All references to “we”, “us”, “our”, “SBS”, “our company” or “the Company” in this report mean Spanish Broadcasting System, Inc., a Delaware corporation, and all entities owned or controlled by Spanish Broadcasting System, Inc. and, if prior to 1994, mean our predecessor parent company Spanish Broadcasting System, Inc., a New Jersey corporation. Our executive offices are located at 2601 South Bayshore Drive, PH II, Coconut Grove, Florida 33133, and our telephone number is (305) 441-6901.

      We are the largest Hispanic-controlled radio broadcasting company in the United States. After giving effect to the proposed sale of our San Francisco station, we own and operate 24 radio stations in markets that reach approximately 45% of the U.S. Hispanic population. Our stations are located in the top five Hispanic markets in the United States: Los Angeles, New York, Puerto Rico, Chicago and Miami. Los Angeles and New York have the largest and second largest U.S. Hispanic populations, and are the largest and second largest radio markets in the United Sates in terms of advertising revenue, respectively. Our top three markets, based on net revenues, are New York, Los Angeles and Miami. In New York, we own two of the four FM Spanish-language radio stations in that market, and believe that we have the strongest franchise in our target demographic groups.

      Mr. Raúl Alarcón, Jr. became our Chairman of the Board of Directors when we completed our initial public offering on November 2, 1999 and has been our Chief Executive Officer since June 1994 and our President and a director since October 1985. The Alarcón family has been involved in Spanish-language radio broadcasting since the 1950’s, when Mr. Pablo Raúl Alarcón, Sr., our Chairman Emeritus and a member of our Board of Directors, established his first radio station in Camagüey, Cuba. Members of our senior management team, on average, have over 20 years of experience in radio broadcasting.

Business Strategy

      We focus on maximizing the revenue and profitability of our radio station portfolio by strengthening the performance of our existing radio stations and making additional strategic station acquisitions in both our existing markets and in other markets that have a significant Hispanic population. We also focus on long-term growth by investing in advertising, programming research and on-air talent.

Market Opportunity

      We believe that our focus on formats targeting U.S. Hispanic audiences in the largest Hispanic radio markets, together with our skill in programming and marketing to these audiences, provide us with significant opportunity for the following reasons:

	•	Hispanic Population Growth. The U.S. Hispanic population is the largest minority group and the fastest growing segment of the U.S. population, growing at approximately 7.8 times the rate of the non-Hispanic U.S. population between 1996 and 2003.
	•	Hispanic Buying Power. The U.S. Hispanic population accounted for estimated buying power of $675.0 billion in 2003 and Hispanic buying power is growing at nearly twice the annual rate of non-Hispanic buying power. Hispanic buying power is expected to increase to $1.2 trillion by 2010, positioning this demographic as an extremely attractive group for advertisers.
	•	Growth in Spanish Language Advertising Spending. In 2003, a total of $3.4 billion was spent on Spanish-language media advertising, compared to $1.8 billion in 1998. This represents a compound annual growth rate of 13.6% over the past five years.

      The above market opportunity information is based on data provided by Synovate - 2004 U.S. Hispanic Market Report, The Santiago Solutions Group and the 2003 Jack Meyers Report ^TM .

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Top Five Hispanic Radio Markets in the United States

      The table below lists the top 5 Hispanic radio markets in the United States, including Puerto Rico. Following the closing of the proposed sale of our station in San Francisco, we will continue to own radio stations in Los Angeles, New York, Puerto Rico, Chicago and Miami.

Top 5 Hispanic Markets

Our Strategy

      We focus on maximizing the revenue and profitability of our radio station portfolio. We also focus on long-term growth by continuously investing in advertising, programming research and on-air talent. In addition, we have completed strategic acquisitions and divestitures in order to achieve a significant presence with clusters of stations in the top Hispanic markets.

      Our operating strategy focuses on maximizing our radio stations’ appeal to our targeted audiences and advertisers in order to increase revenue and cash flow while minimizing operating expenses. To achieve these goals, we focus on the following:

      Format high quality programming. We format the programming of each of our stations to capture a significant share of the Spanish-language audience. We use market research, including third-party consultants, in-house research and periodic music testing, to assess listener preferences and the diverse groups in the Hispanic population in each station’s target demographic audience. We then refine our programming to reflect the results of this research and testing. Because the U.S. Hispanic population is so diverse, consisting of numerous identifiable groups from many different countries of origin, each with its own cultural and musical heritage, we strive to make ourselves very familiar with the musical tastes and preferences of each of the various Hispanic ethnic groups, and we customize our programming accordingly.

      Attract and retain strong local management teams. We employ local management teams in each of our markets that are responsible for the day-to-day operations of our radio stations. The teams typically consist of a general manager, a general sales manager and a programming director. Stations are staffed with managers who have experience in and knowledge of the local radio market and/or the local Hispanic market because of the cultural diversity of the Hispanic population from market to market in the United States. We believe this approach improves our flexibility and responsiveness to changing conditions in each of the markets we serve.

      Utilize focused sales efforts. To capture market share, our sales force focuses on converting audience share into rate and revenue increases. Strategically, we hire sales professionals who are experts at Hispanic and general market advertising. We also value knowledgeable account managers skilled at dealing directly with clients in the local market. Spanish-language radio is uniquely positioned for national campaigns, regional marketing plans and local promotions in our diverse markets. We believe that our focused sales efforts are

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      Control station operating costs. We employ a disciplined approach to operating our radio stations. We emphasize the control of each station’s operating costs through detailed budgeting, tight control over staffing levels and constant expense analysis. While local management is responsible for the day-to-day operation of each station, corporate management is responsible for long-term and strategic planning, establishing policies and procedures, maximizing cost savings through centralized control where appropriate, allocating corporate resources and maintaining overall control of the stations.

      Effective use of promotions and special events. We use our expertise in marketing to the Hispanic consumer in each of the markets in which we operate stations to attract a large share of advertising revenue. We believe that effective promotional efforts play a significant role in both adding new listeners and increasing listener loyalty. We organize special promotional appearances, such as station van appearances at client events, concerts and tie-ins to special events, which form an important part of our marketing strategy. Many of these events build advertiser loyalty because they enable us to offer advertisers an additional way to reach the Hispanic consumer. In some instances, these events are co-sponsored by local television stations, newspapers and promoters, allowing our mutual advertisers to reach a larger combined audience.

      Maintain strong community involvement. We have been, and will continue to be, actively involved in the local communities that we serve. Our radio stations participate in numerous community programs, fund-raisers and activities benefiting the local community and Hispanics abroad. Examples of our community involvement include free public service announcements, free equal-opportunity employment announcements, tours and discussions held by radio station personalities with school and community groups designed to deter drug and gang involvement, free concerts and events designed to promote family values within the local Hispanic communities, charitable contributions to organizations which benefit the Hispanic community, and extended coverage, when necessary, of significant events which have an impact on the U.S. Hispanic population. Our stations and members of our management have received numerous community service awards and acknowledgments from governmental entities and community and philanthropic organizations for their service. We believe that this involvement helps build and maintain station awareness and listener loyalty.

      Our growth strategy includes evaluating strategic acquisitions and divestitures in order to achieve a significant presence with clusters of stations with strong signals in the top Hispanic markets. We generally consider acquisitions of stations in our existing markets, as well as acquisitions of stations in other markets with a large Hispanic population, where we can maximize our revenue through aggressive sales and programming efforts directed at U.S. Hispanic and general market advertisers. These acquisitions may include stations which do not currently target the U.S. Hispanic market, but which we believe can successfully be reformatted.

Programming

      We format the programming of each of our stations to capture a substantial share of the U.S. Hispanic audience in its respective market. The U.S. Hispanic population is diverse, consisting of numerous identifiable groups from many different countries of origin, each with its own musical and cultural heritage. The music, culture, customs and Spanish dialects vary from one radio market to another. We strive to be very familiar with the musical tastes and preferences of each of the various Hispanic ethnic groups and customize our programming to match the local preferences of our target demographic audience in each market we serve. We have in-house research departments located in Miami and Los Angeles, which conduct extensive radio market research on a daily, weekly, monthly and annual basis. By employing listener study groups and telephone surveys modeled after Arbitron® written survey methodology, but with even larger sample sizes than Arbitron®, we are able to assess listener preferences, track trends and gauge our success on a daily basis, well before Arbitron® quarterly results are published. In this manner, we can respond immediately, if necessary, to any changing preferences of listeners and/or trends by refining our programming to reflect the results of our research and testing. Each of our programming formats is described below.

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	•	Spanish Tropical. The Spanish Tropical format primarily consists of salsa, merengue and cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz originating from Puerto Rico, Cuba and the Dominican Republic, which is popular with the Hispanics whom we target in New York, Miami and Puerto Rico. Merengue music is up-tempo dance music originating from the Dominican Republic. Cumbia is a festive, folkloric music which originated in Colombia.
	•	Regional Mexican. The Regional Mexican format consists of various types of music played in different regions of Mexico such as ranchera, norteña, banda and cumbia. Ranchera music, originating from Jalisco, Mexico, is a traditional folkloric sound commonly referred to as mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who live in country towns. Norteña means northern, and is representative of Northern Mexico. Featuring an accordion, norteña has a polka sound with a distinct Mexican flavor. Banda is a regional format from the state of Sinalóa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers.
	•	Spanish Adult Contemporary. The Spanish Adult Contemporary format includes soft romantic ballads and Spanish pop music.
	•	Spanish Oldies. The Spanish Oldies format includes a variety of Latin and English classics mainly from the 1960’s, 1970’s and 1980’s.
	•	Spanish Hot Adult Contemporary. The Spanish Hot Adult Contemporary format consists of rock ballads as well as alternative dance and pop music.
	•	Mexican Adult Contemporary. The Mexican Adult Contemporary format includes pop music and ballads with an emphasis on Mexican artists.
	•	Central American Tropical. The Central American Tropical format includes cumbia, soca and punta, with traditional salsa and merengue for variety.
	•	American Adult Contemporary 80’s & 90’s Hits. The American Adult Contemporary format consists of the top American chart hits from the 1980’s and 1990’s.
	•	American Top 40. The American Top 40 format consists of the most popular current chart hits.

      The following table lists the programming formats of our radio stations and the target demographic group of each station.

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Radio Station Portfolio

      The following is a general description of each of our markets. The market revenue information is based on data provided by BIA Research, Inc.’s Investing in Radio, 2003 Market Report, Synovate — 2004 U.S. Hispanic Market Report, the U.S. Census Bureau Population Estimates for Puerto Rico — 2002 and the U.S. Census Bureau, Census 2000.

Los Angeles

      The Los Angeles market is the largest radio market in terms of advertising revenue which was projected to be approximately $1.039 billion in 2003. In 2003, the Los Angeles market had the largest U.S. Hispanic population with approximately 7.8 million Hispanics, which is approximately 44.5% of the Los Angeles market’s total population. The Los Angeles market experienced annual radio revenue growth of 10.5% between 1997 and 2002. Radio revenue in the Los Angeles market is expected to grow at an annual rate of 6.4% between 2002 and 2007.

New York

      The New York market is the second largest radio market in terms of advertising revenue which was projected to be approximately $825.0 million in 2003. In 2003, the New York market had the second largest U.S. Hispanic population, with approximately 4.3 million Hispanics, which is approximately 20.5% of the New York market’s total population. We believe that we own the strongest franchise in our target demographic group, with two of the four FM Spanish-language radio stations in the New York market, WSKQ-FM and WPAT-FM. The New York market experienced annual radio revenue growth of 7.0% between 1997 and 2002. Radio revenue in the New York market is expected to grow at an annual rate of 6.0% between 2002 and 2007.

Puerto Rico

      The Puerto Rico market is the thirty-third largest radio market in terms of advertising revenue which was projected to be approximately $100.0 million in 2003. In 2003, the Puerto Rico market had the third largest U.S. Hispanic population, with approximately 3.8 million Hispanics, which is estimated to be approximately 98.8% of the Puerto Rico market’s total population. The Puerto Rico market experienced annual radio revenue growth of 5.3% between 1997 and 2002. Radio revenue in the Puerto Rico market is expected to grow at an annual rate of 5.5% between 2002 and 2007.

Chicago

      The Chicago market is the third largest radio market in terms of advertising revenue which was projected to be approximately $591.7 million in 2003. In 2003, the Chicago market had the fourth largest U.S. Hispanic population, with approximately 1.8 million Hispanics, which is approximately 19.0% of the Chicago market’s total population. The Chicago market experienced annual radio revenue growth of 7.6% between 1997 and 2002. Radio revenue in the Chicago market is expected to grow at an annual rate of 5.6% between 2002 and 2007.

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Miami

      The Miami market is the eleventh largest radio market in terms of advertising revenue which was projected to be approximately $287.1 million in 2003. In 2003, the Miami market had the fifth largest U.S. Hispanic population, with approximately 1.8 million Hispanics, which is approximately 43.1% of the Miami market’s total population. The Miami market experienced annual radio revenue growth of 6.5% between 1997 and 2002. Radio revenue in the Miami market is expected to grow at an annual rate of 5.8% between 2002 and 2007.

Latin Music On-Line (“ LaMusica.com ”)

      LaMusica.com is our bilingual Spanish-English Internet website and on-line community that focuses on the Hispanic market. LaMusica.com, which has links to the websites of some of our radio stations, is a provider of original information and interactive content related to Latin music, entertainment, news and culture. LaMusica.com and our network of station websites generate revenue primarily from advertising and sponsorship. We believe that LaMusica.com, together with our radio station portfolio, enables our audience to enjoy additional targeted and culturally-specific entertainment options, such as concert listings, music reviews, local entertainment calendars, and interactive content on popular Latin recording artists and entertainers. At the same time, LaMusica.com enables our advertisers to cost-effectively reach their targeted Hispanic consumers through an additional and dynamic medium.

Management and Personnel

      Without giving effect to the proposed sale of our San Francisco station, as of March 10, 2004, we had 472 full-time employees, 11 of whom were primarily involved in corporate management and/or station management, 178 of whom were primarily involved in the programming of our stations, 169 of whom were primarily involved in sales, 98 of whom were primarily involved in general administration and 16 of whom were primarily involved in technical or engineering capacities.

      Our business depends upon the efforts, abilities and expertise of our executive officers and other key employees, including Raúl Alarcón, Jr., our Chairman of the Board of Directors, President and Chief Executive Officer. The loss of any of these officers and key employees could have a material adverse effect on our business. We do not maintain key man life insurance on any of our personnel.

Seasonality

      Seasonal broadcasting revenue fluctuations are common in the radio broadcasting industry and are primarily due to fluctuations in advertising expenditures by local and national advertisers. Historically, the first calendar quarter (January through March) has generally produced the lowest net broadcasting revenue for the year because of routine post-holiday decreases in advertising expenditures.

Patents, Trademarks, Licenses and Franchises

      In the course of our business, we use various trademarks, trade names, domain names and service marks, including logos, in our advertising and promotions. We believe our trademarks, trade names, domain names and service marks are important to our business and we intend to continue to protect and promote these where appropriate and to protect the registration of new trademarks, including through legal action. We do not hold or depend upon any material patent, government license, franchise or concession, except the broadcast licenses granted by the Federal Communications Commission (the “FCC”).

Advertising

      Virtually all of our revenue is derived from advertising. Advertising revenue is usually classified into two categories — “national” or “local.” “National” generally refers to advertising that is solicited by a representative firm for national advertisers. Our national sales representative is SBS/Interep LLC, a division of Interep

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      Radio is one of the most efficient and cost-effective means for advertisers to reach targeted demographic groups. Advertising rates charged by a radio station are based primarily on the station’s ability to attract listeners in a given market and on the attractiveness to advertisers of the station’s listener demographics as well as the demand on available advertising inventory. Rates also vary depending upon a program’s popularity among the listeners an advertiser is seeking to attract and the availability of alternative media in the market. Radio advertising rates generally are highest during the morning drive-time hours which are the peak hours for radio audience listening. A radio broadcaster that has multiple stations in a market is appealing to national advertisers because these advertisers can reach more listeners, thus enabling the broadcaster to attract a greater share of the advertising revenue in a given market. We believe that we will be able to continue increasing our rates as new and existing advertisers recognize the increasing desirability of targeting the growing Hispanic population in the United States.

      Each station broadcasts a predetermined number of advertisements each hour with the actual number depending upon the format of a particular station and any programming strategy we utilize to attract listeners. We determine the number of advertisements broadcast hourly that can maximize the station’s revenue without negatively impacting its audience listener levels. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.

      We have short and long-term contracts with our advertisers, although it is customary in the radio industry that the majority of advertising contracts are short-term and generally run for less than three months. In each of our broadcasting markets, we employ sales personnel to obtain local advertising revenue. Our local sales force is important to maintaining relationships with key local advertisers and agencies and identifying new advertisers. We pay commissions to our local sales staff upon receipt of payment for their respective billings which assists in our collection efforts. We offer assistance to local advertisers by providing them with studio facilities to produce commercials free of charge and, in some cases, we produce the commercials.

Competition

      The success of each of our stations depends significantly upon its audience ratings and its share of the overall advertising revenue within its market. The radio broadcasting industry is a highly competitive business. Each of our radio stations competes with both Spanish-language and English-language radio stations in its market, as well as with other advertising media such as newspapers, broadcast television, cable television, the Internet, magazines, outdoor advertising, transit advertising and direct mail marketing. Several of the radio stations with which we compete are subsidiaries of large national or regional companies that may have substantially greater financial resources than we do. Factors which are material to competitive position include management experience, the radio 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.

      Although the radio broadcasting industry is highly competitive, some barriers to entry do exist. These barriers can be mitigated to some extent by changing existing radio station formats and upgrading power, among other actions. The operation of a radio station requires a license or other authorization from the FCC, and the number of radio stations that can operate in a given market is limited by the availability of FM and AM radio frequencies allotted by the FCC to communities in a given market. In addition, the FCC’s multiple ownership rules regulate the number of stations that may be owned and controlled by a single entity in a given market. However, in recent years, these rules have changed significantly. For a discussion of FCC regulation, see “Federal Regulation of Radio Broadcasting” below.

      The radio industry is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by terrestrial delivery of digital audio broadcasting (known as “DAB”). DAB may deliver to nationwide and regional audiences, multi-channel, and multi-format digital radio services with sound quality equivalent to that of compact discs. The FCC has licensed companies for the use of a new technology, satellite digital audio

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      The delivery of information through the presently unregulated Internet also could create a new form of competition. 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 the greater availability of radios, particularly car and portable radios, have contributed to this growth. We cannot assure you, however, that the development or introduction of any new media technology will not have an adverse effect on the radio broadcasting industry.

      We cannot predict what other matters may 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 may have on our business. See “Federal Regulation of Radio Broadcasting” below.

Antitrust

      We have completed, and in the future may complete, strategic acquisitions and divestitures in order to achieve a significant presence with clusters of stations in the top Hispanic markets. Since the passage of the Telecommunications Act of 1996, the Justice Department has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks. The Justice Department is particularly aggressive when the proposed buyer already owns one or more radio stations in the market of the station it is seeking to buy. Recently, the Justice Department has challenged a number of radio broadcasting transactions. Some of those challenges ultimately resulted in consent decrees requiring, among other things, divestitures of certain stations. In general, the Justice Department has more closely scrutinized radio broadcasting acquisitions that result in local market shares in excess of 40% of radio advertising revenue. Similarly, the FCC staff has announced new procedures to review proposed radio broadcasting transactions even if the proposed acquisition otherwise complies with the FCC’s ownership limitations. In particular, the FCC may invite public comment on proposed radio transactions that the FCC believes, based on its initial analysis, may present ownership concentration concerns in a particular local radio market.

Federal Regulation of Radio Broadcasting

      The radio broadcasting industry is subject to extensive and changing regulation by the FCC of programming, technical operations, employment and other business practices. The FCC regulates radio broadcast stations pursuant to the Communications Act of 1934, as amended (the “Communications Act”). The Communications Act permits the operation of radio broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of a license would serve the public interest, convenience and necessity. The Communications Act provides for the FCC to exercise its licensing authority to provide a fair, efficient and equitable distribution of broadcast service throughout the United States. Among other things, the FCC:

	•	assigns frequency bands for radio broadcasting;
	•	determines the particular frequencies, locations and operating power of radio broadcast stations;
	•	issues, renews, revokes and modifies radio broadcast station licenses;
	•	establishes technical requirements for certain transmitting equipment used by radio broadcast stations;
	•	adopts and implements regulations and policies that directly or indirectly affect the ownership, operation, program content and employment and business practices of radio broadcast stations; and
	•	has the power to impose penalties, including monetary forfeitures, for violations of its rules and the Communications Act.

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      The Communications Act prohibits the assignment of an FCC license, or other transfer of control of an FCC licensee, without the prior approval of the FCC. In determining whether to approve assignments or transfers, and in determining whether to grant or renew a radio broadcast license, the FCC considers a number of factors pertaining to the licensee (and any proposed licensee), including restrictions on foreign ownership, compliance with FCC media ownership limits and other FCC rules, licensee character and compliance with the Anti-Drug Abuse Act of 1988.

      The following is a brief summary of certain provisions of the Communications Act and specific FCC rules and policies. This summary does not purport to be complete and is subject to the text of the Communications Act, the FCC’s rules and regulations, and the rulings of the FCC. You should refer to the Communications Act and these FCC rules, regulations and rulings for further information concerning the nature and extent of federal regulation of radio broadcast stations.

      A licensee’s failure to observe the requirements of the Communications Act or FCC rules and policies may result in the imposition of various sanctions, including admonishment, fines, the grant of renewal terms of less than eight years, the grant of a license with conditions or, for particularly egregious violations, the denial of a license renewal application, the revocation of an FCC license or the denial of FCC consent to acquire additional broadcast properties, all of which could have a material adverse impact on our operations.

      Congress and the FCC have had under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of our radio stations, result in the loss of audience share and advertising revenue for our radio broadcast stations or affect our ability to acquire additional radio broadcast stations or finance these acquisitions. Such matters may include:

	•	changes to the license authorization and renewal process;
	•	proposals to impose spectrum use or other fees on FCC licensees;
	•	auctions of new broadcast licenses;
	•	changes to the FCC’s equal employment opportunity regulations and other matters relating to the involvement of minorities and women in the broadcasting industry;
	•	proposals to change rules relating to political broadcasting including proposals to grant free air time to candidates, and other changes regarding program content;
	•	proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages;
	•	technical and frequency allocation matters;
	•	the implementation of digital audio broadcasting on a terrestrial basis;
	•	changes in broadcast, multiple ownership, foreign ownership, cross-ownership and ownership attribution policies;
	•	proposals to allow telephone companies to deliver audio and video programming to homes in their service areas; and
	•	proposals to alter provisions of the tax laws affecting broadcast operations and acquisitions.

      We cannot predict what changes, if any, might be adopted, or what other matters might be considered in the future, nor can we judge in advance what impact, if any, the implementation of any particular proposals or changes might have on our business.

FCC Licenses

      The Communications Act provides that a broadcast station license may be granted to any applicant if the granting of the application would serve the public interest, convenience and necessity, subject to certain limitations. In making licensing determinations, the FCC considers an applicant’s legal, technical, financial and other qualifications. The FCC grants radio broadcast station licenses for specific periods of time and, upon

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      The following table sets forth the license expiration dates of each of our radio stations.

* Pending license renewal. All authorizations, licenses and permits are valid during the license renewal application period.

Generally, the FCC renews radio broadcast licenses without a hearing upon a finding that:

	•	the radio station has served the public interest, convenience and necessity;
	•	there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and
	•	there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken together, indicate a pattern of abuse.

      After considering these factors, the FCC may grant the license renewal application without or with conditions, including renewal for a term less than the maximum term otherwise permitted by law, or hold an evidentiary hearing.

      The Communications Act authorizes the filing of petitions to deny a license renewal application during specific periods of time after a renewal application has been filed. Interested parties, including members of the public, may use these petitions to raise issues concerning a renewal applicant’s qualifications. If a substantial and material question of fact concerning a renewal application is raised by the FCC or other interested parties, or if for any reason the FCC cannot determine that granting a renewal application would serve the public interest, convenience and necessity, the FCC will hold an evidentiary hearing on the application. If, as a result of an evidentiary hearing the FCC determines that the licensee has failed to meet the requirements specified above and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, our licenses have been renewed without any conditions or sanctions

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      The FCC classifies each AM and FM radio station. An AM radio station operates on either a clear channel, regional channel or local channel. A clear channel is one on which AM radio stations are assigned to serve wide areas, particularly at night.

      The minimum and maximum facilities requirements for an FM radio station are determined by its class. Possible FM class designations depend upon the geographic zone in which the transmitter of the FM radio station is located. In general, commercial FM radio stations are classified as follows, in order of increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio stations. The FCC has created a subclass of Class C stations based on antenna height. Stations not meeting the minimum height requirement within a three-year transition period may be downgraded to a new Class C0 category.

      Ownership Matters. The Communications Act requires prior approval by the FCC for the assignment of a broadcast license or the transfer of control of a corporation or other entity holding a license. In determining whether to approve an assignment of a radio broadcast license or a transfer of control of a broadcast licensee, the FCC considers, among other things:

	•	the financial and legal qualifications of the prospective assignee or transferee, including compliance with FCC restrictions on non-U.S. citizen or entity ownership and control;
	•	compliance with FCC rules limiting the common ownership of attributable interests in broadcast and newspaper properties;
	•	the history of compliance with FCC operating rules; and
	•	the character qualifications of the transferee or assignee and the individuals or entities holding attributable interests in them.

      To obtain the FCC’s prior consent to assign or transfer a broadcast license, appropriate applications must be filed with the FCC. The application must be placed on public notice for a period of 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. Informal objections may be filed any time up until the FCC acts upon 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 such grant on its own motion. When ruling on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application.

      Under the Communications Act, a broadcast license may not be granted to or held by any corporation that has more than 20% of its capital stock owned or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives, or by non-U.S. corporations. Furthermore, the Communications Act provides that no FCC broadcast license may be granted to or held by any corporation directly or indirectly controlled by any other corporation of which more than 25% of the capital stock is owned of record or voted by non-U.S. citizens or entities or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds the public interest will be served by the refusal or revocation of such license. These restrictions apply in modified form to other forms of business organizations, including partnerships and limited liability companies. Thus, the licenses for our stations could be revoked if more than 25% of our outstanding capital stock is issued to or for the benefit of non-U.S. citizens.

      The FCC generally applies its other broadcast ownership limits to “attributable” interests held by an individual, corporation, partnership or other association or entity, including limited liability companies. In the case of a corporation holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the stock of a licensee corporation are generally deemed attributable interests, as are positions as an officer or director of a corporate parent of a broadcasting licensee. The FCC treats all partnership interests as attributable, except for those limited partnership interests that

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      To assess whether a voting stock interest in a direct or an indirect parent corporation of a broadcast licensee is attributable, the FCC uses a “multiplier” analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain. A time brokerage agreement with another radio station in the same market creates an attributable interest in the brokered radio station as well as for purposes of the FCC’s local radio station ownership rules, if the agreement affects more than 15% of the brokered radio station’s weekly broadcast hours.

      Debt instruments, non-voting stock options or other non-voting interests with rights of conversion to voting interests that have not yet been exercised and insulated limited partnership interests where the limited partner is not materially involved in the media-related activities of the partnership generally do not subject their holders to attribution. However, the holder of an equity or debt instrument or interest in a broadcast licensee, cable television system, daily newspaper or other media outlet shall have that interest attributed if the equity (including all stock holdings whether voting or non-voting, common or preferred) and debt interest or interests in the aggregate exceed 33% of the total asset value, defined as the aggregate of all equity plus all debt of that media outlet and the interest holder also holds an interest in a broadcast licensee, cable television system, newspaper or other media outlet operating in the same market that is subject to the broadcast multiple ownership or cross-ownership rules and is otherwise attributable or if the interest holder supplies over 15% of the total weekly broadcast programming hours of the station in which the interest is held.

      The Communications Act and FCC rules generally restrict ownership, operation or control of, or the common holding of attributable interests in:

	•	radio broadcast stations above certain limits servicing the same local market; and
	•	a radio broadcast station and a daily newspaper serving the same local market.

      We are uncertain as to what “cross-ownership” or “cross-media” rules will be used by the FCC in the future. The FCC has adopted new ownership rules that were intended to become effective September 4, 2003. However, a federal court has stayed the new rules pending a further review, and Congress is considering a bill that would substantially alter the new rules. Until this matter is resolved, the FCC intends to follow its prior rules which used a signal contour method of defining local radio markets and included certain proscriptions against newspaper/broadcast and radio/television cross ownership. Therefore, absent waivers, we would not be permitted to own a radio broadcast station and acquire an attributable interest in any daily newspaper in the same market where we then owned any radio broadcast station. Our stockholders, officers or directors, absent a waiver, would not be able to hold an attributable interest in a daily newspaper or television broadcast station in those same markets. The ownership limits are extremely fluid at this time. In addition, the FCC and/or Congress may impose new ownership regulations upon broadcast licensees in the near future.

      Although current FCC nationwide radio broadcast ownership rules allow one entity to own, control or hold attributable interests in an unlimited number of FM radio stations and AM radio stations nationwide, the Communications Act and the FCC’s rules limit the number of radio broadcast stations in local markets in which a single entity may own an attributable interest as follows:

	•	In a radio market with 45 or more commercial radio stations, a party may own, operate or control up to eight commercial radio stations, not more than five of which are in the same service (AM or FM).
	•	In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same service (AM or FM).

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	•	In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same service (AM or FM).
	•	In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50% of the radio stations in such market.

      The United States Congress is currently reviewing the FCC’s revised ownership rules. It is possible that the new rules may be modified or even repealed, dependent upon Congressional action. In addition, the FCC has announced a series of initiatives to enhance localism among radio and television broadcasters. Accordingly, the FCC or Congress may ultimately impose further regulations upon broadcast licensees. On September 3, 2003, the United States Court of Appeals for the Third Circuit stayed the effective date of the new ownership rules. Therefore, at this time the FCC’s previous rules, under which markets were determined by signal contour overlap standards and different levels of combinations were permitted, still apply. The specific levels of allowable ownership are at this time difficult to predict in the absence of further interim direction from the FCC, a decision on the merits by the court, and/or the enactment of legislation.

      Programming and Operations. The Communications Act requires broadcasters to serve the public interest. A broadcast licensee is required to present programming in response to community problems, needs and interests and to maintain certain records demonstrating its responsiveness. The FCC will consider complaints from listeners about a broadcast station’s programming when it evaluates the licensee’s renewal application, but listeners’ complaints also may be filed and considered at any time. Stations also must pay regulatory and application fees, and follow various FCC rules that regulate, among other things, political advertising, equal employment opportunity, the broadcast of obscene or indecent programming, sponsorship identification, the broadcast of contests and lotteries and technical operation.

      The FCC requires that licensees not discriminate in hiring practices, develop and implement programs designed to promote equal employment opportunities and submit reports to the FCC on these matters annually and in connection with each license renewal application.

      The FCC rules also prohibit a licensee from simulcasting more than 25% of its programming on another radio station in the same broadcast service (that is, AM/ AM or FM/ FM). The simulcasting restriction applies if the licensee owns both radio broadcast stations or owns one and programs the other through a local marketing agreement, provided that the contours of the radio stations overlap in a certain manner.

      Time Brokerage Agreements. Occasionally, radio stations enter into time brokerage agreements or local marketing agreements. These agreements take various forms. Separately owned and licensed radio stations may agree to function cooperatively in programming, advertising sales and other matters, subject to compliance with the antitrust laws and the FCC’s rules and policies, including the requirement that the licensee of each radio station maintain independent control over the programming and other operations of its own radio station.

      Joint Sales Agreements. Over the past few years, a number of radio stations have entered into cooperative arrangements commonly known as joint sales agreements or JSAs. The FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities, and therefore does not generally regulate joint sales practices between stations. Currently, stations for which another licensee sells time under a JSA are not deemed by the FCC to be an attributable interest of that licensee.

      RF Radiation. In 1985, the FCC adopted rules based on a 1982 American National Standards Institute, or ANSI standard regarding human exposure to levels of radio frequency, or RF, radiation. These rules require applicants for renewal of broadcast licenses or modification of existing licenses to inform the FCC at the time of filing such applications whether an existing broadcast facility would expose people to RF radiation in excess of certain limits. In 1992, ANSI adopted a new standard for RF radiation exposure that, in some respects, was more restrictive in the amount of environmental RF radiation exposure permitted. The FCC has since adopted

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      Digital Audio Radio Satellite Service. The FCC has adopted rules for the Digital Audio Radio Satellite Service, also known as DARS, in the 2310-2360 MHz frequency band. In adopting the rules, the FCC stated, “although healthy satellite DARS systems are likely to have some adverse impact on terrestrial radio audience size, revenues and profits, the record does not demonstrate that licensing satellite DARS would have such a strong adverse impact that it threatens the provision of local service.” The FCC has granted two nationwide licenses, one to XM Satellite Radio, which began broadcasting in May 2001, and a second to Sirius Satellite Radio, which began broadcasting in February 2002 in three markets, and has now expanded nationwide. The satellite radio systems provide multiple channels of audio programming in exchange for the payment of a subscription fee. Because the DARS service is in its infant stage, we cannot predict whether, or the extent to which, it will have an adverse impact on our business.

      Low Power Radio Broadcast Service. The FCC has adopted rules establishing two classes of a low power radio service, both of which will operate in the existing FM radio band: a primary class with a maximum operating power of 100 watts and a secondary class with a maximum power of 10 watts. These low power radio stations will have limited service areas of 3.5 miles and 1 to 2 miles, respectively. Implementation of a low power radio service or microbroadcasting will provide an additional audio programming service that could compete with our radio stations for listeners, but we cannot predict the effect upon us.

      Proposed Changes. The FCC on January 13, 1999 released a study and conducted a forum on the impact of advertising practices on minority-owned and minority-formatted broadcast stations. The study provided evidence that advertisers often exclude radio stations serving minority audiences from ad placements and pay them less than other stations when they are included. On February 22, 1999, a “summit” was held at the FCC’s headquarters to continue this initiative where participants considered the advertising study’s recommendations to adopt a code of conduct to oppose unfair ad placement and payment, to encourage diversity in hiring and training and to enforce laws against unfair business practices. We cannot predict at this time whether the FCC will adopt new rules that would require the placement of part of an advertiser’s budget on minority-owned and minority-formatted broadcast stations, and, if so, whether such rules would have an adverse impact on us.

Environmental Matters

      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. We cannot assure you, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.

      In connection with our sale of WXLX-AM in 1997, we assigned the lease of the transmitter for WXLX in Lyndhurst, New Jersey, to the purchaser of the station. The transmitter is located on a former landfill which ceased operations in the late 1960’s. Although WXLX has been sold, we retain potential exposure to possible environmental liabilities relating to the transmitter site (the “Transmitter Property”). On September 12, 2002, the landlords of the property, Frank F. Viola, Thomas C. Viola Trust and Louis Viola Company, received a notice from the New Jersey Meadowlands Commission indicating that it was planning to redevelop the lands which include the Transmitter Property and offering compensation to the landlords for the purchase of the Transmitter Property. The Meadowlands Commission also initially indicated that it would not seek reimbursement from the landlords for the costs of landfill closure or for the remediation of environmental conditions that resulted from the operation of the landfill. The landlords assert that, in any condemnation proceedings, the Meadowlands Commission should be legally bound by its prior statements, foregoing landfill related claims. The landlords did not accept the offer of the Meadowlands Commission. On December 4, 2002, the Meadowlands Commission filed a condemnation proceeding in the Superior Court of New Jersey, Bergen County, against the landlords, and named us as an additional defendant. The condemnation proceeding, as well as the proposed redevelopment of the site, are still pending. The Meadowlands

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      On March 19, 2002, the Environmental Quality Board, Mayagüez, Puerto Rico Regional Office, or EQB, inspected our transmitter site in Maricao, Puerto Rico. Based on the inspection, EQB issued a letter to us on March 26, 2002 noting the following potential violations: (1) alleged violation of EQB’s Regulation for the Control of Underground Injection through construction and operation of a septic tank (for sanitary use only) at each of the two antenna towers without the required permits, (2) alleged violation of EQB’s Regulation for the Control of Atmospheric Pollution through construction and operation of an emergency generator of more than 10hp at each transmitter tower without the required permits and (3) alleged failure to show upon request an EQB approved emergency plan detailing preventative measures and post-event steps that we will take in the event of an oil spill. To date, no penalties or other sanctions have been imposed against us relating to these matters. We do not have sufficient information to assess our potential exposure to liability, and no amounts have been accrued in the consolidated financial statements relating to this contingent liability.

Recent Developments

      On October 30, 2003, we completed a private offering of $75.0 million of 10 3/4% Series A cumulative exchangeable redeemable preferred stock, par value $.01 per share, with a liquidation preference of $1,000 per share (the “Series A preferred stock”), without a specified maturity date. The initial purchasers in the private offering sold the Series A preferred stock within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

      On February 18, 2004, we commenced an offer to exchange registered shares of our 10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $.01 per share and liquidation preference of $1,000 per share (the “Series B preferred stock”) for any and all shares of our outstanding Series A preferred stock. The exchange offer will expire at 5:00 p.m., eastern standard time, on March 26, 2004, unless we extend the offer. Our registration statement on Form S-4, which registered the Series B preferred stock and the 10 3/4% subordinated exchange notes due 2013 that may be issued under certain circumstances by us in exchange for the Series B preferred stock in an aggregate principal amount equal to the liquidation preference of the Series B preferred stock exchanged (the “Exchange Notes”), was declared effective by the Securities and Exchange Commission (the “SEC”) on February 13, 2004.

Sale of San Antonio Stations

      On January 30, 2004, we completed the sale of the assets of radio stations KLEY-FM and KSAH-AM, serving the San Antonio, Texas market, to Border Media Partners, LLC (“Border Media”) for a cash purchase price of $24.4 million. The sale was made pursuant to the terms of our asset purchase agreement dated as of September 18, 2003 with Border Media.

Proposed San Francisco Station Sale

      On October 2, 2003, we entered into an asset purchase agreement with 3 Point Media — San Francisco, LLC (“Three Point Media”) to sell the assets of radio station KPTI-FM, serving the San Francisco, California market, for a cash purchase price of $30.0 million. Three Point Media did not close under the asset purchase agreement, and on February 3, 2004, we terminated the agreement. We are currently considering

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Acquisition of Los Angeles Station

      On October 30, 2003, we completed the acquisition of the assets of radio station KXOL-FM (formerly KFSG-FM), serving the Los Angeles, California market, from the International Church of the FourSquare Gospel (“ICFG”) for a total cost of $264.0 million comprised of a cash purchase price of $250.0 million, closing costs and commissions of $5.1 million, plus the issuance to ICFG on February 8, 2002 of a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant is exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. We assigned the warrant a fair market value of approximately $8.9 million based on the Black-Scholes option pricing model in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” The fair market value of this warrant was recorded as an increase to intangible assets and additional paid-in capital on the date of grant. On November 2, 2000, pursuant to the asset purchase agreement between us and ICFG for the acquisition of the assets of KXOL-FM, we made a non-refundable deposit of $5.0 million which was credited towards the $250.0 million cash purchase price at closing. Pursuant to amendments to the asset purchase agreement, prior to the closing we made additional non-refundable deposits toward the cash purchase price in the aggregate amount of $55.0 million which were also credited towards the $250.0 million cash purchase price at closing. Cash on hand was used to make all the non-refundable deposits toward the cash purchase price. The remaining $190.0 million of the cash purchase price was funded from (1) the proceeds of our private offering of Series A preferred stock which closed on October 30, 2003 and (2) borrowings under a senior secured credit facility consisting of a $125.0 million term loan facility which we entered into on October 30, 2003.

      In addition to the FCC license of KXOL-FM, the assets acquired by us from ICFG include certain radio transmission equipment and a fifty-year lease at a rent of $1.00 per year for the KXOL-FM tower site, all of which were used by ICFG for radio broadcasting and which we also intend to use for radio broadcasting. The consideration for the acquisition of the assets of KXOL-FM was determined through arm’s-length negotiations between us and ICFG. We allocated the total cost of the purchase price of KXOL-FM as follows: $262.7 million for FCC licenses, $0.1 million for equipment, and $1.2 million for other intangible assets.

      From April 30, 2001 until the closing of the acquisition, we broadcast our programming over KXOL-FM pursuant to a time brokerage agreement with ICFG. ICFG broadcast its programming over our radio stations KZAB-FM and KZBA-FM pursuant to a time brokerage agreement with us from April 30, 2001 until February 28, 2003. Pursuant to the amended asset purchase agreement and amended time brokerage agreements, we were required to issue additional warrants to ICFG from the date that ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM until the closing of the acquisition of KXOL-FM. Consequently, on each of March 31, 2003, April 30, 2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and September 30, 2003, we granted ICFG a warrant exercisable for 100,000 shares (an aggregate of 700,000 shares) of our Class A common stock at an exercise price of $6.14, $7.67, $7.55, $8.08, $8.17, $7.74 and $8.49 per share, respectively. The warrant issued on September 30, 2003 was the final warrant required due to the closing of the acquisition of KXOL-FM. We assigned these warrants an aggregate fair market value of approximately $2.9 million based on the Black-Scholes option pricing model in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.” The fair market value of each warrant was recorded as a stock-based programming expense on the respective date of grant. These warrants are exercisable for a period of thirty-six months after the date of issuance after which they will expire if not exercised.

Senior Secured Credit Facilities

      On October 30, 2003, we entered into senior secured credit facilities with Lehman Commercial Paper Inc. as syndication agent and administrative agent and the several banks and other financial institutions or entities from time to time a party to the credit agreement. The senior secured credit facilities include a six-year $125.0 million term loan facility and a five-year $10.0 million revolving credit facility.

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      We used the net proceeds from the offering of our Series A preferred stock, together with most of the term loan facility, to fund the purchase of KXOL-FM. We are obligated to offer to repay a portion of the borrowings under the senior secured credit facilities with a portion of the net proceeds we receive from the sale of our San Antonio stations and the proposed sale of our San Francisco station. The $10.0 million revolving credit facility remains undrawn and may be used for working capital purposes, capital needs and general corporate purposes.

      The credit agreement contains a number of financial covenants which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to indebtedness, capital expenditures, transactions with affiliates and consolidations and mergers, among other things.

Purchase of Additional Chicago Stations

      On December 31, 2002, we entered into an asset purchase agreement with Big City Radio, Inc. and Big City Radio-Chi, LLC to acquire the assets of radio stations WDEK-FM, WKIE-FM and WKIF-FM, serving the Chicago, Illinois market, at a purchase price of $22.0 million. On December 31, 2002, we also entered into a time brokerage agreement with Big City Radio-Chi, LLC pursuant to which we broadcast our programming over radio stations WDEK-FM, WKIE-FM and WKIF-FM from January 6, 2003 to April 4, 2003. On April 4, 2003, we completed the purchase of these radio stations which was funded by cash on hand.

Industry Segments

      Radio broadcasting is our only operating segment.

Risk Factors

      You should carefully consider the risks and uncertainties described below and the other information in this report. These are not the only risks we face. Additional risks and uncertainties that we are not aware of or that we currently deem immaterial also may impair our business. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected and the trading price of our common stock could decline.

      Our consolidated debt is substantial and we are highly leveraged, which could adversely affect our financial condition, limit our ability to grow and compete and prevent us from fulfilling our obligations relating to our Series A preferred stock and Series B preferred stock (collectively, the “Preferred Stock”) and, if issued, our unregistered 10 3/4% subordinated exchange notes due 2013, issuable in exchange for our Series A preferred stock (the “Unregistered Exchange Notes”) and Exchange Notes. As of December 31, 2003, we had $454.2 million of total long-term debt ($464.0 million of total long-term debt less $9.8 million of unamortized discount). As of December 31, 2003, our ratio of total debt to last twelve months Adjusted EBITDA, as defined in the credit agreement, was 10.3 to 1.0. Our substantial level of debt could have several important consequences to the holders of our securities, including the following:

	•	a significant portion of our cash flow from operations will be dedicated to servicing our debt obligations and will not be available for operations, future business opportunities or other purposes;
	•	our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes will be limited;
	•	our substantial debt could make us more vulnerable to economic downturns and increases in interest rates, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions;
	•	our substantial debt could place us at a disadvantage compared to our competitors who have less debt; and
	•	it may be more difficult for us to satisfy our obligations relating to our Preferred Stock and our Exchange Notes and Unregistered Exchange Notes, if issued (for example, we may not be able to pay

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		cash dividends and interest, respectively, or repurchase our Preferred Stock when and if we are required to do so);

      Our ability to satisfy all of our debt obligations depends upon our future operating performance. Our operating performance will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control. We believe that our operating cash flow will be sufficient to meet our operating expenses and to service our debt requirements as they become due. However, if we are unable to pay our debts, whether upon acceleration of our debt or in the ordinary course of business, we will be forced to pursue alternative strategies such as selling assets, restructuring our debt, or seeking additional equity capital. We cannot assure you that we can successfully complete any of these alternative strategies on satisfactory terms or that the approval of the FCC could be obtained on a timely basis, or at all, for the transfer of any of the stations’ licenses in connection with a proposed sale of assets.

      For the last twelve months ended December 31, 2003, we had net cash interest expense of $34.1 million as defined in the credit agreement. At December 31, 2003, our ratio of last twelve months Adjusted EBITDA to last twelve months net cash interest expense, as defined in the credit agreement, was approximately 1.3 to 1.0. Subsequent to October 30, 2003, our net interest expense increased when we incurred debt under the senior secured credit facilities and our net interest expense will increase when and if we exchange our Series A preferred stock for Unregistered Exchange Notes or Series B preferred stock for the Exchange Notes. If we acquire additional radio stations in the future, depending on the financing used to fund these acquisitions, our interest expense may increase as well. In addition, we will be required to pay dividends in cash on our Preferred Stock after October 15, 2008.

      Our ability to make payments on and to refinance our debt, pay dividends in cash on our Preferred Stock after October 15, 2008, repurchase our Preferred Stock when and if we are required to do so and to fund necessary or desired capital expenditures and any future acquisitions, will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control.

      Based on our current level of operations, we believe that our cash flow from operations, cash on hand and available borrowings under our senior secured credit facilities will be adequate to meet our liquidity needs for the near future barring any unforeseen circumstances. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facilities or otherwise in a sufficient amount. We may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt, including our senior secured credit facilities, our 9 5/8% senior subordinated notes due 2009 (“existing 9 5/8% notes”) or the Exchange Notes and Unregistered Exchange Notes, if issued, on commercially reasonable terms or at all.

      If there were an event of default under our or our subsidiaries’ indebtedness, including the senior secured credit facilities, our existing 9 5/8% notes and the Exchange Notes and Unregistered Exchange Notes, if issued, the holders of the affected indebtedness could elect to declare all of that indebtedness to be due and payable immediately, which in turn could cause some or all of our or our subsidiaries’ other indebtedness to become due and payable. We cannot assure you that we or our subsidiaries would have sufficient funds available, or that we or our subsidiaries would have access to sufficient capital from other sources, to repay the accelerated debt. Even if we or our subsidiaries could obtain additional financing, we cannot assure you that the terms would be favorable to us. Under the terms of our senior secured credit facilities and our existing 9 5/8% notes, if the amounts outstanding under our indebtedness were accelerated, our lenders would have the right to foreclose on their liens on substantially all of our and our subsidiaries’ assets (with the exception of our FCC licenses held by certain of our subsidiaries, because a grant of a security interest therein would be prohibited by law, and certain general intangibles and fixed assets under particular limited circumstances) and on the

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      We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the terms of our Preferred Stock, our existing 9 5/8% notes and the senior secured credit facilities restrict our ability to incur additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. In addition, the terms of our Series B preferred stock permit us to exchange our Series B preferred stock for the Exchange Notes and the terms of our Series A preferred stock permit us to exchange our Series A preferred stock for Unregistered Exchange Notes. If we or our subsidiaries incur additional debt, the related risks described above that we and our subsidiaries face could intensify.

      The terms of our Preferred Stock, existing 9 5/8% notes, senior secured credit facilities, and, if issued, Unregistered Exchange Notes and Exchange Notes contain covenants that, among other things, limit our ability to:

	•	incur additional debt, incur contingent obligations and issue preferred stock;
	•	redeem or repurchase securities ranking junior to our Preferred Stock;
	•	create liens;
	•	pay dividends, distributions or make other specified restricted payments and may also place restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments to us;
	•	sell assets;
	•	make certain capital expenditures, investments and acquisitions;
	•	change or add lines of business;
	•	enter into certain transactions with affiliates;
	•	enter into sale and leaseback transactions;
	•	sell capital stock of our subsidiaries; and
	•	merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets.

      The terms of the senior secured credit facilities also require us to maintain specified financial ratios and to satisfy certain financial condition tests. These covenants could materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in our best interest. All of these covenants may restrict our ability to expand or to pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, such as prevailing economic conditions and changes in regulations, and, if such events occur, we cannot be sure that we will be able to comply. A breach of any of these covenants could result in a default under one or more of our debt instruments.

      If an event of default occurs under the senior secured credit facilities or the indenture governing our existing 9 5/8% notes, the lenders and/or the noteholders could elect to declare all amounts of debt outstanding, together with accrued interest, to be immediately due and payable. In addition, there are change of control provisions in the senior secured credit facilities, the indenture governing the existing 9 5/8% notes, the certificates of designations governing our Series A preferred stock and our Series B preferred stock and the

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      On October 15, 2013, each holder of Preferred Stock will have the right to require us to redeem all or a portion of the Preferred Stock at a purchase price of 100% of the liquidation preference thereof, plus all accumulated and unpaid dividends to the date of repurchase. In addition, if we experience certain kinds of changes of control as described in the certificates of designations creating the Preferred Stock, subject to certain restrictions in our debt instruments we will be required to make an offer to purchase the Preferred Stock for cash at a purchase price of 101% of the liquidation preference thereof, plus accumulated dividends. The source of funds for any such repurchases would be our available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person or entity. We cannot assure you that sufficient funds will be available to us on favorable terms, or at all, to repurchase all tendered Preferred Stock or Exchange Notes or Unregistered Exchange Notes, if issued, pursuant to these requirements. Our failure to offer to repurchase or to repurchase Preferred Stock or Exchange Notes or Unregistered Exchange Notes tendered, as the case may be, will result in a voting rights triggering event under the certificates of designations governing our Preferred Stock or a default under the indentures that would govern our Exchange Notes and Unregistered Exchange Notes, if issued, as the case may be. Such events could lead to a cross-default under our senior secured credit facilities and under the terms of our other debt. In addition, our senior secured credit facilities and our existing 9 5/8% notes would either prohibit or effectively prohibit us from making any such required repurchases. The underlying change of control event could also trigger our obligation to offer to repurchase our existing 9 5/8% notes at 101% of their principal amount. Prior to repurchasing our Preferred Stock or Exchange Notes or Unregistered Exchange Notes on a change of control event, we must either repay outstanding debt under our senior secured credit facilities or obtain the consent of the lenders under those facilities and we may have to offer to purchase our existing 9 5/8% notes. If we do not obtain the required consents or repay our outstanding debt under our senior secured credit facilities, we would remain effectively prohibited from offering to repurchase our Preferred Stock or Exchange Notes or Unregistered Exchange Notes. Even if we are able to repay the senior secured credit facilities, if we have insufficient funds to purchase both our existing 9 5/8% notes and our Preferred Stock or Exchange Notes or Unregistered Exchange Notes, we would remain effectively prohibited from offering to repurchase our Preferred Stock or Exchange Notes or Unregistered Exchange Notes.

      Although we entered into a definitive agreement for the proposed sale of the assets of our San Francisco station on October 2, 2003, the buyer did not close under the agreement and on February 3, 2004, we terminated the agreement. We are currently considering other offers to purchase the assets of our San Francisco station. We intend to sell the assets of our San Francisco station; however, we cannot assure you that the proposed sale will be completed. If the proposed sale does not close, we will be unable to use the anticipated proceeds from such sale to reduce our debt and therefore we will be more highly leveraged.

      We may not achieve profitability. Failure to achieve profitability may adversely affect the market price of our common stock, which in turn may adversely affect our ability to raise additional equity capital and to incur additional debt. Our inability to obtain financing in adequate amounts and on acceptable terms necessary to

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      Our operating results could be adversely affected by a recession and/or further downturn in the United States economy since advertising expenditures generally decrease as the economy slows down. In addition, our operating results in individual geographic markets could be adversely affected by local or regional economic downturns. Our operating results have been adversely affected by past recessions.

      Our New York, Los Angeles and Miami markets account for more than 70% of our revenue for the fiscal year ended December 31, 2003. 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.

      Our business depends upon the efforts, abilities and expertise of our executive officers and other key employees, including Raúl Alarcón, Jr., our Chairman of the Board of Directors, Chief Executive Officer and President. The loss of any of these officers and key employees could have a material adverse effect on our business. We do not maintain key man life insurance on any of our personnel.

      We have pursued the acquisition of radio stations, primarily in the largest U.S. Hispanic markets, as a growth strategy. We cannot assure you that our acquisition strategy will be successful. Our acquisition strategy is subject to a number of risks, including, but not limited to:

	•	we may be limited in our ability to acquire additional radio stations due to our substantial level of debt;
	•	we may be required to raise additional financing and our ability to do so is limited by the terms of our debt instruments and market conditions;
	•	we may not increase our station operating income or yield other anticipated benefits despite newly acquired stations;
	•	we may incur unanticipated delays in completing acquisitions due to required regulatory approvals;
	•	we may have difficulty managing any rapid growth;
	•	we may have difficulty programming newly acquired stations to attract listenership; and
	•	we may finance acquisitions with the issuance of, or through sales of, our common stock in the public market which could adversely affect our stock price, due to dilution, and our ability to raise funds necessary to grow our business through additional stock offerings.

      Although we intend to pursue additional strategic acquisitions, our ability to do so is significantly restricted by the terms of the senior secured credit facilities, the indenture governing our existing 9 5/8% notes, the certificates of designations governing our Series A preferred stock and Series B preferred stock, the indentures that will govern the Exchange Notes and Unregistered Exchange Notes, if issued, and our ability to

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      Raúl Alarcón, Jr., our Chairman of the Board of Directors, Chief Executive Officer and President, owns shares of Class B common stock having approximately 81% of the combined voting power of our outstanding shares of common stock, as of the date of this annual report on Form 10-K. Accordingly, Mr. Alarcón, Jr. has the ability to elect all of our directors and can effectively control our policies and affairs. This control may discourage certain types of transactions involving an actual or potential change of control such as a merger or sale.

      Radio broadcasting is a highly competitive business. Our radio stations compete in their respective markets for audiences and advertising revenues with other radio stations of all formats, as well as with other media, such as newspapers, magazines, television, cable services, outdoor advertising, the Internet and direct mail. As a result of this competition, our stations’ audience ratings and market shares may decline and any adverse change in a particular market could have a material adverse effect on the revenue of our stations located in that market and on the financial condition of our business as a whole.

      Although we believe that each of our radio stations is able to compete effectively in its respective market, we cannot assure you that any station will be able to maintain or increase its current audience ratings and advertising revenues. Radio stations can change formats quickly. Any other radio station currently broadcasting could shift its format to duplicate the format of any of our stations. If a station converts its programming to a format similar to that of one of our stations, or if one of our competitors strengthens its operations, the ratings and station operating income of our station in that market could be adversely affected. In addition, other radio companies which are larger and have more resources may also enter markets in which we operate.

      Because of the recent merger of Univision Communications Inc. and Hispanic Broadcasting Corp. we will face increased competition for advertising revenue from an entity that will have a dominant share of both the Spanish-language television advertising market and Spanish-language radio advertising market. The merged entity holds the nation’s largest network of Spanish-language television stations and the nation’s largest network of Spanish-language radio stations. The merged entity will also have substantially more resources than we do which could make us face even greater competitive pressures in the markets in which we operate.

      The FCC is considering ways to introduce new technologies to the radio broadcast industry, including satellite and terrestrial delivery of digital audio broadcasting, and the standardization of available technologies which significantly enhance the sound quality of AM and FM broadcasts. We cannot predict the effect new technology of this nature will have on our financial condition and results of operations. Several new media technologies are being developed, including the following:

	•	cable television operators offer a service commonly referred to as “cable radio” which provides cable television subscribers with several high-quality channels of music, news and other information;
	•	the Internet offers new, diverse and evolving forms of program distribution;

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	•	direct satellite broadcast television companies are supplying subscribers with several high quality music channels;
	•	the introduction of satellite digital audio radio technology has resulted in new satellite radio services with sound quality equivalent to that of compact discs; and
	•	the introduction of in-band on-channel digital radio could provide multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services.

      The domestic broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the FCC for the issuance, renewal, transfer and assignment of broadcasting station operating licenses and limits the number of broadcasting properties we may acquire. Federal regulations create significant new opportunities for broadcasting companies but also create uncertainties as to how these regulations will be interpreted and enforced by the courts.

      Our success depends in part on acquiring and maintaining broadcast licenses issued by the FCC, which are typically issued for a maximum term of eight years and are subject to renewal. While we believe that the FCC will approve applications for renewal of our existing broadcasting licenses when made, we cannot guarantee that pending or future renewal applications submitted by us will be approved, or that renewals will not include conditions or qualifications that could adversely affect our operations. Although we may apply to renew our FCC licenses, interested third parties may challenge our renewal applications. In addition, if we or any of our significant stockholders, officers, or directors violate the FCC’s rules and regulations or the Communications Act, or are convicted of a felony or anti-trust violations, the FCC may commence a proceeding to impose sanctions upon us. Examples of possible sanctions include the imposition of fines, the revocation of our broadcasting licenses, or the renewal of one or more of our broadcasting licenses for a term of fewer than eight years. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio station covered by the license only after we had exhausted administrative and judicial review without success. Such an event would materially affect the carrying value of our intangible assets and would negatively impact our operating results.

      The radio broadcasting industry is subject to extensive and changing federal regulation. Among other things, the Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments. The filing of petitions or complaints against us or any FCC licensee from which we acquire a station could result in the FCC delaying the grant of, or refusing to grant or imposing conditions on its consent to the assignment or transfer of licenses. The Communications Act and FCC rules also impose limitations on non-U.S. ownership and voting of our capital stock. Moreover, governmental regulations and policies may change over time and we cannot assure you that those changes would not have a material impact upon our business, financial position or results of operations.

      An important part of our growth strategy is the acquisition of additional radio stations. After the passage of the Telecommunications Act of 1996, the U.S. Department of Justice (the “Justice Department”) has become more aggressive in reviewing proposed acquisitions of radio stations and radio station networks. The Justice Department is particularly concerned when the proposed buyer already owns three or more radio stations in the market of the station it is seeking to buy. Recently, the Justice Department has challenged a number of radio broadcasting transactions. Some of those challenges ultimately resulted in consent decrees requiring, among other things, divestitures of certain stations. In general, the Justice Department has more closely scrutinized radio broadcasting acquisitions that result in market shares in excess of 40% of local radio advertising revenue. Similarly, the FCC reviews proposed radio broadcasting transactions even if the proposed acquisition otherwise complies with the FCC’s ownership limitations. In particular, the FCC may invite public

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      The stock market in general has recently experienced price fluctuations, which have often been unrelated to the operating performance of the affected companies. We believe that the principal factors that may cause price fluctuations in our shares of Class A common stock are:

	•	fluctuations in our financial results;
	•	general conditions or developments in the radio industry, television and other media, and the national economy;
	•	significant sales of our common stock into the marketplace;
	•	significant decreases in radio station audience ratings;
	•	inability to implement our acquisition strategy;
	•	a shortfall in revenue, gross margin, earnings or other financial results from operations or changes in analysts’ expectations; and
	•	developments in our relationships with our customers and suppliers.

      We cannot assure you that the market price of our Class A common stock will not experience significant fluctuations in the future, including fluctuations that are adverse and unrelated to our performance.

      The market price of our Class A common stock could drop as a result of sales of a large number of shares of Class A common stock or Class B common stock (convertible into Class A common stock) by our existing stockholders or the perception that these sales may occur. These factors could make it more difficult for us to raise funds through future offerings of our Class A common stock.

      On February 8, 2002, pursuant to our amended asset purchase agreement for the purchase of the assets of radio station KXOL-FM, we granted to the ICFG a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant is exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. In addition, we were required to issue additional warrants to ICFG from the date that ICFG ceased to broadcast its programming over KZAB-FM and KZBA-FM until the closing of the acquisition of KXOL-FM. On each of March 31, 2003, April 30, 2003, May 31, 2003, June 30, 2003, July 31, 2003, August 31, 2003 and September 30, 2003, we granted ICFG a warrant exercisable for 100,000 shares (an aggregate of 700,000 shares) of our Class A common stock at an exercise price of $6.14, $7.67, $7.55, $8.08, $8.17, $7.74 and $8.49 per share, respectively. The warrant issued on September 30, 2003 was the final warrant required to be issued due to the closing of the acquisition of KXOL-FM. These warrants are also exercisable for a period of thirty-six months after the date of issuance after which they will expire if not exercised. To date, none of the warrants that we have issued to ICFG has been exercised. If these warrants are exercised, we cannot assure you that this would not depress the market price of our Class A common stock.

Special Note Regarding Forward-Looking Statements

      This annual report on Form 10-K 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 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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,”

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Available Information

      We are subject to the reporting and other information requirements of the Exchange Act. We file reports and other information with the SEC. Such reports and other information filed by us pursuant to the Exchange Act may be inspected and copied at the public reference facility maintained by the SEC at 450 Fifth Street, N.W., Washington D.C. 20549. If interested, please call 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a website on the Internet containing reports, proxy materials, information statements and other items. The Internet website address is http://www.sec.gov . Our reports, proxy materials, information statements and other information can also be inspected and copied at the offices of The Nasdaq Stock Market, on which our common stock is listed (symbol: SBSA). You can find more information about us at our Internet website located at www.spanishbroadcasting.com . Our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.