credit facility on a senior secured basis. Our obligations on the TIDES, which were purchased by the trust that sells the TIDES, are subordinated to our obligations on this guarantee. As a holding company, our only source of cash to pay our obligations, including corporate overhead and other trade payables, are distributions from our subsidiaries of their net earnings and cash flow. We currently expect that the net earnings and cash flow of our subsidiaries will be retained and used by them in their operations, including servicing their debt obligations, before distributions are made to us. Even if our subsidiaries elect to make distributions to us, we cannot assure you that applicable state law and contractual restrictions, including the dividend covenants contained in our credit facility, would permit such dividends or distributions. 32 36 WE FACE MANY UNPREDICTABLE BUSINESS RISKS, BOTH GENERAL AND SPECIFIC TO THE RADIO BROADCASTING INDUSTRY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE OPERATIONS. Our future operations are subject to many business risks, including those risks that specifically influence the radio broadcasting industry, which could have a material adverse effect on our business including: - economic conditions, both generally and relative to the radio broadcasting industry; - shifts in population, demographics or audience tastes; - the level of competition for advertising revenues with other radio stations, television stations and other entertainment and communications media; - priorities of advertisers; - fluctuations in operating costs; - technological changes and innovations; - changes in labor conditions; - new laws, including proposals to eliminate the tax deductibility of certain expenses incurred by advertisers; - changes in governmental regulations and policies and actions of federal regulatory bodies, including the United States Department of Justice, the Federal Trade Commission and the FCC; and - the requirement to pay fees for the use of sound recordings in Internet streaming. Given the inherent unpredictability of these variables, we cannot with any degree of certainty predict what effect, if any, these variables will have on our future operations. Generally, advertising tends to decline during economic recession or downturn. Consequently, our advertising revenue is likely to be adversely affected by a recession or downturn in the United States economy, the economy of an individual geographic market in which we own or operate radio stations or other events or circumstances that adversely affect advertising activity. DEPENDENCE ON SEATTLE RADIO STATIONS. The radio stations we own or operate in Seattle generated approximately 23.9% of our net revenues and approximately 29.2% of our broadcast cash flow for the fiscal year ended December 31, 2000. Accordingly we have greater exposure to any operating difficulties that may arise at our Seattle stations or to adverse events or conditions that affect the Seattle economy than if we were more geographically diverse. OUR CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER EFFECTIVELY CONTROLS OUR COMPANY, AND MEMBERS OF HIS IMMEDIATE FAMILY ALSO OWN A SUBSTANTIAL EQUITY INTEREST IN US. THEIR INTERESTS MAY CONFLICT WITH YOURS. As of March 14, 2001, Joseph M. Field, our Chairman of the Board and Chief Executive Officer, beneficially owns 1,734,075 shares of our Class A common stock and 9,782,555 shares of our Class B common stock, representing approximately 71.1% of the total voting power of all of our outstanding common stock. As of March 14, 2001, David J. Field, our President, Chief Operating Officer, one of our directors and the son of Joseph M. Field, beneficially owns 2,167,191 shares of our Class A common stock and 749,250 shares of our outstanding Class B common stock, representing approximately 6.9% of the total voting power of all of our outstanding common stock. Collectively, Joseph M. Field and David J. Field beneficially own all of our outstanding Class B common stock. Other members of the Field family also own shares of Class A common stock. Shares of Class B common stock are transferable only to Joseph M. Field, David J. Field, certain of their family members or trusts for any of their benefit. Upon any other transfer, shares of our Class B common stock convert automatically into shares of our Class A common stock on a share-for-share basis. Shares of our Class B common stock are entitled to ten votes only when they are voted by Joseph M. Field or David J. Field, subject to certain exceptions where they are restricted to one vote. Joseph M. Field generally is able to control the vote on all matters submitted to the vote of shareholders and, therefore, is able to direct our management and policies, except with respect to those matters where the shares of our Class B common stock are only entitled to one vote and those matters requiring a class 33 37 vote under the provisions of our articles of incorporation, bylaws or applicable law, including, without limitation, the election of the two Class A directors. Without the approval of Joseph M. Field, we will be unable to consummate transactions involving an actual or potential change of control, including transactions in which investors might otherwise receive a premium for your shares over then current market prices. WE ARE DEPENDENT ON FEDERALLY-ISSUED LICENSES TO OPERATE OUR RADIO STATIONS AND ARE SUBJECT TO EXTENSIVE FEDERAL REGULATION. The radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act of 1934. We are required to obtain licenses from the FCC to operate our radio stations. Licenses are normally granted for a term of eight years and are renewable. Although the vast majority of FCC radio station licenses are routinely renewed, we cannot assure you that the FCC will approve our future renewal applications or that the renewals will not include conditions or qualifications. The non-renewal, or renewal with substantial conditions or modifications, of one or more of our licenses could have a material adverse effect on us. We must comply with extensive FCC regulations and policies in the ownership and operation of our radio stations. FCC regulations limit the number of radio stations that a licensee can own in a market, which could restrict our ability to consummate future transactions and in certain circumstances could require us to divest some radio stations. For example, in connection with the Sinclair Kansas City acquisition we were required to dispose of three radio stations in Kansas City. The FCC also requires radio stations to comply with certain technical requirements to limit interference between two or more radio stations. If the FCC relaxes these technical requirements, it could impair the signals transmitted by our radio stations and could have a material adverse effect on us. Moreover, these FCC regulations and others may change over time and we cannot assure you that those changes would not have a material adverse effect on us. OUR RADIO STATIONS MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THEIR RESPECTIVE MARKETS FOR ADVERTISING REVENUES. Our radio broadcasting stations are in a highly competitive business. Our radio stations compete for audiences and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as newspapers, magazines, network and cable television, outdoor advertising and direct mail. Audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on the revenue of our stations located in that market. While we already compete in some of our markets with other stations with similar programming formats, if another radio station in a market were to convert its programming format to a format similar to one of our stations, if a new station were to adopt a comparable format or if an existing competitor were to strengthen its operations, our stations could suffer a reduction in ratings and/or advertising revenue and could incur increased promotional and other expenses. Other radio broadcasting companies may enter into the markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. We cannot assure you that any of our stations will be able to maintain or increase their current audience ratings and advertising revenues. THE LOSS OF KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Our business depends upon the continued efforts, abilities and expertise of our executive officers and other key executives, including Joseph M. Field, our Chairman of the Board and Chief Executive Officer, David J. Field, our President and Chief Operating Officer, John C. Donlevie, Esq., our Executive Vice President, Secretary and General Counsel, and Stephen F. Fisher, our Executive Vice President and Chief Financial Officer. We believe that the loss of one or more of these individuals could have a material adverse effect on our business. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our bank facility requires us to protect ourselves from interest rate fluctuations through the use of derivative rate hedging instruments. As a result, we have entered into various interest rate transactions with various banks, which we call the rate hedging transactions, designed to mitigate our exposure to significantly higher floating interest rates. These transactions are referred to as a "collar" and a "swap". A collar consists of a rate cap agreement that establishes an upper limit or "cap" for the base LIBOR rate and a rate floor agreement that establishes a lower limit or "floor" for the base LIBOR rate. Collar agreements covering a rate cap and a rate floor have been entered into simultaneously with the same bank. Swap agreements require that we pay a fixed rate of interest on the notional amount to a bank and the bank pay to us a variable rate equal to three-month LIBOR. As of February 28, 2001, we have rate hedging transactions in place for a total notional amount of $263.0 million. Based upon the variable-rate debt at December 31, 2000, a 100 basis point change in interest rates would change annual interest expense by approximately $4.1 million. Our credit exposure under these agreements is limited to the cost of replacing an agreement in the event of non-performance by our counter-party. To minimize this risk, we select high credit quality counter-parties. 34 38 All of the rate hedging transactions are tied to the three-month LIBOR interest rate, which may fluctuate significantly on a daily basis. The valuation of each of these rate hedging transactions is affected by the change in the three-month LIBOR rates and the remaining term of the agreement. Any increase in the three-month LIBOR rate results in a more favorable valuation, while any decrease in the three-month LIBOR rate results in a less favorable valuation for each of the rate hedging transactions. The three-month LIBOR rate at December 31, 2000 was marginally higher than the rate at December 31, 1999. An unrecognized loss resulted from a combination of a benefit from an increase in interest rates offset by a reduction in the remaining term under each of the transactions. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements, together with related notes and the report of Deloitte & Touche LLP, our independent accountants, are set forth on the pages indicated in Item 14. 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 The information with respect to directors and executive officers required by this Item 10 is incorporated in this report by reference to the applicable information set forth in our proxy statement for the 2001 Annual Meeting of Shareholders to be held May 4, 2001, which is expected to be filed with the Commission within 120 days after the close of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated in this report by reference to the information set forth under the caption "Executive Officers Compensation" in the 2001 proxy statement. The sections entitled "Compensation Committee Report on Executive Compensation" and "Performance Graph" in the 2001 proxy statement are not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated in this report by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2001 proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated in this report by reference to the information set forth under the caption "Certain Relationships and Related Transactions" in the 2001 proxy statement. 35 39 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: 1. Consolidated Financial Statements

Page ---- Independent Auditors' Report. 38 Consolidated Financial Statements: Balance Sheets as of December 31, 1999 and December 31, 2000 39 Statements of Operations for the Year Ended September 30, 1998, Three Months Ended December 31, 1997 (unaudited) and 1998, Twelve Months Ended December 31, 1998 (unaudited) and Years Ended December 31, 1999 and 2000 41 Statements of Comprehensive Income (Loss) for the Year Ended September 30, 1998, Three Months Ended December 31, 1997 (unaudited) and 1998, Twelve Months Ended December 31, 1998 (unaudited) and Years Ended December 31, 1999 and 2000 43 Statements of Shareholders' Equity for the Year Ended September 30, 1998, Three Months Ended December 31, 1998 and Years Ended December 31, 1999 and 2000 44 Statements of Cash Flows for the Year Ended September 30, 1998, Three Months Ended December 31, 1997 (unaudited) and 1998, Twelve Months Ended December 31, 1998 (unaudited) and Years Ended December 31, 1999 and 2000 46 Notes to Consolidated Financial Statements 48

2. Consolidated Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts 3. Exhibits INDEX TO EXHIBITS

EXHIBIT NUMBER DESCRIPTION PAGE -------------- ----------- ---- 3.01 Amended and Restated Articles of Incorporation of the Registrant(2) 3.02 Form of Amended and Restated Bylaws of the Registrant(2) 4.01 Lock-up Release Agreement, dated as of May 6, 1999, between Chase Equity Associates L.P. and Credit Suisse Boston Corporation(3) 4.02 Form of Indenture for the Convertible Subordinated Debentures due 2014 among Entercom Communications Corp., as issuer, and Wilmington Trust Company, as indenture trustee(4) 10.01 Registration Rights Agreement, dated as of May 21, 1996, between the Registrant and Chase Equity Associates, L.P.(2) 10.02 Employment Agreement, dated June 25, 1993, between the Registrant and Joseph M. Field, as amended(2) 10.03 Employment Agreement, dated December 17, 1998, between the Registrant and David J. Field, as amended(2) 10.04 Employment Agreement, dated December 17, 1998, between the Registrant and John C. Donlevie, as amended(2) 10.05 Employment Agreement, dated November 13, 1998, between the Registrant and Stephen F. Fisher(2) 10.06 Entercom 1998 Equity Compensation Plan(2) 10.07 Asset Purchase Agreement, dated as of May 11, 2000, among the Registrant, Entercom Kansas City, LLC, Entercom Kansas City License, LLC, and Susquehanna Radio Corp. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request)(3) 10.08 Credit Agreement, dated as of December 16, 1999, by and among Entercom Radio, LLC, as the Borrower, the Registrant, as a Guarantor, Banc of America Securities

36 40

EXHIBIT NUMBER DESCRIPTION PAGE -------------- ----------- ---- LLC, as Sole Lead Arranger and Book Manager, Key Corporate Capital Inc., as Administrative Agent and Co-Documentation Agent, Bank of America, N.A., as Syndication Agent, and Co-Documentation Agent and the Financial Institutions listed therein.(6) 10.09 Amended and Restated Asset Purchase Agreement, dated as of August 20, 1999, among the Registrant, Sinclair Communications, Inc., WCGV, Inc., Sinclair Radio of Milwaukee Licensee, LLC, Sinclair Radio of New Orleans Licensee, LLC, Sinclair Radio of Memphis, Inc., Sinclair Radio of Memphis Licensee, Inc., Sinclair Properties, LLC, Sinclair Radio of Norfolk/Greensboro Licensee, L.P., Sinclair Radio of Buffalo, Inc., Sinclair Radio of Buffalo Licensee, LLC, WLFL, Inc., Sinclair Radio of Greenville Licensee, Inc., Sinclair Radio of Wilkes-Barre, Inc. and Sinclair Radio of Willkes-Barre Licensee, LLC. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request.)(5) 10.10 Asset Purchase Agreement, dated as of August 20, 1999, among the Registrant, Sinclair Communications, Inc., Sinclair Media III, Inc. and Sinclair Radio of Kansas City Licensee, LLC. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request.)(5) 11.01 Reconciliation of Net Income (Loss) and Pro Forma Net Income (Loss) Per Common Share (1) 72 21.01 Information Regarding Subsidiaries of the Registrant (1) 75 23.01 Consent of Deloitte & Touche LLP, Philadelphia, Pa. (1) 77

(1) Filed herewith. (2) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-61381) (3) Incorporated by reference to our Quarterly Report on Form 10-Q. (File No. 001-14461) (4) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-86843) (5) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-86397) (6) Incorporated by reference to our Current Report on Form 8-K. (File No. 001-14461) (b) Reports filed on Form 8-K None to report. 37 41 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Entercom Communications Corp.: We have audited the accompanying consolidated balance sheets of Entercom Communications Corp. and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for the year ended September 30, 1998, for the three month period ended December 31, 1998, and for the years ended December 31, 1999, and 2000. Our audits also included the financial statement schedule listed in the Index at Item 14 (a) 2. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Entercom Communications Corp. and subsidiaries at December 31, 1999 and 2000, and the results of their operations and their cash flows for the year ended September 30, 1998, for the three month period ended December 31, 1998, and for the years ended December 31, 1999, and 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania February 14, 2001 38 42 CONSOLIDATED FINANCIAL STATEMENTS OF ENTERCOM COMMUNICATIONS CORP. ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS) ASSETS

DECEMBER 31, DECEMBER 31, ----------- ----------- 1999 2000 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents (Note 2) $ 11,262 $ 13,257 Accounts receivable (net of allowance for doubtful accounts of $1.4 million in 1999 and $2.2 million in 2000) 51,926 70,937 Prepaid expenses and deposits 4,247 3,852 Prepaid and refundable taxes 705 Deferred tax assets 1,773 1,499 Station acquisition deposits 1,212 688 ----------- ----------- Total current assets 70,420 90,938 ----------- ----------- INVESTMENTS - (NOTE 2) 9,870 12,116 ----------- ----------- PROPERTY AND EQUIPMENT - AT COST (NOTE 2): Land, land easements and land improvements 9,833 10,082 Building 9,375 10,404 Equipment 66,780 77,409 Furniture and fixtures 11,338 12,125 Leasehold improvements 6,565 8,967 ----------- ----------- 103,891 118,987 Accumulated depreciation (16,837) (26,532) ----------- ----------- 87,054 92,455 Capital improvements in progress 3,369 1,498 ----------- ----------- Net property and equipment 90,423 93,953 ----------- ----------- RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES - NET Net of accumulated amortization of $32.0 million in 1999 and $63.0 million in 2000 (Notes 2,3,and 4) 1,214,969 1,265,816 ----------- ----------- DEFERRED CHARGES AND OTHER ASSETS -NET Net of accumulated amortization of $0.8 million in 1999 and $2.1 million in 2000 (Notes 2, 3 and 5) 10,366 11,105 ----------- ----------- TOTAL $ 1,396,048 $ 1,473,928 =========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39 43 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY

DECEMBER 31, DECEMBER 31, ----------- ----------- 1999 2000 ----------- ----------- CURRENT LIABILITIES: Accounts payable $ 18,380 $ 18,967 Accrued liabilities: Salaries 6,188 6,042 Interest 1,208 1,744 Other 798 1,017 Income taxes payable 946 Long-term debt due within one year 10 11 ----------- ----------- Total current liabilities 27,530 27,781 ----------- ----------- SENIOR DEBT - (NOTE 7A) 465,760 461,249 DEFERRED TAX LIABILITIES 91,147 124,197 ----------- ----------- Total liabilities 584,437 613,227 ----------- ----------- COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY HOLDING SOLELY CONVERTIBLE DEBENTURES OF THE COMPANY (NOTE 8) 125,000 125,000 COMMITMENTS AND CONTINGENCIES (NOTE 10) SHAREHOLDERS' EQUITY (NOTE 11): Preferred Stock $.01 par value; authorized 25,000,000 shares; none issued Class A common stock $.01 par value; voting; authorized 200,000,000 shares; 333 342 issued and outstanding 33,251,321 in 1999 and 34,212,384 in 2000 Class B common stock $.01 par value; voting; authorized 75,000,000 shares; 105 105 issued and outstanding 10,531,805 in 1999 and 2000 Class C common stock $.01 par value; nonvoting; authorized 25,000,000 shares; issued and outstanding 1,396,836 in 1999 and 495,669 in 2000 14 5 Additional paid-in capital 744,933 747,442 Accumulated deficit (59,104) (11,850) Unearned compensation (192) (329) Accumulated other comprehensive income (loss) 522 (14) ----------- ----------- Total shareholders' equity 686,611 735,701 ----------- ----------- TOTAL $ 1,396,048 $ 1,473,928 =========== ===========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 40 44 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED), THREE MONTHS ENDED DECEMBER 31, 1998, TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

THREE MONTHS THREE MONTHS TWELVE MONTHS YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ----------- ----------- ----------- ----------- ----------- 1998 1997 1998 1998 1999 2000 ------------ ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) NET REVENUES ............................... $ 132,998 $ 28,399 $ 47,363 $ 151,962 $ 215,001 $ 352,025 OPERATING EXPENSES (INCOME): Station operating expenses .............. 88,599 18,868 29,990 99,721 135,943 206,608 Depreciation and amortization ........... 13,066 2,880 4,358 14,544 21,564 43,475 Corporate general and administrative expenses .............................. 4,527 849 1,850 5,528 8,100 12,497 Net expense from time brokerage agreement fees .................................. 2,399 1,236 3,635 652 11 Gains on sale of assets ................. (8,661) (43) (69,648) (78,266) (1,986) (41,465) --------- --------- --------- --------- --------- --------- Total operating expenses (income) ....... 99,930 22,554 (32,214) 45,162 164,273 221,126 --------- --------- --------- --------- --------- --------- OPERATING INCOME ........................... 33,068 5,845 79,577 106,800 50,728 130,899 OTHER EXPENSE (INCOME): Interest expense (Note 7) ............... 14,663 2,996 5,732 17,399 11,182 37,760 Financing cost of Company-obligated mandatorily redeemable convertible preferred securities of subsidiary holding solely convertible debentures of the Company ........................ 1,845 7,813 Adjustment to reflect indexing of the Convertible Subordinated Note (Note 7D) 8,841 14,903 29,503 23,441 Interest income ......................... (410) (127) (146) (429) (3,253) (512) Equity loss from unconsolidated affiliate (Note 2) .............................. 1,100 Loss on investments (Note 2) ............ 5,688 Other non-operating expenses ............ 82 25 723 780 --------- --------- --------- --------- --------- --------- Total other expense ..................... 23,176 17,797 35,812 41,191 9,774 51,849 --------- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ....................... 9,892 (11,952) 43,765 65,609 40,954 79,050 INCOME TAXES Income Taxes - C Corporation ............ 20,943 31,796 Income Taxes - S Corporation ............ 453 81 310 682 125 Deferred income taxes for conversion from an S to a C Corporation .............. 79,845 --------- --------- --------- --------- --------- --------- Total income taxes ...................... 453 81 310 682 100,913 31,796 --------- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .... 9,439 (12,033) 43,455 64,927 (59,959) 47,254 EXTRAORDINARY ITEM: Debt extinguishment (net of taxes of $25, $25 and $612, respectively, for the periods presented) .................... 2,376 2,376 918 --------- --------- --------- --------- --------- --------- NET INCOME (LOSS) .......................... $ 7,063 $ (12,033) $ 43,455 $ 62,551 $ (60,877) $ 47,254 ========= ========= ========= ========= ========= ========= NET INCOME (LOSS) PER SHARE: Basic: Income (loss) before extraordinary item.. $ (1.58) $ 1.05 Extraordinary item, net of taxes......... $ 0.03 --------- --------- NET INCOME (LOSS) PER SHARE - BASIC $ (1.61) $ 1.05 ========= ========= NET INCOME (LOSS) PER SHARE: Diluted: Income (loss) before extraordinary item.. $ (1.58) $ 1.04 Extraordinary item, net of taxes......... $ 0.03 --------- --------- NET INCOME (LOSS) PER SHARE - DILUTED $ (1.61) $ 1.04 ========= =========

41 45 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED), THREE MONTHS ENDED DECEMBER 31, 1998, TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)

THREE MONTHS THREE MONTHS TWELVE MONTHS YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ----------- ----------- ----------- ----------- ----------- 1998 1997 1998 1998 1999 2000 ------------ ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) PRO FORMA DATA (UNAUDITED): PRO FORMA NET INCOME (LOSS) DATA: Income (loss) before income taxes and extraordinary item .................... $ 9,892 $ (11,952) $ 43,765 $ 65,609 $ 40,954 Pro forma income taxes .................. 7,119 1,121 27,842 33,840 20,278 ----------- ----------- ----------- ----------- ----------- Pro forma income (loss) before extraordinary item .................... 2,773 (13,073) 15,923 31,769 20,676 Extraordinary item, net of pro forma taxes ................................. 1,488 1,488 918 ----------- ----------- ----------- ----------- ----------- PRO FORMA NET INCOME (LOSS) ................ $ 1,285 $ (13,073) $ 15,923 $ 30,281 $ 19,758 =========== =========== =========== =========== =========== PRO FORMA NET INCOME (LOSS) PER SHARE: Basic: Pro forma income (loss) before extraordinary item .................. $ 0.12 $ (0.61) $ 0.64 $ 1.32 $ 0.55 Extraordinary item, net of pro forma taxes ............................... 0.06 0.06 0.03 ----------- ----------- ----------- ----------- ----------- Pro forma net income (loss) per share - basic ............................. $ 0.06 $ (0.61) $ 0.64 $ 1.26 $ 0.52 =========== =========== =========== =========== =========== Diluted: Pro forma income (loss) before extraordinary item .................. $ 0.12 $ (0.61) $ 0.64 $ 1.32 $ 0.54 Extraordinary item, net of pro forma taxes ............................... 0.06 0.06 0.03 ----------- ----------- ----------- ----------- ----------- Pro forma net income (loss) per share - diluted ........................... $ 0.06 $ (0.61) $ 0.64 $ 1.26 $ 0.51 =========== =========== =========== =========== =========== WEIGHTED AVERAGE SHARES: Basic ................................... 22,238,843 21,534,000 24,742,443 24,104,000 37,921,623 45,209,036 Diluted ................................. 22,238,843 21,534,000 24,742,443 24,104,000 38,237,723 45,613,829

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 42 46 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED), THREE MONTHS ENDED DECEMBER 31, 1998, TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS)

THREE THREE TWELVE MONTHS MONTHS MONTHS YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 ------------ ----------- ----------- ----------- ----------- ----------- 1998 1997 1998 1998 1999 2000 ------------ ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) NET INCOME (LOSS) $ 7,063 ($12,033) $ 43,455 $ 62,551 ($60,877) $ 47,254 OTHER COMPREHENSIVE INCOME (LOSS), (NET OF TAX): Unrealized gains on investments - $870 in 1999 and unrealized loss on investments - $893 in 2000 522 (536) -------- -------- -------- -------- -------- -------- COMPREHENSIVE INCOME (LOSS) $ 7,063 ($12,033) $ 43,455 $ 62,551 ($60,355) $ 46,718 ======== ======== ======== ======== ======== ========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 43 47 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1998, AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

COMMON STOCK -------------------------------------------------------------------- CLASS A CLASS B CLASS C ADDITIONAL RETAINED -------------------- -------------------- --------------------- PAID-IN EARNINGS SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ---------- -------- ---------- -------- ---------- -------- ---------- --------- Balance, September 30, 1997 11,002,194 $ 110 10,531,805 $ 105 $ 178,804 Net income for the year 7,063 Dividends (3,112) ---------- ------ ---------- ------ ------- ------ ---------- --------- Balance, September 30, 1998 11,002,194 110 10,531,805 105 182,755 Net income for the period 43,455 Dividends (958) ---------- ------ ---------- ------ ------- ------ ---------- --------- Balance, December 31, 1998 11,002,194 110 10,531,805 105 225,252 Net loss for the year (60,877) Dividends (88,113) Transfer of S Corporation retained earnings to paid-in capital $ 135,366 (135,366) Sale of Common Stock A 11,300,000 113 236,044 Conversion of Convertible Subordinated Note to Common Stock A and C 2,327,500 23 1,995,669 $ 20 96,387 Conversion of Common Stock C to Common Stock A 598,833 6 (598,833) (6) Compensation expense related to granting of stock options 402 Issuance of Common Stock A related to an incentive plan 11,682 1 464 Sale of Common Stock A 8,000,000 80 276,020 Compensation expense related to granting of Restricted stock 11,112 250 Net unrealized gain on investments ---------- ------ ---------- ------ ------- ------ ---------- --------- Balance, December 31, 1999 33,251,321 333 10,531,805 105 1,396,836 14 744,933 (59,104) Net income for the year 47,254 Conversion of Common Stock C to Common Stock A 901,167 9 (901,167) (9) Compensation expense related to granting of stock options 528 Compensation expense related to granting of Restricted stock 5,000 266 Issuance of Common Stock A related to an incentive plan 28,247 899 Exercise of stock options 26,649 816 Net unrealized loss on investments ---------- ------ ---------- ------ ------- ------ ---------- --------- Balance, December 31, 2000 34,212,384 $ 342 10,531,805 $ 105 495,669 $ 5 $ 747,442 $ (11,850) ========== ====== ========== ====== ======= ====== ========== =========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 44 48

ACCUMULATED UNEARNED OTHER COMPEN- COMPREHENSIVE SATION INCOME (LOSS) TOTAL -------- ------------- --------- $ 179,019 7,063 (3,112) --------- 182,970 43,455 (958) -------- 225,467 (60,877) (88,113) - 236,157 96,430 - 402 465 276,100 $ (192) 58 $ 522 522 ---------- -------- -------- (192) 522 686,611 47,254 - 528 (137) 129 899 816 (536) (536) --------- --------- --------- $ (329) $ (14) $ 735,701 ========= ========= =========

45 49 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED), THREE MONTHS ENDED DECEMBER 31, 1998, TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

TWELVE THREE MONTHS THREE MONTHS MONTHS YEAR ENDED ENDED ENDED ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ----------- ----------- ----------- ----------- ----------- 1998 1997 1998 1998 1999 2000 ------------ ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES: Net income (loss) ........................... $ 7,063 $ (12,033) $ 43,455 $ 62,551 $ (60,877) $ 47,254 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............. 13,066 2,880 4,358 14,544 21,564 43,475 Extraordinary items ....................... 2,401 2,401 1,530 Deferred tax provision .................... 89,374 32,993 Gain on dispositions and exchanges of ..... (8,661) (43) (69,648) (78,266) (1,986) (41,465) assets Non-cash stock-based compensation expense . 461 657 Interest accrued .......................... 1,925 477 506 1,954 Adjustment to reflect indexing of the Convertible Subordinated Note ........... 8,841 14,903 29,503 23,441 Equity loss from unconsolidated affiliate . 1,100 Loss on investments ....................... 5,688 Changes in assets and liabilities which provided (used) cash: Accounts receivable ..................... (7,728) 135 (5,987) (13,850) (12,458) (19,011) Prepaid expenses ........................ (589) 981 (115) (1,685) 1,054 (1,451) Prepaid and refundable taxes ............ (696) Accounts payable, accrued liabilities and income taxes payable .............. 6,695 16 8,381 15,060 2,038 931 Minority interest ....................... 6 25 705 686 --------- --------- --------- --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 23,019 7,341 11,158 26,836 40,700 69,475 --------- --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Additions to property and equipment ......... (11,183) (5,012) (2,400) (8,571) (14,357) (9,532) Acquisition of limited partnership interest . (3,138) Proceeds from sale of property, equipment, intangibles and other assets .............. 9,724 68 75,016 84,672 2,781 57,196 Proceeds from exchanges of radio stations ... 3,132 3,132 Payments for exchanges of radio stations .... (306) (306) Purchases of radio station assets (Note 3) .. (152,791) (15,987) (82,903) (219,707) (763,068) (100,733) Proceeds held in escrow from sale of Tampa .. (75,000) (75,000) 75,000 stations Deferred charges and other assets ........... (3,329) (50) (622) (3,901) (656) (2,212) Purchase of investments ..................... (1,000) (1,000) (8,000) (9,927) Station acquisition deposits ................ 1,102 3,511 15 (2,394) (885) 524 --------- --------- --------- --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES ..... (153,651) (17,470) (86,894) (223,075) (712,323) (64,684) --------- --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Net proceeds from initial public offering ... 236,157 Net proceeds from stock offering ............ 276,100 Proceeds from issuance of Entercom-obligated mandatorily redeemable convertible preferred securities of Entercom Communications Capital Trust ("TIDES") .... 125,000 Deferred financing expenses related to TIDES and long-term debt ........................ (8,683) Proceeds from issuance of long-term debt .... 277,286 13,000 79,500 343,786 551,000 47,000 Payments of long-term debt .................. (140,502) (3,000) (3,003) (140,505) (415,509) (51,511) Proceeds from issuance of common stock related to an incentive plan .............. 464 899 Proceeds from exercise of stock options 816 Dividends paid to S Corporation shareholders (3,112) (958) (4,070) (88,113) --------- --------- --------- --------- --------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ............................ 133,672 10,000 75,539 199,211 676,416 (2,796) --------- --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 3,040 (129) (197) 2,972 4,793 1,995 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,626 3,626 6,666 3,497 6,469 11,262 --------- --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR ........ $ 6,666 $ 3,497 $ 6,469 $ 6,469 $ 11,262 $ 13,257 ========= ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-- Cash paid (refunded) during the period for: Interest ................................. $ 11,541 $ 2,980 $ 5,698 $ 14,259 $ 11,187 $ 37,201 ========= ========= ========= ========= ========= ========= Interest on TIDES ........................ $ 1,845 $ 7,813 ========= ========= Income taxes (refunded) .................. $ 293 $ 31 $ 60 $ 322 $ 10,851 $ (472) ========= ========= ========= ========= ========= =========

46 50 ENTERCOM COMMUNICATIONS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED), THREE MONTHS ENDED DECEMBER 31, 1998, TWELVE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1999 AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED) SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTMENTS AND FINANCING ACTIVITIES In connection with the radio station exchange transactions completed by the Company, the non-cash portion of assets recorded was $22,500 for the year ended September 30, 1998. In connection with the Company's initial public offering completed by the Company during the year ended December 31, 1999, the Convertible Subordinated Note, net of deferred finance charges, was converted into equity in the amount of $96,400. In connection with the issuance of certain awards of Restricted Stock for 11,112 shares and 5,000 shares of Class A Common Stock for the years ended December 31, 1999 and 2000, respectively, the Company increased its additional paid-in-capital by $250 and $266 for the years ended December 31, 1999 and 2000, respectively. The Company issued 1.4 million stock options in each of the years ended December 31, 1999 and 2000. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 47 51 ENTERCOM COMMUNICATIONS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND ORGANIZATION Audited Financial Statements - The financial statements and accompanying notes have been audited for the periods presented except for the three-month period ended December 31, 1997 and the twelve-month period ended December 31, 1998 which are unaudited. Nature of Business - Entercom Communications Corp. (the "Company") is a radio broadcasting company operating one reportable business segment, whose business is devoted to acquiring, developing and operating radio broadcast properties throughout the United States. The Company owns or operates three or more radio stations in the following markets: Boston, Seattle, Portland, Sacramento, Kansas City, Milwaukee, Norfolk, New Orleans, Greensboro, Buffalo, Memphis, Rochester, Greenville/Spartanburg, Wilkes-Barre/Scranton, Wichita, Madison, and Longview/Kelso and owns two stations in Gainesville/Ocala. Effective January 28, 1999 (the "Revocation Date"), in connection with the initial public offering (the "IPO"), the Company revoked its S Corporation election with the Internal Revenue Service and therefore the last day the Company was taxed as an S Corporation was January 27, 1999. As a result, all of the Company's net income after January 27, 1999 has been taxed to the Company rather than taxed to the Company's shareholders. The Company's effective tax rate for state and federal income taxes for the period subsequent to January 27, 1999 is at a combined rate of 38%, applied to taxable income before income taxes, which is adjusted for permanent differences between tax and book income. Upon the acquisition of the 41 radio properties from Sinclair Broadcast Group ("Sinclair") on December 16, 1999, the Company's combined effective tax rate increased to 40% as a result of adding facilities in additional states which on average have higher income tax rates. On January 29, 1999, the Company's Class A common stock began trading on the New York Stock Exchange. On February 3, 1999, the Company completed the IPO, pursuant to which 13,627,500 shares of Class A Common Stock were sold to the public at a price of $22.50 per share. Of the 13,627,500 shares sold, the Company sold 11,300,000 and Chase Capital Partners ("Chase Capital"), the sole selling shareholder, sold 2,327,500 shares. The net proceeds to the Company, after deducting underwriting discounts and other offering expenses were approximately $236.2 million. On September 30, 1999, the Company and certain shareholders of the Company entered into an underwriting agreement to sell 8,750,000 shares of Class A Common Stock of which 8,000,000 shares were sold by the Company and 750,000 shares were sold by selling shareholders. The Company completed this offering on October 6, 1999 and sold 8,000,000 shares of Class A Common Stock at a price per share of $36.00. The net proceeds to the Company, after deducting underwriting discounts and other offering expenses, were approximately $276.1 million. Concurrent with and as a result of the revocation of its S Corporation election and its conversion to a C Corporation, the Company recorded a non-cash deferred income tax expense of approximately $79.8 million to reflect the cumulative effect of temporary differences between the tax and financial reporting bases of the Company's assets and liabilities attributable to the period prior to its conversion to a C Corporation. Upon the closing on the acquisition of the radio properties from Sinclair on December 16, 1999, the Company recorded a non-cash deferred income tax expense of approximately $3.9 million. This amount reflects an increase in the Company's effective tax rate from 38% to 40% and its effect on previously reported temporary differences between the tax and financial reporting bases of the Company's assets and liabilities. Unaudited Pro Forma Adjustments - The unaudited pro forma net income data reflect adjustments for income taxes as if the Company had been subject to federal and state income taxes based upon a pro forma effective tax rate of 38% applied to income before income taxes and extraordinary item, excluding the effect of the adjustment to reflect indexing of the Convertible Subordinated Note (as such adjustment is not tax deductible) of $8.8 million for the year ended September 30, 1998, $14.9 million and $29.5 million for the three-month periods ended December 31, 1997 and 1998 and $23.4 million for the twelve-month period ended December 31, 1998. 2. SIGNIFICANT ACCOUNTING POLICIES Income Taxes - The Company accounts for income taxes under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 requires the liability method of accounting for deferred income taxes. Deferred income taxes are recognized for all temporary differences between the tax and financial reporting bases of the Company's assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. 48 52 For periods prior to January 28, 1999, the Company was taxed as an S Corporation for federal and certain state income taxes. As an S Corporation, the Company's shareholders were obligated for payment of the income taxes on their proportionate share of the Company's taxable income. Effective on January 28, 1999, in connection with the Company's IPO, the shareholders' revoked their S Corporation election. As a result, all of the Company's taxable income subsequent to January 27, 1999 was taxed to the Company rather than to the shareholders. Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company, its former general partnership interest, its former limited partnership interest (acquired on January 22, 1999), and its subsidiaries, all of which are wholly-owned. All inter-company transactions and balances have been eliminated in consolidation. Management's Use of Estimates - The preparation of consolidated financial statements, in accordance with generally accepted accounting principles, requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment - Depreciation on property and equipment is determined on a straight-line basis. The estimated useful lives for depreciation are as follows: Land Improvements......................................... 10 years Building.................................................. 20 years Equipment................................................. 5-20 years Furniture and fixtures.................................... 5-10 years Leasehold improvements.................................... Lease term Revenue Recognition - Revenue from the sale of commercial broadcast time to advertisers is recognized when the commercials are broadcast. Revenues presented in the financial statements are reflected on a net basis, after deducting fees paid to or deducted by advertising agencies, usually at a rate of 15% of gross revenues. Promotional fees are recognized as services are rendered. All revenue is recognized in accordance with the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin, SAB 101, Revenue Recognition in Financial Statements, which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition. Concentration of Credit Risk - The Company's revenues and accounts receivable relate primarily to the sale of advertising within the radio stations' broadcast areas. Credit is extended based on an evaluation of the customers' financial condition, and generally, collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. The Company also maintains deposit accounts with financial institutions. At times, such deposits may exceed FDIC insurance limits. Radio Broadcasting Licenses and Other Intangibles - Broadcasting licenses and other intangibles are being amortized on a straight-line basis over 40 years. Impairment of Long-Lived Assets - In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company evaluates the recoverability of its long-lived assets which include broadcasting licenses, other intangibles, deferred charges, and other assets whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. If indications are that the carrying amount of the asset is not recoverable, the Company will estimate the future cash flows expected to result from use of the asset and its eventual disposition. If the sum of the expected future cash flows (non-discounted and without interest charges) is less than the carrying amount of the asset, the Company would recognize an impairment loss. The impairment loss recognized would be measured as the amount by which the carrying amount of the asset exceeds its estimated fair value. Deferred Charges - The costs related to the issuance of debt are capitalized and accounted for as amortization expense over the lives of the related debt. During the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000, the Company recognized amortization of debt issuance costs, exclusive of extraordinary expense for the extinguishment of debt, of $0.5 million, $0.2 million, $0.1 million, $0.4 million and $0.3 million and $0.9 million, respectively, which amounts are included in amortization expense in the accompanying consolidated statements of operations. Net Income (Loss) and Pro Forma Net Income (Loss) Per Common Share - Net income (loss) and pro forma net income (loss) per share are calculated in accordance with SFAS No. 128, "Earnings Per Share" which requires presentation of basic net income (loss) per share and diluted net income (loss) per share. Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed in the same manner as basic net income (loss) after 49 53 assuming issuance of common stock for all potentially dilutive equivalent shares, which includes (1) stock options (using the treasury stock method), (2) the Term Income Deferrable Equity Securities ("TIDES") after eliminating from net income (loss) the interest expense, net of taxes, on the TIDES; and (3) the Convertible Subordinated Note after eliminating from net income (loss) the interest expense, net of taxes, on the Convertible Subordinated Note. Anti-dilutive instruments are not considered in this calculation. For the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998 and the twelve-month period ended December 31, 1998, the effect of the conversion of the Convertible Subordinated Note on the calculation of the pro forma net income (loss) per share was anti-dilutive. For the year ended December 31, 1999, the effect of the TIDES and stock options was anti-dilutive in the calculation of the net loss per share and the effect of the TIDES was anti-dilutive and stock options was dilutive in the calculation of pro forma net income per share. For the year ended December 31, 2000, the effect of the TIDES was anti-dilutive and the effect of the stock options was dilutive in the calculation of net income per share. Corporate General and Administrative Expense - Corporate general and administrative expense consists of corporate overhead costs not specifically allocable to any of the Company's individual business properties. Net Expense (Income) from Time Brokerage Agreement ("TBA") Fees - Net expense (income) from TBA fees consists of fees paid by or earned by the Company under agreements which permit an acquirer to program and market stations prior to acquisition. The Company sometimes enters into such agreements prior to the consummation of station acquisitions and dispositions. Under the TBAs relating to the Company's acquisitions, the expense from TBA fees was approximately $2.5 million, $1.6 million, $4.1 million and $0.7 million for the year ended September 30, 1998, the three-month period ended December 31, 1998, the twelve-month period ended December 31, 1998 and the year ended December 31, 1999, respectively. Under the TBAs relating to the Company's dispositions, the income from TBA fees was approximately $0.1 million, $0.4 million, and $0.5 million for the year ended September 30, 1998, the three-month period ended December 31, 1998 and the twelve-month period ended December 31, 1998, respectively. Amounts reflected in net revenues and station expenses from operations under TBAs, excluding expense (income) from TBA fees, were approximately $7.8 million and $5.0 million, $8.3 million and $5.6 million, $16.1 million and $10.6 million, $1.7 million and $1.2 million and $0.9 million and $0.6 million for the year ended September 30, 1998, the three-month period ended December 31, 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000, respectively. Barter Transactions - The Company provides advertising broadcast time in exchange for certain products, supplies, and services. The terms of the exchanges generally permit the Company to preempt such broadcast time in favor of advertisers who purchase time on regular terms. The Company includes the value of such exchanges in both broadcasting revenues and operating costs and expenses. Barter valuation is based upon management's estimate of fair value of the products, supplies and services received. For the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000, barter transactions amounted to approximately $1.0 million, $0.2 million, $0.5 million, $1.2 million, $1.8 million and $3.2 million, respectively Cash and Cash Equivalents - Cash and cash equivalents consist primarily of amounts held on deposit with financial institutions, including investments held in financial institutions, in immediately available money market accounts. Incentive Compensation Plans - The Company accounts for stock compensation in accordance with the requirements of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation", requires disclosure of the pro forma effects on net income and net income per share had the fair value recognition provisions of SFAS No. 123 been adopted (Note 13). The Company also adopted Financial Accounting Standards Board Interpretation No.44, "Accounting for Certain Transactions involving Stock Compensation", effective July 1, 2000. Investments - Investments are composed of equity securities recorded in the financial statements in the amounts of $9.9 million and $12.1 million at December 31, 1999 and December 31, 2000, respectively. The Company's investment strategy is to seek long-term strategic investments to enhance its core business. The Company is currently limited to an initial aggregate investment, at cost, of $50.0 million under its existing Bank Facility. The Company accounts for these investments as follows: Investments Carried Under the Equity Method - For those investments where the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method of accounting in accordance with APB No 18, "The Equity Method of Accounting for Investments in Common Stock". During the year ended December 31, 2000, the Company invested in a 32% interest in Local Media Internet Venture, Inc. ("LMIV"), a company formed with other radio broadcasters in a venture whose purpose is to enhance the synergies and opportunities between radio and the internet. As of December 31, 2000, the Company's investment in LMIV was $3.0 million and for the year ended December 31, 2000, the Company recorded a loss of $0.7 million, net of an income tax benefit of $0.4 million, in the statement of operations under equity loss from unconsolidated affiliate. As of December 31, 2000, the Company is committed to invest in LMIV over the following two years, an additional amount of $9.0 million. 50 54 Investments Carried at Fair Value or Cost - For those investments where the Company does not have a significant influence, the investments are carried at fair value based upon quoted market prices or historical cost when quoted market prices are unavailable. The net unrealized gains or losses on these investments, net of tax, are reported in the statements of comprehensive income (loss) and as a separate component of shareholders' equity. For the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998 and the twelve-month period ended December 31, 1998, there were no unrealized gains or losses. For the year ended December 31, 1999, the amount of unrealized gains on these investments was $0.5 million, net of income taxes of $0.4 million. For the year ended December 31, 2000, the amount of unrealized loss on these investments was $0.7 million, net of an income tax benefit of $0.4 million. When the Company has determined that the value of the investment is other than temporarily impaired, the Company recognizes through the income statement a loss on investment. For the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the year ended December 31, 1999, there were no realized losses on investments. For the year ended December 31, 2000, the Company recorded a realized loss of $3.4 million, net of an income tax benefit of $2.2 million, in the statement of operations under loss on investments. As of December 31, 2000, the Company is committed to invest an additional amount of $0.7 million in an investment. Derivative Financial Instruments - Periodically, the Company enters into derivative financial instruments, including interest rate exchange agreements ("Swaps") and interest rate collar agreements ("Collars") to manage its exposure to fluctuations in interest rates. Under a Swap agreement, the Company pays a fixed rate on the notional amount to a bank and the bank pays to the Company a variable rate on the notional amount equal to a base LIBOR rate. A rate collar agreement establishes two separate agreements: an upper limit or "cap" for the base LIBOR rate and a lower limit or "floor" for the base LIBOR rate. The Company's derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of corporate risk-management policies. As derivative contracts are initiated, the Company designates the instruments individually as hedges of underlying financial instruments or anticipated transactions. Management reviews the correlation and effectiveness of its derivatives on a periodic basis. Any fees associated with these derivatives are amortized over their term. Under these derivatives, the differentials to be received or paid are recognized as an adjustment to interest expense over the life of the contract. Gains and losses on termination of these instruments are recognized as interest expense when terminated. The fair value of these instruments and the changes in the fair value as a result of changes in market interest rates are not recognized in these consolidated financial statements. Recent Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for fiscal quarters of fiscal years beginning after June 15, 2000 and should not be applied retroactively to financial statements of prior periods. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, which are collectively referred to as derivatives, and for 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, will be required to be recorded on the balance sheet at fair value. If the derivative is designated in a fair value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative will be recorded in other comprehensive income ("OCI") and will be recognized in the income statement when the hedged item affects earnings. 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. A derivative that does not qualify as a hedge will be marked to fair value through earnings. As of January 1, 2001, a $0.4 million loss will be recorded as an accumulated transition adjustment to earnings relating to derivative instruments with a notional amount of $30.0 million that do not qualify for hedge accounting. In addition, as of January 1, 2001, the Company will record a $0.6 million loss as an accumulated transition adjustment to earnings and a $1.1 million loss as an accumulated transition adjustment to OCI for designated cash flow hedges with a notional amount of $233.0 million. The Company has calculated the transition adjustment in accordance with tentative accounting guidance issued by the Derivatives Implementation Group, and therefore, the guidance could be subject to change. In December 1999, the SEC issued Staff Accounting Bulletin, SAB 101, entitled "Revenue Recognition in Financial Statements" as amended, effective as of October 1, 2000, which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition. The adoption of this Bulletin had no effect on the Company's financial position or results of operations. In March 2000, the FASB issued Financial Accounting Series Interpretation No. 44 entitled "Accounting for Certain Transactions involving Stock Compensation," which provides clarification to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The adoption of this Interpretation had no effect on the Company's financial position or results of operations. 51 55 Reclassifications - Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. 3. ACQUISITIONS, DIVESTITURES AND OTHER SIGNIFICANT EVENTS During each of the periods presented, the Company consummated acquisitions of radio stations. All of these acquisitions were accounted for under the purchase method of accounting (unless otherwise noted below), and the purchase price, including transaction costs, was allocated to the assets based upon their respective fair values as determined in most cases by an independent appraisal as of the purchase dates. Gains on exchange transactions are determined based on the excess of the estimated fair value of the station assets acquired, as determined by an independent appraisal, plus any cash received, over the Company's carrying basis in the station assets exchanged plus cash paid by the Company, all less transaction costs. FOR THE YEAR ENDED SEPTEMBER 30, 1998 On November 26, 1997, the Company acquired the assets of KSSJ-FM, serving the Sacramento, California radio market, from Susquehanna Radio Corp., KTHX License Investment Co. and KTHX Radio Inc. for $15.9 million in cash. The Company incurred transaction costs of approximately $0.1 million related to this acquisition. Broadcasting licenses and other intangibles in the amount of $15.8 million were recorded in connection with this transaction. On January 1, 1998, the Company acquired the assets of KCTC-AM, serving the Sacramento, California radio market, from American Radio Systems, Corporation ("ARS") for $4.0 million. Broadcasting licenses and other intangibles in the amount of $2.7 million were recorded in connection with this transaction. On January 1, 1998, the Company acquired the assets of KUDL-FM and WDAF-AM, serving the Kansas City, Kansas/Missouri radio market from ARS. As consideration for the assets received, which included the receipt of $7.1 million in cash from ARS, the Company transferred the assets of KLOU-FM, serving the St. Louis radio market, to ARS resulting in a gain of $0.3 million. The Company incurred transaction costs of approximately $0.3 million related to this acquisition. Broadcasting licenses and other intangibles in the amount of $12.8 million were recorded in connection with this transaction. The total purchase price of this transaction was $15.4 million. On May 7, 1998, the Company acquired the assets of WSKY-FM, serving the Gainesville/Ocala, Florida radio market, from Gator Broadcasting Co. ("Gator") for $2.0 million in cash plus an additional payment of up to $1.0 million payable once the authorized upgrade of the station from a Class A license to a Class C-2 license becomes final. On September 8, 2000, the Federal Communications Commission ("FCC") order permitting the upgrade became final and on October 2, 2000, the Company completed the upgrade under the agreement for $0.9 million in cash. The Company incurred transaction costs of approximately $0.1 million related to this acquisition. Including the cost of the upgrade, broadcasting licenses and other intangibles in the amount of $2.6 million were recorded in connection with this transaction. On May 15, 1998, the Company acquired the assets of KBAM-AM and KRQT-FM, serving the Longview, Washington radio market, from Armak Broadcasters Inc. for $1.0 million in cash. Broadcasting licenses and other intangibles in the amount of $0.4 million were recorded in connection with this transaction. On June 19, 1998, the Company acquired from Sinclair Broadcast Group the assets of KFXX-AM, KRSK-FM and KKSN-FM, all serving the Portland, Oregon radio market, and WBEE-FM, WBZA-FM (formerly WBBF-FM), WBBF-FM (formerly WQRV-FM) and WBBF-AM (formerly WEZO-AM) all serving the Rochester, New York radio market. The purchase price for the stations was $126.5 million in cash. The Company began operating these stations on March 1, 1998 under a TBA. The Company incurred transaction costs of approximately $0.5 million related to this acquisition. Broadcasting licenses and other intangibles in the amount of $121.3 million were recorded in connection with this transaction. On August 13, 1998 the Company acquired from Capital Broadcasting, Inc. the assets and rental leases used in connection with the operation of a tower facility serving the Kansas City, Kansas/Missouri radio market for a purchase price of $2.0 million in cash. FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 On December 11, 1998, the Company acquired the assets of WRKO-AM and WEEI-AM, serving the Boston radio market, from CBS Radio, Inc. ("CBS") for $82.0 million in cash (the "First Boston Transaction"). The Company incurred transaction costs of approximately $0.3 million related to this acquisition. Broadcasting licenses and other intangibles in the amount of $77.8 million were recorded in connection with this transaction. The Company had operated these stations under a TBA since September 1998. 52 56 On December 14, 1998, the Company acquired the assets of KSLM-AM, serving the Salem, Oregon radio market, from Willamette Broadcasting Radio, Inc (the "Willamette Transaction") for $0.6 million in cash. Broadcasting licenses and other intangibles in the amount of $0.5 million were recorded in connection with this transaction. On December 22, 1998, the Company sold the assets of WLLD-FM and WYUU-FM, serving the Tampa Florida radio market to CBS for $75.0 million in cash (the "Tampa Transaction"), resulting in a gain of approximately $69.6 million. FOR THE YEAR ENDED DECEMBER 31, 1999 On January 22, 1999, in a related party transaction, a wholly-owned subsidiary of the Company purchased a 1% limited partnership interest in ECI License Company, L.P. ("Partnership") for $3.4 million in cash. ECI License Company, L.P. was a limited partnership in which the Company was the general partner, owning a 99% general partnership interest. The Partnership owned certain of the Company's FCC licenses. The acquisition effectively gave the Company a 100% interest in its FCC licenses. On December 31, 1999, the Partnership was merged into the Company and the Partnership along with the entity holding the 1% limited partnership interest was dissolved. On February 22, 1999, the Company acquired the assets of WAAF-FM and WQSX-FM in Boston and WVEI-AM (formerly WWTM-AM) in Worchester from CBS for $58.0 million in cash (the "Second Boston Transaction"). The Company incurred transaction costs of approximately $0.2 million related to this acquisition. Broadcasting licenses and other intangibles in the amount of $55.7 million were recorded in connection with this transaction. The Company had operated these stations under a TBA since September 1998. On April 22, 1999, the Company sold a building located in Seattle, Washington for cash of $1.3 million, resulting in a gain of approximately $0.5 million. On June 11, 1999, the Company acquired the assets of KXTR-AM (formerly KKGM-AM), serving the Kansas City, Kansas/Missouri radio market from Mortenson Broadcasting Company of Canton, LLC for the sum of $2.8 million in cash. Broadcasting licenses and other intangibles in the amount of $2.5 million were recorded in connection with this transaction. On August 20, 1999, the Company entered into an agreement with Sinclair Broadcast Group ("Sinclair") which consisted of two separate asset purchase agreements for the purchase of: (1) Sinclair's 42 stations in eight markets and other assets for which the purchase price was $702.5 million ("First Sinclair Transaction") and (2) Sinclair's four Kansas City stations for which the purchase price was $122.0 million ("Sinclair Kansas City"). On December 16, 1999, under the First Sinclair Transaction, the Company acquired 41 of Sinclair's radio properties for a purchase price of $700.4 million in cash. This transaction included 26 FM and 15 AM radio stations in eight markets including Milwaukee, New Orleans, Memphis, Buffalo, Norfolk, Greensboro/Winston-Salem/High Point, Greenville/Spartanburg and Wilkes-Barre/Scranton. The Company also began operations at WKRF-FM in the Wilkes-Barre/Scranton market on December 16, 1999 under a TBA. In addition, the Company was responsible for certain capital expenditures of approximately $2.5 million, for which the Company fulfilled its obligation as of December 31, 2000. In connection with the First Sinclair Transaction, the Company recorded broadcasting licenses and other intangibles in the amount of $668.8 million and incurred transaction costs in the amount of $1.7 million. On July 20, 2000, the Company completed the acquisition of Sinclair Kansas City and on November 3, 2000, the Company completed the acquisition of WKRF-FM (see below). FOR THE YEAR ENDED DECEMBER 31, 2000 On February 23, 2000, the Company acquired from the Wichita Stations Trust ("Wichita Trust") a trust formed for the benefit of Capstar Broadcasting Corporation as required by federal regulations, all of the assets related to radio stations KEYN-FM, KFBZ-FM (formerly KWCY-FM, formerly KWSJ-FM), KQAM-AM, KFH-AM and KNSS-AM, serving the Wichita, Kansas radio for $8.0 million in cash. Broadcasting licenses and other intangibles in the amount of $6.3 million were recorded in connection with this transaction. With the acquisition of the two radio stations described below, the Company owns 7 radio stations serving the Wichita, Kansas radio market. On May 31, 2000, the Company acquired under two separate asset purchase agreements from Gary and Ann Violet, substantially all of the assets related to radio stations KWSJ-FM (formerly KAYY-FM) and KDGS-FM, serving the Wichita, Kansas radio market for a total of $5.1 million in cash. Broadcasting licenses and other intangibles in the amount of $4.8 million were recorded in connection with this transaction. On July 20, 2000, the Company acquired from Sinclair, the assets of Sinclair Kansas City, consisting of KCFX-FM, KQRC-FM, KCIY-FM and KRBZ-FM (formerly KXTR-FM), serving the Kansas City radio market, where the Company already owned seven radio stations, for $126.6 million in cash. Including this transaction, the Company completed the acquisition of 45 53 57 of 46 radio stations from Sinclair. In connection with the purchase of the four Kansas City radio stations, federal broadcasting regulations required the Company to divest three stations in the Kansas City radio market. To comply with these regulations, on July 20, 2000, the Company sold to Susquehanna Radio Corp. ("Susquehanna") three stations for cash (see below). The Company did not record the purchase of assets for KCFX-FM as this Kansas City radio station was acquired from Sinclair and sold to Susquehanna on the same date. Broadcasting licenses and other intangibles in the amount of $69.5 million and transaction costs in the amount of $0.6 million were recorded in connection with this transaction. In connection with the divestiture of the Kansas City radio stations required by federal broadcasting regulations, on July 20, 2000, the Company sold to Susquehanna for $113.0 million in cash, the assets of three radio stations serving the Kansas City radio market, KCMO-AM, KCMO-FM and KCFX-FM. The Company recorded a gain of $41.5 million from the sale of KCMO-AM and KCMO-FM, radio stations previously owned by the Company. No gain or loss was recognized from the July 20, 2000, purchase and sale of KCFX-FM. On August 31, 2000, the Company acquired from Woodward Communications, Inc. the assets of WOLX-FM, WMMM-FM and WBZU-FM (formerly WYZM-FM), serving the Madison, Wisconsin radio market for a purchase price of $14.6 million in cash. Broadcasting licenses and other intangibles in the amount of $12.8 million were recorded in connection with this transaction. On October 2, 2000, the Company completed the transaction with Gator to upgrade WSKY-FM to a Class C-2 license from a Class A license at a cost of $0.9 million in cash (see above). On November 3, 2000, the Company completed the acquisition from Sinclair of all of the assets related to radio station WKRF-FM, serving the Wilkes-Barre/Scranton, Pennsylvania radio market, where the Company already owns eight radio stations, for $0.6 million in cash. With this acquisition, the Company completed the purchase of all of the radio stations under agreement with Sinclair (see above). OTHER SIGNIFICANT EVENTS Effective July 1, 1997, the Company entered into a Joint Sales Agreement ("JSA") with Classic Radio, Inc. ("Classic"), whereby the Company serves as the exclusive sales agent for the Classic-owned KING-FM radio station located in Seattle Washington. This agreement is a continuation of a relationship under a prior JSA that expired on June 30, 1997. Under the JSA, which continues through June 30, 2002, the Company receives all revenues from the sale of advertising time broadcast on KING-FM and is required to pay a monthly fee to Classic based upon calculations as defined in the agreement. Under the terms of the JSA, the Company is responsible for all costs incurred in selling the advertising time. Classic is responsible for all costs incurred in operating the station. Net revenues and expenses incurred by the Company under this contract during the year ended September 30, 1998, the three-month periods ended December 31,1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000, were, $3.6 million and $ 2.3 million, $1.0 million and $06 million, $1.1 million and $0.6 million, $3.7 million and $2.3 million, $3.9 million and $2.3 million and $4.0 million and $2.4 million, respectively. On October 7, 1997, the Company, in a transaction with Kanza Inc., exchanged the broadcasting frequency and the transmitter related assets of KCMO-AM, Kansas City, Missouri for the broadcasting frequency and transmitter related assets of WHB-AM, Kansas City, Missouri. The Company incurred transaction costs of $0.2 million. The transaction was accounted for as a non-monetary exchange of similar productive assets and no gain or loss was recognized. The assets received were recorded at the historical cost of the assets surrendered. On July 20, 2000, Susquehanna purchased the assets of KCMO-AM along with other Kansas City radio station assets (see above). On May 7, 1998, the Company sold certain rights in a license for the Vancouver, Washington radio market to Jacor Communications and Smith Broadcasting, Inc. for $10.0 million in cash. The Company acquired an interest in these rights at a cost of $1.3 million. The sale resulted in a gain of $8.5 million. On June 25, 1998, the Company completed its transaction with McKenzie River Broadcasting Company ("McKenzie") whereby McKenzie received FCC approval to reclassify the broadcast license of its KMGE-FM station, serving Eugene, Oregon radio market, from a class C to a Class C-1. Such a reclassification of that station allowed the Company to seek approval from the FCC for construction and operation of an enhanced transmission facility for its KNRK-FM station serving the Portland, Oregon radio market. In consideration for its agreement, McKenzie was paid approximately $1.2 million in cash and the Company recorded this amount as broadcast licenses. On September 16, 1998, the Company completed an agreement with American Radio Systems, Inc. and American Radio Systems License Corp. (collectively referred to as "ARS") to exchange certain assets used in the operation of radio stations 54 58 serving the Sacramento radio market. ARS provided KRAK-FM's license and transmission facility to the Company in exchange for KRXQ-FM's license and transmission facility and $4.5 million. Each of the stations retained its own call letters, programming format and studio and office property and equipment, and the parties provided each other with reciprocal covenants against programming competition on the respective frequencies for a period of two years. ARS also transferred the intellectual property comprising program format for use by the Company on its recently acquired KSSJ-FM in that market. The transaction was accounted for as a non-monetary exchange of similar productive assets and no gain or loss was recognized. The assets received were recorded at the historical cost of the assets surrendered plus the $3.8 million paid to ARS. In a related transaction the Company sold the KRXQ-FM transmitter site, including broadcast tower facilities to ARS for $0.8 million, resulting in a loss of approximately $34,000. Prior to the revocation of its S Corporation election, the Company declared a dividend (the "S Distribution"), conditioned upon consummation of the IPO, payable to its former S Corporation shareholders in the amount of $88.1 million, which the Company estimated would be the undistributed balance of the income of the Company which has been taxed or was taxable to its S Corporation shareholders as of the Revocation Date. The S Distribution of $88.1 million was paid as of June 30, 1999. Prior to the IPO, Chase Capital, which held a Convertible Subordinated Promissory Note of the Company (the "Convertible Subordinated Note") in the principal amount of $25.0 million, converted the Convertible Subordinated Note into 2,327,500 shares of Class A Common Stock and 1,995,669 shares of Class C Common Stock (the "Chase Conversion"). At the time of the Chase Conversion, the market value of the shares into which the Convertible Subordinated Note was convertible, was approximately $97.3 million (the principal amount of the Convertible Subordinated Note plus accrued interest amounted to approximately $29.9 million, and the cumulative adjustment to reflect indexing of the Convertible Subordinated Note was approximately $67.4 million). The amount of $96.5 million, net of the write off of unamortized deferred financing costs of $.0.8 million, was recorded as an increase to shareholders' equity. The Convertible Subordinated Note has been retired and there is no further obligation due. On September 30, 1999, the Company and certain shareholders of the Company entered into an underwriting agreement to sell 8,750,000 shares of Class A Common Stock of which 8,000,000 shares were sold by the Company and 750,000 shares were sold by selling shareholders. The Company completed this offering on October 6, 1999 and sold 8,000,000 shares of Class A Common Stock at a price per share of $36.00. The net proceeds to the Company after deducting underwriting discounts and other offering expenses, was $276.1 million. The following unaudited pro forma summary presents the consolidated results of operations as if the transactions which occurred during the period of January 1, 1999 through December 31, 2000, had all occurred as of January 1, 1999, after giving effect to certain adjustments, including the conversion from an S Corporation, depreciation and amortization of assets and interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions and other transactions occurred as of January 1, 1999. 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 acquisition and other transactions been made as of that date or results which may occur in the future.

(UNAUDITED) YEAR ENDED DECEMBER 31 1999 2000 --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues $ 315,532 $ 355,314 ========= ========= Income before extraordinary item and gains on sale of assets $ 9,534 $ 25,225 ========= ========= Income before extraordinary item $ 35,605 $ 21,152 ========= ========= Net income $ 34,687 $ 21,152 ========= ========= Net income per share - basic $ 0.91 $ 0.47 ========= ========= Net income per share - diluted $ 0.87 $ 0.46 ========= =========

55 59 4. RADIO BROADCASTING LICENSES AND OTHER INTANGIBLES Radio Broadcasting Licenses and other intangibles consist of the following:

DECEMBER 31, DECEMBER 31, 1999 2000 ----------- ----------- (AMOUNTS IN THOUSANDS) FCC Licenses $ 1,242,665 $ 1,323,985 Other Intangibles 4,322 4,783 ----------- ----------- Subtotal 1,246,987 1,328,768 Less accumulated amortization (32,018) (62,952) ----------- ----------- Total Radio broadcasting licenses and other intangibles $ 1,214,969 $ 1,265,816 =========== ===========

5. DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets consist of the following:

DECEMBER 31, DECEMBER 31, 1999 2000 ------------ ------------ (AMOUNTS IN THOUSANDS) Debt issuance costs less accumulated amortization of $73 and $932 in 1999 and 2000, respectively $ 8,610 $ 7,946 Software costs less accumulated amortization of $292 and $667 in 1999 and 2000, respectively 479 2,084 Leasehold premium less accumulated amortization of $413 and $461 in 1999 and 2000, respectively 1,277 1,062 Other deferred charges less accumulated amortization of $9 in 2000 -- 13 -------- -------- $ 10,366 $ 11,105 ======== ========

6. INCOME TAXES Income tax expense, is summarized as follows:

YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 1999 2000 -------- -------- (AMOUNTS IN THOUSANDS) Current: Federal $ 9,083 $ (967) State 1,844 (230) -------- -------- Total current 10,927 (1,197) -------- -------- Deferred: Federal 78,202 26,643 State 11,172 6,350 -------- -------- Total deferred 89,374 32,993 -------- -------- Total income taxes $100,301 $ 31,796 ======== ========

56 60 Approximately $0.6 million of benefit for income taxes was allocated to an extraordinary item in connection with the early extinguishment of debt in the accompanying consolidated statements of operations for the year ended December 31, 1999 (Actual and Pro Forma). For purposes of the foregoing components of provision for income taxes, the allocation affects the current components of the provision. The Company revoked its S Corporation election on January 28, 1999. The last day the Company was taxed as an S Corporation was January 27, 1999. As a result of the revocation of its S Corporation election and conversion to a C Corporation, the Company recorded a non-cash deferred income tax expense of approximately $79.8 million to reflect the cumulative effect of temporary differences between the tax and financial reporting bases of the Company's assets and liabilities attributable to the period prior to its conversion to a C Corporation. The adjustment is reflected in results for the year ended December 31, 1999 (Actual). Upon closing the acquisition of radio properties from Sinclair on December 16, 1999, the Company recorded a non-cash deferred income tax expense of approximately $3.9 million. This amount reflects an increase in the Company's effective tax rate from 38% to 40% and its effect on previously reported temporary differences between the tax and financial reporting bases of the Company's assets and liabilities as a result of adding facilities in additional states which on average have higher income tax rates. The adjustment is reflected in results for the year ended December 31, 1999 (Actual and Pro Forma). Income tax expense computed using the United States federal statutory rates is reconciled to the reported income tax provisions as follows:

YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 1999 2000 -------- -------- (AMOUNTS IN THOUSANDS) Federal statutory income tax rate 35% 35% Computed tax expense at federal statutory rates on income before income taxes $ 14,344 $ 27,668 State income taxes (net of federal tax benefit) 1,834 3,953 S Corporation termination and conversion to a C Corporation 79,845 -- Deferred state income tax rate adjustment 3,891 -- Nondeductible expenses and other 387 176 -------- -------- Income tax provision $100,301 $ 31,796 ======== ========

The tax effects of significant temporary differences which compromise the net deferred tax assets and liabilities are as follows:

DECEMBER 31 DECEMBER 31 1999 2000 -------- -------- (AMOUNTS IN THOUSANDS) Current deferred tax assets: Employee benefits $ 599 $ 460 Provision for doubtful accounts -- 454 Other 1,174 585 --------- --------- Total net current assets 1,773 1,499 --------- --------- Noncurrent deferred tax assets (liabilities): Property and equipment and intangibles (91,331) (125,234) Employee benefits 184 1,038 --------- --------- Total net noncurrent liabilities (91,147) (124,197) --------- --------- Net deferred tax liabilities $ (89,374) $(122,697) ========= =========

57 61 7. DEBT (A) SENIOR DEBT Senior debt consists of the following:

DECEMBER 31, DECEMBER 31, 1999 2000 -------- -------- (AMOUNTS IN THOUSANDS) Notes payable, due September 30, 2007 $465,500 $461,000 Other 270 260 -------- -------- Total 465,770 461,260 Amounts due within one year 10 11 -------- -------- $465,760 $461,249 ======== ========

The Company's term and revolving credit facilities were refinanced on February 13, 1998, under a bank credit agreement (the "Credit Agreement") with Key Corporate Capital Inc., as administrative agent. The Credit Agreement provided for a $300.0 million Senior Secured Revolving Credit Facility. The Credit Agreement was amended on October 8, 1998 to increase the maximum borrowing capacity to $350.0 million. On December 16, 1999, the Credit Agreement was replaced with a new bank credit agreement (see below). The Company's Credit Agreement was refinanced on December 16, 1999, under a new bank credit agreement (the "Bank Facility") with Banc of America Securities LLC as the lead and syndication agent and Key Corporate Capital Inc., as administrative agent. The Bank Facility 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 multi-draw term loan ("Term Loan"), which was fully drawn as of September 29, 2000. The Bank Facility is secured by (1) a pledge of 100% of the Company's capital stock and other equity interest in all subsidiaries; (2) a security interest in all present and future assets and properties; (3) a security interest in all major tangible and intangible personal property assets of the Company and any future subsidiaries as well as a negative pledge on all real property, and (4) an assignment of all major leases and rights, as appropriate. Under the terms of the Bank Facility, the Company is restricted from the distribution of any dividends. 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. The Bank Facility also provides that at any time prior to December 31, 2001, the Company may solicit additional incremental loans up to $350.0 million, subject to syndicate approval, and will be governed under the same terms as the Term Loan. The availability under the Revolver and Term Loan, which mature on September 30, 2007, reduces on a quarterly basis beginning September 30, 2002 in quarterly amounts that vary from $12.2 million to $16.3 million for each Loan. The Company has the option to elect to pay interest at a rate equal to LIBOR (in increments with durations of 1, 2, 3 or 6 months) plus 0.75% or the prime rate. Upon the occurrence of certain events, the Company's borrowing costs can increase to a maximum of LIBOR plus 2.375% or prime plus 1.125%. The interest payable on LIBOR rate is payable at the end of the selected duration but not less frequently than every three months and on prime rates is payable at the end of each calendar quarter. The weighted average interest rate under the Credit Agreement at December 31, 1999 and 2000 was 8.1%. and 7.7%, respectively. The Company also pays a commitment fee which varies depending on certain financial covenants and the amount of the unused commitment, from 0.25% or 0.5% per annum, on the average unused balance of the Bank Facility. The amount available under the Bank Facility as of December 31, 2000, was $183.2 million. (B) INTEREST RATE TRANSACTIONS The Company enters into interest rate transactions to diversify its risk associated with interest rate fluctuations against the variable debt discussed in 7 (A) above 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 $129.0 million at December 31, 1999 and $263.0 million at December 31, 2000. These agreements, with initial terms that vary from 2 years to 7 years, effectively fix the interest at rates that vary from 5.8% to 8.5% on current borrowings. 58 62 (C) AGGREGATE PRINCIPAL MATURITIES Aggregate principal maturities on Senior debt are as follows (amounts in thousands): Fiscal years ending December 31: 2001 $ 11 2002 24,386 2003 56,886 2004 65,011 2005 87,261 Thereafter 227,705 -------- Total $461,260 ======== The extraordinary charges for the years ended September 30, 1998 and December 31, 1999, are the result of write-offs ($1.5 million and $0.9 million respectively, net of pro forma tax benefits) of unamortized finance charges resulting from the early extinguishment of long-term debt. (D) CONVERTIBLE SUBORDINATED NOTE On May 21, 1996, the Company entered into a convertible subordinated note purchase agreement with an investment partnership in the principal amount of $25.0 million (the "Convertible Subordinated Note"). Interest on the note accrued at the rate of 7% per annum. Such interest compounded annually and was deferred and payable with principal in one installment on May 21, 2003. The payment due date could be deferred by one year under certain circumstances. The obligations of the Company under the note were subordinate to the obligations of the notes payable to the banks as noted in (A) above. The Convertible Subordinated Note was convertible by the holder in certain events and circumstances such as a public offering of the Company's capital stock, a change of control of the Company, a sale of substantially all of the Company's assets, a merger or consolidation into a publicly traded company or the Company's ceasing to be an S Corporation. In the event of conversion, the holders would receive shares of the common stock of the Company representing an ownership interest of approximately 15% of the Company prior to such event in lieu of principal and interest. In connection with the Company's IPO, Chase Capital (the holder of the Note) elected to convert the Convertible Subordinated Note into 2,327,500 shares of Class A Common Stock and 1,995,669 shares of Class C Common Stock (the "Chase Conversion") and there was no further obligation due by the Company. The Company accounted for this instrument as indexed debt since under certain circumstances, the holder of the Convertible Subordinate Note had the option to put ("Put Option") the note to the Company and receive, at the option of the Company, either cash or a new note which would equal the fair market value of the shares of common stock into which the Convertible Subordinate Note would be convertible. Accordingly, the Company's statements of income for the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998 and the twelve-month period ended December 31, 1998 reflected an "adjustment to reflect indexing of the Convertible Subordinated Note". The adjustment to reflect indexing of the Convertible Subordinated Note had been determined by reference to the difference between the estimated market value of the shares of Common Stock into which the note was convertible pursuant to the terms of the Put Option and the sum of the principal outstanding of $25.0 million plus interest accrued at 7% per annum. Such estimated market value was calculated using comparable publicly held broadcast companies' multiples of broadcast cash flow. (E) OUTSTANDING LETTERS OF CREDIT The Company is required to maintain a letter of credit in connection with a sports contract that expires on November 15, 2005. As of December 31, 2000, the amount of the outstanding letter of credit was $5.8 million. 8. 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 59 63 provisions, the trust 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 ("Debenture"). 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 is a wholly-owned subsidiary of the Company, with the sole assets of the trust consisting 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. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. However, considerable judgement is necessary in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange or the value that ultimately will be realized upon maturity or disposition. Additionally, because of the variety of valuation techniques permitted under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," comparability of fair values among entities may not be meaningful. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of financial instruments for which it was practicable to estimate that value: Cash and cash equivalents, accounts receivable and accounts payable, including accrued liabilities: The carrying amounts of these assets and liabilities approximates fair value because of the short maturity of these instruments. Long-term debt: The amounts outstanding under the credit facility bear interest at current market rates and the carrying amounts approximate fair market value at December 31, 1999 and 2000. Interest rate swaps and collars: The fair value of the interest rate swap and collar contracts is estimated by obtaining quotations from brokers. The fair value is an estimate of the amounts that the Company would receive (pay) at the reporting date if the contracts were transferred to other parties or cancelled by either party. At December 31, 1999 and 2000, the fair value of these contracts were an asset of $1.2 million and a liability of $2.1 million, respectively. TIDES: The fair value of the Company's Convertible Preferred Securities, Term Income Deferrable Equity Securities at December 31, 1999 approximated the $125.0 million carrying value as the value did not materially change from the value at the date of issue, October 6, 1999, and the value at December 31, 1999. At December 31, 2000, the carrying value of the TIDES was $125.0 million and the fair value, which was based on available market prices, was $113.8 million. Outstanding Letters of Credit: The Company had letters of credit outstanding in the amounts of $12.5 million and $5.8 million as of December 31, 1999 and 2000. The Company does not believe it is practicable to estimate the fair value of these financial instruments and does not expect any material losses from their resolution since performance is not likely to be required. 10. COMMITMENTS AND CONTINGENCIES ACQUISITIONS The Company entered into a preliminary agreement on February 6, 1996 for the Company 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 efforts by the Company to pursue this transaction, Royce has been non-responsive. On July 28, 1999, the Company commenced a legal action seeking to enforce this agreement, and subsequently Royce filed a cross-complaint against the Company asking for treble damages, an injunction, attorney's fees and costs and filed a separate action against the Company's President asking for treble damages, an injunction, attorney's fees and costs. This separate action against the Company's President was dismissed without leave to amend in February 2000. The 60 64 Company is pursuing legal action against Royce and seeking dismissal of the cross-complaint. The Company estimates that the impact of an unfavorable outcome will not materially impact the financial position, results of operations or cash flows of the Company. The Company cannot determine if and when the transaction might occur. OTHER The Company's employment agreement with its Chairman and Chief Executive Officer renews automatically each calendar year unless terminated by either party in accordance with the contract. Under the terms of the agreement, the current base compensation is $600,000 and is increased or decreased annually by a percentage equal to the percentage of inflation or deflation over the immediately preceding twelve month period, provided that the base salary shall never be less than $500,000. The board of directors may approve additional salary, bonuses, fees, or other compensation. Total base compensation for the year ended September 30, 1998, the three-month periods ended December 31,1997 and 1998, the twelve-month period ended December 31,1998 and the years ended December 31, 1999 and 2000, was approximately $555,000, $136,000, $140,000, $558,000, $563,000 and $600,000, respectively. The Company's employment agreements with its Executive Officers, David J. Field, President, Chief Operating Officer and Director and John C. Donlevie, Executive Vice President, Secretary, General Counsel and Director, provides that the agreement may be terminated at will by either party (1) immediately if good cause for termination exists, or (2) upon thirty days notice in the absence of good cause. Pursuant to these employment agreements, the current annual salaries, effective January 1, 2000, of Mr. Field and Mr. Donlevie are $450,000 and $265,000, respectively. The Company's employment agreement with Stephen F. Fisher, Executive Vice President and Chief Financial Officer, provides that the agreement may be terminated at will by either party (1) immediately if good cause for termination exists or (2) upon at least 120 days notice prior to the end of the current yearly term. Mr. Fisher's current annual salary, effective January 1, 2000, is $300,000. Each of the above employment agreements provides for yearly salary adjustments for inflation and an annual discretionary bonus. In connection with the relocation of a studio site in one of the Company's radio markets, the Company has incurred approximately $1.0 million in costs as of December 31, 2000 and expects to incur an additional $2.0 million under a commitment to complete the construction project in the first quarter of the year 2001. Rental expense is incurred principally for office and broadcasting facilities. Rental expense during the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000 was approximately $2.8 million, $0.6 million, $0.8 million, $3.1 million, $3.7 million and $6.3 million, respectively. The Company also has various commitments under the following types of contracts: (1) sports programming; (2) on-air talent; (3) operating leases; and (4) television advertising, with aggregate minimum annual commitments as of December 31, 2000 as follows:

OPERATING SPORTS ON-AIR TELEVISION LEASES PROGRAMMING TALENT ADVERTISING --------- ----------- -------- ----------- (AMOUNTS IN THOUSANDS) Fiscal years ending December 31: 2001 $ 5,894 $ 18,300 $ 11,140 $ 1,200 2002 5,651 16,717 5,169 1,200 2003 5,001 9,450 1,623 1,200 2004 4,726 8,310 100 1,200 2005 4,326 8,500 - - Thereafter 24,786 - - - --------- --------- -------- -------- $ 50,384 $ 61,277 $ 18,032 $ 4,800 ========= ========= ======== ========

In October 1999, The Radio Music License Committee, of which the Company is a participant, filed a motion in the New York courts against Broadcast Music, Inc. commencing a rate-making proceeding, 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 for the period commencing January 1, 1997 at the rates and terms reflected in prior agreements. 61 65 The Company's management estimates that the impact of an unfavorable outcome of the motion 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. This would result in the imposition of license fees for Internet streaming and other digital media. As a result of this decision, the Company must now participate in an arbitration proceeding at the U.S. Copyright Office to determine the amount of the fees that are due from the use of sound recordings in Internet streaming. The Company, along with other broadcasters and the National Association of Broadcasters, previously commenced a legal action in New York challenging the imposition of these license fees. In addition, the Company has commenced a legal action, together with other radio broadcasters, seeking declaratory relief as to the impact of the final rule of the Copyright Office. The Company intends to pursue this action. However, the Company cannot determine the likelihood of success. The Company's management estimates that the impact of an unfavorable determination will not materially impact the financial position, results of operations or cash flows of the Company. The Company is subject to various outstanding claims that 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 adversely affect the financial position, results of operations or cash flows of the Company. 11. SHAREHOLDERS' EQUITY For the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999, the Company paid total dividends of approximately $2.8 million, $3.1 million, $0 million, $1.0 million, $4.1 million and $88.1 million, respectively. These amounts include special dividends paid to the Company's shareholders to compensate them for federal and state income tax obligations attributable to pass-through taxable income generated by the Company when it was taxed as a sub-chapter S Corporation prior to the Revocation Date. No dividends were paid by the Company after the Revocation Date relating to the Company's activities as a C Corporation. On June 24, 1998, the Board of Directors and the shareholders of the Company approved the Company's amended and restated Articles of Incorporation to provide for, among other things, an increase in the aggregate number of shares which the Company has authority to issue to 350,000,000 shares, par value $.01 per share, consisting of the following: (1) 200,000,000 shares of Class A Common Stock; (2) 75,000,000 shares of Class B Common Stock; (3) 50,000,000 shares of Class C Common Stock and (4) 25,000,000 shares of Preferred Stock. Such change occurred just prior to the effective date of the Company's initial public offering. The rights of each share of Common Stock are essentially identical other than with respect to voting rights. The Class A Common Stock entitles the holders thereof to one vote per share, the Class B Common Stock entitles the holders thereof to ten votes per share, subject to certain exceptions and the Class C Common Stock has no voting rights, except as otherwise required by law. Subject to any necessary approval of the Federal Communications Commission, the Class B Common Stock and the Class C Common Stock are convertible in whole or in part at any time into Class A Common Stock on a share-for-share basis. There are also no liquidation preferences for any class of stock. On May 11, 1999, November 15, 1999, May 9, 2000, May 15, 2000, August 22, 2000 and November 2, 2000, Chase Capital converted 300,000 shares, 298,833 shares, 300,000 shares, 1,167 shares, 300,000 shares and 300,000 shares, respectively, from shares of Class C Common Stock to shares of Class A Common Stock. In connection with the adoption of the Company's amended and restated Articles of Incorporation, the Company declared a 185 for 1 stock split payable to shareholders at the time the Amended and Restated Articles of Incorporation became effective. The accompanying consolidated financial statements give effect to these transactions as if they had occurred on September 30, 1997. 12. EMPLOYEE SAVINGS AND BENEFIT PLANS The Company sponsors a 401(k) savings plan that includes a provision under which the Company contributes 50% of the amount of any eligible employee's contribution to the plan up to a maximum employer contribution of 3% of an employee's compensation. The maximum eligible employee contribution under the plan was $10,000, $10,000 and $10,500 for the plan years ended December 31, 1998, 1999 and 2000, respectively. The Company may at its discretion suspend future matching contributions. The Company contributed approximately $0.6 million, $0.1 million, $0.2 million, $0.6 million, $0.8 million and $1.5 million under the 401(k) plan for the year ended September 30, 1998, the three-month periods ended December 31, 1997 and 1998, the twelve-month period ended December 31, 1998 and the years ended December 31, 1999 and 2000, respectively. 62 66 13. STOCK OPTIONS AND RESTRICTED STOCK The Company accounts for stock-based compensation plans under APB Opinion No. 25 for employees and under FASB No. 123 for non-employees. On June 24, 1998, the Company adopted an Equity Compensation Plan (the "Compensation Plan"). The Compensation Plan allows officers (including those also serving as directors) and other employees, non-employee directors and key advisors and consultants, selected by a Committee of Board of Directors, to receive incentive stock options, nonqualified stock options, restricted stock and stock appreciation rights in the Common Stock of the Company. All of the restricted stock and options vest over a four-year period and the options expire ten years from the date of grant. The Company has reserved 10% of the combined classes of Common Stock outstanding at the time of grant for issuance under the Compensation Plan. The Company recognized non-cash compensation expense (1) for the granting of restricted stock and (2) for options granted where the option price is less than the market value of shares on the grant date and for options issued to non-employees. For the year ended December 31, 1999, the Company issued 11,112 shares of restricted stock and 1,426,523 in options of which 1,150,961 options were issued at market value at the date of grant and 275,562 options were issued with an exercise price at 80% of the market value at the date of grant. For the year ended December 31, 2000, the Company issued 5,000 shares of restricted stock and 1,430,250 in options, of which 1,380,250 in options were issued at market value at the date of grant and 50,000 in options were issued at less that market value at the date of grant. For the year ended December 31, 1999, the Company recognized non-cash stock-based compensation expense of $0.4 million for options granted at prices below market value and for options issued to non-employees and $0.1 million for restricted stock. For the year ended December 31, 2000, the Company recognized non-cash stock-based compensation expense of $0.5 million for options granted at prices below market value and $0.1 million for restricted stock. As of December 31, 2000, the Company will recognize non-cash compensation expense in future periods of $0.6 million, $0.6 million and $0.2 million for the years ended December 31, 2001, 2002 and 2003, respectively. A summary of the status of the Company's stock options granted and changes during the year is presented below:

DECEMBER 31, 1999 DECEMBER 31, 2000 --------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- -------------- ---------- -------------- Outstanding at beginning of year -- -- 1,404,519 $ 31.83 Granted 1,426,523 $ 31.69 1,430,250 $ 35.34 Exercised -- -- (26,649) $ 21.66 Cancelled (22,004) $ 22.50 (84,724) $ 32.12 --------- --------- Outstanding at end of year 1,404,519 $ 31.83 2,723,396 $ 33.76 ========= ========= Options exercisable at year end -- -- 331,580 $ 32.85 Weighted-average fair value of options granted during the year, net of cancellations $ 31.83 $ 35.54

The following table summarizes information about stock options outstanding at December 31, 2000:

OPTIONS OUTSTANDING WEIGHTED WEIGHTED AVERAGE NUMBER OF OPTIONS WEIGHTED-AVERAGE AVERAGE NUMBER OF EXERCISE PRICE OUTSTANDING AT REMAINING EXERCISE OPTIONS OF OPTIONS EXERCISE PRICES DECEMBER 31, 2000 CONTRACTUAL LIFE PRICE EXERCISABLE EXERCISABLE --------------------- ----------------- ---------------- -------- ----------- ----------- $18.00 $18.00 270,562 8.1 $18.00 63,896 $18.00 $22.50 $22.50 459,784 8.1 $22.50 112,859 $22.50 $25.75 $27.75 733,000 9.9 $27.74 -- -- $28.19 $42.88 473,150 9.2 $40.95 10,725 $34.43 $43.94 $45.31 135,500 9.3 $43.96 -- -- $46.88 $46.88 532,900 8.8 $46.88 133,225 $46.88 $46.94 $59.44 118,500 9.1 $51.38 10,875 $54.04 --------- ---- ------ ------- ------ $18.00 $59.44 2,723,396 9.0 $33.76 331,580 $32.85 ========= ==== ====== ======= ======

At December 31, 2000, approximately 4.5 million shares of the Company's Class A Common Stock were authorized for awards under the plan, of which approximately 1.8 million shares remained available for future award. 63 67 The fair value of the options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions for 1999 and 2000: expected stock volatility ranging from 34% to 74%; dividend yields of 0%; risk-free interest rates ranging from of 5.4% to 6.5%; and expected lives ranging from five to six years from the date of grant. Had the Company determined compensation cost for the Equity Compensation Plan based on the fair value at the grant dates for awards in 1999 and 2000 consistent with the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:

YEAR ENDED DECEMBER 31 ---------------------- 1999 2000 ---- ---- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) - As reported ($60,877) $47,254 Additional compensation expense, net of taxes of $0.9 million and $3.3 in 1999 and 2000, respectively 1,362 4,955 -------- ------- Net income (loss) - Pro Forma ($62,239) $42,299 ======== ======= Basic net income (loss) per share - As reported ($1.61) $1.05 ======== ======= Basic net income (loss) per share - Pro Forma ($1.64) $0.94 ======== ======= Diluted net income (loss) per share - As reported ($1.61) $1.04 ======== ======= Diluted net income (loss) per share - Pro Forma ($1.64) $0.93 ======== =======

On June 24, 1998, the Company adopted an Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan allows the participants to purchase shares of the Company's Common Stock at a purchase price equal to 85% of the market value of such shares on the purchase date. Under this plan, during which there should be no expense recognized on the difference between the market value and the purchase price, 11,682 shares and 28,247 shares were purchased during the years ended December 31, 1999 and 2000. The shares of Common Stock reserved for issuance under the Purchase Plan was 1,850,000, leaving a balance of shares available for purchase as of December 31, 2000 of 1.8 million. 14. NET INCOME (LOSS) AND PRO FORMA NET INCOME (LOSS) PER COMMON SHARE Basic net income (loss) per common share and pro forma basic net income (loss) per common share is calculated by dividing net income (loss) and pro forma net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share and pro forma diluted loss per common share is calculated using the same number of shares outstanding as basic as any increase in the number of shares assumed would be anti-dilutive. Accordingly, the following is not assumed for purposes of computing the potential dilutive effect on diluted loss per share and pro forma diluted loss per share of: (1) the exercise of 1.4 million options outstanding during the year ended December 31, 1999, as adjusted to 0.3 million shares on a weighted average basis, using the treasury stock method, (2) the conversion of the Convertible Subordinated Note, after eliminating interest expense, net of tax, on the Convertible Subordinated Note, for the three-month period ended December 31, 1997 and (3) the conversion of 2.5 million TIDES into 2.8 million shares, as adjusted to 0.7 million shares on a weighted average basis, after eliminating interest expense, net of tax, on the TIDES, for the year ended December 31, 1999. Pro forma diluted net income per common share and diluted net income per common share is calculated using the same number of shares outstanding as basic and adjusted for the assumed exercise of 1.4 million and 1.4 million options outstanding, as adjusted to 0.3 million shares and 0.4 million shares on a weighted average basis, using the treasury stock method, for the years ended December 31, 1999 and 2000, respectively. Accordingly, the following is not assumed for purposes of computing the potential dilutive effect on diluted net income per share and pro forma diluted net income per share of: (1) the conversion of the Convertible Subordinated Note after eliminating interest expense, net of tax, on the Convertible Subordinated Note for the year ended September 30, 1998, the three-month period ended December 31,1998 and the twelve-month period ended December 31, 1998 and (2) the conversion of 2.5 million TIDES into 2.8 million shares, as adjusted to 0.7 million shares and 2.8 million shares on a weighted average basis, after eliminating interest expense, net of tax, on the TIDES, for the years ended December 31,1999 and 2000, respectively. The amounts used in calculating net income (loss) per share are as follows: 64 68

YEAR ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 ----------- ----------- 1999 2000 ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT SHARES) Net income (loss) ($60,877) $ 47,254 ============ ============ Weighted average shares outstanding - basic 37,921,623 45,209,036 Dilutive effect of options - 404,793 ------------ ------------ Weighted average shares outstanding - diluted 37,921,623 45,613,829 ============ ============

Options to purchase 1,404,519 shares of common stock were outstanding during 1999, but were excluded from the computation of diluted loss per share as their effect was anti-dilutive. Options to purchase 1,143,400 shares of common stock at a range of $42.44 to $59.35 were outstanding during 2000, but were excluded from the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common stock. The amounts used in calculating pro forma net income per share are as follows:

THREE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30 DECEMBER 31 DECEMBER 31 ------------ ----------- ----------- 1998 1998 1999 ------------ ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT SHARES) Pro forma net income before extraordinary item $ 2,773 $ 15,923 $ 20,676 Extraordinary item, net of pro forma taxes 1,488 -- 918 ----------- ----------- ----------- Pro forma net income $ 1,285 $ 15,923 $ 19,758 =========== =========== =========== Weighted average shares outstanding - basic 21,534,000 21,534,000 37,921,623 Shares adjusted under SAB 1.b.3 704,843 3,208,443 -- Dilutive effect of options -- -- 316,100 ----------- ----------- ----------- Weighted average shares outstanding - diluted 22,238,843 24,742,443 38,237,723 =========== =========== ===========

For the year ended September 30, 1998 and the three months ended December 31, 1998, the Company excluded from the computation of pro forma net income per share 4,323,169 shares issuable on the conversion of the Convertible Subordinated Note as their effect was anti-dilutive. 15. RELATED PARTY TRANSACTIONS On January 22, 1999, a wholly owned subsidiary of the Company purchased a 1% limited partnership interest in Partnership from Investors for an amount of $3.4 million. At the time of the purchase, the shareholders of Investors held stock in the Company on a percentage basis equal to the percentage of shares held in Investors. 65 69 16. QUARTERLY FINANCIAL DATA (UNAUDITED)

QUARTERS ENDED (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------------------------------------------------------- 1999: Net revenues $ 39,599 $55,946 $59,204 $60,252 Operating income $ 3,376 $14,215 $15,753 $17,384 Net income (loss) $(80,427) $ 7,152 $ 8,053 $ 4,345 Basic earnings (loss) per share $ (2.48) $ 0.19 $ 0.22 $ 0.10 ======== ======= ======= ======= Weighted basic average common shares outstanding 32,478 37,168 37,172 44,742 ======== ======= ======= ======= Diluted earnings (loss) per share $ (2.48) $ 0.19 $ 0.21 $ 0.10 ======== ======= ======= ======= Weighted diluted average common and common equivalents shares outstanding 32,803 37,583 37,506 45,143 ======== ======= ======= ======= 2000: Net revenues $ 70,877 $96,941 $92,462 $91,745 Operating income $ 11,029 $27,437 $66,697 $25,736 Net income (loss) $ (86) $ 9,463 $33,186 $ 4,691 Basic earnings (loss) per share $ (0.00) $ 0.21 $ 0.73 $ 0.10 ======== ======= ======= ======= Weighted basic average common shares outstanding 45,188 45,201 45,215 45,231 ======== ======= ======= ======= Diluted earnings (loss) per share $ (0.00) $ 0.21 $ 0.71 $ 0.10 ======== ======= ======= ======= Weighted diluted average common and common equivalents shares outstanding 45,508 45,506 48,410 45,461 ======== ======= ======= =======

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE FOR THE YEAR ENDED DECEMBER 31, 1999, DIFFERS FROM THE SUM OF BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE FOR THE QUARTERS DURING THE RESPECTIVE YEAR DUE TO THE DIFFERENT PERIODS USED TO CALCULATE NET INCOME (LOSS) AND WEIGHTED AVERAGE SHARES OUTSTANDING. DILUTED NET INCOME PER COMMON SHARE FOR THE YEAR ENDED DECEMBER 31, 2000, DIFFERS FROM THE SUM OF DILUTED NET INCOME (LOSS) PER COMMON SHARE FOR THE QUARTERS DURING THE RESPECTIVE YEAR DUE TO THE DILUTIVE EFFECT OF THE ASSUMED CONVERSION OF THE TIDES DURING THE THIRD QUARTER OF THE YEAR (TIDES WERE ANTI-DILUTIVE FOR ALL OTHER QUARTERS OF THE YEAR). Reclassifications - Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. 66 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized, in Bala Cynwyd, Pennsylvania, on March __, 2001. ENTERCOM COMMUNICATIONS CORP. By: /s/ JOSEPH M. FIELD ------------------- Joseph M. Field Chairman and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE --------- -------- ---- /s/ JOSEPH M. FIELD Chairman of the Board and Chief March 21, 2001 --------------------------------------------- Executive Officer (Principal Joseph M. Field Executive Officer) /s/ DAVID J. FIELD President, Chief Operating March 21, 2001 --------------------------------------------- Officer and a Director David J. Field /s/JOHN C. DONLEVIE Executive Vice President, March 21, 2001 --------------------------------------------- Secretary, General Counsel and John C. Donlevie a Director /s/ STEPHEN F. FISHER Executive Vice President and Chief March 21, 2001 --------------------------------------------- Financial Officer (Principal Stephen F. Fisher Financial and Accounting Officer /s/ MARIE H. FIELD Director March 21, 2001 --------------------------------------------- Marie H. Field /s/ HERBERT KEAN, M.D. Director March 21, 2001 --------------------------------------------- Herbert Kean, M.D. /s/ LEE HAGUE Director March 21, 2001 --------------------------------------------- Lee Hague /s/ THOMAS H. GINLEY, JR., M.D. Director March 21, 2001 --------------------------------------------- Thomas H. Ginley, Jr. M.D.

67 71

SIGNATURE CAPACITY DATE --------- -------- ---- /s/ S. GORDON ELKINS Director March 21, 2001 --------------------------------------------- S. Gordon Elkins /s/ MICHAEL R. HANNON Director March 21, 2001 --------------------------------------------- Michael R. Hannon /s/ DAVID J. BERKMAN Director March 21, 2001 --------------------------------------------- David J. Berkman

68 72 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ENTERCOM COMMUNICATIONS CORP. YEAR ENDED SEPTEMBER 30, 1998, THREE MONTHS ENDED DECEMBER 31, 1998 AND YEARS ENDED DECEMBER 31, 1999 AND 2000

ADDITIONS BALANCE AT CHARGED TO BEGINNING COSTS DEDUCTIONS BALANCE AT END ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD AND EXPENSES FROM RESERVES OF PERIOD ------------------------------- ---------- ------------ ------------- -------------- Year Ended September 30, 1998 $ 292,000 $ 920,000 ($845,000) $ 367,000 Three-month period ended December 31, 1998 $ 367,000 $ 327,000 ($101,000) $ 593,000 Year Ended December 31, 1999 $ 593,000 $2,000,000 ($1,164,000) $1,429,000 Year Ended December 31, 2000 $1,429,000 $3,670,000 ($2,893,000) $2,206,000

69 73 INDEX TO EXHIBITS

EXHIBIT NUMBER DESCRIPTION PAGE -------------- ----------- ---- 3.01 Amended and Restated Articles of Incorporation of the Registrant(2) 3.02 Form of Amended and Restated Bylaws of the Registrant(2) 4.01 Lock-up Release Agreement, dated as of May 6, 1999, between Chase Equity Associates L.P. and Credit Suisse Boston Corporation(3) 4.02 Form of Indenture for the Convertible Subordinated Debentures due 2014 among Entercom Communications Corp., as issuer, and Wilmington Trust Company, as indenture trustee(4) 10.01 Registration Rights Agreement, dated as of May 21, 1996, between the Registrant and Chase Equity Associates, L.P.(2) 10.02 Employment Agreement, dated June 25, 1993, between the Registrant and Joseph M. Field, as amended(2) 10.03 Employment Agreement, dated December 17, 1998, between the Registrant and David J. Field, as amended(2) 10.04 Employment Agreement, dated December 17, 1998, between the Registrant and John C. Donlevie, as amended(2) 10.05 Employment Agreement, dated November 13, 1998, between the Registrant and Stephen F. Fisher(2) 10.06 Entercom 1998 Equity Compensation Plan(2) 10.07 Asset Purchase Agreement, dated as of May 11, 2000, among the Registrant, Entercom Kansas City, LLC, Entercom Kansas City License, LLC, and Susquehanna Radio Corp. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request) (3) 10.08 Credit Agreement, dated as of December 16, 1999, by and among Entercom Radio, LLC, as the Borrower, the Registrant, as a Guarantor, Banc of America Securities LLC, as Sole Lead Arranger and Book Manager, Key Corporate Capital Inc., as Administrative Agent and Co-Documentation Agent, Bank of America, N.A., as Syndication Agent, and Co-Documentation Agent and the Financial Institutions listed therein.(6) 10.09 Amended and Restated Asset Purchase Agreement, dated as of August 20, 1999, among the Registrant, Sinclair Communications, Inc., WCGV, Inc., Sinclair Radio of Milwaukee Licensee, LLC, Sinclair Radio of New Orleans Licensee, LLC, Sinclair Radio of Memphis, Inc., Sinclair Radio of Memphis Licensee, Inc., Sinclair Properties, LLC, Sinclair Radio of Norfolk/Greensboro Licensee, L.P., Sinclair Radio of Buffalo, Inc., Sinclair Radio of Buffalo Licensee, LLC, WLFL, Inc., Sinclair Radio of Greenville Licensee, Inc., Sinclair Radio of Wilkes-Barre, Inc. and Sinclair Radio of Willkes-Barre Licensee, LLC. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request.)(5) 10.10 Asset Purchase Agreement, dated as of August 20, 1999, among the Registrant, Sinclair Communications, Inc., Sinclair Media III, Inc. and Sinclair Radio of Kansas City Licensee, LLC. (See table of contents for list of omitted schedules and exhibits, which the Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission upon request.)(5) 11.01 Reconciliation of Net Income (Loss) and Pro Forma Net Income (Loss) Per Common Share (1) 72 21.01 Information Regarding Subsidiaries of the Registrant (1) 75 23.01 Consent of Deloitte & Touche LLP, Philadelphia, Pa. (1) 77

(1) Filed herewith. (2) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-61381) (3) Incorporated by reference to our Quarterly Report on Form 10-Q. (File No. 001-14461) (4) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-86843) (5) Incorporated by reference to our Registration Statement on Form S-1. (File No. 333-86397) 70 74 (6) Incorporated by reference to our Current Report on Form 8-K. (File No. 001-14461) (b) Reports on Form 8-K None to report. 71