UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the transition period from  to                  

Commission file number 000-27823

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (305) 441-6901

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class A common stock, par value $.0001 per share

(Title of Class)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

    Yes þ        No o

     As of June 30, 2004, the last business day of the Company’s most recently completed second fiscal quarter, the Company had 39,626,355 shares of Class A common stock, par value $.0001 per share, and 25,105,150 shares of Class B common stock, par value $.0001 per share, outstanding. As of June 30, 2004, the aggregate market value of the Class A common stock held by non-affiliates of the Company was approximately $396.5 million and the aggregate market value of the Class B common stock held by non-affiliates of the Company was approximately $5.0 million. We calculated the aggregate market value based upon the closing price of our Class A common stock reported on the Nasdaq National Market System on June 30, 2004 of $9.33 per share, and we have assumed that our shares of Class B common stock would trade at the same price per share as our shares of Class A common stock. (For purposes of this paragraph, directors and executive officers have been deemed affiliates.)

     As of March 14, 2005, 40,207,805 shares of Class A common stock, par value $.0001 per share, 24,573,500 shares of Class B common stock, par value $.0001 per share and 380,000 shares of Series C convertible preferred stock, $.002 par value per share, which are convertible into 7,600,000 shares of Class A common stock, were outstanding.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

Special Note Regarding Forward-Looking Statements

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

PART I

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

      We are the largest Hispanic-controlled radio broadcasting company in the United States. After giving effect to the proposed sale of our radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market, we will own and operate 20 radio stations in markets that reach approximately 49% of the U.S. Hispanic population. Our stations are located in six of the top-ten Hispanic markets of Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco. Los Angeles and New York have the largest and second largest Hispanic populations, and are the largest and second largest radio markets in the United States in terms of advertising revenue, respectively. Our top three markets, based on net revenues, are New York, Los Angeles and Miami.

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

Business Strategy

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

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

Market Opportunity

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

      The above market opportunity information is based on data provided by Synovate — 2004 U.S. Hispanic Market Report, The Multicultural Economy 2004, The Selig Center for Economic Growth, University of Georgia, July 2004 and the HispanTelligence, Advertising Expenditures: 2000-2007.

Our Top Hispanic Radio Markets in the United States

      We operate stations in the top Hispanic radio markets in the United States, including Puerto Rico. Following the closing of the proposed sale of our radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market, we will continue to own radio stations in Los Angeles, New York, Puerto Rico, Chicago, Miami and San Francisco.

      The following table sets forth certain statistical and demographic information relating to our radio markets:

Operating Strategy

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

      Format high quality programming. We format the programming of each of our stations to capture a significant share of the Spanish-language audience. We use market research, including third-party consultants,

in-house research and periodic music testing, to assess listener preferences among the diverse groups in the Hispanic population in each station’s target demographic audience. We then refine our programming to reflect the results of this research and testing. Because the U.S. Hispanic population is so diverse, consisting of numerous identifiable groups from many different countries of origin, each with its own cultural and musical heritage, we strive to make ourselves very familiar with the musical tastes and preferences of each of the various Hispanic ethnic groups, and we customize our programming accordingly.

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

      Utilize focused sales efforts. To capture market share, our sales force focuses on converting audience share into rate and revenue increases. Strategically, we hire sales professionals who are experts at Hispanic and general market advertising. We also value knowledgeable account managers skilled at dealing directly with clients in the local market. Spanish-language radio is uniquely positioned for national campaigns, regional marketing plans and local promotions in our diverse markets. We believe that our focused sales efforts are working to increase media spending targeted at the Hispanic consumer market and will enable us to continue to achieve rate and revenue growth, and to narrow the gap between the level of advertising currently targeted towards U.S. Hispanics and the actual and potential buying power of our communities.

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

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

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

Programming

      We format the programming of each of our stations to capture a substantial share of the U.S. Hispanic audience in its respective market. The U.S. Hispanic population is diverse, consisting of numerous identifiable groups from many different countries of origin, each with its own musical and cultural heritage. The music,

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

      The following table lists the programming formats of our radio stations and the target demographic group of each station (after giving effect to the proposed sale of our radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market).

Radio Station Portfolio

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

Los Angeles

      The Los Angeles market is the largest radio market in terms of advertising revenue which was projected to be approximately $1.05 billion in 2004. In 2004, the Los Angeles market had the largest U.S. Hispanic population with approximately 7.8 million Hispanics, which is approximately 44.5% of the Los Angeles market’s total population. The Los Angeles market experienced annual radio revenue growth of 9.5% between 1998 and 2003. Radio revenue in the Los Angeles market is expected to grow at an annual rate of 5.5% between 2003 and 2008.

New York

      The New York market is the second largest radio market in terms of advertising revenue which was projected to be approximately $816.3 million in 2004. In 2004, the New York market had the second largest U.S. Hispanic population, with approximately 4.3 million Hispanics, which is approximately 20.5% of the New York market’s total population. We believe that we own the strongest franchise in our target demographic group, with two of the four FM Spanish-language radio stations in the New York market, WSKQ-FM and WPAT-FM. The New York market experienced annual radio revenue growth of 5.3%

between 1998 and 2003. Radio revenue in the New York market is expected to grow at an annual rate of 4.6% between 2003 and 2008.

Puerto Rico

      The Puerto Rico market is the thirty-second largest radio market in terms of advertising revenue which was projected to be approximately $102.1 million in 2004. In 2004, the Puerto Rico market had the third largest U.S. Hispanic population, with approximately 3.8 million Hispanics, which is estimated to be approximately 98.0% of the Puerto Rico market’s total population. The Puerto Rico market experienced annual radio revenue growth of 4.9% between 1998 and 2003. Radio revenue in the Puerto Rico market is expected to grow at an annual rate of 4.9% between 2003 and 2008.

Chicago

      The Chicago market is the third largest radio market in terms of advertising revenue which was projected to be approximately $611.8 million in 2004. In 2004, the Chicago market had the fourth largest U.S. Hispanic population, with approximately 1.8 million Hispanics, which is approximately 19.0% of the Chicago market’s total population. The Chicago market experienced annual radio revenue growth of 6.5% between 1998 and 2003. Radio revenue in the Chicago market is expected to grow at an annual rate of 5.0% between 2003 and 2008.

Miami

      The Miami market is the eleventh largest radio market in terms of advertising revenue which was projected to be approximately $287.3 million in 2004. In 2004, the Miami market had the fifth largest U.S. Hispanic population, with approximately 1.8 million Hispanics, which is approximately 43.1% of the Miami market’s total population. The Miami market experienced annual radio revenue growth of 5.3% between 1998 and 2003. Radio revenue in the Miami market is expected to grow at an annual rate of 4.7% between 2003 and 2008.

San Francisco

      The San Francisco market is the fourth largest radio market in terms of advertising revenue which was projected to be approximately $428.2 million in 2004. In 2004, the San Francisco market had the eighth largest U.S. Hispanic population, with approximately 1.5 million Hispanics, which is approximately 21.3% of the San Francisco market’s total population. The San Francisco market experienced annual radio revenue growth of 5.6% between 1998 and 2003. Radio revenue in the San Francisco market is expected to grow at an annual rate of 4.2% between 2003 and 2008.

Latin Music On-Line (“LaMusica.com”)

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

Management and Personnel

      As of March 14, 2005, we had approximately 529 full-time employees, 10 of whom were primarily involved in corporate management and/or station management, 203 of whom were primarily involved in the programming of our stations, 194 of whom were primarily involved in sales, 107 of whom were primarily

involved in general administration and 15 of whom were primarily involved in technical or engineering capacities.

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

Seasonality

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

Patents, Trademarks, Licenses and Franchises

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

Advertising

      The vast majority of our revenue is derived from advertising. Advertising revenue is usually classified into two categories — “national” or “local.” “National” generally refers to advertising that is solicited by a representative firm for national advertisers. Our national sales representative is SBS/ Interep LLC, a division of Interep National Radio Sales, Inc. “Network” advertising revenue is a subset category of national advertising revenue and it refers to advertising purchased by our other strategic alliance agreements. “Local” refers to advertising purchased by advertisers and agencies in the local market served by a particular station.

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

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

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

Competition

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

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

      The radio industry is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by terrestrial delivery of digital audio broadcasting (known as “DAB”). DAB may deliver to nationwide and regional audiences, multi-channel, and multi-format digital radio services with sound quality equivalent to that of compact discs. The FCC has licensed companies for the use of a new technology, satellite digital audio radio services (known as “SDARS”), to deliver audio programming. SDARS provide a medium for the delivery by satellite of multiple new audio programming formats to local and national audiences. Some radio broadcast stations, including ours, are presently utilizing digital technology on their existing frequencies to deliver audio programming. The FCC also has begun granting licenses for a new “low power” radio or “microbroadcasting” service to provide low cost neighborhood service on frequencies which would not interfere with existing stations.

      The FCC has selected In-Band On-Channel^tm, or IBOC, as the exclusive technology for introduction of terrestrial digital operations by AM and FM radio stations. The FCC has authorized the commencement of “hybrid” IBOC transmissions, that is, simultaneous broadcast in both digital and analog format, after receipt of individual grant of special temporary authority by the FCC pending the adoption of formal licensing and service rules. The advantages of digital audio broadcasting over traditional analog broadcasting technology include improved sound quality and the ability to offer a greater variety of auxiliary services. IBOC technology permits a station to transmit radio programming in both analog and digital formats, and eventually in digital only formats, using the bandwidth that the radio station is currently licensed to use. It is unclear what impact the introduction of digital broadcasting will have on the radio markets in which we compete. The FCC also has a pending proceeding which contemplates the use of digital technology by existing AM and FM radio broadcast stations to both improve sound quality and provide spectrum for enhanced data services to complement the existing programming service and provide new business opportunities for radio broadcasters. Under Special Temporary Authority, the FCC has authorized use of IBOC digital technology developed by

iBiquity Digital Corporation, or iBiquity, on FM stations full-time and on AM stations day-time only. The final digital radio rules remain under consideration by the FCC.

      We currently utilize IBOC digital technology on one of our stations and are considering installing it on other of our stations over the next few years. This digital technology, which is not required by the FCC, offers the possibility of multiple audio channels in our assigned frequency.

      The delivery of information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes, MP3 and compact discs. A growing population and the greater availability of radios, particularly car and portable radios, have contributed to this growth. We cannot assure you, however, that the development or introduction of any new media technology will not have an adverse effect on the radio broadcasting industry.

      We cannot predict what other matters may be considered in the future by the FCC, nor can we assess in advance what impact, if any, the implementation of any of these proposals or changes may have on our business. See “Federal Regulation of Radio Broadcasting” below.

Antitrust

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

Federal Regulation of Radio Broadcasting

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

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

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

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

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

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

FCC Licenses

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

application, may renew them for additional terms. Under the Communications Act, radio broadcast station licenses may be granted for a maximum term of eight years.

      The following table sets forth the license expiration dates of each of our radio stations after giving effect to the proposed sale of our radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market.

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

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

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

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

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

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

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

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

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

partnerships for purposes of attribution. Stock interests held by insurance companies, mutual funds, bank trust departments and certain other passive investors that hold stock for investment purposes only become attributable with the ownership of 20% or more of the voting stock of the corporation holding broadcast licenses.

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

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

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

      We are uncertain as to which “cross-ownership” or “cross-media” rules will be used by the FCC in the future. The FCC previously adopted new ownership rules which were appealed. While a federal court granted the Commission authority to implement the radio ownership rules, the court denied the proposed rules regarding newspapers/ broadcast and radio/television cross-ownership. Therefore, absent waivers, we would not be permitted to own a radio broadcast station and acquire an attributable interest in any daily newspaper in the same market where we then owned any radio broadcast station. Our stockholders, officers, or directors, absent a waiver would not be able