SPANISH BROADCASTING SYSTEM INC - Quarter Report: 2005 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission file number 33-82114

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

2601 South Bayshore Drive, PH II

Coconut Grove, Florida 33133

(Address of principal executive offices)(Zip Code)

(305) 441-6901

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 7, 2005, 40,277,805 shares of Class A common stock, par value $0.0001 per share, 24,503,500 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 7,600,000 shares of Class A common stock, were outstanding.

SPANISH BROADCASTING SYSTEM, INC.

INDEX

PART I. — FINANCIAL INFORMATION

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in

Stockholders’ Equity and Comprehensive Loss

for the Nine Months Ended September 30, 2005

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the “Company”, “we”, “us”, “our” or “SBS”). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of December 31, 2004 and September 30, 2005 and for the three- and nine-month periods ended September 30, 2004 and 2005 do not contain all disclosures required by generally accepted accounting principles. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for, the fiscal year ended December 31, 2004, included in our fiscal year end 2004 Annual Report on Form 10-K.

      In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and recurring nature, necessary for a fair presentation of the results of the interim periods. The results of operations for the three- and nine-month periods ended September 30, 2005 are not necessarily indicative of the results for a full year.

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123). SFAS No. 123R requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees. We are required to adopt the provisions of SFAS No. 123R on January 1, 2006. We are evaluating the requirements of SFAS No. 123R and have not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123 in Note 4(d).

      In December 2004, FASB issued FASB Statement No. 153, “Exchanges of Nonmonetary Assets” (SFAS No. 153), which replaces the Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” (APB No. 29), exception for nonmonetary exchanges of similar productive assets with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring on or after January 1, 2006.

      On August 17, 2004, we entered into an asset purchase agreement with Styles Media Group, LLC (“Styles Media Group”), to sell the assets of radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market, for a cash purchase price of $120.0 million (the “LA Asset Sale”). In connection with this agreement, Styles Media Group made a $6.0 million non-refundable deposit to the purchase price into escrow. On February 18, 2005, Styles Media Group exercised its right under the agreement to extend the closing date until March 31, 2005, by releasing the deposit from escrow to us.

      On March 30, 2005, we entered into an amendment to the asset purchase agreement with Styles Media Group. In connection with this amendment, Styles Media Group made an additional $14.0 million non-refundable deposit to the purchase price and we agreed to extend the closing date from March 31, 2005, to the later date of July 31, 2005 or five days following the grant of the FCC Final Order. On July 29, 2005, we entered into a second amendment to the asset purchase agreement with Styles Media Group. In connection with this second amendment, Styles Media Group made an additional $15.0 million non-refundable deposit to the purchase price and we agreed to extend the closing date from July 31, 2005, to the date that is designated by Styles Media Group, but no later than January 31, 2006. In addition, Styles Media Group will make an additional $20.0 million non-refundable deposit to the purchase price two days following the grant of the FCC

license renewals which we expect to occur in the fourth quarter of 2005. Although we expect the LA Asset Sale to be completed, there can be no assurance that such sale will be completed.

      On August 17, 2004, through our wholly-owned subsidiary, Spanish Broadcasting System SouthWest, Inc., we entered into a time brokerage agreement with Styles Media Group pursuant to which Styles Media Group was permitted to begin broadcasting its programming on radio stations KZAB-FM and KZBA-FM beginning on September 20, 2004. The time brokerage agreement will terminate upon the closing under, or termination of, the asset purchase agreement.

      We determined that, since we were not eliminating all significant revenues and expenses generated in this market, the pending LA Asset Sale did not meet the criteria to classify the stations’ operations as discontinued operations. However, we reclassified the stations’ assets as assets held for sale. On September 30, 2005, we had assets held for sale consisting of $63.9 million of intangible assets and $1.2 million of property and equipment, net, for radio stations KZAB-FM and KZBA-FM.

      KZAB-FM and KZBA-FM generated net revenues of $1.0 million and $0.6 million and generated station operating income of $0.6 million and $0.4 million for the quarters ended September 30, 2004 and 2005, respectively. KZAB-FM and KZBA-FM generated net revenues of $3.5 million and $1.7 million and generated station operating income of $1.7 million and $1.3 million for the nine month periods ended September 30, 2004 and 2005, respectively. For the three- and nine-months ended September 30, 2005, net revenue and station operating income were mainly generated by the funds received related to the stations’ time brokerage agreement.

      We intend to use the net cash proceeds received from the LA Asset Sale to repay certain amounts under our new senior secured credit facility term loan due 2013. Therefore, we have reclassified the senior secured credit facility term loan due 2013 balance from long-term debt to current debt. If the proposed LA Asset Sale does not close, we will be unable to use the anticipated proceeds from such sale to reduce our debt.

      On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with Infinity Media Corporation (“Infinity”), Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS (“SBS Bay Area”), we issued to Infinity (i) an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the “Series C preferred stock”), each of which is convertible at the option of the holder into twenty fully paid and non-assessable shares of our Class A common stock; and (ii) a warrant to purchase an additional 190,000 shares of Series C preferred stock, exercisable at any time from December 23, 2004 until December 23, 2008, at an exercise price of $300.00 per share (the “Warrant”).

      Under the terms of the certificate of designation governing the Series C preferred stock, the holder of Series C preferred stock has the right to convert each share of Series C preferred stock into twenty fully paid and nonassessable shares of our Class A common stock. The shares of Series C preferred stock issued at the closing of the merger are convertible into 7,600,000 shares of our Class A common stock, subject to adjustment, and the Series C preferred stock issuable upon exercise of the Warrant is convertible into an additional 3,800,000 shares of our Class A common stock, subject to adjustment. To date, none of these warrants have been exercised.

      In connection with the closing of the merger transaction, we also entered into a registration rights agreement with Infinity, pursuant to which, following a period of one year (or earlier if we take certain actions), Infinity may instruct us to file up to three registration statements, on a best efforts basis, with the Securities and Exchange Commission (SEC) providing for the registration for resale of the Class A common stock issuable upon conversion of the Series C preferred stock.

      We are required to pay holders of Series C preferred stock dividends on parity with our Class A common stock and Class B common stock, and each other class or series of our capital stock, if created, after December 23, 2004.

      The rights of the holders of shares of Class A common stock and Class B common stock are identical, except for voting rights and conversion provisions. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to ten votes per share. Holders of each class of common stock are entitled to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders of each class have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Each class of common stock is subordinate to our 10³/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share and liquidation preference of $1,000 per share (the “Series B preferred stock”) and on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

      In connection with the purchase of KXOL-FM and the merger agreement with Infinity, as discussed in Note 4 (a), we have warrants outstanding to ultimately purchase an aggregate of 4,500,000 shares of our Class A common stock. The following table summarizes information about these warrants which are outstanding as of September 30, 2005:

      In September 1999, we adopted an employee incentive stock option plan (the “1999 ISO Plan”) and a non-employee director stock option plan (the “1999 NQ Plan”). Options granted under the 1999 ISO Plan will vest according to terms to be determined by the compensation committee of our board of directors, and will have a contractual life of up to 10 years from the date of grant. Options granted under the 1999 NQ Plan will vest 20% upon grant and 20% each year for the first four years from grant. All options granted under the 1999 ISO Plan and the 1999 NQ Plan vest immediately upon a change in control of SBS, as defined therein. A total of 3,000,000 shares and 300,000 shares of Class A common stock have been reserved for issuance under the 1999 ISO Plan and the 1999 NQ Plan, respectively. Additionally, on November 2, 1999, we granted a stock option to purchase 250,000 shares of Class A common stock to a former director. These options vested immediately, and expire 10 years from the date of grant.

      A summary of the status of our stock options, as of December 31, 2004 and September 30, 2005, and changes during the nine-months ended September 30, 2005, is presented below (in thousands, except per share data):

      The following table summarizes information about stock options outstanding and exercisable at September 30, 2005 (in thousands, except per share data):

      We apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for our stock option plans. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The per share weighted average fair value of stock options granted to employees during the three- and nine-month periods ended September 30, 2004 and 2005 was $6.63 and $7.42 and $5.05 and $5.82, respectively, on the date of grant, using the Black-Scholes option-pricing model with the following assumptions at:

      Had compensation expense for our plans been determined consistent with SFAS No. 123, our net income (loss) applicable to common stockholders and net income (loss) per common share would have been adjusted to pro forma amounts indicated below (in thousands, except per share data):

      From time to time we are involved in litigation incidental to the conduct of our business, such as contractual matters and employee-related matters. In the opinion of management, such litigation is not likely to have a material adverse effect on our business, operating results or financial position.

      On June 14, 2000, an action was filed in the Eleventh Judicial Circuit (the “Court”) in and for Miami-Dade County, Florida by Jose Antonio Hurtado against us, alleging that he was entitled to a commission related to an acquisition made by us (the “Hurtado Case”). The Hurtado Case was tried before a jury during the week of December 1, 2003 and Mr. Hurtado was awarded the sum of $1.8 million, plus interest, which we accrued for during the quarter ended December 31, 2003. Mr. Hurtado also filed an application for attorneys’ fees, which we opposed on grounds that there was no contractual or statutory basis for such an award. We filed a motion for judgment notwithstanding the verdict, which was heard on February 6, 2004. On March 12, 2004, the Court denied our motion for judgment notwithstanding the verdict and, upon its own motion, the Court granted a new trial. On April 7, 2004, Mr. Hurtado filed a notice of appeal with the Third Circuit Court of Appeals, challenging the order granting a new trial, and on April 8, 2004, we filed a notice of cross-appeal, challenging the denial of our motion for judgment notwithstanding the verdict. On August 27, 2004, Mr. Hurtado filed his initial brief, and on January 10, 2005, we filed a combined response brief and initial brief on our cross-appeal. On March 7, 2005, Mr. Hurtado filed his reply brief and our reply brief was due 20 days thereafter. The Third Circuit Court of Appeals set the matter for oral argument on April 13, 2005. Subsequently, on May 5, 2005, the Third Circuit Court of Appeals ruled that judgment should be entered in our favor. On May 19, 2005, Mr. Hurtado filed a motion for rehearing which was denied, and the mandate upon the denial of Mr. Hurtado’s motion was issued on July 29, 2005. During the nine-months ended September 30, 2005, we reversed the legal contingency accrual of $1.8 million, plus interest related to this contingency based on the denial of Mr. Hurtado’s motion. We filed a motion with the trial court requesting judgment in our favor and are currently in the process of scheduling the hearing.

      On November 28, 2001, a complaint was filed against us in the United States District Court for the Southern District of New York (the “Southern District of New York”) and was amended on April 19, 2002. The amended complaint alleges that the named plaintiff, Mitchell Wolf, purchased shares of our Class A common stock pursuant to the October 27, 1999 prospectus and registration statement relating to our initial

public offering which closed on November 2, 1999. The complaint was brought on behalf of Mr. Wolf and an alleged class of similarly situated purchasers, against us, eight underwriters and/or their successors-in-interest who led or otherwise participated in our initial public offering, two members of our senior management team, one of whom is our Chairman of the Board, and an additional director, referred to collectively as the individual defendants. To date, the complaint, while served upon us, has not been served upon the individual defendants, and no counsel has appeared for them.

      This case is one of more than 300 similar cases brought by similar counsel against more than 300 issuers, 40 underwriter defendants, and 1,000 individuals alleging, in general, violations of federal securities laws in connection with initial public offerings, in particular, failing to disclose that the underwriter defendants allegedly solicited and received additional, excessive and undisclosed commissions from certain investors in exchange for which they allocated to those investors material portions of the restricted shares issued in connection with each offering. All of these cases, including the one involving us, have been assigned for consolidated pretrial purposes to one judge of the Southern District of New York. One of the claims against the individual defendants, specifically the Section 10b-5 claim, has been dismissed.

      In June of 2003, after lengthy negotiations, a settlement proposal was embodied in a memorandum of understanding among the investors in the plaintiff class, the issuer defendants and the issuer defendants’ insurance carriers. On July 23, 2003, our Board of Directors approved both the memorandum of understanding and an agreement between the issuer defendants and the insurers. The principal components of the settlement include: 1) a release of all claims against the issuer defendants and their directors, officers and certain other related parties arising out of the alleged wrongful conduct in the amended complaint; 2) the assignment to the plaintiffs of certain of the issuer defendants’ potential claims against the underwriter defendants; and 3) a guarantee by the insurers to the plaintiffs of the difference between $1.0 billion and any lesser amount recovered by the plaintiffs against the underwriter defendants. The payments will be charged to each issuer defendant’s insurance policy on a pro rata basis.

      On February 15, 2005, the Southern District of New York granted preliminary approval to the proposed settlement agreement, subject to a narrowing of the proposed bar on underwriter and non-settling defendant claims against the issuer defendants to cover only contribution claims. The Court directed the parties to submit revised settlement documents consistent with its Opinion and scheduled a conference for March 18, 2005 in order to (a) make final determinations as to the form, substance and program of notice, and (b) schedule a Rule 23 fairness hearing. Pursuant to the Court’s request, on May 2, 2005 the parties submitted an Amendment to Stipulation and Agreement of Settlement with Defendant Issuers and Individuals (the “Amendment”). Our Board of Directors approved the Amendment on May 4, 2005 and it has since received unanimous approval from all the non-bankrupt issuers.

      On July 25, 2005, anticipating that a notice of pendency of class action would be required by Court Order in the near future and in order to facilitate the mailing of such notice, we authorized our transfer agent, First Union National Bank, to release the identities of all our transferees and record holders during the class period to the Notice Administrator, The Garden City Group, Inc. On August 31, 2005, the Court entered an Order confirming preliminary approval of the Issuers’ Settlement, with only minor modifications, setting March 24, 2006, as the deadline for submission of any objections or requests for exclusion from the Settlement, scheduling a Settlement Fairness Hearing for April 24, 2006, to determine whether the Settlement should be finally approved, and, as anticipated, requiring the Notice Administrator to provide notice of pendency of class action. We do not have sufficient information to assess our potential exposure to liability, if any, and no amounts have been accrued in the condensed consolidated financial statements.

      On December 5, 2003, Amigo Broadcasting, L.P. (“Amigo”) filed an original petition and application for temporary injunction in the District Court of Travis County, Texas (the “Court”), against us, Raul Bernal (“Bernal”) and Joaquin Garza (“Garza”), two of our former employees. Amigo filed a first and second amended petition and application for temporary injunction on June 25, 2004 and February 18, 2005, respectively. The second amended petition alleged that we (1) misappropriated Amigo’s proprietary interests

by broadcasting the characters and concepts portrayed by the Bernal and Garza radio show (the “Property”), (2) wrongfully converted the Property to our own use and benefit, (3) induced Bernal and Garza to breach their employment agreements with Amigo, (4) used and continued to use Amigo’s confidential information and property with the intention of diverting profits from Amigo and of inducing Amigo’s potential customers to do business with us and our syndicators, (5) invaded Amigo’s privacy by misappropriating the name and likeness of Bernal and Garza, and (6) committed violations of the Lanham Act by diluting and infringing on Amigo’s trademarks. Based on these claims, Amigo seeks damages in excess of $3.0 million.

      On December 5, 2003, the Court issued a temporary injunction against all of the defendants and scheduled a hearing before the Court on December 17, 2003. The temporary injunction dissolved by its terms on December 1, 2004. On December 17, 2003, the parties entered into a settlement agreement, whereby the Court entered an Order on Consent of the settling parties, permitting Bernal and Garza’s radio show to be broadcast on our radio stations. In addition, we agreed that we would not broadcast the Bernal and Garza radio show in certain prohibited markets and that we would not distribute certain promotional materials that were developed by Amigo. On January 5, 2004, we answered the remaining claims asserted by Amigo for damages. The parties have exchanged some written discovery and are in the process of scheduling depositions. The case was scheduled for a jury trial on May 23, 2005. On March 18, 2005, the case was removed to the United States District Court for the Western District of Texas. A mediation between the parties was scheduled for August 22, 2005, however, this mediation has been postponed indefinitely until the parties conduct further discovery on the matter. Thus, the extent of any adverse impact on the company with respect to this matter can not be reasonably estimated at this time.

      On June 10, 2005, we entered into a first lien credit agreement with Merrill Lynch, Pierce Fenner & Smith, Incorporated, as syndication agent (“Merrill Lynch”), Wachovia Bank, National Association, as documentation agent (“Wachovia”), Lehman Commercial Paper Inc., as administrative agent (“Lehman”) and certain other lenders (the “First Lien Credit Facility”). The First Lien Credit Facility contains a term loan in the amount of $325.0 million, payable in twenty-eight consecutive quarterly installments commencing on June 30, 2005, and continuing on the last day of each of December, March, June and September of each year thereafter, through, and including, March 31, 2012. The amount of the quarterly installment due on each such payment date is equal to 0.25% of the original principal balance of the term loan funded on June 10, 2005, which is approximately $0.8 million. Through September 30, 2005, we have made two of these principal payments, totaling $1.6 million. The term loan is due and payable on June 10, 2012. The First Lien Credit Facility also includes a revolving credit loan in an aggregate principal amount of $25.0 million. The initial scheduled maturity of the revolving credit line is June 10, 2010. We currently have not made any drawings under the revolving credit loan.

      On June 10, 2005, we also entered into a second lien term loan agreement with Merrill Lynch, Wachovia, Lehman and certain other lenders (the “Second Lien Credit Facility” together with the First Lien Credit Facility, the “Credit Facilities”). The Second Lien Credit Facility provides for a term loan in the amount of $100.0 million with a scheduled maturity of June 10, 2013, with the full amount of such term loan being payable on such date.

      The Credit Facilities are subject to certain mandatory prepayments upon the occurrence of certain events, including asset sales (subject to certain exceptions set forth in the credit agreements).

      Approximately $123.7 million of the proceeds from the Credit Facilities was used to repay our $135.0 million senior secured credit facility term loan due 2009 and accrued interest. The remaining proceeds, together with cash on hand, totaling approximately $357.5 million, were placed in escrow with the trustee to redeem all of our $335.0 million aggregate principal amount of our 9⁵/8% senior subordinated notes due 2009, including the redemption premium and accrued interest through redemption. The redemption occurred on July 12, 2005 (See Note 8).

      We intend to use the net cash proceeds received from the LA Asset Sale to repay certain amounts under the Second Lien Credit Facility. Therefore, we have reclassified the Second Lien Credit Facility balance from long-term debt to current debt. If the proposed LA Asset Sale does not close, we will be unable to use the anticipated proceeds from such sale to reduce our debt.

      The interest rates per annum applicable to loans under the Credit Facilities are, at our option, the Base Rate or Eurodollar Base Rate (as defined in the respective credit agreement) plus, in each case, an applicable margin. The applicable interest rate under our First Lien Credit Facility will be reduced by 0.25% upon the achievement of certain conditions. Initially, the applicable margin in respect of (i) the First Lien Credit Facility is (a) 2.00% per annum for Eurodollar loans and (b) 1.00% per annum for Base Rate loans and (ii) the Second Lien Credit Facility is (a) 3.75% per annum for Eurodollar loans and (b) 2.75% per annum for Base Rate loans. The Base Rate is a fluctuating interest rate equal to the greater of (1) the Prime Rate in effect on such day and (2) the Federal Funds Effective Rate in effect on such day plus one-half of 1%.

      In addition, we will be required to pay the lenders under the revolving credit facility under the First Lien Credit Facility a commitment fee with respect to any unused commitments thereunder, at a per annum rate of 0.50%. We are also required to pay a prepayment fee in respect of all mandatory and optional prepayments under the Second Lien Credit Facility in an amount equal to: (i) 1.0% of the principal prepaid if (a) such prepayment is made with the proceeds of the LA Asset Sale on or before June 10, 2006 or (b) such prepayment is made after June 10, 2007, but on or before June 10, 2008 or (ii) 2.0% of the principal prepaid if (a) such prepayment is made other than with the proceeds of the LA Asset Sale on or before June 10, 2006 or (b) such prepayment is made after June 10, 2006, but on or before June 10, 2007.

      Our domestic subsidiaries, including any future direct or indirect subsidiaries that may be created or acquired by us, with certain exceptions as set forth in the credit agreements, guarantee our obligations under each of the First Lien Credit Facility and the Second Lien Credit Facility. The guarantees with respect to the First Lien Credit Facility and the Second Lien Credit Facility are secured by a perfected first priority security interest, or by a second priority security interest, as applicable, in substantially all of the guarantors’ tangible and intangible assets (including, without limitation, intellectual property and all of the capital stock of each of our direct and indirect domestic subsidiaries and 65% of the capital stock of certain of our first-tier foreign subsidiaries), subject to certain exceptions.

      Our Credit Facilities include certain negative covenants restricting or limiting our ability to, among other things:

      The Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default, including failure to pay principal, interest or fees, material inaccuracy of representations and warranties, violations of covenants, certain bankruptcy and insolvency events, certain ERISA events, certain events related to our FCC licenses, a change of control, cross-defaults to other debt and material judgments.

      On June 29, 2005, we entered into a five year interest rate swap to hedge against the potential impact of increases in interest rates on the First Lien Credit Facility. The interest rate swap fixed our LIBOR interest rate for five years at 4.23%, plus the applicable margin (2.00% as of September 30, 2005). We are accounting for our interest rate swap as a cash flow hedge under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The fair market value of this swap at September 30, 2005 was an asset of $4.4 million, with an associated deferred income tax liability of $1.8 million. As we have designated this interest rate swap as a cash flow hedge, and the swap was perfectly effective during the three- and nine-months ended September 30, 2005, the net asset was recorded as a component of comprehensive income and no ineffectiveness was recognized.

      On June 13, 2005, we announced that we called for redemption of all of our outstanding $335.0 million aggregate principal amount 9⁵/8% senior subordinated notes due 2009 (the “9⁵/8% Notes”). The aggregate redemption price of the 9⁵/8% Notes, including redemption premium and accrued interest, was approximately $357.5 million, which was held in trust. On July 12, 2005 (the “Redemption Date”), we redeemed $335.0 million in the aggregate principal amount of the 9⁵/8% Notes at a price of $1,048.13 per $1,000, plus accrued interest through the Redemption Date. As a result of the early extinguishment of the 9⁵/8% Notes, we recognized a loss on early extinguishment of debt related to call premiums and the write-off of unamortized discount and deferred financing costs of approximately $29.4 million during the three-months ended September 30, 2005.

      On July 12, 2005, we, through our wholly-owned subsidiary, Mega Media Holdings, Inc. (“Mega Media”), entered into an asset purchase agreement (the “Purchase Agreement”) with WDLP Broadcasting Company, LLC, a Delaware limited liability company (“WDLP”), WDLP Licensed Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of WDLP, Robin Broadcasting Company, LLC, a Delaware limited liability company (“Robin Broadcasting Company”), and Robin Licensed Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of Robin Broadcasting Company. Pursuant to the Purchase Agreement, Mega Media will acquire the assets, including licenses, permits and authorizations issued by the FCC used in or related to the operation of television stations WDLP-TV (Channel 22), its derivative digital television station WDLP-DT (Channel 3) in Key West, Florida and WSBS-CA (Channel 50) in Miami, Florida. The purchase price is equal to $37.0 million, plus $0.3 million since the transaction did not close prior to August 31, 2005, plus expenses, plus or minus certain customary pro-rations. The transaction is expected to close in the fourth quarter of 2005; however, we cannot assure you that the transaction will close. We have paid $0.8 million during the three months ended September 30, 2005 which will be applied to the purchase price upon closing. At closing, Mega Media may pay $22.5 million of the purchase price by the delivery of a three-year promissory note guaranteed by us and secured by the assets being acquired in the transaction. The remainder of the cash due at closing of $14.0 million will be funded with cash on hand and operations. The Purchase Agreement contains customary representations, warranties, and covenants. The closing of the sale is subject to certain conditions, including FCC consent. We expect to continue to incur start-up expenses related to Mega Media.

      Since November 1, 2000, we have been leasing our corporate office space under a 10-year lease, with the right to renew for two consecutive five-year terms. Our corporate headquarters are located in a 21-story office building in Coconut Grove, Florida owned by Irradio Holdings, Ltd., a Florida limited partnership (“Irradio”), for which the general partner is Irradio Investments, Inc., a Florida subchapter S corporation, wholly-owned by Mr. Alarcón, Jr., our Chief Executive Officer, President and Chairman of the Board of Directors.

      On July 6, 2005, we entered into the Second Amendment to Lease, effective as of December 1, 2004, amending our existing Lease, dated as of December 14, 2000, as amended (the “Second Amendment”) with Irradio. On July 5, 2005, we received an opinion from Merrill Lynch as to the fairness of the Second Amendment. Under the terms of the Second Amendment, the parties agreed to extend the lease term of the existing office space until April 30, 2015, expand the size of the office space and pay a total average monthly rent of approximately $131,000. The additional office space will be used for the operations of the Miami stations. We believe that the monthly rent we pay is at the market rate.

Overview

      We are the largest Hispanic-controlled radio broadcasting company in the United States. Upon the completion of all previously announced transactions, we will own and operate 20 radio stations in markets that reach approximately 49% of the U.S. Hispanic population and one television station, which reaches 1.5 million households in the Miami-Ft. Lauderdale area. Our radio stations are located in six of the top ten Hispanic markets of Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. Los Angeles and New York have the largest and second largest Hispanic populations, and are the largest and second largest radio markets in the United States in terms of advertising revenue, respectively. Our top three markets, based on net revenues, are New York, Los Angeles and Miami. A significant decline in net revenue or station operating income from our stations in any of these markets could have a material adverse effect on our financial position and results of operations. As part of our operating business, we also operate LaMusica.com, a bilingual Spanish-English Internet website providing content related to Latin music, entertainment, news and culture.

      The success of each of our stations depends significantly upon its audience ratings and share of the overall advertising revenue within its market. The broadcasting industry is a highly competitive business, but some barriers to entry do exist. Each of our stations competes with both Spanish-language and English-language stations in its market, as well as with other advertising media such as newspapers, cable television, the Internet, magazines, outdoor advertising, transit advertising and direct mail marketing. Factors which are material to our competitive position include management experience, our station’s rank in its market, signal strength and frequency and audience demographics, including the nature of the Spanish-language market targeted by a particular station.

      Our primary source of revenue is the sale of advertising time on our radio stations to local and national advertisers. Our revenue is affected primarily by the advertising rates that our stations are able to charge, as well as the overall demand for advertising time in each respective market. Seasonal net broadcasting revenue fluctuations are common in the broadcasting industry and are due to fluctuations in advertising expenditures by local and national advertisers. Typically for the radio broadcasting industry, the first calendar quarter generally produces the lowest revenue. Our most significant operating expenses are compensation expenses, programming expenses, professional fees and advertising and promotional expenses. Our senior management strives to control these expenses, as well as other expenses, by working closely with local station management and others, including vendors.

Comparison Analysis of the Operating Results for the Three Months Ended September 30, 2004 and 2005

      The following summary table presents a comparison of our results of operations for the three-month periods ended September 30, 2004 and 2005. Various fluctuations illustrated in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.

      Net Revenue. The increase in net revenue was due partially to our start-up station in San Francisco, KRZZ-FM, which generated net revenues of approximately $1.3 million for the current quarter. In addition, we had increases in our Puerto Rico market, mainly from promotional events, and our New York market, primarily from local revenue.

      Engineering and Programming Expenses. The increase in engineering and programming expenses was mainly caused by our start-up station in San Francisco, KRZZ-FM, totaling $0.3 million and our new television project, totaling $0.3 million. These expenses were offset by a decrease in compensation and benefits.

      Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses was mainly caused by (a) related expenses of our new start-up station in San Francisco, KRZZ-FM, totaling $0.7 million and our new television project, totaling $0.6 million, (b) professional fees related mostly to our compliance with the Sarbanes-Oxley Act of 2002, (c) building expense related to a new lease for our Miami stations’ facilities and (d) the provision for doubtful accounts receivable. These expenses were offset by a decrease in cash advertising.

      Corporate Expenses. The increase in corporate expenses was mainly caused by an increase in employee compensation and benefits and legal and professional fees.

      Operating Income from Continuing Operations. The decrease in operating income from continuing operations was primarily attributed to the increases in engineering and programming, selling, general and administrative expenses and corporate expenses, partially offset by the increase in net revenue.

      Interest Expense, Net. The decrease in interest expense, net, was primarily due to lower interest expense incurred on the Credit Facilities that were entered into on June 10, 2005 versus interest expense incurred on our prior debt structure. In addition, interest expense, net, decreased due to an increase in interest income resulting from a general increase in interest rates on our cash balances.

      Loss on early extinguishment of debt. The loss on early extinguishment of debt was due to call premiums paid and the write-off of unamortized discount and deferred financing costs related to the redemption of the 9⁵/8% senior subordinated notes, due 2009, on July 12, 2005.

      Income Taxes. The increase in income tax expense was due primarily to an increase in income from continuing operations before income taxes and discontinued operations, excluding the loss on early extinguishment of debt. Our effective book tax rate has been impacted by the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). As a result of adopting SFAS No. 142, the reversal of our deferred tax liabilities related to our intangible assets could no longer be assured over our net operating loss carry forward period. Therefore, our effective book tax rate is impacted by a full valuation allowance on our deferred tax assets. We expect that total income tax expense for the full year to be approximately $17.0 million, which is comprised primarily of deferred income tax expense.

      Discontinued Operations, Net of Taxes. The decrease in discontinued operations, net of taxes, was mainly attributable to the $17.0 million gain recognized in the prior year’s quarter on the sale of our San Francisco station, KPTI-FM, net of closing costs and taxes.

      Net Income. The decrease in net income was primarily due to the loss on early extinguishment of debt, the increase in income taxes, and the decrease in income from discontinued operations, offset by a decrease in interest expense, net.

Comparison Analysis of the Operating Results for the Nine Months Ended September 30, 2004 and 2005

      The following summary table presents a comparison of our results of operations for the nine-month periods ended September 30, 2004 and 2005. Various fluctuations illustrated in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.

      Net Revenue. The increase in net revenue was mainly due to the double-digit growth in our New York and Los Angeles markets primarily from local and barter revenue. In addition, our new start-up station in San Francisco, KRZZ-FM, generated net revenues of approximately $3.3 million for the current nine-months.

      Engineering and Programming Expenses. The increase in engineering and programming expenses was mainly caused by expenses of our start-up station in San Francisco, KRZZ-FM, totaling $1.1 million and our new television project, totaling $0.3 million. These expenses were offset by a decrease in compensation and benefits.

      Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses was mainly caused by: (a) expenses of our new start-up station in San Francisco, KRZZ-FM, totaling $3.8 million and our new television project, totaling $0.6 million; (b) barter expense due to related marketing costs; (c) professional fees related to our compliance with the Sarbanes-Oxley Act of 2002; (d) promotional events expenses; (e) building expense related to a new lease for our Miami stations facilities; and, (f) local commissions due to the increase in net revenue. These expenses were offset by a decrease in cash advertising.

      Corporate Expenses. The increase in corporate expenses was mainly caused by an increase in employee compensation and benefits and legal and professional fees.

      Operating Income from Continuing Operations. The increase in operating income from continuing operations was primarily attributed to the increase in net revenues, offset by increases in engineering and programming, selling, general and administrative expenses and corporate expenses.

      Interest Expense, Net. The decrease in interest expense, net, was primarily due to lower interest expense incurred on the Credit Facilities that were entered into on June 10, 2005 versus interest expense incurred on our prior debt structure. In addition, interest expense, net, decreased due to an increase in interest income resulting from a general increase in interest rates on our cash balances.

      Loss on early extinguishment of debt. The loss on early extinguishment of debt was due to (a) call premiums paid and the write-off of unamortized discount and deferred financing costs related to the redemption of the 9⁵/8% senior subordinated notes, due 2009, on July 12, 2005 and (b) the write-off of deferred financing costs related to the pay-down of the $135.0 million senior secured credit facility term loan due 2009, on June 10, 2005.

      Other Income, net. The increase in other income, net, was due to the reversal of the legal judgment upon appeal, in the Hurtado Case, that was expensed in a prior period.

      Income Taxes. The increase in income tax expense was due primarily to an increase in income from continuing operations before income taxes and discontinued operations, excluding the loss on early extinguishment of debt. Our effective book tax rate has been impacted by the adoption of SFAS No. 142. As a result of adopting SFAS No. 142, the reversal of our deferred tax liabilities related to our intangible assets could no longer be assured over our net operating loss carry forward period. Therefore, our effective book tax rate is impacted by a full valuation allowance on our deferred tax assets. We expect total income tax expense for the full year to be approximately $17.0 million, which is comprised primarily by deferred income tax expense.

      Discontinued Operations, Net of Taxes. The decrease in discontinued operations, net of taxes, was primarily attributable to (a) the $11.6 million gain recognized in the prior year on the sale of our San Antonio stations, KLEY-FM and KSAH-AM, net of closing costs and taxes, and (b) the $17.0 million gain recognized in the prior year on the sale of our San Francisco station, KPTI-FM, net of closing costs and taxes.

      Net Income. The decrease in net income was primarily due to the loss on early extinguishment of debt, increase in income taxes, decrease in income from discontinued operations, offset by an decrease in interest expense, net.

Liquidity and Capital Resources

      Our primary sources of liquidity are cash on hand, cash provided by operations and, to the extent necessary, undrawn commitments that are available under our $25.0 million revolving credit facility. Our ability to raise funds by increasing our indebtedness is limited by the terms of the certificates of designations governing our preferred stock and the credit agreements governing our Credit Facilities. Additionally, our certificates of designations and credit agreements each place restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates and consolidations and mergers, among other things. We had cash and cash equivalents of $132.0 million and $100.9 million as of December 31, 2004, and September 30, 2005, respectively.

      The following summary table presents a comparison of our capital resources for the nine-month periods ended September 30, 2004 and 2005, with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed below. This section should be read in conjunction with the unaudited condensed consolidated financial statements and notes.

      Net Cash Flows Provided by Operating Activities. Changes in our net cash flows from operating activities were primarily a result of the increase in cash received from customers, offset mainly by an increase in cash paid to vendors and for interest and the reversal of the legal judgment upon appeal, in the Hurtado Litigation.

      Net Cash Flows Provided by Investing Activities. Changes in our net cash flows from investing activities were primarily a result of (a) deposits totaling $35.0 million received for the pending sale of our Los Angeles stations KZAB-FM and KZBA-FM, offset by capital expenditures for 2005 and (b) proceeds of $51.9 million we received in 2004 for the sale of San Antonio stations KLEY-FM and KSAH-AM, and San Francisco station, KPTI-FM, offset by capital expenditures.

      Net Cash Flows Used In Financing Activities. Changes in our net cash flows from financing activities were primarily a result of the 2005 refinancing, which (a) paid-down the $135.0 million senior secured credit facility term loan due 2009, (b) redeemed the 9⁵/8% senior subordinated notes due 2009 and (c) incurred additional financing costs. Offsetting these outflows were the inflows from the Credit Facilities.

      Management believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our operating obligations in the foreseeable future, including required interest and quarterly principal payments pursuant to the credit agreements governing our Credit Facilities and capital expenditures, excluding the acquisitions of FCC licenses. Assumptions (none of which can be assured) which underlie management’s beliefs, include the following:

      Our strategy is to primarily utilize cash flows from operations to meet our capital needs and contractual obligations. However, we also have bank borrowings available to meet our capital needs and contractual obligations and, when appropriate and, if available, will obtain financing by issuing debt or stock.

      On June 10, 2005, we entered into new senior secured credit facilities with affiliates of Lehman, Merrill Lynch, and Wachovia. The senior secured credit facilities provided for an aggregate of $425.0 million in funded term loans, consisting of a $325.0 million first lien credit facility, plus a $25.0 million revolving loan facility and a $100.0 million second lien credit facility.

      On June 10, 2005, approximately $123.7 million of the proceeds from the new Credit Facilities were used to repay our $135.0 million senior secured credit facility term loan due 2009 and accrued interest. Due to this repayment, we incurred a loss on early extinguishment of debt, totaling approximately $3.2 million, related to write-offs of deferred financing costs. The remaining proceeds, together with cash on hand, totaling approximately $357.5 million, were placed in escrow with the trustee to redeem all of our $335.0 million

aggregate principal amount of 9⁵/8% senior subordinated notes due 2009, including the redemption premium and accrued interest through redemption. On July 12, 2005, the 9⁵/8% senior subordinated notes due 2009 were redeemed and we incurred a loss on extinguishment of debt, totaling approximately $29.4 million related to call premiums, and the write-off of unamortized discount and deferred financing costs.

      On June 29, 2005, we entered into a five year interest rate swap to hedge against the potential impact of increases in interest rates on the First Lien Credit Facility. The interest rate swap fixed our LIBOR interest rate for five years at 4.23%, plus the applicable margin (2.00% as of September 30, 2005). We are accounting for our interest rate swap as a cash flow hedge under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” The fair market value of this swap at September 30, 2005, was an asset of $4.4 million, with an associated deferred income tax liability of $1.8 million. As we have designated this interest rate swap as a cash flow hedge, and the swap was perfectly effective during the three- and nine-months ended September 30, 2005, the net asset was recorded as a component of comprehensive income and no ineffectiveness was recognized.

      On August 17, 2004, we entered into an asset purchase agreement with Styles Media Group, LLC (“Styles Media Group”), to sell the assets of radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market, for a cash purchase price of $120.0 million (the “LA Asset Sale”). In connection with this agreement, Styles Media Group made a $6.0 million non-refundable deposit to the purchase price into escrow. On February 18, 2005, Styles Media Group exercised its right under the agreement to extend the closing date until March 31, 2005, by releasing the deposit from escrow to us.

      On March 30, 2005, we entered into an amendment to the asset purchase agreement with Styles Media Group. In connection with this amendment, Styles Media Group made an additional $14.0 million non-refundable deposit to the purchase price and we agreed to extend the closing date from March 31, 2005, to the later date of July 31, 2005, or five days following the grant of the FCC Final Order. On July 29, 2005, we entered into a second amendment to the asset purchase agreement with Styles Media Group. In connection with this second amendment, Styles Media Group made an additional $15.0 million non-refundable deposit to the purchase price and we agreed to extend the closing date from July 31, 2005, to the date that is designated by Styles Media Group, but no later than January 31, 2006. In addition, Styles Media Group will make an additional $20.0 million non-refundable deposit to the purchase price two days following the grant of the FCC license renewals which we expect to occur in the fourth quarter of 2005. Although we expect the LA Asset Sale to be completed, there can be no assurance that such sale will be completed.

      On August 17, 2004, through our wholly-owned subsidiary, Spanish Broadcasting System SouthWest, Inc., we entered into a time brokerage agreement with Styles Media Group pursuant to which Styles Media Group was permitted to begin broadcasting its programming on radio stations KZAB-FM and KZBA-FM beginning on September 20, 2004. The time brokerage agreement will terminate upon the closing under, or termination of, the asset purchase agreement.

      We determined that, since we were not eliminating all significant revenues and expenses generated in this market, the pending LA Asset Sale did not meet the criteria to classify the stations’ operations as discontinued operations. However, we reclassified the stations’ assets as assets held for sale. On September 30, 2005, we had assets held for sale consisting of $63.9 million of intangible assets and $1.2 million of property and equipment, net, for radio stations KZAB-FM and KZBA-FM.

      KZAB-FM and KZBA-FM generated net revenues of $1.0 million and $0.6 million and generated station operating income of $0.6 million and $0.4 million for the quarters ended September 30, 2004 and 2005, respectively. KZAB-FM and KZBA-FM generated net revenues of $3.5 million and $1.7 million and generated station operating income of $1.7 million and $1.3 million for the nine month periods ended September 30, 2004 and 2005, respectively. For the three- and nine-months ended September 30, 2005, net revenue and station operating income were mainly generated by the funds received related to the stations’ time brokerage agreement.

      We intend to use the net cash proceeds received from the LA Asset Sale to repay certain amounts under our new senior secured credit facility term loan due 2013. Therefore, we have reclassified the senior secured

credit facility term loan due 2013 balance from long-term debt to current debt. If the proposed LA Asset Sale does not close, we will be unable to use the anticipated proceeds from such sale to reduce our debt.

      On July 12, 2005, we, through our wholly-owned subsidiary, Mega Media Holdings, Inc. (“Mega Media”), entered into an asset purchase agreement (the “Purchase Agreement”) with WDLP Broadcasting Company, LLC, a Delaware limited liability company (“WDLP”), WDLP Licensed Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of WDLP, Robin Broadcasting Company, LLC, a Delaware limited liability company (“Robin Broadcasting Company”), and Robin Licensed Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of Robin Broadcasting Company. Pursuant to the Purchase Agreement, Mega Media will acquire the assets, including licenses, permits and authorizations issued by the FCC used in or related to the operation of television stations WDLP-TV (Channel 22), its derivative digital television station WDLP-DT (Channel 3) in Key West, Florida and WSBS-CA (Channel 50) in Miami, Florida. The purchase price is equal to $37.0 million, plus $0.3 million since the transaction did not close prior to August 31, 2005, plus expenses, plus or minus certain customary pro-rations. The transaction is expected to close in the fourth quarter of 2005; however, we cannot assure you that the transaction will close. We have paid $0.8 million during the three months ended September 30, 2005, which will be applied to the purchase price upon closing. At closing, Mega Media may pay $22.5 million of the purchase price by the delivery of a three-year promissory note guaranteed by us and secured by the assets being acquired in the transaction. The remainder of the cash due at closing of $14.0 million will be funded with cash on hand and operations. The Purchase Agreement contains customary representations, warranties, and covenants. The closing of the sale is subject to certain conditions, including FCC consent. We expect to continue to incur start-up expenses related to Mega Media. For the fourth quarter ending December 31, 2005, we expect start-up expenses for the anticipated launch of the TV station to total approximately $3.5 million.

      We continuously evaluate opportunities to make strategic acquisitions, primarily in the largest Hispanic markets in the United States. We engage in discussions regarding potential acquisitions from time to time in the ordinary course of business. Except as discussed above, we currently have no other written understandings, letters of intent or contracts to acquire stations or other companies. We anticipate that any future acquisitions would be financed through funds generated from permitted debt financing, equity financing, operations, asset sales or a combination of these sources. However, there can be no assurance that financing from any of these sources, if necessary and available, can be obtained on favorable terms for future acquisitions.

      During 2005, we have entered into various contractual obligations. Therefore, we have revised our contractual obligations table from what was previously disclosed in our 2004 Annual Report on Form 10-K. The following table summarizes our principal and interest contractual obligations at September 30, 2005, and

the effect such obligations are expected to have on our liquidity and cash flows for the remainder of 2005 and future periods ($ in thousands):

New Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123). SFAS No. 123R requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees. We are required to adopt the provisions of SFAS No. 123R on January 1, 2006. We are evaluating the requirements of SFAS No. 123R and have not yet determined the method of adoption or the effect of adopting SFAS No. 123R, and have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS No. 123 in Note 4(d).

      In December 2004, the FASB issued FASB Statement No. 153, “Exchanges of Nonmonetary Assets” (SFAS No. 153), replaces Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” (APB No. 29), exception for nonmonetary exchanges of similar productive assets with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring on or after January 1, 2006.

Disclosure Regarding Forward-Looking Statements

      This quarterly report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and anticipated achievements expressed or implied by these statements. Factors that could cause actual results to differ from those expressed in forward-looking statements include, but are not limited to:

      Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances.

      We believe that inflation has not had a material impact on our results of operations for the nine-month periods ended September 30, 2004 and 2005, respectively. However, there can be no assurance that inflation will not have an adverse impact on our future operating results and financial condition.

      Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in interest rates and other relevant market risks. Our primary market risk is a change in interest rates associated with borrowings under the Credit Facilities. Advances under the Credit Facilities bear base rate or Eurodollar rate interest, plus applicable margins, which vary in accordance with

prevailing economic conditions. Our earnings are affected by changes in interest rates due to the impact those changes have on interest expense from variable-rate debt instruments and on interest income generated from our cash and investment balances.

      As of September 30, 2005, all of our debt, other than our $100.0 million senior secured credit facility term loan due 2013, had fixed interest rates. If variable interest rates average 10% higher in 2005 than they did during 2004, our variable interest expense would increase by approximately $0.8 million, compared to a variable annualized estimated $7.7 million for 2004 measured as of December 31, 2004. If interest rates average 10% lower in 2005 than they did during 2004, our interest income from cash and investment balances would decrease by approximately $0.1 million, compared to $0.8 million for 2004. These amounts are determined by considering the impact of the hypothetical interest rates on our variable-rate debt, cash equivalents and short-term investment balances at December 31, 2004.

      As part of our efforts to mitigate interest rate risk, on June 29, 2005, we entered into a five year interest rate swap agreement that hedged (fixed) the interest rate, based on LIBOR, on our current Eurodollar rate of our $325.0 million senior secured credit facility term loan due 2012 at an interest rate for five years at 4.23%, plus the applicable margin (2.00% as of September 30, 2005). This agreement is intended to reduce our exposure to interest rate fluctuations and was not entered into for speculative purposes. As a result, we believe that interest rate risk is not material to our consolidated financial position or results of operations.

      Evaluation Of Disclosure Controls And Procedures. Our principal executive and financial officers have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) of the Exchange Act of 1934 (the “Exchange Act”) to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

      Changes In Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

      From time to time we are involved in litigation incidental to the conduct of our business, such as contractual matters and employee-related matters. In the opinion of management, such litigation is not likely to have a material adverse effect on our business, operating results or financial position.

     Hurtado Litigation

      On June 14, 2000, an action was filed in the Eleventh Judicial Circuit (the “Court”) in and for Miami-Dade County, Florida by Jose Antonio Hurtado against us, alleging that he was entitled to a commission related to an acquisition made by us (the “Hurtado Case”). The Hurtado Case was tried before a jury during the week of December 1, 2003 and Mr. Hurtado was awarded the sum of $1.8 million, plus interest, which we accrued for during the quarter ended December 31, 2003.

      Mr. Hurtado also filed an application for attorneys’ fees, which we opposed on grounds that there was no contractual or statutory basis for such an award. We filed a motion for judgment notwithstanding the verdict, which was heard on February 6, 2004. On March 12, 2004, the Court denied our motion for judgment

notwithstanding the verdict and, upon its own motion, the Court granted a new trial. On April 7, 2004, Mr. Hurtado filed a notice of appeal with the Third Circuit Court of Appeals, challenging the order granting a new trial, and on April 8, 2004, we filed a notice of cross-appeal, challenging the denial of our motion for judgment notwithstanding the verdict. On August 27, 2004, Mr. Hurtado filed his initial brief, and on January 10, 2005, we filed a combined response brief and initial brief on our cross-appeal. On March 7, 2005, Mr. Hurtado filed his reply brief and our reply brief was due 20 days thereafter. The Third Circuit Court of Appeals set the matter for oral argument on April 13, 2005. Subsequently, on May 5, 2005, the Third Circuit Court of Appeals ruled that judgment should be entered in our favor. On May 19, 2005, Mr. Hurtado filed a motion for rehearing which was denied, and the mandate upon the denial of Mr. Hurtado’s motion was issued on July 29, 2005. During the nine-months ended September 30, 2005, we reversed the legal contingency accrual of $1.8 million, plus interest related to this contingency based on the denial of Mr. Hurtado’s motion. We filed a motion with the trial court requesting judgment in our favor and are currently in the process of scheduling the hearing.

     Wolf, et. al., Litigation

      On November 28, 2001, a complaint was filed against us in the United States District Court for the Southern District of New York (the “Southern District of New York”) and was amended on April 19, 2002. The amended complaint alleges that the named plaintiff, Mitchell Wolf, purchased shares of our Class A common stock pursuant to the October 27, 1999, prospectus and registration statement relating to our initial public offering which closed on November 2, 1999. The complaint was brought on behalf of Mr. Wolf and an alleged class of similarly situated purchasers, against us, eight underwriters and/or their successors-in-interest who led or otherwise participated in our initial public offering, two members of our senior management team, one of whom is our Chairman of the Board, and an additional director, referred to collectively as the individual defendants. To date, the complaint, while served upon us, has not been served upon the individual defendants, and no counsel has appeared for them.

      This case is one of more than 300 similar cases brought by similar counsel against more than 300 issuers, 40 underwriter defendants, and 1,000 individuals alleging, in general, violations of federal securities laws in connection with initial public offerings, in particular, failing to disclose that the underwriter defendants allegedly solicited and received additional, excessive and undisclosed commissions from certain investors in exchange for which they allocated to those investors material portions of the restricted shares issued in connection with each offering. All of these cases, including the one involving us, have been assigned for consolidated pretrial purposes to one judge of the Southern District of New York. One of the claims against the individual defendants, specifically the Section 10b-5 claim, has been dismissed.

      In June of 2003, after lengthy negotiations, a settlement proposal was embodied in a memorandum of understanding among the investors in the plaintiff class, the issuer defendants and the issuer defendants’ insurance carriers. On July 23, 2003, our Board of Directors approved both the memorandum of understanding and an agreement between the issuer defendants and the insurers. The principal components of the settlement include: 1) a release of all claims against the issuer defendants and their directors, officers and certain other related parties arising out of the alleged wrongful conduct in the amended complaint; 2) the assignment to the plaintiffs of certain of the issuer defendants’ potential claims against the underwriter defendants; and 3) a guarantee by the insurers to the plaintiffs of the difference between $1.0 billion and any lesser amount recovered by the plaintiffs against the underwriter defendants. The payments will be charged to each issuer defendant’s insurance policy on a pro rata basis.

      On February 15, 2005, the Southern District of New York granted preliminary approval to the proposed settlement agreement, subject to a narrowing of the proposed bar on underwriter and non-settling defendant claims against the issuer defendants to cover only contribution claims. The Court directed the parties to submit revised settlement documents consistent with its Opinion and scheduled a conference for March 18, 2005 in order to (a) make final determinations as to the form, substance and program of notice, and (b) schedule a Rule 23 fairness hearing. Pursuant to the Court’s request, on May 2, 2005 the parties submitted an Amendment to Stipulation and Agreement of Settlement with Defendant Issuers and

Individuals (the “Amendment”). Our Board of Directors approved the Amendment on May 4, 2005 and it has since received unanimous approval from all the non-bankrupt issuers.

      On July 25, 2005, anticipating that a notice of pendency of class action would be required by Court Order in the near future and in order to facilitate the mailing of such notice, we authorized our transfer agent, First Union National Bank, to release the identities of all our transferees and record holders during the class period to the Notice Administrator, The Garden City Group, Inc. On August 31, 2005, the Court entered an Order confirming preliminary approval of the Issuers’ Settlement, with only minor modifications, setting March 24, 2006 as the deadline for submission of any objections or requests for exclusion from the Settlement, scheduling a Settlement Fairness Hearing for April 24, 2006 to determine whether the Settlement should be finally approved, and, as anticipated, requiring the Notice Administrator to provide notice of pendency of class action. We do not have sufficient information to assess our potential exposure to liability, if any, and no amounts have been accrued in the consolidated financial statements.

     Amigo Broadcasting Litigation

      On December 5, 2003, Amigo Broadcasting, L.P. (“Amigo”) filed an original petition and application for temporary injunction in the District Court of Travis County, Texas (the “Court”), against us, Raul Bernal (“Bernal”) and Joaquin Garza (“Garza”), two of our former employees. Amigo filed a first and second amended petition and application for temporary injunction on June 25, 2004 and February 18, 2005, respectively. The second amended petition alleged that we (1) misappropriated Amigo’s proprietary interests by broadcasting the characters and concepts portrayed by the Bernal and Garza radio show (the “Property”), (2) wrongfully converted the Property to our own use and benefit, (3) induced Bernal and Garza to breach their employment agreements with Amigo, (4) used and continued to use Amigo’s confidential information and property with the intention of diverting profits from Amigo and of inducing Amigo’s potential customers to do business with us and our syndicators, (5) invaded Amigo’s privacy by misappropriating the name and likeness of Bernal and Garza, and (6) committed violations of the Lanham Act by diluting and infringing on Amigo’s trademarks. Based on these claims, Amigo seeks damages in excess of $3.0 million.

      On December 5, 2003, the Court issued a temporary injunction against all of the defendants and scheduled a hearing before the Court on December 17, 2003. The temporary injunction dissolved by its terms on December 1, 2004. On December 17, 2003, the parties entered into a settlement agreement, whereby the Court entered an Order on Consent of the settling parties, permitting Bernal and Garza’s radio show to be broadcast on our radio stations. In addition, we agreed that we would not broadcast the Bernal and Garza radio show in certain prohibited markets and that we would not distribute certain promotional materials that were developed by Amigo. On January 5, 2004, we answered the remaining claims asserted by Amigo for damages. The parties have exchanged some written discovery and are in the process of scheduling depositions. The case was scheduled for a jury trial on May 23, 2005. On March 18, 2005, the case was removed to the United States District Court for the Western District of Texas. A mediation between the parties was scheduled for August 22, 2005, however, this mediation has been postponed indefinitely until the parties conduct further discovery on the matter. Thus, the extent of any adverse impact on the company with respect to this matter can not be reasonably estimated at this time.

      (a) Exhibits —

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 9, 2005

      (a) Exhibits —