Spanish Broadcasting System 10Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2006
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission filenumber 33-82114

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)


Delaware		13-3827791
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2601 South Bayshore Drive, PH II

Coconut Grove, Florida 33133

(Address of principal executive offices) (Zip Code)

(305) 441-6901

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ Noo

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer inRule 12b-2 of the Exchange Act.

Large accelerated filer: o Accelerated filer: þ Non-accelerated filer: o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: as of November 7, 2006, 40,277,805 shares of Class A common stock, par value $0.0001 per share, 24,503,500 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 7,600,000 shares of Class A common stock, were outstanding.

SPANISH BROADCASTING SYSTEM, INC.
INDEX


			Page

PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements — Unaudited		3
		Unaudited Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005		3
		Unaudited Condensed Consolidated Statements of Operations for the Three- and Nine-Months Ended September 30, 2006 and 2005		4
		Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Nine-Months Ended September 30, 2006		5
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2006 and 2005		6
		Notes to Unaudited Condensed Consolidated Financial Statements		7
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		25
	ITEM 4.	Controls and Procedures		25

PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings		26
	ITEM 1A.	Risk Factors		26
	ITEM 6.	Exhibits		26
EX-31.(i)1 Section 302 Certification of CEO
EX-31.(i)2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

Special Note Regarding Forward-Looking Statements

This Quarterly Report onForm 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “foresee,” “likely,” “will” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and anticipated achievements expressed or implied by these statements. We do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in this report, in Part II, “Item 1A. Risk Factors” and elsewhere in our Annual Report onForm 10-K for the year ended December 31, 2005, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements — Unaudited*

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets


	September 30,			December 31,
	2006			2005
	(In thousands, except
	per share data)

ASSETS
Current assets:
Cash and cash equivalents	$	66,788			125,156
Receivables, net of allowance for doubtful accounts of $4,316 in 2006 and $3,832 in 2005		32,943			34,269
Prepaid expenses and other current assets		3,887			3,635
Assets held for sale		—			65,109

Total current assets		103,618			228,169
Property and equipment, net of accumulated depreciation of $32,632 in 2006 and $30,335 in 2005		27,285			22,973
FCC licenses		749,864			710,410
Goodwill		32,806			32,806
Other intangible assets, net of accumulated amortization of $97 in 2006 and $70 in 2005		1,337			2,580
Deferred financing costs, net of accumulated amortization of $1,470 in 2006 and $749 in 2005		6,193			8,744
Other assets		675			596
Derivative instrument		7,846			6,939

Total assets	$	929,624		$	1,013,217


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	16,792			21,487
Accrued interest		106			1,426
Deposits on sale of stations		—			55,000
Unearned revenue		3,420			263
Deferred commitment fee		394			450
Current portion of the senior credit facility term loan due 2012		3,250			3,250
Current portion of the senior credit facility term loan due 2013		—			100,000
Current portion of other long-term debt		78			75
Series B cumulative exchangeable redeemable preferred stock dividends payable		2,013			2,014

Total current liabilities		26,053			183,965
Senior credit facility term loan due 2012, less current portion		316,875			319,313
Non-interest bearing note payable due 2009, net of unamortized discount of $3,022 in 2006		15,478			—
Other long-term debt, less current portion		433			492
Deferred income taxes		151,373			144,163
Unearned revenue, less current portion		2,541			—
Other long-term liabilities		99			525

Total liabilities		512,852			648,458

Cumulative exchangeable redeemable preferred stock:
103/4% Series B cumulative exchangeable redeemable preferred stock, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares; 89,932 shares issued and outstanding at September 30, 2006 and December 31, 2005		89,932			89,932

Stockholders’ equity:
Series C preferred stock, $0.002 par value and liquidation value. Authorized 600,000 shares; 380,000 shares issued and outstanding at September 30, 2006 and December 31, 2005		1			1
Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 40,277,805 shares issued and outstanding at September 30, 2006 and December 31, 2005		4			4
Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 24,503,500 shares issued and outstanding at September 30, 2006 and December 31, 2005		2			2
Additional paid-in capital		521,963			520,421
Accumulated other comprehensive income		7,846			6,939
Accumulated deficit		(202,976	)		(252,540	)

Total stockholders’ equity		326,840			274,827

Total liabilities, cumulative exchangeable redeemable preferred stock and stockholders’ equity	$	929,624			1,013,217

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations


	Three-Months						Nine-Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005
	(In thousands, except						(In thousands, except
	per share data)						per share data)

Net revenue	$	45,891			43,047			132,507			122,961

Operating expenses:
Engineering and programming(1)		12,739			8,292			37,544			24,609
Selling, general and administrative(1)		17,879			15,683			54,305			47,859
Corporate expenses(1)		3,125			3,154			10,314			10,588
Depreciation and amortization		968			867			2,800			2,521
Loss (gain) on the sales of assets, net of disposal of costs		6			—			(50,787	)		—

Total operating expenses		34,717			27,996			54,176			85,577

Operating income		11,174			15,051			78,331			37,384

Other (expense) income:
Interest expense, net		(4,840	)		(8,021	)		(15,195	)		(28,837	)
Loss on early extinguishment of debt		—			(29,443	)		(2,997	)		(32,597	)
Other, net		16			(8	)		(7	)		1,792

Income (loss) before income taxes and discontinued operations		6,350			(22,421	)		60,132			(22,258	)
Income tax expense		5,507			10,618			3,317			10,618

Income (loss) before discontinued operations		843			(33,039	)		56,815			(32,876	)
Income on discontinued operations, net of tax		—			3			—			—

Net income (loss)	$	843			(33,036	)		56,815			(32,876	)
Dividends on Series B preferred stock		(2,417	)		(2,406	)		(7,251	)		(7,031	)

Net (loss) income applicable to common stockholders	$	(1,574	)		(35,442	)		49,564			(39,907	)

Basic and diluted (loss) income per common share:
Net (loss) income per common share before discontinued operations	$	(0.02	)		(0.49	)		0.68			(0.55	)
Net income per common share from discontinued operations	$	—			—			—			—

Net (loss) income per common share	$	(0.02	)		(0.49	)		0.68			(0.55	)

Weighted average common shares outstanding:
Basic		72,381			72,381			72,381			72,381

Diluted		72,381			72,381			72,386			72,381

Supplemental information:
(1) Stock-based compensation expenses:
Engineering and programming expense	$	178			—			533			—
Selling, general and administrative expense		92			—			266			—
Corporate expenses		192			—			743			—

Total stock-based compensation expenses	$	462			—			1,542			—

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in

Stockholders’ Equity and Comprehensive Income

for the Nine-Months Ended September 30, 2006


	Class C				Class A				Class B						Accumulated
	Preferred Stock				Common Stock				Common Stock				Additional		Other					Total
	Number		Par		Number		Par		Number		Par		Paid-In		Comprehensive		Accumulated			Stockholders’
	of Shares		Value		of Shares		Value		of Shares		Value		Capital		Income		Deficit			Equity
	(In thousands, except per share data)

Balance at December 31, 2005		380,000	$	1		40,277,805	$	4		24,503,500	$	2	$	520,421	$	6,939	$	(252,540	)	$	274,827
Stock-based compensation		—		—		—		—		—		—		1,542		—		—			1,542
Series B preferred stock dividends		—		—		—		—		—		—		—		—		(7,251	)		(7,251	)
Comprehensive income:
Net income		—		—		—		—		—		—		—		—		56,815			56,815
Unrealized gain on derivative instrument		—		—		—		—		—		—		—		907		—			907

Comprehensive income																					57,722

Balance at September 30, 2006		380,000	$	1		40,277,805	$	4		24,503,500	$	2	$	521,963	$	7,846	$	(202,976	)	$	326,840

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows


	Nine-Months Ended
	September 30,
	2006			2005
	(In thousands)

Cash flows from operating activities:
Net income (loss)	$	56,815			(32,876	)
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt		2,997			32,597
Gain on the sales of assets, net of disposal costs		(50,787	)		—
Depreciation and amortization		2,800			2,521
Net barter income		(135	)		(241	)
Provision for doubtful trade accounts receivable		1,273			527
(Gain) loss on disposal of fixed assets		—			14
Amortization of debt discount		—			717
Accretion of the time-value of money component related to unearned revenue		170			—
Amortization of non-interest bearing note payable		700			—
Stock-based compensation		1,542			—
Amortization of deferred financing costs		906			1,400
Increase in deferred income taxes		3,361			10,923
Increase in unearned revenue		170			—
Amortization of deferred commitment fee		(56	)		(56	)
Changes in operating assets and liabilities:
Decrease in trade receivables		208			955
Increase in prepaid expenses and other current assets		(252	)		(677	)
Increase in other assets		(79	)		(701	)
Decrease in accounts payable and accrued expenses		(4,701	)		(9,306	)
Decrease in accrued interest		(1,320	)		(4,287	)

Net cash provided by continuing operations		13,612			1,510
Net cash used in discontinued operations		—			(291	)

Net cash provided by operating activities		13,612			1,219

Cash flows from investing activities:
Proceeds from sale of radio stations, net of closing costs		64,751			—
Acquisition of television stations		(18,537	)		(750	)
Deposit on sale of radio stations		—			35,000
Additions to property and equipment		(6,670	)		(2,590	)

Net cash provided by investing activities		39,544			31,660

Cash flows from financing activities:
Payment of senior credit facility term loan due 2009		—			(123,750	)
Payments of senior credit facility term loan due 2012		(2,438	)		(1,625	)
Payment of senior credit facility term loan due 2013 (including prepayment premium of $1.0 million)		(101,000	)		—
Payments of Series B preferred stock dividends		(7,252	)		—
Payments of other long-term debt		(482	)		(3,468	)
Payments of deferred financing costs		(352	)		(9,043	)
Payment of the 95/8% senior subordinated notes, due 2009 and related premiums		—			(351,124	)
Proceeds from senior credit facility term loan due 2012		—			325,000
Proceeds from senior credit facility term loan due 2013		—			100,000

Net cash used in financing activities		(111,524	)		(64,010	)

Net decrease in cash and cash equivalents		(58,368	)		(31,131	)
Cash and cash equivalents at beginning of period		125,156			132,032

Cash and cash equivalents at end of period		66,788			100,901

Supplemental cash flows information:
Interest paid during the period		17,315			33,469

Income taxes paid during the period, net		313			1,613

Non-cash investing and financing activities:
Unrealized gain on derivative instrument	$	907			4,380

Unearned revenue (advertising given as consideration for acquisition of television stations)	$	5,338			—

Non-interest bearing note payable issued for the acquisition of television stations	$	14,778			—

Accrual of Series B preferred stock as payment of preferred stock dividend	$	—			5,018

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the “Company”, “we”, “us”, “our” or “SBS”). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of September 30, 2006 and December 31, 2005 and for the three- and nine-month periods ended September 30, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions toForm 10-Q andRule 10-01 ofRegulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for, the fiscal year ended December 31, 2005, included in our fiscal year end 2005 Annual Report onForm 10-K.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and recurring nature, necessary for a fair presentation of the results of the interim periods. The results of operations for the three- and nine-month periods ended September 30, 2006 are not necessarily indicative of the results for a full year.


2.	Assets Held for Sale

In connection with the closing of the LA Asset Sale, Styles Media Group paid a cash purchase price of $120.0 million, consisting of $65.0 million paid at closing and $55.0 million previously paid to us as non-refundable deposits. As a result of the LA Asset Sale, we recognized a pre-tax gain on the sale of assets, net of disposal costs, of approximately $50.8 million during the nine-months ended September 30, 2006.

Previously, on August 17, 2004, Spanish Broadcasting System SouthWest, Inc., also entered into a time brokerage agreement with Styles Media Group pursuant to which Styles Media Group was permitted to begin broadcasting its programming on radio stationsKZAB-FM andKZBA-FM beginning on September 20, 2004. On January 31, 2006, the time brokerage agreement was terminated upon the completion of the sale.

We determined that, since we were not eliminating all significant revenues and expenses generated in this market, the LA Asset Sale did not meet the criteria to classify the stations’ operations as discontinued operations.KZAB-FM andKZBA-FM generated net revenues of $0.6 million and generated station operating income of $0.4 million for the three-month period ended September 30, 2005.KZAB-FM andKZBA-FM generated net revenues of $0.2 million and $1.7 million and generated station operating income of $0.1 million and $1.3 million for the nine-month periods ended September 30, 2006 and 2005, respectively. These stations’ net revenue and station operating income were mainly generated from the monthly fees received related to the time brokerage agreement.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


3.	Stockholders’ Equity


*(a)*	*Series C Preferred Stock*

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with Infinity Media Corporation (“Infinity”), Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS (“SBS Bay Area”), we issued to Infinity (i) an aggregate of 380,000 shares of Series C convertible preferred stock, $0.002 par value per share (the “Series C preferred stock”), each of which is convertible at the option of the holder into twenty fully paid and non- assessable shares of our Class A common stock; and (ii) a warrant to purchase an additional 190,000 shares of Series C preferred stock, exercisable at any time from December 23, 2004 until December 23, 2008, at an exercise price of $300.00 per share (the “Warrant”).

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

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

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


*(b)*	*Class A and Class B Common Stock*

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


*(c)*	*Warrants*

In connection with the merger agreement with Infinity, as discussed in Note 3(a), we have a warrant outstanding to ultimately purchase an aggregate of 3,800,000 shares of our Class A common stock, which expires on December 23, 2008. In addition, all 700,000 warrants issued with the purchase of radio stationKXOL-FM, serving our Los Angeles market, expired unexercised during the nine-months period ended September 30, 2006.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


*(d)*	*Shared-Based Payment Plans*

Background of the 2006 Omnibus Equity Compensation Plan

On July 16 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants can be made to participants in any of the following forms: (i) incentive stock options, (ii) nonqualified stock options, (iii) stock appreciation rights (“SARs”), (iv) stock units, (v) stock awards, (vi) dividend equivalents, and (vii) other stock-based awards. The Omnibus Plan authorizes up to 3,500,000 shares of our Class A common stock for issuance, subject to adjustment in certain circumstances. The Omnibus Plan provides that the maximum aggregate number of shares of Class A common stock that may be made with respect to grants, other than dividend equivalents, to any individual during any calendar year is 1,000,000 shares, subject to adjustments. In addition, the maximum aggregate number of shares of Class A common stock with respect to grants of stock units, stock awards and other stock-based awards that may be made to any individual during a calendar year is also 1,000,000 shares, subject to adjustments. As of September 30, 2006, we have not issued any grants under the Omnibus Plan.

Background of the 1999 Stock Option Plans

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

Impact of the Adoption of SFAS No. 123(R) “Share-Based Payment”

We adopted SFAS No. 123(R) using the modified prospective transition method beginning January 1, 2006. Accordingly, during the nine-month period ended September 30, 2006, we recorded stock-based compensation expense for awards granted prior to, but not yet vested, as of January 1, 2006, as if the fair value method required for pro forma disclosure under SFAS No. 123 “Accounting for Stock-Based Compensation,” were in effect for expense recognition purposes, adjusted for estimated forfeitures. For stock-based awards granted after January 1, 2006, we have recognized compensation expense based on the estimated grant date fair value method using the Black-Scholes option pricing model. For these awards, we have recognized compensation expense using a straight-line amortization method (prorated). As SFAS No. 123(R)requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based compensation for the three- and nine-month periods ended September 30, 2006 have been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

trends of actual option forfeitures. The impact on our results of operations of recording stock-based compensation for the three- and nine-month periods ended September 30, 2006 was as follows (in thousands):


			Nine-Months
	Three-Months		Ended
	Ended		September 30,
Stock-Based Compensation Expense:	September 30, 2006		2006

Engineering and programming expenses	$	178		533
Selling, general and administrative expenses		92		266
Corporate expenses		192		743

Total	$	462		1,542

As of September 30, 2006, there was $2.5 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under all of our plans. The cost is expected to be recognized over a weighted-average period of approximately two years.

SFAS No. 123(R) requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. We did not receive any cash payments from option exercises for the three-and nine-month periods ended September 30, 2006. In addition, we did not recognize a tax benefit on our stock-based compensation expense due to our valuation allowance on substantially all of our deferred tax assets.

Valuation Assumptions

We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The per share weighted-average fair value of stock options granted to employees during the three- and nine-month periods ended September 30, 2005 was $7.42 and $5.82, respectively. There have been no stock options granted for the three- and nine-month periods ended September 30, 2006. The following weighted average assumptions were used for each respective period:


	Three-Months						Nine-Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006			2005

Expected life		7 years			5 years			7 years			5 years
Dividends		None			None			None			None
Risk-free interest rate		4.60	%		4.18	%		4.85	%		4.14	%
Expected volatility		66	%		69	%		66	%		71	%

Our computation of expected volatility for the three- and nine-month periods ended September 30, 2006 was based on a combination of historical and market-based implied volatility from traded options on our stock. Prior to 2006, our computation of expected volatility was based on historical volatility. Our computation of expected life in 2006, was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The range provided above results from the behavior patterns of separate groups of employees that have similar historical experience. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-Based Payment Award Activity

A summary of the status of our stock options, as of December 31, 2005 and September 30, 2006, and changes during the nine-months ended September 30, 2006, is presented below (in thousands, except per share data):


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value

Outstanding at December 31, 2005		2,939		$	11.54
Granted		—			—
Exercised		—			—
Forfeited		(10	)		8.21

Outstanding at September 30, 2006		2,929		$	11.55		6.0	$	—

Exercisable at September 30, 2006		2,387		$	12.11		5.5	$	—

The following table summarizes information about stock options outstanding and exercisable at September 30, 2006 (in thousands, except per share data):


											Weighted
					Weighted						Average
					Average		Weighted				Exercise
					Remaining		Average		Number of		Price of
	Vested		Unvested		Contractual		Exercise		Exercisable		Exercisable
Range of Exercise Prices	Options		Options		Life (Years)		Price		Options		Options

$ 0 - 4.99		100		—		4.2	$	4.81		100	$	4.81
5 - 9.99		1,415		419		7.0		8.70		1,415		8.74
10 - 14.99		146		122		7.6		10.95		146		11.04
15 - 19.99		16		—		5.6		15.48		16		15.48
20 - 24.99		710		—		3.1		20.00		710		20.00

		2,387		541		6.0	$	11.55		2,387	$	12.11

Pro forma Information for Periods Prior to the Adoption of SFAS 123(R)

Prior to the adoption of SFAS No. 123(R), we provided the disclosures required under SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosures.” Employee stock-based compensation expense recognized under SFAS No. 123(R) was not reflected in our results of operations for the three- and nine-month periods ended September 30, 2005 for employee stock option awards as all options were granted with an exercise price equal to the market value of the underlying common stock on the date of grant.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The pro forma information for the three- and nine-month periods ended September 30, 2005 was as follows (in thousands, except per share amounts):


	Three-Months			Nine-Months
	Ended			Ended
	September 30,			September 30,
	2005			2005

Net loss applicable to common stockholders:
As reported	$	(35,442	)		(39,907	)
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		(670	)		(1,999	)

Pro forma net loss	$	(36,112	)		(41,906	)

Net loss per common share:
As reported: Basic and Diluted	$	(0.49	)		(0.55	)

Pro forma: Basic and Diluted	$	(0.50	)		(0.58	)


4.	Operating Segments

Due to the recent commencement of our new television operation “MEGA TV”, we are now reporting two operating segments, radio and television.

Radio broadcasting. We own and operate 20 radio stations located in some of the nation’s top Hispanic markets: Los Angeles, New York, Miami, Chicago, San Francisco and Puerto Rico.

Television broadcasting. We own and operate two television stations, which operate as one television operation, branded “MEGA TV”, serving the South Florida market.

Separate financial data for each of our operating segments is provided below. We evaluate the performance of our operating segments, from a financial perspective, based on the following (in thousands):


	Three-Months Ended									Nine-Months Ended
	September 30,				Change					September 30,				Change
	2006		2005		$		%			2006		2005		$		%
	(In thousands)									(In thousands)

Net revenue:
Radio	$	44,552		43,047		1,505		3	%	$	129,339		122,961		6,378		5	%
Television		1,339		—		1,339		100	%		3,168		—		3,168		100	%

Consolidated	$	45,891		43,047		2,844		7	%	$	132,507		122,961		9,546		8	%

Engineering and programming expense:
Radio	$	8,520		7,960		560		7	%	$	25,276		24,277		999		4	%
Television		4,219		332		3,887		1171	%		12,268		332		11,936		3595	%

Consolidated	$	12,739		8,292		4,447		54	%	$	37,544		24,609		12,935		53	%

Selling, general and administrative:
Radio	$	16,231		15,111		1,120		7	%	$	48,573		47,287		1,286		3	%
Television		1,648		572		1,076		188	%		5,732		572		5,160		902	%

Consolidated	$	17,879		15,683		2,196		14	%	$	54,305		47,859		6,446		13	%

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three-Months Ended												Nine-Months Ended
	September 30,						Change						September 30,						Change
	2006			2005			$			%			2006			2005			$			%
	(In thousands)												(In thousands)

Operating income (loss) before depreciation and amortization and gain on sales of assets, net:
Radio	$	19,801			19,976			(175	)		(1	)%	$	55,490			51,397			4,093			8	%
Television		(4,528	)		(904	)		(3,624	)		401	%		(14,832	)		(904	)		(13,928	)		1541	%
Corporate		(3,125	)		(3,154	)		29			(1	)%		(10,314	)		(10,588	)		274			(3	)%

Consolidated	$	12,148			15,918			(3,770	)		(24	)%	$	30,344			39,905			(9,561	)		(24	)%

Depreciation and amortization:
Radio	$	643			621			22			4	%	$	1,866			1,758			108			6	%
Television		76			1			75			7500	%		206			1			205			20500	%
Corporate		249			245			4			2	%		728			762			(34	)		(4	)%

Consolidated	$	968			867			101			12	%	$	2,800			2,521			279			11	%

Operating income (loss):
Radio	$	19,152			19,355			(203	)		(1	)%	$	104,411			49,639			54,772			110	%
Television		(4,604	)		(905	)		(3,699	)		409	%		(15,038	)		(905	)		(14,133	)		1562	%
Corporate		(3,374	)		(3,399	)		25			(1	)%		(11,042	)		(11,350	)		308			(3	)%

Consolidated	$	11,174			15,051			(3,877	)		(26	)%	$	78,331			37,384			40,947			110	%

Capital expenditures:
Radio	$	2,116			500			1,616			323	%	$	3,639			2,015			1,624			81	%
Television		101			49			52			106	%		2,542			49			2,493			5088	%
Corporate		148			54			94			174	%		489			526			(37	)		(7	)%

Consolidated	$	2,365			603			1,762			292	%	$	6,670			2,590			4,080			158	%


	September 30,		December 31,
	2006		2005

Total Assets:
Radio	$	882,154		1,010,020
Television		47,470		3,197

Consolidated	$	929,624		1,013,217


5.	Litigation

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

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

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

On December 5, 2003, the Court issued a temporary injunction against all of the defendants and scheduled a hearing before the Court on December 17, 2003. The temporary injunction dissolved by its terms on December 1, 2004. On December 17, 2003, the parties entered into a settlement agreement, whereby the Court entered an Order on Consent of the settling parties, permitting Bernal and Garza’s radio show to be broadcast on our radio stations. In addition, we agreed that we would not broadcast the Bernal and Garza radio show in certain prohibited markets and that we would not distribute certain promotional materials that were developed by Amigo. On January 5, 2004, we answered the remaining claims asserted by Amigo for damages. On March 18, 2005, the case was removed to the United States District Court for the Western District of Texas (the “District Court”) and a trial date was scheduled for May 2006. On January 17, 2006, we filed a motion for summary judgment with the District Court. On March 2, 2006, the parties conducted mediation but were unable to reach a settlement. The case was thereafter tried before a jury the week of May 1, 2006. At the close of plaintiff’s evidence, defendants presented a motion for judgment as a matter of law and the motion was granted on all counts. The District Court entered judgment for the defendants, Garza, Bernal and us. On June 2, 2006, Plaintiff filed a notice of appeal to the Fifth Circuit Court of Appeals. The time for filing of their brief expires on December 12, 2006 and to date the brief has not been filed, so we are unable to identify the specific basis for the appeal. Based on the existing circumstances, we believe that it is unlikely that the appeal will result in a material adverse outcome to us.


6.	Repayment of Second Lien Senior Secured Credit Facilities

On February 17, 2006, we repaid and terminated our second lien credit facility, dated as of June 10, 2005, among us, Merrill Lynch Pierce Fenner & Smith, Incorporated, Wachovia Bank, National Association, Lehman Commercial Paper Inc., and certain other lenders (the “Second Lien Credit Facility”). We used approximately $101.0 million of the net cash proceeds from the LA Asset Sale to pay the full amount owed under the Second Lien Credit Facility. Accordingly, we have no further obligations remaining under the Second Lien Credit Facility. As a result of the prepayment of the Second Lien Credit Facility, we recognized a loss on early extinguishment of debt related to the prepayment premium and the write-off of unamortized deferred financing costs of approximately $3.0 million during the nine-months ended September 30, 2006.


7.	Television Station Acquisition

On March 1, 2006, our wholly-owned subsidiaries, Mega Media Holdings, Inc. (“Mega Media Holdings”) and WDLP Licensing, Inc. (“Mega-Sub,” and, together with Mega Media Holdings, “Mega Media”), completed the acquisition of certain assets, including licenses, permits and authorizations issued by the Federal Communications Commission (the “FCC”) used in or related to the operation of television stationsWSBS-TV (Channel 22, formerly known asWDLP-TV), its derivative digital television station WSBS-DT (Channel 3, formerly known as WDLP-DT) in Key West, Florida and WSBS-CA (Channel 50, formerly known as WDLP- CA) in Miami, Florida, pursuant to that certain asset purchase agreement, dated as of July 12, 2005, as amended on September 19, 2005, October 19, 2005 and January 6, 2006, with WDLP Broadcasting Company, LLC, WDLP Licensed Subsidiary, LLC, Robin Broadcasting Company, LLC, and Robin Licensed Subsidiary, LLC (collectively, the “Sellers”).WSBS-TV-DT and WSBS-CA are operating as one television operation, branded as “MEGA TV”, serving the South Florida market. MEGA TV debuted on the air on March 1, 2006.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the closing, Mega Media paid an aggregate purchase price equal to $37.6 million, consisting of: (i) cash in the amount of $17.0 million; (ii) a thirty-four month, non-interest-bearing secured promissory note in the principal amount of $18.5 million (present valued at approximately $14.8 million at the closing), which we have guaranteed and is secured by the assets acquired in the transaction; (iii) deposits of $0.5 million and $1.0 million made on July 13, 2005 and January 6, 2006, respectively; and (iv) two extension payments of $0.3 million made on September 1, 2005 and January 6, 2006, respectively, in consideration for the extensions of the closing date.

In addition, as part of the television station acquisition, we entered into an advertising agreement with the Sellers that provides them with up to $2.0 million per year, for each of the three years from the date of closing, of commercial advertising time on any of our radio stations. Accordingly, we recognized this liability to provide commercial advertising as part of consideration given for the acquisition and recorded a liability (unearned revenue) of approximately $5.3 million at the closing, which represented the present value of the commercial advertising due.


8.	New Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes”(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination based on the technical merits of the position. The second step is the measurement of any tax positions that meet the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. An enterprise that presents a classified statement of financial position should classify a liability for unrecognized tax benefits as current to the extent that the enterprise anticipates making a payment within one year or within the operating cycle. FIN 48 is effective for fiscal years beginning after December 15, 2006 or fiscal year 2007 for us. We are currently evaluating the impact that FIN 48 may have on our consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurements”(SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 or fiscal year 2008 for us. We are currently evaluating the impact that SFAS No. 157 may have on our consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”(SAB 108), which requires registrants to consider the effect of all carry over and reversing effects of prior-year misstatements when quantifying errors in current-year financial statements. SAB 108 requires that the registrant quantify the current year misstatement using both the iron curtain approach and the rollover approach to determine whether current-year financial statements need to be adjusted. SAB 108 allows registrants to record the effects of adopting SAB 108 as a cumulative-effect adjustment to retained earnings. This adjustment must be reported as of the beginning of the first fiscal year ending after November 15, 2006 or fiscal year 2006 for us. We are currently evaluating the impact that SAB 108 may have on our consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


9.	Income Taxes

Our income tax expense differs from the statutory federal tax rate of 35% and related statutory state tax rates, primarily as a result of the application of SFAS 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). Under SFAS No. 142, the reversal of our deferred tax liabilities related to our intangible assets could no longer be assured over our net operating loss carry forward period. Therefore, our effective book tax rate is impacted by establishing a valuation allowance on substantially all of our deferred tax assets.


10.	Comprehensive Income

Our total comprehensive income (loss) comprised of net income and unrealized gain on derivative instrument, for the three- and nine-months ended September 30, 2006 was as follows (in thousands):


	Three-Months						Nine-Months
	Ended						Ended
	September 30,						September 30,
	2006			2005			2006		2005

Net income (loss):	$	843			(33,036	)		56,815		(32,876	)
Other comprehensive income (loss):
Unrealized (loss) gain on derivative instrument		(6,800	)		2,628			907		2,628

Total comprehensive (loss) income	$	(5,957	)		(30,408	)		57,722		(30,248	)


11.	Subsequent Event

On October 25, 2006 we entered into a definitive Purchase and Sale Agreement, dated August 24, 2006, as amended on September 25, 2006, as further amended on October 25, 2006 (the “Purchase Agreement”), on real property located in Miami, Florida. The real property consists of approximately 5.51 acres with approximately 62,000 square feet of office space (the “Property”). The Property is being acquired from 7007 Palmetto Investments, LLC (“Seller”), an unrelated third party, for $8,830,000, plus broker’s fees for a total of approximately $9,350,000, subject to adjustments at closing.

On August 24, 2006, upon execution of the Purchase Agreement, we made a $100,000 refundable deposit in escrow for the transaction. On October 25, 2006, pursuant to the terms of the Purchase Agreement, we made an additional deposit of $935,000 in escrow that together with the initial $100,000 deposit will be released to Seller at closing. The closing of the Property is expected to occur in the first quarter of 2007 and is subject to customary closing conditions. We expect to finance the purchase price through a combination of cash on hand and outside financing.

Upon closing, we will consolidate our radio and television operations in the building. The land acquired with the building will allow for expansion, if needed, for future operations. We are currently in negotiations for the release of the leased space currently occupied by the television operations located at 2601 South Bayshore Drive, Coconut Grove, Florida, where we rent executive offices in a building indirectly owned by Raúl Alarcón, Jr. (our Chairman of the Board, Chief Executive Officer and President) and for the release of the leased studios and offices of our Miami radio stations currently located in leased facilities, which are indirectly owned by Raúl Alarcón, Jr. and Pablo Raúl Alarcón, Sr. (our Chairman Emeritus and Director).

In accordance with the terms of the Purchase Agreement, we assigned the Purchase Agreement to a newly created wholly owned subsidiary, SBS Miami Broadcast Center, Inc. (“SBS Miami Broadcast Center”), pursuant to an Assignment and Assumption Agreement, dated October 25, 2006. Simultaneously with the entering into the Assignment and Assumption Agreement, SBS Miami Broadcast Center entered into a triple net lease agreement (the “Lease”) with Seller for the office space of approximately 62,000 square feet at a base rent of $5,166 per month, plus applicable taxes and insurance. The Lease commenced on October 25, 2006, with a rent commencement date of November 25, 2006, and terminates on the closing of the Property or the date of earlier termination if terminated pursuant to the terms of the Lease or the Purchase Agreement.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Overview

We are the largest publicly traded Hispanic-controlled media and entertainment company in the United States. We own and operate 20 radio stations in markets that reach approximately 49% of the U.S. Hispanic population, and two television stations, which are expected to reach approximately 1.5 million households in the South Florida market. Our radio stations are located in six of the top-ten Hispanic markets of Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. Los Angeles and New York have the largest and second largest Hispanic populations, and are also the largest and second largest radio markets in the United States in terms of advertising revenue, respectively. Our two television stations operate as one television operation, branded “MEGA TV”. We also occasionally produce live concerts and events throughout the United States and Puerto Rico. In addition, we operateLaMusica.com, a bilingual Spanish-English website providing content related to Latin music, entertainment, news and culture.

On March 1, 2006, we acquired television stationsWSBS-TV (Channel 22, formerly known asWDLP-TV) and its derivative digital television station WSBS-DT (Channel 3, formerly known as WDLP-DT) in Key West, Florida and WSBS-CA (Channel 50, formerly known as WDLP-CA) in Miami, Florida, serving the South Florida market. On March 1, 2006, we also launched MEGA TV, our general interest Spanish-language television operation. We intend to design our television programming to meet a broad range of preferences of the U.S. Hispanic market, directed primarily at the18-to-49 year old age bracket. We plan to develop approximately 60% of our programming and expect to commission other content from Spanish-language production partners. The channel currently features televised versions of our Miami top-rated radio shows, debate shows, dance and music contests, reality and entertainment shows, game shows and paid programming. We anticipate that television revenue will be generated primarily from the sale of local and national market advertising.

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

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

Comparison Analysis of the Operating Results for the Three-Months Ended September 30, 2006 and 2005

Due to the recent commencement of our television operation, we are now reporting two operating segments, radio and television. The following summary table presents separate financial data for each of our operating segments for the three-month periods ended September 30, 2006 and 2005.


	Three-Months
	Ended
	September 30,						Change
	2006			2005			$			%
	(In thousands)

Net revenue:
Radio	$	44,552			43,047			1,505			3	%
Television		1,339			—			1,339			100	%

Consolidated	$	45,891			43,047			2,844			7	%

Engineering and programming expense:
Radio	$	8,520			7,960			560			7	%
Television		4,219			332			3,887			1171	%

Consolidated	$	12,739			8,292			4,447			54	%

Selling, general and administrative:
Radio	$	16,231			15,111			1,120			7	%
Television		1,648			572			1,076			188	%

Consolidated	$	17,879			15,683			2,196			14	%

Operating income (loss) before depreciation and amortization and gain on sales of assets, net:
Radio	$	19,801			19,976			(175	)		(1	)%
Television		(4,528	)		(904	)		(3,624	)		401	%
Corporate		(3,125	)		(3,154	)		29			(1	)%

Consolidated	$	12,148			15,918			(3,770	)		(24	)%

Depreciation and amortization:
Radio	$	643			621			22			4	%
Television		76			1			75			7500	%
Corporate		249			245			4			2	%

Consolidated	$	968			867			101			12	%

Operating income (loss):
Radio	$	19,152			19,355			(203	)		(1	)%
Television		(4,604	)		(905	)		(3,699	)		409	%
Corporate		(3,374	)		(3,399	)		25			(1	)%

Consolidated	$	11,174			15,051			(3,877	)		(26	)%

The following summary table presents a comparison of our consolidated results of operations for the three-month periods ended September 30, 2006 and 2005. Various fluctuations illustrated in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.


	Three Months
	Ended
	September 30,						Change
	2006			2005			$			%
	(In thousands)

Net revenue	$	45,891			43,047			2,844			7	%
Engineering and programming expense(1)		12,739			8,292			4,447			54	%
Selling, general and administrative expense(1)		17,879			15,683			2,196			14	%
Corporate expenses(1)		3,125			3,154			(29	)		(1	)%
Depreciation and amortization		968			867			101			12	%
Loss on sales of assets, net of disposal costs		6			—			6			100	%

Operating income	$	11,174			15,051			(3,877	)		(26	)%
Interest expense, net		(4,840	)		(8,021	)		3,181			(40	)%
Loss on early extinguishment of debt		—			(29,443	)		29,443			(100	)%
Other income (expense), net		16			(8	)		24			(300	)%
Income tax expense		5,507			10,618			(5,111	)		(48	)%
Income on discontinued operations, net of taxes		—			3			(3	)		(100	)%

Net income (loss)	$	843			(33,036	)		33,879			(103	)%


(1) Stock-based compensation expenses:
Engineering and programming expense	$	178	—	178	100	%
Selling, general and administrative expense		92	—	92	100	%
Corporate expenses		192	—	192	100	%

Total stock-based compensation expenses	$	462	—	462	100	%

Net Revenue. The growth of 7% in consolidated net revenue was due to an increase in net revenue from our radio and television segments. Our radio segment had net revenue growth of 3% or $1.5 million primarily from local and trade revenues, offset by a decrease in national sales. This radio net revenue growth was primarily in our San Francisco and Los Angeles markets. In addition, our new television segment “MEGA TV”, which debuted on March 1, 2006, generated net revenue of $1.3 million primarily from local revenues.

Engineering and Programming Expenses. The increase of 54% or $4.4 million in consolidated engineering and programming expenses was mainly due to our new television segment, which had an increase of $3.9 million in expenses, primarily related to programming costs and originally produced programming. Our radio segment had an increase of 7% or $0.6 million in engineering and programming expenses related to (a) employee compensation and benefits costs, which includes SFAS No. 123(R) stock-based compensation, (b) music licenses fees and (c) transmitter rent.

Selling, General and Administrative Expenses. The increase of 14% or $2.2 million in consolidated selling, general and administrative expenses was due to our new television segment, which had an increase of $1.1 million in expenses, primarily related to (a) advertising and promotions costs, (b) employee compensation and benefits and (c) rent expense. In addition, our radio segment had an increase of 7% or $1.1 million in selling, general and administrative expenses, as a result of increases in (a) advertising and promotions costs, (b) local commissions due to the increase in net revenue, (c) employee compensation and benefits costs, which includes SFAS No. 123(R) stock-based compensation and (d) barter expense. These increases in our radio segment’s selling, general and administrative expenses were offset by decreases in radio’s professional fees,

mainly related to our in-house compliance with the Sarbanes-Oxley Act of 2002 and national commissions related to the decrease in national sales.

Corporate Expenses. The decrease in corporate expenses was mainly a result of a decrease in legal and professional fees, offset by an increase in employee compensation and benefits, which includes SFAS No. 123(R) stock-based compensation.

Operating Income. The decrease in consolidated operating income of 26% or $3.9 million was primarily attributed to the increase in our new television segment’s operating loss of approximately $3.7 million and a decrease in our radio segment’s operating income of approximately $0.2 million.

Interest Expense, net. The decrease in interest expense, net, was primarily due to lower interest expense incurred with respect to the senior secured credit facilities we entered into on June 10, 2005 as compared to interest expense incurred on our prior debt structure. In addition, on February 17, 2006, we repaid our $100.0 million Second Lien Credit Facility. Interest expense, net, also decreased due to an increase in interest income resulting from a general increase in interest rates on our cash balances.

Income Taxes. The decrease in income tax expense was primarily due to the decrease in our effective tax rate, which continues to be impacted by a valuation allowance on substantially all of our deferred tax assets.

Net Income. The increase in net income was primarily due to the decrease in interest expense, net, and the prior year’s loss on early extinguishment of debt, offset by a decrease in operating income.

Comparison Analysis of the Operating Results for the Nine-Months Ended September 30, 2006 and 2005

Due to the recent commencement of our television operation, we are now reporting two operating segments, radio and television. The following summary table presents separate financial data for each of our operating segments for the nine-month periods ended September 30, 2006 and 2005.


	Nine-Months Ended
	September 30,				Change
	2006		2005		$		%
	(In thousands)

Net revenue:
Radio	$	129,339		122,961		6,378		5	%
Television		3,168		—		3,168		100	%

Consolidated	$	132,507		122,961		9,546		8	%

Engineering and programming expense:
Radio	$	25,276		24,277		999		4	%
Television		12,268		332		11,936		3595	%

Consolidated	$	37,544		24,609		12,935		53	%

Selling, general and administrative:
Radio	$	48,573		47,287		1,286		3	%
Television		5,732		572		5,160		902	%

Consolidated	$	54,305		47,859		6,446		13	%


	Nine-Months Ended
	September 30,						Change
	2006			2005			$			%
	(In thousands)

Operating income (loss) before depreciation and amortization and gain on sales of assets, net:
Radio	$	55,490			51,397			4,093			8	%
Television		(14,832	)		(904	)		(13,928	)		1541	%
Corporate		(10,314	)		(10,588	)		274			(3	)%

Consolidated	$	30,344			39,905			(9,561	)		(24	)%

Depreciation and amortization:
Radio	$	1,866			1,758			108			6	%
Television		206			1			205			20500	%
Corporate		728			762			(34	)		(4	)%

Consolidated	$	2,800			2,521			279			11	%

Operating income (loss):
Radio	$	104,411			49,639			54,772			110	%
Television		(15,038	)		(905	)		(14,133	)		1562	%
Corporate		(11,042	)		(11,350	)		308			(3	)%

Consolidated	$	78,331			37,384			40,947			110	%

The following summary table presents a comparison of our consolidated results of operations for the nine-month periods ended September 30, 2006 and 2005. Various fluctuations illustrated in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.


	Nine Months
	Ended
	September 30,						Change
	2006			2005			$			%
	(In thousands)

Net revenue	$	132,507			122,961			9,546			8	%
Engineering and programming expense		37,544			24,609			12,935			53	%
Selling, general and administrative expense		54,305			47,859			6,446			13	%
Corporate expenses		10,314			10,588			(274	)		(3	)%
Depreciation and amortization		2,800			2,521			279			11	%
Gain on sales of assets, net of disposal costs		(50,787	)		—			(50,787	)		100	%

Operating income	$	78,331			37,384			40,947			110	%
Interest expense, net		(15,195	)		(28,837	)		13,642			(47	)%
Loss on early extinguishments of debt		(2,997	)		(32,597	)		29,600			(91	)%
Other (expense) income, net		(7	)		1,792			(1,799	)		(100	)%
Income tax expense		3,317			10,618			(7,301	)		(69	)%

Net income (loss)	$	56,815			(32,876	)		89,691			(273	)%


(1) Stock-based compensation expenses:
Engineering and programming expense	$	533	—	533	100	%
Selling, general and administrative expense		266	—	266	100	%
Corporate expenses		743	—	743	100	%

Total stock-based compensation expenses	$	1,542	—	1,542	100	%

Net Revenue. The growth of 8% in consolidated net revenue was mainly due to the net revenue generated by our radio segment, which had net revenue growth of 5%, primarily from local revenue. This radio net revenue growth was primarily in our San Francisco, Puerto Rico, and Los Angeles markets, partially offset by a decrease in our Chicago market. In addition, our new television segment “MEGA TV”, which debuted on March 1, 2006, generated net revenue of $3.2 million, primarily from local revenue.

Engineering and Programming Expenses. The increase of 53% or $12.9 million in consolidated engineering and programming expenses was mainly due to our new television segment, which had an increase of $11.9 million in expenses, primarily related to programming costs and originally produced programming, and employee compensation and benefits. Our radio segment’s engineering and programming expenses increased $1.0 million or 4%, as a result of an increase in our music licenses fees and employee compensation and benefits costs, which includes SFAS No. 123(R) stock-based compensation, offset by a decrease in severance pay.

Selling, General and Administrative Expenses. The increase of 13% or $6.4 million in consolidated selling, general and administrative expenses was mainly due to our new television segment, which had an increase of $5.2 million in expenses, primarily related to (a) advertising and promotions costs, (b) employee compensation and benefits and (c) rent expense. Our radio segment had an increase of 3% or $1.3 million in selling, general and administrative expenses, as a result of increases in (a) local commissions due to the increase in net revenue, (b) employee compensation and benefits costs, which includes SFAS No. 123(R) stock based-compensation, (c) the provision for doubtful accounts receivable, (d) rent expense, and (e) tax and license fees. These increases in our radio segment’s selling, general and administrative expenses were offset by decreases in radio’s advertising and promotions costs, promotional events expense and professional fees, mainly related to our in-house compliance with the Sarbanes-Oxley Act of 2002.

Gain on sales of assets, net. The gain on sales of assets, net, is related to the sale of our radio stationsKZAB-FM andKZBA-FM, serving the Los Angeles, California market, which was completed on January 31, 2006 and we recognized a pre-tax gain of approximately $50.8 million.

Operating Income. The increase in operating income of 110% or $40.9 million was primarily attributed to the increase in our radio segment’s operating income of approximately $54.8 million, which includes the gain on sales of assets, net of $50.8 million, offset by the increase in our new television segment’s operating loss of approximately $14.1 million.

Loss on early extinguishment of debt. The 2006 loss on early extinguishment of debt was due to the $1.0 million prepayment premium paid and the $2.0 million write-off of unamortized deferred financing costs related to the repayment of our $100.0 million Second Lien Credit Facility. The 2005 loss on early extinguishment of debt was due to (a) call premiums paid and the write-off of unamortized discount and deferred financing costs related to the redemption of the 95/8% senior subordinated notes, due 2009, on July 12, 2005 and (b) the write-off of deferred financing costs related to the pay-down of the $135.0 million senior secured credit facility term loan due 2009, on June 10, 2005.

Income Taxes. The decrease in income tax expense was primarily due to the reversal of the deferred tax liability associated with our Los Angeles radio stationsKZAB-FM andKZBA-FM, as a result of the book/tax basis differences on the date of sale, as well as, the decrease of our effective tax rate, which continues to be impacted by a valuation allowance on substantially all of our deferred tax assets, on our pre-tax income.

Net Income. The increase in net income was primarily due to the gain on sales of assets, net, the decrease in interest expense, net, and a decrease in income tax expense, offset by a decrease in other income.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash provided by operations and, to the extent necessary, undrawn commitments that are available under our $25.0 million revolving credit facility. Our ability to raise funds by increasing our indebtedness is limited by the terms of the certificates of designations governing our preferred stock and the credit agreement governing our first lien credit facility. Additionally, our certificates of designations and credit agreement each place restrictions on us with respect to the sale of assets, liens, investments, dividends, debt repayments, capital expenditures, transactions with affiliates and consolidations and mergers, among other things. We had cash and cash equivalents of $66.8 million and $125.2 million as of September 30, 2006 and December 31, 2005, respectively.

The following summary table presents a comparison of our capital resources for the nine-month periods ended September 30, 2006 and 2005, with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed below. This section should be read in conjunction with the unaudited condensed consolidated financial statements and notes.


	Nine Months
	Ended
	September 30,						Change
	2006			2005			$
	(In thousands)

Capital expenditures	$	6,670			2,590			4,080

Net cash flows provided by operating activities	$	13,612			1,219			12,393
Net cash flows provided by investing activities		39,544			31,660			7,884
Net cash flows used in financing activities		(111,524	)		(64,010	)		(47,514	)

Net decrease in cash and cash equivalents	$	(58,368	)		(31,131	)

Net Cash Flows Provided by Operating Activities. Changes in our net cash flows from operating activities were primarily a result of a decrease in cash paid to vendors and for interest, and an increase in cash received from our customers.

Net Cash Flows Provided by Investing Activities. Changes in our net cash flows from investing activities were primarily a result of the following: (a) in 2006, we received proceeds of $64.8 million for the sale of our Los Angeles stationsKZAB-FM andKZBA-FM, offset by $18.5 million of payments made to acquire our television operation “MEGA TV” and capital expenditures, while (b) in 2005, we received deposits totaling $35.0 million for the sale of Los Angeles stationsKZAB-FM andKZBA-FM, offset by capital expenditures.

Net Cash Flows Used In Financing Activities. Changes in our net cash flows from financing activities were primarily a result of the following: (a) in 2006, we repaid our $100.0 million Second Lien Credit Facility and paid cash dividends on our Series B preferred stock, while (b) in 2005, we refinanced our prior debt structure which consisted of a $135.0 million senior secured credit facility term loan due 2009 and the 95/8% senior subordinated notes due 2009.

Management believes that cash from operating activities, together with cash on hand, should be sufficient to permit us to meet our operating obligations in the foreseeable future, including required interest and quarterly principal payments pursuant to the credit agreement governing our first lien credit facility due 2012 and capital expenditures, excluding the acquisitions of FCC licenses. Assumptions (none of which can be assured) which underlie management’s beliefs, include the following:


	•	the demand for advertising within the broadcasting industry and economic conditions in general will not deteriorate in any material respect;

	•	we will continue to successfully implement our business strategies; and


	•	we will not incur any material unforeseen liabilities, including environmental liabilities and legal judgements.

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

On January 31, 2006, we completed the sale of the assets of our radio stationsKZAB-FM andKZBA-FM, serving the Los Angeles, California market, for a cash purchase price of $120.0 million (the “LA Asset Sale”), to Styles Media Group, LLC (“Styles Media Group”) pursuant to that certain asset purchase agreement, dated as of August 17, 2004, as amended on February 18, 2005, March 30, 2005 and July 29, 2005, by and among Styles Media Group, Spanish Broadcasting Systems Southwest, Inc. and us. Styles Media Group made a $65.0 million payment at closing and non-refundable deposits to us on February 18, 2005, March 30, 2005, July 29, 2005 and December 22, 2005 in the amount of $6.0 million, $14.0 million, $15.0 million and $20.0 million, respectively, totaling $55.0 million. As a result of the LA Asset Sale, we recognized a pre-tax gain on the sale of assets, net of disposal costs, of approximately $50.8 million during the nine-months ended September 30, 2006.

On February 17, 2006, we repaid and terminated our Second Lien Credit Facility by using approximately $101.0 million of our net cash proceeds from the LA Asset Sale to pay the full amount owed. Accordingly, we have no further obligations remaining under the Second Lien Credit Facility. As a result of the prepayment of the Second Lien Credit Facility, we recognized a loss on early extinguishment of debt related to the prepayment premium and the write-off of unamortized deferred financing costs of approximately $3.0 million during the nine-months ended September 30, 2006. In addition, as a result of the repayment of our Second Lien Credit Facility, our first lien credit facility applicable margin decreased from 2.0% to 1.75%.

On March 1, 2006, our wholly-owned subsidiaries, Mega Media Holdings, Inc. (“Mega Media Holdings”) and WDLP Licensing, Inc. (“Mega-Sub,” and, together with Mega Media Holdings, “Mega Media”), completed the acquisition of certain assets, including licenses, permits and authorizations issued by the FCC used in or related to the operation of television stationsWSBS-TV (Channel 22, formerly known asWDLP-TV), its derivative digital television station WSBS-DT (Channel 3, formerly known as WDLP-DT) in Key West, Florida and WSBS-CA (Channel 50, formerly known as WDLP-CA) in Miami, Florida, pursuant to that certain asset purchase agreement, dated as of July 12, 2005, and as amended on September 19, 2005, October 19, 2005 and January 6, 2006, with WDLP Broadcasting Company, LLC, WDLP Licensed Subsidiary, LLC, Robin Broadcasting Company, LLC, and Robin Licensed Subsidiary, LLC (collectively, the “Seller”).WSBS-TV-DT and WSBS-CA are operating as one television operation, branded as “MEGA TV”, serving the South Florida market. MEGA TV debuted on the air on March 1, 2006.

In addition, as part of the television station acquisition, we entered into an advertising agreement with the Sellers that provides them with up to $2.0 million per year, for each of the three years from the date of closing, of commercial advertising time in any of our radio stations. Accordingly, we recognized this liability to provide commercial advertising as part of consideration given for the acquisition and recorded a liability (unearned revenue) of approximately $5.3 million at the closing, which represents the present value of commercial advertising due.

Palmetto Investments, LLC (“Seller”), an unrelated third party, for $8,830,000, plus broker’s fees for a total of approximately $9,350,000, subject to adjustments at closing.

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

New Accounting Pronouncements

See Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

As of September 30, 2006, there are no material changes in the qualitative and quantitative analysis regarding market risk described in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” of our most recently issued Annual Report onForm 10-K for the year ending December 31, 2005.


Item 4.	*Controls and Procedures*

Evaluation Of Disclosure Controls And Procedures. Our principal executive and financial officers have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined underRule 13a-15(e) of the Exchange Act of 1934 (the “Exchange Act”) to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes In Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.	*Legal Proceedings*

The information set forth under Note 5 contained in the “Notes to Unaudited Condensed Consolidated Financial Statements” of this Quarterly Report onForm 10-Q is incorporated by reference in answer to this Item.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report onForm 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report onForm 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditionand/or operating results.


Item 6.	*Exhibits*

(a) Exhibits —


3	.1	—	Third Amended and Restated Certificate of Incorporation of Spanish Broadcasting System, Inc. (the “Company”), dated September 29, 1999 (incorporated by reference to the Company’s 1999 Registration Statement onForm S-1 (Commission FileNo. 333-85499) (the “1999 Registration Statement”)) (Exhibit A to this exhibit is incorporated by reference to the Company’s Current Report onForm 8-K, dated March 25, 1996 (the “1996 Current Report”).
3	.2	—	Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of the Company, dated September 29, 1999 (incorporated by reference to Exhibit 3.2 of the Company’s 1999 Registration Statement).
3	.3	—	Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.3 of the Company’s 1999 Registration Statement).
3	.4	—	Certificate of Elimination of 141/4% Senior Exchangeable Preferred Stock, Series A of the Company, dated October 28, 2003 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report onForm 10-Q, dated November 14, 2003 (the “11/14/03 Quarterly Report”)).
4	.1	—	Article V of the Third Amended and Restated Certificate of Incorporation of the Company, dated September 29, 1999 (incorporated by reference to Exhibit 3.1 of the Company’s 1999 Registration Statement).
4	.2	—	Certificate of Designations dated October 29, 2003 Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the 103/4% Series A Cumulative Exchangeable Redeemable Preferred Stock of Spanish Broadcasting System, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s 11/14/03 Quarterly Report).
4	.3	—	Certificate of Designations dated October 29, 2003 Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the 103/4% Series B Cumulative Exchangeable Redeemable Preferred Stock of Spanish Broadcasting System, Inc. (incorporated by reference to Exhibit 4.2 of the Company’s 11/14/03 Quarterly Report).
4	.4	—	Indenture dated June 29, 1994 among the Company, IBJ Schroder Bank & Trust Company, as Trustee, the Guarantors named therein and the Purchasers named therein (incorporated by reference to Exhibit 4.1 of the Company’s 1994 Registration Statement onForm S-4 (the “1994 Registration Statement”).


4	.5	—	First Supplemental Indenture dated as of March 25, 1996 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the 1996 Current Report).
4	.6	—	Second Supplemental Indenture dated as of March 1, 1997 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the 1996 Current Report).
4	.7	—	Supplemental Indenture dated as of October 21, 1999 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Company’s 1999 Registration Statement).
4	.8	—	Indenture with respect to 95/8% Senior Subordinated Notes due 2009 with The Bank of New York as Trustee, dated November 2, 1999 (incorporated by reference to the Current Report onForm 8-K dated November 2, 1999 (the “1999 Current Report��)).
4	.9	—	Indenture with respect to 95/8% Senior Subordinated Notes due 2009 with the Bank of New York as Trustee, dated June 8, 2001 (incorporated by reference to the Company’s Registration Statement onForm S-3, filed on June 25, 2001 (the “2001Form S-3”).
4	.10	—	Form of stock certificate for the Class A common stock of the Company (incorporated by reference to the Company’s 1999 Registration Statement).
4	.11	—	Certificate of Elimination of 141/4% of Senior Exchangeable Preferred Stock, Series A of the Company, dated October 28, 2003 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report onForm 10-Q filed November 14, 2003).
4	.12	—	Certificate of Designation Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the Series C Convertible Preferred Stock of the Company (“Certificate of Designation of Series C Preferred Stock”) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report onForm 8-K filed on December 27, 2004).
4	.13	—	Certificate of Correction to Certificate of Designation of Series C Preferred Stock of the Company dated January 7, 2005 (incorporated by reference to Exhibit 4.13 of the Company’s Annual Report filed onForm 10-K for the fiscal year 2004).
10	.1	—	Agreement for Purchase and Sale dated August 24, 2006, by and between 7007 Palmetto Investments, LLC., a Florida limited liability company (“Seller”), and Spanish Broadcasting System, Inc., a Delaware corporation (the “Company”) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report ofForm 8-K filed on October 30, 2006 (the “10/30/06 Current Report”)).
10	.2	—	Amendment to Purchase and Sale dated September 25, 2006, by and between Seller and the Company (incorporated by reference to Exhibit 10.2 of the 10/30/06 Current Report).
10	.3	—	Second Amendment dated October 25, 2006, by and between Seller and the Company (incorporated by reference to Exhibit 10.3 of the 10/30/06 Current Report).
10	.4	—	Assignment and Assumption Agreement dated October 25, 2006, by and between the Company and SBS Miami Broadcast Center, Inc., a Delaware corporation (“SBS Miami Broadcast Center”) (incorporated by reference to Exhibit 10.4 of the 10/30/06 Current Report).
10	.5	—	Lease dated October 25, 2006, by and between the Seller and SBS Miami Broadcast Center (incorporated by reference to Exhibit 10.5 of the 10/30/06 Current Report).
14	.1	—	Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Company’s 2004Form 10-K).
31(i)	.1	—	Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(i)	.2	—	Chief Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	—	Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	—	Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

SPANISH BROADCASTING SYSTEM, INC.


	By:	/s/ JOSEPH A. GARCÍA

JOSEPH A. GARCÍA

Executive Vice President, Chief Financial Officer and Secretary (principal financial and accounting officer and duly authorized officer of the registrant)

Date: November 8, 2006

(a) Exhibits —


3	.1	—	Third Amended and Restated Certificate of Incorporation of Spanish Broadcasting System, Inc. (the “Company”), dated September 29, 1999 (incorporated by reference to the Company’s 1999 Registration Statement onForm S-1 (Commission FileNo. 333-85499) (the “1999 Registration Statement”)) (Exhibit A to this exhibit is incorporated by reference to the Company’s Current Report onForm 8-K, dated March 25, 1996 (the “1996 Current Report”).
3	.2	—	Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of the Company, dated September 29, 1999 (incorporated by reference to Exhibit 3.2 of the Company’s 1999 Registration Statement).
3	.3	—	Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.3 of the Company’s 1999 Registration Statement).
3	.4	—	Certificate of Elimination of 141/4% Senior Exchangeable Preferred Stock, Series A of the Company, dated October 28, 2003 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report onForm 10-Q, dated November 14, 2003 (the “11/14/03 Quarterly Report”)).
4	.1	—	Article V of the Third Amended and Restated Certificate of Incorporation of the Company, dated September 29, 1999 (incorporated by reference to Exhibit 3.1 of the Company’s 1999 Registration Statement).
4	.2	—	Certificate of Designations dated October 29, 2003 Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the 103/4% Series A Cumulative Exchangeable Redeemable Preferred Stock of Spanish Broadcasting System, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s 11/14/03 Quarterly Report).
4	.3	—	Certificate of Designations dated October 29, 2003 Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the 103/4% Series B Cumulative Exchangeable Redeemable Preferred Stock of Spanish Broadcasting System, Inc. (incorporated by reference to Exhibit 4.2 of the Company’s 11/14/03 Quarterly Report).
4	.4	—	Indenture dated June 29, 1994 among the Company, IBJ Schroder Bank & Trust Company, as Trustee, the Guarantors named therein and the Purchasers named therein (incorporated by reference to Exhibit 4.1 of the Company’s 1994 Registration Statement onForm S-4 (the “1994 Registration Statement”).
4	.5	—	First Supplemental Indenture dated as of March 25, 1996 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the 1996 Current Report).
4	.6	—	Second Supplemental Indenture dated as of March 1, 1997 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the 1996 Current Report).
4	.7	—	Supplemental Indenture dated as of October 21, 1999 to the Indenture dated as of June 29, 1994 among the Company, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Company’s 1999 Registration Statement).
4	.8	—	Indenture with respect to 95/8% Senior Subordinated Notes due 2009 with The Bank of New York as Trustee, dated November 2, 1999 (incorporated by reference to the Current Report onForm 8-K dated November 2, 1999 (the “1999 Current Report”)).
4	.9	—	Indenture with respect to 95/8% Senior Subordinated Notes due 2009 with the Bank of New York as Trustee, dated June 8, 2001 (incorporated by reference to the Company’s Registration Statement onForm S-3, filed on June 25, 2001 (the “2001Form S-3”).
4	.10	—	Form of stock certificate for the Class A common stock of the Company (incorporated by reference to the Company’s 1999 Registration Statement).
4	.11	—	Certificate of Elimination of 141/4% of Senior Exchangeable Preferred Stock, Series A of the Company, dated October 28, 2003 (incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report onForm 10-Q filed November 14, 2003).


4	.12	—	Certificate of Designation Setting Forth the Voting Power, Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of the Series C Convertible Preferred Stock of the Company (“Certificate of Designation of Series C Preferred Stock”) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report onForm 8-K filed on December 27, 2004).
4	.13	—	Certificate of Correction to Certificate of Designation of Series C Preferred Stock of the Company dated January 7, 2005 (incorporated by reference to Exhibit 4.13 of the Company’s Annual Report filed onForm 10-K for the fiscal year 2004).
10	.1	—	Agreement for Purchase and Sale dated August 24, 2006, by and between 7007 Palmetto Investments, LLC., a Florida limited liability company (“Seller”), and Spanish Broadcasting System, Inc., a Delaware corporation (the “Company”) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report ofForm 8-K filed on October 30, 2006 (the “10/30/06 Current Report”)).
10	.2	—	Amendment to Purchase and Sale dated September 25, 2006, by and between Seller and the Company (incorporated by reference to Exhibit 10.2 of the 10/30/06 Current Report).
10	.3	—	Second Amendment dated October 25, 2006, by and between Seller and the Company (incorporated by reference to Exhibit 10.3 of the 10/30/06 Current Report).
10	.4	—	Assignment and Assumption Agreement dated October 25, 2006, by and between the Company and SBS Miami Broadcast Center, Inc., a Delaware corporation (“SBS Miami Broadcast Center”) (incorporated by reference to Exhibit 10.4 of the 10/30/06 Current Report).
10	.5	—	Lease dated October 25, 2006, by and between the Seller and SBS Miami Broadcast Center (incorporated by reference to Exhibit 10.5 of the 10/30/06 Current Report).
14	.1	—	Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Company’s 2004Form 10-K).
31(i)	.1	—	Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(i)	.2	—	Chief Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1	—	Chief Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2	—	Chief Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

Spanish Broadcasting System (SBSAA) 10-Q2006 Q3 Quarterly report

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