Spanish Broadcasting System (SBSAA) 10-Q 2007 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, 2007
	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 file number 33-82114

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 13-3827791
(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.Yesþ 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” in Rule 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 in Rule 12b-2 of the Exchange Act). Yeso Noþ

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, 2007, 40,777,805 shares of Class A common stock, par value $0.0001 per share, 24,003,500 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		4
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006		4
	Unaudited Condensed Consolidated Statements of Operations for the Three- and Nine-Months Ended September 30, 2007 and 2006		5
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Nine-Months Ended September 30, 2007		6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2007 and 2006		7
	Notes to Unaudited Condensed Consolidated Financial Statements		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		21
ITEM 4.	Controls and Procedures		21
PART II. OTHER INFORMATION
ITEM 1A.	Risk Factors		22
ITEM 6.	Exhibits		22
EX-10.1 Indemnification Agreement
EX-10.2 Stock Option Agreement
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

2

Special Note Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate”, “intend”, “estimate”, “plan”, “project”, “foresee”, “likely”, “will” or other words or phrases with similar meanings. 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 on Form 10-K for the year ended December 31, 2006, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

3

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements — Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND SUBIDIARIES

Unaudited Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2007			2006
	(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	63,810			66,815
Receivables, net of allowance for doubtful accounts of $3,683 in 2007 and $4,383 in 2006		35,681			32,142
Prepaid expenses and other current assets		3,470			3,460
Total current assets		102,961			102,417
Property and equipment, net of accumulated depreciation of $36,891 in 2007 and $33,751 in 2006		40,872			28,022
FCC licenses		749,864			749,864
Goodwill		32,806			32,806
Other intangible assets, net of accumulated amortization of $133 in 2007 and $106 in 2006		1,301			1,328
Deferred financing costs, net of accumulated amortization of $2,584 in 2007 and $1,749 in 2006		5,079			5,914
Other assets		1,995			1,634
Derivative instruments		2,794			7,755
Total assets	$	937,672			929,740
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	16,719			18,622
Accrued interest		351			394
Deferred commitment fee		319			375
Unearned revenue		3,482			3,882
Other current liabilities		22			22
Current portion of the senior credit facilities term loan due 2012		3,250			3,250
Current portion of other long-term debt		428			79
Series B cumulative exchangeable redeemable preferred stock dividends payable		2,014			2,014
Total current liabilities		26,585			28,638
Unearned revenue, less current portion		747			2,064
Other long-term liabilities, less current portion		149			166
Senior credit facilities term loan due 2012, less current portion		313,625			316,063
Other long-term debt, less current portion		7,598			413
Non-interest bearing promissory note payable due 2009, net of unamortized discount of $1,745 in 2007 and $2,713 in 2006		16,755			15,787
Deferred income taxes		164,325			153,683
Total liabilities		529,784			516,814
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, 2007 and December 31, 2006, respectively		89,932			89,932
Stockholders’ equity:
Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares; 380,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		4			4
Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 40,777,805 and 40,277,805 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		4			4
Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 24,003,500 and 24,503,500 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		2			2
Additional paid-in capital		523,626			522,397
Accumulated other comprehensive income		2,794			7,755
Accumulated deficit		(208,474	)		(207,168	)
Total stockholders’ equity		317,956			322,994
Total liabilities and stockholders’ equity	$	937,672			929,740

See accompanying notes to the unaudited condensed consolidated financial statements.

4

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

	Three-Months Ended						Nine-Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(In thousands, except per share data)
Net revenue	$	46,772			45,891		$	133,580			132,507
Operating expenses:
Engineering and programming		12,553			12,739			37,224			37,544
Selling, general and administrative		17,219			17,879			53,323			54,305
Corporate expenses		3,881			3,125			10,596			10,314
Depreciation and amortization		1,194			968			3,436			2,800
Total operating expenses		34,847			34,711			104,579			104,963
Loss (gain) on the sale of assets, net of disposal costs		51			6			50			(50,787	)
Operating income		11,874			11,174			28,951			78,331
Other (expense) income:
Interest expense, net		(4,789	)		(4,840	)		(14,213	)		(15,195	)
Loss on early extinguishment of debt		—			—			—			(2,997	)
Other, net		25			16			1,985			(7	)
Income before income taxes		7,110			6,350			16,723			60,132
Income tax expense		4,569			5,507			10,778			3,317
Net income		2,541			843			5,945			56,815
Dividends on Series B preferred stock		(2,417	)		(2,417	)		(7,251	)		(7,251	)
Net income (loss) applicable to common stockholders	$	124			(1,574	)	$	(1,306	)		49,564
Basic and diluted net income (loss) per common share	$	—			(0.02	)	$	(0.02	)		0.68
Weighted average common shares outstanding:
Basic		72,381			72,381			72,381			72,381
Diluted		72,386			72,381			72,381			72,386

See accompanying notes to the unaudited condensed consolidated financial statements.

5

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, 2007

	Class C				Class A				Class B							Accumulated
	preferred stock				common stock				common stock					Additional		other						Total
	Number of		Par		Number of		Par		Number of			Par		paid-in		comprehensive			Accumulated			stockholders’
	shares		value		shares		value		shares			value		capital		income			deficit			equity
									(In thousands, except share data)
Balance at December 31, 2006		380,000	$	4		40,277,805	$	4		24,503,500		$	2	$	522,397	$	7,755		$	(207,168	)	$	322,994
Conversion of Class B common stock to Class A common stock		—		—		500,000		—		(500,000	)		—		—		—			—			—
Stock-based compensation		—		—		—		—		—			—		1,229		—			—			1,229
Series B preferred stock dividends		—		—		—		—		—			—		—		—			(7,251	)		(7,251	)
Comprehensive income:
Net income		—		—		—		—		—			—		—		—			5,945			5,945
Unrealized loss on derivative instruments		—		—		—		—		—			—		—		(4,961	)		—			(4,961	)
Comprehensive income																							984
Balance at September 30, 2007		380,000	$	4		40,777,805	$	4		24,003,500		$	2	$	523,626	$	2,794		$	(208,474	)	$	317,956

See accompanying notes to the unaudited condensed consolidated financial statements.

6

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

	Nine-Months Ended
	September 30,
	2007			2006
	(In thousands)
Cash flows from operating activities:
Net income	$	5,945			56,815
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on the sale of assets		50			(50,787	)
Loss on early extinguishment of debt		—			2,997
Stock-based compensation		1,229			1,542
Depreciation and amortization		3,436			2,800
Net barter income		(173	)		(135	)
Provision for doubtful trade accounts receivables		1,122			1,273
Amortization of deferred financing costs		835			906
Amortization of discount on the non-interest bearing promissory note payable		968			700
Deferred income taxes		10,642			3,361
(Decrease) increase in unearned revenue		(1,800	)		170
Accretion of the time-value of money component related to unearned revenue		183			170
Amortization of deferred commitment fee		(56	)		(56	)
Amortization of other liabilities		(17	)		—
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables		(4,588	)		208
Increase in other current assets		(52	)		(252	)
Increase in other assets		(1,396	)		(79	)
Decrease in accounts payable and accrued expenses		(2,557	)		(4,701	)
Decrease in accrued interest		(77	)		(1,320	)
Net cash provided by operating activities		13,694			13,612
Cash flows from investing activities:
Proceeds from sale of radio stations, net of disposal costs		—			64,751
Purchases of property and equipment		(4,141	)		(6,670	)
Acquisition of a building and its related building improvements		(2,590	)		—
Proceeds from an insurance recovery		15			—
Acquisition of television stations and related equipment		—			(18,537	)
Net cash (used in) provided by investing activities		(6,716	)		39,544
Cash flows from financing activities:
Payment of senior credit facility term loan 2012		(2,438	)		(2,438	)
Payment of senior credit facility term loan due 2013 (including prepayment premium of $1.0 million)		—			(101,000	)
Payment of Series B preferred stock cash dividends		(7,251	)		(7,252	)
Payments of other long-term debt		(294	)		(482	)
Payments of deferred financing costs		—			(352	)
Net cash used in financing activities		(9,983	)		(111,524	)
Net decrease in cash and cash equivalents		(3,005	)		(58,368	)
Cash and cash equivalents at beginning of period		66,815			125,156
Cash and cash equivalents at end of period	$	63,810			66,788
Supplemental cash flows information:
Interest paid	$	14,950			17,315
Income taxes paid, net		—			313
Noncash investing and financing activities:
Ten-year promissory note issued for the acquisition of a building	$	7,650			—
Unrealized (loss) gain on derivative instruments		(4,961	)		907
Unearned revenue (advertising given as consideration for acquisition of television stations)		—			5,338
Non-interest bearing promissory note payable issued for the acquisition of television stations and related equipment		—			14,778

See accompanying notes to the unaudited condensed consolidated financial statements.

7

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, 2007 and December 31, 2006 and for the three- and nine-month periods ended September 30, 2007 and 2006 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by GAAP for complete financial statements. 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, 2006, included in our fiscal year end 2006 Annual Report on Form 10-K. Certain prior year amounts were reclassified to conform with the current year presentation.

     In the opinion of 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, 2007 are not necessarily indicative of the results for a full year.

2. Acquisition of a Facility and Related Financing

     On January 4, 2007, SBS, through its wholly owned subsidiary, SBS Miami Broadcast Center, Inc. (“SBS Miami Broadcast Center”), completed the acquisition of certain real property located in Miami-Dade County, Florida pursuant to the purchase and sale agreement, dated August 24, 2006, as amended on September 25, 2006, as further amended on October 25, 2006 (the “Purchase Agreement”). The real property consists of 5.47 acres (234,208 square feet) and approximately 62,000 square feet of office space (the “Property”). The Property was acquired from 7007 Palmetto Investments, LLC (“Seller”), an unrelated third party, for a total purchase price of approximately $8.9 million, excluding closing costs and broker’s fees. During 2006, pursuant to the terms of the Purchase Agreement, we made deposits totaling approximately $1.0 million in escrow that were released at the closing and were applied to the purchase price. At December 31, 2006, these deposits were included in other assets in the accompanying condensed consolidated balance sheet. We funded the purchase price using cash on hand and borrowings and we expect to incur significant construction costs for the new broadcasting facility. Upon the completion of construction at the building, we will consolidate our Miami radio and television operations at the new broadcasting facility.

     In connection with the acquisition of the Property, on January 4, 2007, SBS Miami Broadcast Center entered into a loan agreement (the “Loan Agreement”), a ten-year promissory note in the original principal amount of $7.7 million (the “Promissory Note”), and a Mortgage, Assignment of Rents and Security Agreement (the “Mortgage”) in favor of Wachovia Bank, National Association (“Wachovia”). The Promissory Note bears an interest rate equal to one-month LIBOR plus 125 basis points and requires monthly principal payments of $0.03 million with any unpaid balance due on its maturity date of January 4, 2017. The Promissory Note is secured by the Property and any related collateral.

     The terms of the loan include certain restrictions and covenants for SBS Miami Broadcast Center, which limit, among other things, the incurrence of additional indebtedness and liens. The Loan Agreement specifies a number of events of default (some of which are subject to applicable cure periods), including, among others, the failure to make payments when due, non-compliance with covenants and defaults under other agreements or instruments of indebtedness. Upon the occurrence of an event of default and expiration of any applicable cure periods, Wachovia may accelerate the loan and declare all amounts outstanding to be immediately due and payable.

     Additionally, on January 4, 2007, SBS Miami Broadcast Center entered into an interest rate swap arrangement (the “Swap Agreement”) for the original notional principal amount of $7.7 million whereby it will pay a fixed interest rate of 6.31% as compared to interest at a floating rate equal to one-month LIBOR plus 125 basis points on the Promissory Note. The interest rate swap amortization schedule is identical to the Promissory Note amortization schedule, which has an effective date of January 4, 2007, monthly notional reductions and an expiration date of January 4, 2017.

     In connection with the acquisition of the Property, we agreed to unconditionally guaranty all obligations of SBS Miami Broadcast Center pursuant to the Promissory Note, the Loan Agreement, the Mortgage, the loan documents thereto, and the Swap Agreement, for the benefit of Wachovia and its affiliates (the “Guaranty”). In addition, the terms of the Guaranty contain certain financial covenants, which require us to maintain available liquidity of not less than 1.2 times the then outstanding principal balance of the loan made to SBS Miami Broadcast Center by Wachovia.

8

3. Stockholders’ Equity

  (a) Series C Convertible 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, $0.01 par value per share (the “Series C preferred stock”), each of which is convertible at the option of the holder into twenty fully paid and non-assessable shares of our Class A common stock; and (ii) a warrant to purchase an additional 190,000 shares of Series C preferred stock, exercisable at any time from December 23, 2004 until December 23, 2008, at an exercise price of $300.00 per share (the “Warrant”).

     Under the terms of the certificate of designation governing the Series C preferred stock, the holder of Series C preferred stock has the right to convert each share 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, the Warrant has not 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, 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 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. The Class B common stock is convertible to Class A common stock on a share-for-share basis at the option of the holder at any time, or automatically upon the transfer to a person or entity which is not a permitted transferee. 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) Warrant

     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.

  (d) Share-based Compensation Plans

  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) non-qualified stock options, (iii) stock appreciation rights, (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 granted, 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 granted to any individual during a calendar year is also 1,000,000 shares, subject to adjustments.

9

  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 the date of 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 were 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. This option vested immediately, and expires 10 years from the date of grant.

  (e) Stock-Based Compensation Expense

     The impact on our results of operations of recognizing stock-based compensation for the three- and nine-month periods ended September 30, 2007 and 2006 were as follows (in thousands):

	Three-Months Ended				Nine-Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Engineering and programming expenses	$	192		178	$	569		533
Selling, general and administrative expenses		32		92		101		266
Corporate expenses		144		192		559		743
Total stock-based compensation expense	$	368		462	$	1,229		1,542

     During the nine-month periods ended September 30, 2007 and 2006, no stock options were exercised; therefore, no cash payments were received. 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.

  Stock Options

     Stock options have only been granted to employees or directors under our 1999 Stock Option Plans. Our stock options have various vesting schedules and are subject to the employees continuing service to SBS. We recognize compensation expense based on the estimated grant date fair value using the Black-Scholes option pricing model and recognize the compensation expense using a straight-line amortization method. When estimating forfeitures, we consider voluntary termination behaviors, as well as trends of actual option forfeitures. Ultimately, our stock-based compensation expense is based on awards that vest. Our stock-based compensation has been reduced for estimated forfeitures.

     A summary of the status of our stock options, as of December 31, 2006 and September 30, 2007, and changes during the nine-months ended September 30, 2007, is presented below (in thousands, except per share data):

								Weighted
				Weighted				Average
				Average		Aggregate		Remaining
				Exercise		Intrinsic		Contractual
	Shares			Price		Value		Life (Years)
Outstanding at December 31, 2006.		3,029		$	11.33
Granted		50			2.58
Exercised		—			—
Forfeited		(141	)		10.55
Outstanding at September 30, 2007		2,938		$	11.21	$	—		5.2
Exercisable at September 30, 2007		2,521		$	11.67	$	—		4.8

10

     The following table summarizes information about stock options outstanding and exercisable at September 30, 2007 (in thousands, except per share data):

							Weighted
							Average
					Weighted		Remaining				Weighted
					Average		Contractual				Average
			Unvested		Exercise		Life		Number		Exercise
Range of Exercise Prices	Vested Options		Options		Price		(Years)		Exercisable		Price
$0 —   4.99		210		40	$	4.36		6.9		210	$	4.70
5 —   9.99		1,452		323		8.72		6.0		1,452		8.69
10 — 14.99		149		54		10.77		6.9		149		10.81
15 — 19.99		—		—		—		—		—		—
20 — 24.99		710		—		20.00		2.1		710		20.00
		2,521		417	$	11.21		5.2		2,521	$	11.67

  Nonvested Shares

     Nonvested shares (restricted stock) are awarded to employees under our Omnibus Plan. In general, nonvested shares vest over three to five years and are subject to the employees continuing service to SBS. The cost of nonvested shares is determined using the fair value of our common stock on the date of grant. The compensation expense is recognized over the vesting period.

     A summary of the status of our nonvested shares, as of December 31, 2006 and September 30, 2007, and changes during the nine-months ended September 30, 2007, is presented below (in thousands, except per share data):

			Weighted
			Average Grant-
			Date Fair Value
	Shares		(per Share)
Nonvested at December 31, 2006.		—		—
Awarded		72	$	4.30
Vested		—		—
Forfeited		—		—
Nonvested at September 30, 2007		72	$	4.30

4. Basic and Diluted Net Income (Loss) Per Common Share

     Basic net income (loss) per common share was computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock and convertible preferred stock outstanding for each period presented, using the if converted method. Diluted net income (loss) per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

     Common stock equivalents were not considered in the calculation for the nine-month period ended September 30, 2007 and for the three-month period ended September 30, 2006, since their effect would be anti-dilutive. If included, the common stock equivalents for these periods would have amounted to zero for both periods. During the three-month period ended September 30, 2007 and the nine-month period ended September 30, 2006, common stock equivalents included in the calculation amounted to five for both periods.

11

5. Operating Segments

     Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports. We have two reportable segments: radio and television. The following summary table presents separate financial data for each of our operating segments (in thousands):

	Three-Months Ended												Nine-Months Ended
	September 30,						Change						September 30,						Change
	2007			2006			$			%			2007			2006			$			%
Net revenue:
Radio	$	44,333			44,552			(219	)		(0%	)	$	126,421			129,339			(2,918	)		(2%	)
Television		2,439			1,339			1,100			82%			7,159			3,168			3,991			126%
Consolidated	$	46,772			45,891			881			2%		$	133,580			132,507			1,073			1%
Engineering and programming expenses:
Radio	$	8,957			8,520			437			5%		$	26,867			25,276			1,591			6%
Television		3,596			4,219			(623	)		(15%	)		10,357			12,268			(1,911	)		(16%	)
Consolidated	$	12,553			12,739			(186	)		(1%	)	$	37,224			37,544			(320	)		(1%	)
Selling, general and administrative expenses:
Radio	$	15,351			16,231			(880	)		(5%	)	$	48,068			48,573			(505	)		(1%	)
Television		1,868			1,648			220			13%			5,255			5,732			(477	)		(8%	)
Consolidated	$	17,219			17,879			(660	)		(4%	)	$	53,323			54,305			(982	)		(2%	)
Corporate expenses:	$	3,881			3,125			756			24%		$	10,596			10,314			282			3%
Depreciation and amortization:
Radio	$	716			643			73			11%		$	2,153			1,866			287			15%
Television		170			76			94			124%			440			206			234			114%
Corporate		308			249			59			24%			843			728			115			16%
Consolidated	$	1,194			968			226			23%		$	3,436			2,800			636			23%
Loss (gain) on sale of assets, net:
Radio	$	51			6			45			750%		$	50			(50,787	)		50,837			(100%	)
Television		—			—			—			0%			—			—			—			0%
Corporate		—			—			—			0%			—			—			—			0%
Consolidated	$	51			6			45			750%		$	50			(50,787	)		50,837			(100%	)
Operating income (loss):
Radio	$	19,258			19,152			106			1%		$	49,283			104,411			(55,128	)		(53%	)
Television		(3,195	)		(4,604	)		1,409			(31%	)		(8,893	)		(15,038	)		6,145			(41%	)
Corporate		(4,189	)		(3,374	)		(815	)		24%			(11,439	)		(11,042	)		(397	)		4%
Consolidated	$	11,874		$	11,174			700			6%		$	28,951		$	78,331			(49,380	)		(63%	)
Capital expenditures:
Radio	$	342			2,116			(1,774	)		(84%	)	$	1,358			3,639			(2,281	)		(63%	)
Television		1,005			101			904			895%			3,030			2,542			488			19%
Corporate		974			148			826			558%			2,343			489			1,854			379%
Consolidated	$	2,321			2,365			(44	)		(2%	)	$	6,731			6,670			61			1%
	September 30,			December 31,
	2007			2006
Total Assets:
Radio	$	865,328			863,236
Television		59,475			49,376
Corporate		12,869			17,128
Consolidated	$	937,672			929,740

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6. Comprehensive (Loss) Income

     Our total comprehensive (loss) income, comprised of net income and unrealized (loss) gain on derivative instruments, for the three- and nine-months ended September 30, 2007 and 2006, respectively, was as follows (in thousands):

	Three-Months Ended						Nine-Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net income	$	2,541			843		$	5,945			56,815
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative instruments		(6,630	)		(6,800	)		(4,961	)		907
Total comprehensive (loss) income	$	(4,089	)		(5,957	)	$	984			57,722

7. New Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 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 February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115”(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No. 159 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. 159, if elected, may have on our consolidated financial statements.

8. 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 No. 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.

     On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109,“Accounting for Income Taxes”,and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

     We file federal, state and local income tax returns in the United States and Puerto Rico. The tax years that remain subject to assessment of additional liabilities by the United States federal, state, and local tax authorities are 2003 through 2006. The tax years that remain subject to assessment of additional liabilities by the Puerto Rico tax authority are 2002 through 2006.

     Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2002, 2003, 2004, 2005 and 2006, the tax years which remain subject to examination by tax jurisdictions as of September 30, 2007.

9. Litigation

     From time to time we are involved in litigation incidental to the conduct of our business, such as litigation on 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, financial position or liquidity.

13

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 51% of the U.S. Hispanic population, and two television stations, which reach approximately 1.5 million households in the South Florida market, and has national distribution through DIRECTV since October 17, 2007. 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”. As part of our operating business, we also operateLaMusica.com, Mega.tv,and our radio station websites which are bilingual (Spanish — English) websites providing content related to Latin music, entertainment, news and culture. We also occasionally produce live concerts and events throughout the United States and Puerto Rico.

     On March 1, 2006, we acquired television stations WSBS-TV (Channel 22, formerly known as WDLP-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. MEGA TV’s programming is based on a strategy designed to showcase a combination of programs, ranging from televised radio-branded shows to general entertainment programs, such as music, celebrity, debate, interviews and personality based shows. As part of our strategy, we have incorporated certain of our on-air personalities into our programming, as well as including interactive elements to complement our Internet websites. We have developed approximately 70% of our programming and have commissioned other content from Spanish-language production partners. Our television revenue is generated primarily from the sale of local advertising and paid programming.

     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 and television, 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.

14

Comparison Analysis of the Operating Results for the Three-Months Ended September 30, 2007 and 2006

     The following summary table presents separate financial data for each of our operating segments (in thousands).

	Three-Months Ended
	September 30,						Change
	2007			2006			$			%
Net revenue:
Radio	$	44,333			44,552			(219	)		(0%	)
Television		2,439			1,339			1,100			82%
Consolidated	$	46,772			45,891			881			2%
Engineering and programming expenses:
Radio	$	8,957			8,520			437			5%
Television		3,596			4,219			(623	)		(15%	)
Consolidated	$	12,553			12,739			(186	)		(1%	)
Selling, general and administrative expenses:
Radio	$	15,351			16,231			(880	)		(5%	)
Television		1,868			1,648			220			13%
Consolidated	$	17,219			17,879			(660	)		(4%	)
Corporate expenses:	$	3,881			3,125			756			24%
Depreciation and amortization:
Radio	$	716			643			73			11%
Television		170			76			94			124%
Corporate		308			249			59			24%
Consolidated	$	1,194			968			226			23%
Loss on sale of assets, net:
Radio	$	51			6			45			750%
Television		—			—			—			0%
Corporate		—			—			—			0%
Consolidated	$	51			6			45			750%
Operating income (loss):
Radio	$	19,258			19,152			106			1%
Television		(3,195	)		(4,604	)		1,409			(31%	)
Corporate		(4,189	)		(3,374	)		(815	)		24%
Consolidated	$	11,874		$	11,174			700			6%

     The following summary table presents a comparison of our results of operations for the three-month periods ended September 30, 2007 and 2006. 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.

15

	Three-Months Ended
	September 30,						Change
	2007			2006			$			%
	(In thousands)
Net revenue	$	46,772			45,891			881			2%
Engineering and programming expenses		12,553			12,739			(186	)		(1%	)
Selling, general and administrative expenses		17,219			17,879			(660	)		(4%	)
Corporate expenses		3,881			3,125			756			24%
Depreciation and amortization		1,194			968			226			23%
Loss on sale of assets, net of disposal costs		51			6			45			750%
Operating income	$	11,874			11,174			700			6%
Interest expense, net		(4,789	)		(4,840	)		51			(1%	)
Other income, net		25			16			9			56%
Income tax expense		4,569			5,507			(938	)		(17%	)
Net income	$	2,541			843			1,698			201%

     Net Revenue.The increase in our consolidated net revenue of $0.9 million or 2% was due to the increase in net revenue from our television segment of $1.1 million or 82%, offset by a slight decrease in our radio segment net revenue of $0.2 million. Our television segment net revenue growth was primarily due to MEGA TV establishing itself within the South Florida advertising community during the past 19 months, which resulted in an ability to increase advertising rates and sell more inventory. Our radio segment had a slight decrease in net revenue primarily due to lower local and barter sales, offset by an increase in national sales. The decrease in local sales occurred primarily in our Los Angeles, Puerto Rico, Chicago, and Miami markets, offset by an increase in our New York market. The decrease in barter sales occurred in our Puerto Rico and Los Angeles markets. The increase in national sales occurred primarily in our New York and Los Angeles markets, offset by our Miami market.

     Engineering and Programming Expenses.The decrease in our consolidated engineering and programming expenses of $0.2 million or 1% was mainly due to our television segment. Our television segment expenses decreased $0.6 million or 15%, primarily due to a decrease in original produced programming and compensation and benefits for our television programming personnel. Our radio segment expenses increased $0.4 million or 5%, primarily related to an increase in compensation and benefits for our radio programming personnel.

     Selling, General and Administrative Expenses.The decrease in our consolidated selling, general and administrative expenses of $0.7 million or 4% was mainly due to our radio segment. Our radio segment expenses decreased $0.9 million or 5%, primarily due to a decrease in cash advertising, promotional and marketing costs, and barter expense. Our television segment expenses increased $0.2 million or 13%, primarily due to the increase in professional fees, commission expense and various general expenses, offset by a decrease in cash advertising, promotional and marketing costs.

     Corporate Expenses.The increase in corporate expenses was mainly a result of increases in employee compensation and benefits, and legal and professional fees.

     Operating Income.The increase in operating income of $0.7 million or 6% was primarily related to our television segment’s operating loss decrease of $1.4 million or 31%, which was mainly related to an increase in net revenues and a decrease in engineering and programming expenses. The television segment’s operating loss decrease was offset by an increase in our corporate expenses of $0.8 million or 24%.

     Interest Expense, net.The decrease in interest expense, net, was primarily due to a decrease in interest expense related to lower outstanding principal balances.

     Income Taxes.The decrease in income taxes was primarily due to the decrease in the estimated 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 income tax expense and increase in operating income.

16

Comparison Analysis of the Operating Results for the Nine-Months Ended September 30, 2007 and 2006

     The following summary table presents separate financial data for each of our operating segments (in thousands).

	Nine-Months Ended
	September 30,						Change
	2007			2006			$			%
Net revenue:
Radio	$	126,421			129,339			(2,918	)		(2%	)
Television		7,159			3,168			3,991			126%
Consolidated	$	133,580			132,507			1,073			1%
Engineering and programming expenses:
Radio	$	26,867			25,276			1,591			6%
Television		10,357			12,268			(1,911	)		(16%	)
Consolidated	$	37,224			37,544			(320	)		(1%	)
Selling, general and administrative expenses:
Radio	$	48,068			48,573			(505	)		(1%	)
Television		5,255			5,732			(477	)		(8%	)
Consolidated	$	53,323			54,305			(982	)		(2%	)
Corporate expenses:	$	10,596			10,314			282			3%
Depreciation and amortization:
Radio	$	2,153			1,866			287			15%
Television		440			206			234			114%
Corporate		843			728			115			16%
Consolidated	$	3,436			2,800			636			23%
Loss (gain) on sale of assets, net:
Radio	$	50			(50,787	)		50,837			(100%	)
Television		—			—			—			0%
Corporate		—			—			—			0%
Consolidated	$	50			(50,787	)		50,837			(100%	)
Operating income (loss):
Radio	$	49,283			104,411			(55,128	)		(53%	)
Television		(8,893	)		(15,038	)		6,145			(41%	)
Corporate		(11,439	)		(11,042	)		(397	)		4%
Consolidated	$	28,951		$	78,331			(49,380	)		(63%	)

17

     The following summary table presents a comparison of our results of operations for the nine-month periods ended September 30, 2007 and 2006. 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
	2007			2006			$			%
	(In thousands)
Net revenue	$	133,580			132,507			1,073			1%
Engineering and programming expenses		37,224			37,544			(320	)		(1%	)
Selling, general and administrative expenses		53,323			54,305			(982	)		(2%	)
Corporate expenses		10,596			10,314			282			3%
Depreciation and amortization		3,436			2,800			636			23%
Loss (gain) on sale of assets, net of disposal costs		50			(50,787	)		50,837			(100%	)
Operating income	$	28,951			78,331			(49,380	)		(63%	)
Interest expense, net		(14,213	)		(15,195	)		982			(6%	)
Loss on early extinguishment of debt		—			(2,997	)		2,997			(100%	)
Other income (expense), net		1,985			(7	)		1,992			(28457%	)
Income tax expense		10,778			3,317			7,461			225%
Net income	$	5,945			56,815			(50,870	)		(90%	)

     Net Revenue.The increase in our consolidated net revenue of $1.1 million or 1% was due to the increase in net revenue from our television segment of $4.0 million or 126%, offset by our radio segment net revenue decrease of $2.9 million or 2%. Our television segment growth was primarily due to (a) MEGA TV establishing itself within the South Florida advertising community during the past 19 months, which resulted in an ability to increase advertising rates and sell more inventory, and (b) our television results reflecting nine-months of revenue compared to the prior period’s results reflecting only seven-months of revenue. Our radio segment had a decrease in net revenue primarily due to lower local and barter sales. The decrease in local sales occurred primarily in our Los Angeles, Miami, and Puerto Rico markets, offset by an increase in our New York and San Francisco markets. The decrease in barter sales occurred in our Los Angeles and Puerto Rico markets.

     Engineering and Programming Expenses.The decrease in our consolidated engineering and programming expenses of $0.3 million or 1% was mainly due to our television segment. Our television segment expenses decreased $1.9 million or 16%, primarily due to a decrease in programming pre-launch costs, original produced programming, and compensation and benefits for our television programming personnel due to a reduction of headcount. Our radio segment expenses increased $1.6 million or 6%, primarily related to an increase in compensation and benefits for our radio programming personnel and music license fees.

     Selling, General and Administrative Expenses.The decrease in our consolidated selling, general and administrative expenses of $1.0 million or 2% was due to a combination of our television and radio segments expenses. Our television segment expenses decreased $0.5 million or 8%, primarily due to the decrease in cash advertising, promotional and marketing costs related to the prior year launching of MEGA TV. Our radio segment expenses decreased $0.5 million or 1%, primarily due to a decrease in local and national sales commissions, and barter expense. These decreases in our radio segment’s expenses were offset by an increase in compensation and benefits, and professional fees.

     Corporate Expenses.The increase in corporate expenses was mainly a result of increases in employee compensation and benefits, and office rent expense, offset by a decrease in legal and professional fees, and directors and officers insurance.

     Loss (Gain) on Sale of Assets, net.The prior period gain on sale of assets, net, is related to the sale of radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market, which was completed on January 31, 2006, at which time we recognized a pre-tax gain of approximately $50.8 million.

     Operating Income.The decrease in operating income was primarily attributed to the gain on sale of assets, net, of $50.8 million which was recognized in the prior period, offset by an increase in consolidated net revenue and a decrease in consolidated operating expenses.

     Interest Expense, net.The decrease in interest expense, net, was primarily due to the elimination of interest expense incurred on our $100.0 million second lien credit facility, which was repaid on February 17, 2006.

18

     Loss on Early Extinguishment of Debt.The prior period loss on early extinguishment of debt of $3.0 million was due to the prepayment premium and the write-off of unamortized deferred financing costs related to the repayment of our $100.0 million second lien credit facility.

     Other Income (Expense).The increase in other income relates to the write-off of the unused portion of unearned revenue that expired. This unearned revenue relates to the MEGA TV acquisition advertising agreement that provides the seller with the opportunity to use $2.0 million of advertising per year, for three years.

     Income Taxes.The increase in income taxes was primarily due to the income tax benefit recognized in the prior period, which was related to the sale of radio stations KZAB-FM and KZBA-FM.

     Net Income.The decrease in net income was primarily due to the gain on sale of assets of $50.8 million and its related income tax benefit of $6.4 million, which were recognized in the prior period.

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.

     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, among other things, required quarterly interest and principal payments pursuant to the credit agreements governing our senior secured 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 strategy; and

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

     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 equity.

     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 or other available 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.

     We had cash and cash equivalents of $63.8 million as of September 30, 2007.

     The following summary table presents a comparison of our capital resources for the nine-month periods ended September 30, 2007 and 2006, 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.

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	Nine-Months Ended
	September 30,						Change
	2007			2006			$
	(In thousands)
Capital expenditures:
Radio		1,358			3,639			(2,281	)
Television		3,030			2,542			488
Corporate		2,343			489			1,854
Consolidated	$	6,731			6,670			61
Net cash flows provided by operating activities	$	13,694			13,612			82
Net cash flows (used in) provided by investing activities		(6,716	)		39,544			(46,260	)
Net cash flows used in financing activities		(9,983	)		(111,524	)		101,541
Net decrease in cash and cash equivalents	$	(3,005	)		(58,368	)

     Net Cash Flows Provided by Operating Activities.There were no significant changes in our net cash flows from operating activities.

     Net Cash Flows (Used in) Provided by Investing Activities.Changes in our net cash flows from investing activities were primarily a result of the following: (a) in 2007, we acquired a building and its related land and have begun making significant improvements to that building totaling $2.6 million and other capital expenditures of $4.1 million, and (b) in 2006, we received proceeds of $64.8 million for the sale of our Los Angeles stations KZAB-FM and KZBA-FM, offset by $18.5 million of payments made to acquire our television operation “MEGA TV” and capital expenditures of $6.7 million.

     Net Cash Flows Used In Financing Activities.Changes in our net cash flows from financing activities were primarily a result of the prior period repayment of our $100.0 million second lien credit facility and its related prepayment premium of $1.0 million.

Recent Developments

  Acquisition of a Facility and Related Financing

     On January 4, 2007, SBS, through its wholly owned subsidiary, SBS Miami Broadcast Center, Inc. (“SBS Miami Broadcast Center”), completed the acquisition of certain real property located in Miami-Dade County, Florida pursuant to the purchase and sale agreement, dated August 24, 2006, as amended on September 25, 2006, as further amended on October 25, 2006 (the “Purchase Agreement”). The real property consists of 5.47 acres (234,208 square feet) and approximately 62,000 square feet of office space (the “Property”). The Property was acquired from 7007 Palmetto Investments, LLC (“Seller”), an unrelated third party, for a total purchase price of approximately $8.9 million, excluding closing costs and broker’s fees. During 2006, pursuant to the terms of the Purchase Agreement, we made deposits totaling approximately $1.0 million in escrow that were released at the closing and were applied to the purchase price. At December 31, 2006, these deposits were included in other assets in the accompanying condensed consolidated balance sheet. We funded the purchase price using cash on hand and borrowings and we expect to incur significant construction costs for the new broadcasting facility. Upon the completion of construction at the building, we will consolidate our Miami radio and television operations at the new broadcasting facility.

     In connection with the acquisition of the Property, on January 4, 2007, SBS Miami Broadcast Center entered into a loan agreement (the “Loan Agreement”), a ten-year promissory note in the original principal amount of $7.7 million (the “Promissory Note”), and a Mortgage, Assignment of Rents and Security Agreement (the “Mortgage”) in favor of Wachovia Bank, National Association (“Wachovia”). The Promissory Note bears an interest rate equal to one-month LIBOR plus 125 basis points and requires monthly principal payments of $0.03 million with any unpaid balance due on its maturity date of January 4, 2017. The Promissory Note is secured by the Property and any related collateral.

     The terms of the loan include certain restrictions and covenants for SBS Miami Broadcast Center, which limit, among other things, the incurrence of additional indebtedness and liens. The Loan Agreement specifies a number of events of default (some of which are subject to applicable cure periods), including, among others, the failure to make payments when due, non-compliance with covenants and defaults under other agreements or instruments of indebtedness. Upon the occurrence of an event of default and expiration of any applicable cure periods, Wachovia may accelerate the loan and declare all amounts outstanding to be immediately due and payable.

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     Additionally, on January 4, 2007, SBS Miami Broadcast Center entered into an interest rate swap arrangement (the “Swap Agreement”) for the original notional principal amount of $7.7 million whereby it will pay a fixed interest rate of 6.31% as compared to interest at a floating rate equal to one-month LIBOR plus 125 basis points on the Promissory Note. The interest rate swap amortization schedule is identical to the Promissory Note amortization schedule, which has an effective date of January 4, 2007, monthly notional reductions and an expiration date of January 4, 2017.

     In connection with the acquisition of the Property, we agreed to unconditionally guaranty all obligations of SBS Miami Broadcast Center pursuant to the Promissory Note, the Loan Agreement, the Mortgage, the loan documents thereto, and the Swap Agreement, for the benefit of Wachovia and its affiliates (the “Guaranty”). In addition, the terms of the Guaranty contain certain financial covenants, which require us to maintain available liquidity of not less than 1.2 times the then outstanding principal balance of the loan made to SBS Miami Broadcast Center by Wachovia.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

     We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2006.

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 under Rule 13a-15(e) of the Exchange Act of 1934, as amended (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, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1A.Risk Factors

     In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2006, but they are not the only risks facing us. 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 condition and/or operating results.

Item 6.Exhibits

  (a) Exhibits

     The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein:

Exhibit
Number		Exhibit Description
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 on Form S-1 (Commission File No. 333-85499) (the “1999 Registration Statement”)) (Exhibit A to this exhibit is incorporated by reference to the Company’s Current Report on Form 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 14 1/4% 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 on Form 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 10 3/4% 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 10 3/4% 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 on Form 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).

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Exhibit
Number		Exhibit Description
4.8	—	Indenture with respect to 9 5/8% Senior Subordinated Notes due 2009 with The Bank of New York as Trustee, dated November 2, 1999 (incorporated by reference to the Current Report on Form 8-K dated November 2, 1999 (the “1999 Current Report”)).
4.9	—	Indenture with respect to 9 5/8% 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 on Form S-3, filed on June 25, 2001 (the “2001 Form 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 14 1/4% 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 on Form 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 on Form 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 on Form 10-K for the fiscal year 2004).
10.1	—	Indemnification Agreement with Mitchell A. Yellen as of October 1, 2007.
10.2	—	Stock Option Agreement dated as of October 1, 2007 between the Company and Mitchell A. Yellen.
14.1	—	Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Company’s 2004 Form 10-K).
31.1	—	Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	—	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.

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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, 2007

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EXHIBIT INDEX

Exhibit
Number		Exhibit Description
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 on Form S-1 (Commission File No. 333-85499) (the “1999 Registration Statement”)) (Exhibit A to this exhibit is incorporated by reference to the Company’s Current Report on Form 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 14 1/4% 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 on Form 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 10 3/4% 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 10 3/4% 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 on Form 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 9 5/8% Senior Subordinated Notes due 2009 with The Bank of New York as Trustee, dated November 2, 1999 (incorporated by reference to the Current Report on Form 8-K dated November 2, 1999 (the “1999 Current Report”)).
4.9	—	Indenture with respect to 9 5/8% 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 on Form S-3, filed on June 25, 2001 (the “2001 Form 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 14 1/4% 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 on Form 10-Q filed November 14, 2003).

Exhibit
Number		Exhibit Description
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 on Form 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 on Form 10-K for the fiscal year 2004).
10.1	—	Indemnification Agreement with Mitchell A. Yellen as of October 1, 2007.
10.2	—	Stock Option Agreement dated as of October 1, 2007 between the Company and Mitchell A. Yellen.
14.1	—	Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Company’s 2004 Form 10-K).
31.1	—	Chief Executive Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	—	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.