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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-27823

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 2
Coconut Grove, Florida 33133
(Address of principal executive offices) (Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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

As of November 8, 2011, 4,166,991 shares of Class A common stock, par value $0.0001 per share, 2,340,353 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 760,000 shares of Class A common stock, were outstanding. The number of Class A and Class B common stock shares reflects a 1-for-10 reverse stock split effectuated by the Company at 11:59p.m., Eastern Daylight Time on July 11, 2011.

 

 

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, 2011 and December 31, 2010			4
Unaudited Condensed Consolidated Statements of Operations for the Three- and Nine-Months Ended September 30, 2011 and 2010			5
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit and Comprehensive Income for the Nine-Months Ended September 30, 2011			6
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended September 30, 2011 and 2010			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
ITEM 4. Controls and Procedures			25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			25
ITEM 6. Exhibits			26
Signatures			27
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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, (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”, “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 historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to those described in our Annual Report on Form 10-K for the year ended December 31, 2010, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements — Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

		September 30,				December 31,
		2011				2010
		(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents		$	63,452				55,140
Receivables, net of allowance for doubtful accounts of $974 in 2011 and $813 in 2010			25,040				26,160
Prepaid expenses and other current assets			3,629				3,219
Total current assets			92,121				84,519
Property and equipment, net of accumulated depreciation of $56,562 in 2011 and $52,819 in 2010			42,812				40,006
FCC broadcasting licenses			323,055				312,623
Goodwill			32,806				32,806
Other intangible assets, net of accumulated amortization of $341 in 2011 and $250 in 2010			2,207				1,184
Deferred financing costs, net of accumulated amortization of $6,875 in 2011 and $6,088 in 2010			726				1,514
Other assets			1,945				2,167
Total assets		$	495,672				474,819
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses		$	17,382				17,980
Accrued interest			1,138				4,057
Unearned revenue			1,029				745
Other liabilities			718				750
Current portion of the senior credit facility term loan due 2012			303,875				3,250
Current portion of other long-term debt			3,067				416
Series B cumulative exchangeable redeemable preferred stock dividends payable			19,441				14,478
Total current liabilities			346,650				41,676
Other liabilities, less current portion			543				985
Derivative instruments			775				829
Senior credit facility term loan due 2012, less current portion			—				303,063
Other long-term debt, less current portion			11,356				6,180
Deferred income taxes			82,331				78,247
Total liabilities			441,655				430,980
Commitments and contingencies (note 7)
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; 92,349 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			92,349				92,349
Stockholders’ deficit:
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, 2011 and December 31, 2010, respectively			4				4
Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,166,991 and 4,163,991 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			—				—
Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			—				—
Additional paid-in capital			525,231				525,205
Accumulated other comprehensive loss			(775	)			(829	)
Accumulated deficit			(562,792	)			(572,890	)
Total stockholders’ deficit			(38,332	)			(48,510	)
Total liabilities and stockholders’ deficit		$	495,672				474,819

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

		Three-Months Ended								Nine-Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
		(In thousands, except per share data)
Net revenue		$	36,412				34,553				102,814				101,236
Operating expenses:
Engineering and programming			8,733				9,969				28,508				29,834
Selling, general and administrative			12,562				12,502				36,698				36,123
Corporate expenses			1,647				1,331				5,590				5,806
Depreciation and amortization			1,414				1,392				4,010				4,394
			24,356				25,194				74,806				76,157
(Gain) loss on the disposal of assets, net			(8	)			23				(17	)			31
Impairment charges and restructuring costs			—				2,097				207				2,097
Operating income			12,064				7,239				27,818				22,951
Other (expense) income:
Interest expense, net			(2,054	)			(2,317	)			(6,114	)			(11,743	)
Change in fair value of derivative instrument			—				—				—				5,863
Income before income taxes			10,010				4,922				21,704				17,071
Income tax expense			1,220				1,844				4,160				5,390
Net income			8,790				3,078				17,544				11,681
Dividends on Series B preferred stock			(2,482	)			(2,482	)			(7,446	)			(7,446	)
Net income applicable to common stockholders		$	6,308				596				10,098				4,235
Basic net income per common share		$	0.87				0.08				1.39				0.58
Diluted net income per common share		$	0.87				0.08				1.39				0.58
Weighted average common shares outstanding:
Basic			7,267				7,261				7,267				7,260
Diluted			7,272				7,283				7,279				7,282

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit
and Comprehensive Income for the Nine-Months Ended September 30, 2011

		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				loss				deficit				deficit
		(In thousands, except share data)
Balance at December 31, 2010			380,000			$	4				4,163,991			$	—				2,340,353			$	—			$	525,205			$	(829	)		$	(572,890	)		$	(48,510	)
Issuance of Class A common stock from vesting of restricted stock			—				—				3,000				—				—				—				—				—				—				—
Stock-based compensation			—				—				—				—				—				—				26				—				—				26
Series B preferred stock dividends			—				—				—				—				—				—				—				—				(7,446	)			(7,446	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				—				17,544				17,544
Unrealized gain on derivative instruments			—				—				—				—				—				—				—				54				—				54
Comprehensive income																																							17,598
Balance at September 30, 2011			380,000			$	4				4,166,991			$	—				2,340,353			$	—			$	525,231			$	(775	)		$	(562,792	)		$	(38,332	)

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

		Nine-Months Ended
		September 30,
		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	17,544				11,681
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on the sale of assets			(17	)			31
Impairment charges			207				2,097
Stock-based compensation			26				146
Depreciation and amortization			4,010				4,394
Net barter income			(264	)			(214	)
Provision for trade doubtful accounts			811				370
Amortization of deferred financing costs			788				796
Deferred income taxes			4,084				5,230
Unearned revenue			520				220
Change in fair value of derivative instrument			—				(3,962	)
Changes in operating assets and liabilities:
Trade receivables			336				(99	)
Prepaid expenses and other current assets			(410	)			464
Other assets			222				203
Accounts payable and accrued expenses			(207	)			(429	)
Accrued interest			(2,919	)			(1,536	)
Other liabilities			(681	)			369
Net cash provided by operating activities			24,050				19,761
Cash flows from investing activities:
Purchases of property and equipment			(2,505	)			(1,257	)
Proceeds from the sale of property and equipment and insurance recoveries			31				—
Acquisition of a television station and related equipment			(8,000	)			—
Net cash used in investing activities			(10,474	)			(1,257	)
Cash flows from financing activities:
Payment of senior credit facility revolver due 2010			—				(15,000	)
Payment of senior secured credit facility term loan 2012			(2,438	)			(2,438	)
Payment of Series B preferred stock cash dividends			(2,483	)			(2,482	)
Payments of other long-term debt			(343	)			(346	)
Net cash used in financing activities			(5,264	)			(20,266	)
Net increase (decrease) in cash and cash equivalents			8,312				(1,762	)
Cash and cash equivalents at beginning of period			55,140				53,580
Cash and cash equivalents at end of period		$	63,452				51,818
Supplemental cash flows information:
Interest paid		$	8,218				9,582
Income taxes paid, net		$	8				20
Noncash investing and financing activities:
Three-year promissory note issued for the acquisition of a television station and related equipment		$	8,000				—
Accrual of Series B preferred stock cash dividends not declared		$	4,963				4,964
Unrealized gain (loss) on derivative instruments		$	54				(419	)

See accompanying notes to the unaudited condensed consolidated financial statements.

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the Company, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of September 30, 2011 and December 31, 2010 and for the three- and nine-month periods ended September 30, 2011 and 2010 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 Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. 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, 2010, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. 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. Additionally, we evaluated subsequent events after the balance sheet date of September 30, 2011 through the financial statements issuance date. The results of operations for the three- and nine-month periods ended September 30, 2011 are not necessarily indicative of the results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Significant items subject to such estimates and assumptions include: the useful lives of fixed assets, allowance for doubtful accounts, the valuation of derivatives, deferred tax assets, fixed assets, intangible assets, stock-based compensation, contingencies and litigation. These estimates and assumptions are based on management’s best judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions as facts and circumstances dictate. Illiquid credit markets, volatile equity markets and reductions in advertising spending have combined to increase the uncertainty inherent in such estimates and assumptions. Actual results could differ from these estimates.

On July 5, 2011, we filed with the Secretary of State of the State of Delaware, a Certificate of Amendment to our Certificate of Incorporation (the “Certificate of Amendment”) to effect a 1-for-10 reverse stock split of the shares of our Class A and Class B common stock. The reverse stock split became effective at 11:59p.m., Eastern Daylight Time on July 11, 2011. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

2. Stockholders’ Deficit

(a) Reverse Stock Split of our Class A and Class B Common Stock

On July 5, 2011, we filed the Certificate of Amendment with the Secretary of State of the State of Delaware, which effected a one-for-ten (1-for-10) reverse stock split of our outstanding Class A common stock, par value $0.0001 per share (the “Class A common stock”) and Class B common stock, par value $0.0001 per share (the “Class B common stock”). The reverse stock split became effective at 11:59p.m., Eastern Daylight Time on July 11, 2011.

The reverse stock split was approved by our stockholders at the annual meeting held on June 1, 2011. The trading of our common stock on the NASDAQ Global Market on a split-adjusted basis began at the opening of trading on July 12, 2011, at which time the symbol changed to SBSAD to indicate that the reverse stock split had occurred. The symbol returned to the normal SBSA at the open of the market on August 9, 2011.

As a result of the reverse stock split, each ten (10) outstanding shares of pre-split common stock automatically combined into one (1) share of post-split common stock. No fractional shares were issued. Proportional adjustments were made to our outstanding stock, stock options and other equity awards and to our equity compensation plans to reflect the reverse stock split. The condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

(b) Series C Convertible Preferred Stock

On December 23, 2004, in connection with the closing of the merger agreement, dated October 5, 2004, with CBS Radio (formerly known as Infinity Media Corporation, CBS Radio), a division of CBS Corporation, Infinity Broadcasting Corporation of San Francisco (“Infinity SF”) and SBS Bay Area, LLC, a wholly-owned subsidiary of SBS, pursuant to which SBS acquired the FCC license of Infinity SF (the “CBS Radio Merger”), we issued to CBS Radio an aggregate of 380,000 shares of Series C convertible preferred stock, $0.01 par value per share (the “Series C preferred stock”). Each share of Series C preferred Stock is convertible at the option of the holder into two fully paid and non-assessable shares of the Class A common stock. The shares of Series C preferred stock issued at the closing of the CBS Radio Merger are convertible into 760,000 shares of Class A common stock, subject to certain adjustments. The number of Class A common stock shares reflects a 1-for-10 reverse stock split effectuated by the Company at 11:59p.m., Eastern Daylight Time on July 11, 2011. In connection with the CBS Radio Merger, we also entered into a registration rights agreement with CBS Radio, pursuant to which CBS Radio may instruct us to file up to three registration statements, on a best efforts basis, with the 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 created after December 23, 2004.

(c) Class A and B Common Stock

The rights of the Class A common stock holders and Class B common stock holders are identical except with respect to their 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 a transfer of the Class B common stock to a person or entity which is not a permitted transferee (as described in our Certificate of Incorporation). 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. Neither the holders of the Class A common stock nor the holders of the Class B common stock has 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 10 3/4% Series B cumulative exchangeable redeemable preferred stock, par value $0.01 per share (the “Series B preferred stock”). The Series B preferred stock has a liquidation preference of $1,000 per share and is on parity with the Series C preferred stock with respect to dividend rights and rights upon liquidation, winding up and dissolution of SBS.

(d) Share-Based Compensation Plans

2006 Omnibus Equity Compensation Plan

In July 2006, we adopted an omnibus equity compensation plan (the “Omnibus Plan”) in which grants of Class A common stock 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 350,000 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 units, stock awards and other stock-based awards that may be granted, other than dividend equivalents, to any individual during any calendar year is 100,000 shares, subject to adjustments.

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”, and together with the 1999 ISO Plan, the “1999 Stock Option Plans”). Options granted under the 1999 ISO Plan vest according to the terms determined by the compensation committee of our board of directors, and have a contractual life of up to ten years from the date of grant. Options granted under the 1999 NQ Plan 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 300,000 shares and 30,000 shares of Class A common stock were reserved for issuance under the 1999 ISO Plan and the 1999 NQ Plan, respectively. In September 2009, our 1999 Stock Option Plans expired; therefore, no more options can be granted under these plans.

Stock Options and Nonvested Shares Activity

Stock options have only been granted to employees and directors. Our stock options have various vesting schedules and are subject to the employees and directors continuing their 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, 2010 and September 30, 2011, and changes during the nine-months ended September 30, 2011, 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, 2010			192			$	59.04
Granted			—				—
Exercised			—				—
Forfeited			(6	)			74.50
Outstanding at September 30, 2011			186			$	58.59			$	—				3.7
Exercisable at September 30, 2011			183			$	59.25			$	—				3.6

During the nine-months ended September 30, 2011 and 2010, 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.

The following table summarizes information about stock options outstanding and exercisable at September 30, 2011 (in thousands, except per share data):

														Weighted
		Outstanding												Average				Exercisable
										Weighted				Remaining								Weighted
										Average				Contractual								Average
						Unvested				Exercise				Life				Number				Exercise
Range of Exercise Prices		Vested Options				Options				Price				(Years)				Exercisable				Price
$2.00 — 49.99			69				3			$	16.36				7.1				69			$	16.29
50.00 — 99.99			94				—				80.78				1.5				94				80.78
100.00 — 117.80			20				—				107.87				2.1				20				107.87
			183				3			$	58.59				3.7				183			$	59.25

Nonvested shares (restricted stock or restricted stock units) are awarded to employees under our Omnibus Plan. In general, nonvested shares will vest over three to five years and are subject to the employees continuing their service to us. 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, 2010 and September 30, 2011, and changes during the nine-months ended September 30, 2011, is presented below (in thousands, except per share data):

						Weighted
						Average Grant-
						Date Fair Value
		Shares				(per Share)
Nonvested at December 31, 2010			3			$	15.70
Awarded			—				—
Vested			(3	)			15.70
Forfeited			—				—
Nonvested at September 30, 2011			—			$	—

3. Basic and Diluted Net Income Per Common Share

Basic net income per common share was computed by dividing net income 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 per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

On July 5, 2011, we filed with the Secretary of State of the State of Delaware, the Certificate of Amendment to effect a 1-for-10 reverse stock split of our Class A and Class B common stock shares. The reverse stock split became effective at 11:59p.m., Eastern Daylight Time on July 11, 2011, and the condensed consolidated financial statements for current and prior periods have been adjusted to reflect the change in number of shares.

The following is a reconciliation of the shares used in the computation of basic and diluted net income per share for the three- and nine-month periods ended September 30, 2011 and 2010 (in thousands):

		Three-Months Ended								Nine-Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Basic weighted average shares outstanding			7,267				7,261				7,267				7,260
Effect of dilutive equity instruments			5				22				12				22
Dilutive weighted average shares outstanding			7,272				7,283				7,279				7,282
Options to purchase shares of common stock and other stock-based awards outstanding which are not included in the calculation of diluted net income per share because their impact is anti-dilutive			176				169				164				170

4. Operating Segments

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,								September 30,
		2011				2010				2011				2010
		(In thousands)								(In thousands)
Net revenue:
Radio		$	31,970				30,468				89,633				89,371
Television			4,442				4,085				13,181				11,865
Consolidated		$	36,412				34,553				102,814				101,236
Engineering and programming expenses:
Radio		$	5,322				5,795				17,010				17,269
Television			3,411				4,174				11,498				12,565
Consolidated		$	8,733				9,969				28,508				29,834
Selling, general and administrative expenses:
Radio		$	10,492				10,628				30,264				30,583
Television			2,070				1,874				6,434				5,540
Consolidated		$	12,562				12,502				36,698				36,123
Corporate expenses:		$	1,647				1,331				5,590				5,806
Depreciation and amortization:
Radio		$	547				622				1,710				2,008
Television			739				569				1,889				1,695
Corporate			128				201				411				691
Consolidated		$	1,414				1,392				4,010				4,394
(Gain) loss on the disposal of assets, net:
Radio		$	—				23				(9	)			23
Television			—				—				—				8
Corporate			(8	)			—				(8	)			—
Consolidated		$	(8	)			23				(17	)			31
Impairment charges and restructuring costs:
Radio		$	—				—				—				—
Television			—				43				—				43
Corporate			—				2,054				207				2,054
Consolidated		$	—				2,097				207				2,097
Operating income (loss):
Radio		$	15,609				13,400				40,658				39,488
Television			(1,778	)			(2,575	)			(6,640	)			(7,986	)
Corporate			(1,767	)			(3,586	)			(6,200	)			(8,551	)
Consolidated		$	12,064				7,239				27,818				22,951
Capital expenditures:
Radio		$	267				218				720				619
Television			24				62				1,658				372
Corporate			6				170				126				266
Consolidated		$	297				450				2,504				1,257

		September 30,				December 31,
Total Assets:		2011				2010
		(In thousands)
Radio		$	430,088				425,106
Television			62,118				45,707
Corporate			3,466				4,006
Consolidated		$	495,672				474,819

5. Comprehensive Income

Our total comprehensive income, comprised of net income, amounts reclassified to earnings during the period, and unrealized gain (loss) on derivative instruments, for the three- and nine-months ended September 30, 2011 and 2010, respectively, was as follows (in thousands):

		Three-Months Ended								Nine-Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income		$	8,790				3,078			$	17,544				11,681
Other comprehensive income:
Amounts reclassified to earnings during the period			—				—				—				1,901
Unrealized gain (loss) on derivative instruments			38				(193	)			54				(419	)
Total comprehensive income		$	8,828				2,885			$	17,598				13,163

6. Income Taxes

We have determined that due to a variety of reasons, we are currently unable to estimate our annual effective tax rate during our interim periods, which would be applied to our pre-tax ordinary income. We are calculating our effective income tax rate using a year-to-date income tax calculation. 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 reversal of our deferred tax liabilities related to the tax amortization of our FCC broadcasting licenses, which could no longer be assured over our net operating loss carry forward period. Therefore, our effective tax rate is impacted by the establishment of a valuation allowance on substantially all of our deferred tax assets.

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 2008 through 2010. The tax years that remain subject to assessment of additional liabilities by the Puerto Rico tax authority are 2007 through 2011.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements as of September 30, 2011 and December 31, 2010.

7. Litigation

We are subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been fully adjudicated. In the opinion of management, there is not a reasonable probability that we may have a potential liability related to any current legal proceedings and claims that would cause us to incur a material loss in excess of a recorded accrual. However, the results of legal proceedings cannot be predicted with certainty. Although management considers the likelihood of such an outcome to be remote, should we fail to prevail in any of these legal matters or should all of these legal matters be resolved against us in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

8. Fair Value Measurement Disclosures

Fair Value of Financial Instruments

Cash and cash equivalents, receivables, accounts payable, and other current liabilities, as reflected in the unaudited condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of our other long-term debt instruments, approximate their carrying amounts as the interest rates approximate our current borrowing rate for similar debt instruments of comparable maturity, or have variable interest rates.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The estimated fair values of our financial instruments are as follows (in millions):

		September 30, 2011								December 31, 2010
		Gross								Gross
		Carrying								Carrying
Description		Amount				Fair Value				Amount				Fair Value
Senior credit facility term loan		$	303.9				272.0				306.3				291.2
103/4% Series B cumulative exchangeable redeemable preferred stock			92.3				64.2				92.3				69.3
Promissory notes payable, included in other long-term debt			14.2				14.3				6.5				6.4

The fair value estimates of these financial instruments were based upon either: (a) market quotes from a major financial institution taking into consideration the most recent market activity, or (b) a discounted cash flow analysis taking into consideration current rates.

Fair Value of Derivative Instruments

The following table represents required quantitative disclosures regarding fair values of our derivative instruments (in thousands).

Fair value measurements at September 30, 2011

Liabilities

September 30, 2011

Quoted prices in

Significant

carrying value and

active markets

other

Significant

balance sheet

for identical

observable

unobservable

location of derivative

instruments

inputs

inputs

Description

instruments

(Level 1)

(Level 2)

(Level 3)

Derivative designated as a cash flow hedging instrument:

Interest rate swap

$

775

—

775

—

Fair value measurements at December 31, 2010

Liabilities

December 31, 2010

Quoted prices in

Significant

carrying value and

active markets

other

Significant

balance sheet

for identical

observable

unobservable

location of derivative

instruments

inputs

inputs

Description

instruments

(Level 1)

(Level 2)

(Level 3)

Derivative designated as a cash flow hedging instrument:

Interest rate swap

$

829

—

829

—

The interest rate swap fair value is derived from the present value of the difference in cash flows based on the forward-looking LIBOR yield curve rates, as compared to our fixed rate applied to the hedged amount through the term of the agreement, less adjustments for credit risk.

		Three-Months Ended								Nine-Months Ended
		September 30,								September 30,
Interest rate swaps		2011				2010				2011				2010
Gain (loss) recognized in other comprehensive loss (effective portion)		$	38				(193	)		$	54				(419	)
Loss reclassified from accumulated other comprehensive loss into interest expense			—				—				—				1,901
Gain recognized in change in fair value of derivative instrument			—				—				—				5,863

9. Acquisition of Houston Television Station

On August 1, 2011, through our wholly-owned subsidiaries, Mega Media Holdings, Inc. (“Mega Media Holdings”) and KTBU Licensing, Inc. (“KTBU-Sub,” and, together with Mega Media Holdings, “Mega Media”), we completed the acquisition of certain assets, including licenses, permits and authorizations issued by the Federal Communications Commission (the “FCC”) used in or related to the operation of television station KTBU-TV (Digital 42 (Virtual Channel 55)) in Conroe, Texas, pursuant to that certain asset purchase agreement (the “Purchase Agreement”), dated May 2, 2011, as amended on July 19, 2011, with Channel 55/42 Operating, LP, a Texas limited partnership, USFR Tower Operating, LP, a Texas limited partnership, Humanity Interested Media, L.P., a Texas limited partnership, USFR Equity Drive Property LLC, a Texas limited partnership, and US Farm & Ranch Supply Company, Inc., a Texas corporation (“USFR”). On August 1, 2011, MegaTV programming debuted on KTBU-TV, which serves the Houston area.

In connection with the closing, we paid an aggregate purchase price equal to $16.0 million, consisting of (i) cash in the amount of $8.0 million and (ii) a thirty-six month, secured promissory note in the principal amount of $8.0 million, bearing a fixed interest rate of 6%.

We allocated the total cost of the purchase price of KTBU-TV based on the fair value of the assets acquired as follows: $10.4 million for FCC licenses, $4.5 million for property and equipment, and $1.1 million for other intangible assets.

In addition, as part of the television station acquisition, we entered into a lease agreement with USFR Equity Drive Property LLC. The lease agreement covers approximately 30,000 square feet of space in Houston, Texas and specified furnishings and broadcasting equipment. The lease has an initial term of 10 years, subject to two 5-year extensions at our option, and is terminable at any time by us on not less than 180 days prior notice. The lease also provides us with an option to purchase the property and the furnishings and equipment for a purchase price of $4 million if the purchase occurs during the first 12 months of the lease term, increasing by 2.5% annually during each successive 12-month period of the lease term.

10. Refinancing of our Senior Credit Facility due 2012

We continue to explore alternatives for the refinancing of our first lien credit facility term loan due June 2012 (the "Senior Credit Facility") believe that we will be able to refinance that facility on terms that are satisfactory to us. As previously announced, we expect to complete the refinancing process no later than April 2012.

The refinancing alternatives currently contemplated include an offering of new senior secured notes or the incurrence of new senior secured term loans, the net proceeds of which would be used, together with a portion of available cash, to refinance all outstanding term loans under the Senior Credit Facility and pay related fees and expenses. The Senior Credit Facility would be terminated.

The timing and structure of any transaction will depend on market conditions. No assurance can be given that we will successfully refinance the Senior Credit Facility before it becomes due or as to the terms or timing of any refinancing transaction, and we currently lack sufficient existing capital resources to repay it.

Any senior secured notes or other debt securities that may be offered are not expected to be registered under the Securities Act, and, unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws. This discussion shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, any debt securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

On January 21, 2011, we entered into an engagement letter agreement (the “Engagement Letter”) with Lazard Frères & Co. LLC (“Lazard”), to act as our investment banker in connection with exploring potential strategic transactions, including the refinancing of our existing Senior Credit Facility due June 10, 2012. Pursuant to the terms of the Engagement Letter, Lazard will be entitled to (i) fees upon the consummation of certain strategic transactions, (ii) fees in connection with services rendered under the Engagement Letter and (iii) reimbursement for expenses incurred in connection with its performance thereunder.

11. NASDAQ Delisting Letter

On September 15, 2011, we received a written deficiency notice (the “Notice”) from The Nasdaq Stock Market (“NASDAQ”), advising us that the market value of our Class A common stock for the previous 30 consecutive business days had been below the minimum $15,000,000 (“Market Value of Publicly Held Shares Requirement”) required for continued listing on the NASDAQ Global Market pursuant to NASDAQ Listing Rule 5450(b)(3)(C) (the “Rule”).

Pursuant to NASDAQ Listing Rule 5810(c)(3)(D), we have been provided an initial grace period of 180 calendar days, or until March 13, 2012, to regain compliance with the Rule. The Notice further provides that NASDAQ will provide written confirmation stating that we have achieved compliance with the Rule if at any time before March 13, 2012, the market value of our publicly held shares closes at $15,000,000 or more for a minimum of 10 consecutive business days. If we do not regain compliance with the Rule by March 13, 2012, NASDAQ will provide written notification to us that our Class A common stock is subject to delisting from the NASDAQ Global Market, at which time we will have an opportunity to appeal the determination to a NASDAQ Hearings Panel.

We intend to use all reasonable efforts to maintain the listing of our Class A common stock on the NASDAQ Global Market, but there can be no guarantee that we will regain compliance with the Market Value of Publicly Held Shares Requirement.

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

Overview

We own and/or operate 21 radio stations in markets that reach approximately 42% of the Hispanic population in the U.S., including Puerto Rico. In addition, we own and operate three television stations and have various affiliation, distribution and/or programming agreements, which allow us to reach over 6.0 million households throughout the U.S., including Puerto Rico.

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 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. 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 usually compensation expenses, programming expenses, professional fees, and advertising and promotional expenses. Senior management strives to control these expenses, as well as other expenses, by working closely with local station management and others, including vendors.

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. We format the programming of each of our radio stations to capture a substantial share of the U.S. Hispanic audience in their respective markets. The U.S. Hispanic population is diverse, consisting of numerous identifiable groups from many different countries of origin and 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 maintain familiarity 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. Our radio revenue is generated primarily from the sale of local and national advertising.

Our television stations and related affiliates operate under the “MegaTV” brand. We have created a unique television format which focuses on entertainment, current events and variety with high-quality production. Our programming is formatted to capture shares of the U.S. Hispanic audience by focusing on our core strengths as an “entertainment” company, thus offering a new alternative compared to the traditional Latino channels. MegaTV’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 develop and produce more than 70% of our programming and obtain other content from Spanish-language production partners. Our television revenue is generated primarily from the sale of local advertising and paid programming.

As part of our operating business, we also operate LaMusica.com, Mega.tv, and our radio station websites which are bilingual (Spanish — English) websites providing content related to Latin music, entertainment, news and culture. LaMusica.com and our network of station websites generate revenue primarily from advertising and sponsorship. In addition, the majority of our station websites simultaneously stream our stations’ content, which has broadened the audience reach of our radio stations. We also occasionally produce live concerts and events throughout the United States, including Puerto Rico.

Comparison Analysis of the Operating Results for the Three-Months Ended September 30, 2011 and 2010

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

		Three-Months Ended
		September 30,
		2011				2010
		(In thousands)
Net revenue:
Radio		$	31,970				30,468
Television			4,442				4,085
Consolidated		$	36,412				34,553
Engineering and programming expenses:
Radio		$	5,322				5,795
Television			3,411				4,174
Consolidated		$	8,733				9,969
Selling, general and administrative expenses:
Radio		$	10,492				10,628
Television			2,070				1,874
Consolidated		$	12,562				12,502
Corporate expenses:		$	1,647				1,331
Depreciation and amortization:
Radio		$	547				622
Television			739				569
Corporate			128				201
Consolidated		$	1,414				1,392
(Gain) loss on the disposal of assets, net:
Radio		$	—				23
Television			—				—
Corporate			(8	)			—
Consolidated		$	(8	)			23
Impairment charges and restructuring costs:
Radio		$	—				—
Television			—				43
Corporate			—				2,054
Consolidated		$	—				2,097
Operating income (loss):
Radio		$	15,609				13,400
Television			(1,778	)			(2,575	)
Corporate			(1,767	)			(3,586	)
Consolidated		$	12,064				7,239

The following summary table presents a comparison of our results of operations for the three-months ended September 30, 2011 and 2010. Various fluctuations in the table are discussed below. This section should be read in conjunction with our unaudited condensed consolidated financial statements and notes.

		Three-Months Ended
		September 30,
		2011				2010
		(In thousands)
Net revenue		$	36,412				34,553
Engineering and programming expenses			8,733				9,969
Selling, general and administrative expenses			12,562				12,502
Corporate expenses			1,647				1,331
Depreciation and amortization			1,414				1,392
(Gain) loss on disposal of assets, net of disposal costs			(8	)			23
Impairment charges and restructuring costs			—				2,097
Operating income		$	12,064				7,239
Interest expense, net			(2,054	)			(2,317	)
Income tax expense			1,220				1,844
Net income		$	8,790				3,078

Net Revenue

The increase in our consolidated net revenue of $1.9 million or 5% was due to the increases in both our radio and television segments. Our radio segment net revenue increased $1.5 million or 5%, primarily due to national and network sales. The increase in national sales occurred in all of our markets, with the exception of our San Francisco market. The increase in network sales occurred in all of our markets, with the exception of our Miami market. Our television segment net revenue increased $0.4 million or 9%, primarily due to increases in paid programming, barter and national spot sales, which were offset by decreases in local spot and integrated sales.

Engineering and Programming Expenses

The decrease in our consolidated engineering and programming expenses of $1.2 million or 12% was due to the decreases in both our television and radio segments. Our television segment expenses decreased $0.8 million or 18%, primarily related to a decrease in broadcasting rights fees in our Puerto Rico and New York outlets. Our Puerto Rico broadcasting rights were renegotiated, which caused a reversal of broadcasting rights fees that were expensed in prior periods. Also, we were able to terminate our programming agreement with our New York outlet, which eliminated its respective broadcasting rights fee. Our radio segment expenses decreased $0.4 million or 8%, primarily related to decreases in compensation and benefits for technical and programming personnel due to headcount reductions and music license fees.

Selling, General and Administrative Expenses

The increase in our consolidated selling, general and administrative expenses of $0.1 million or less than 1% was due to the increase in our television segment expenses. Our television segment expenses increased $0.2 million or 10%, primarily due to increases in commission expense and professional fees. Our radio segment expenses decreased $0.1 million or 1%, mainly due to a decrease in special events expenses.

Corporate Expenses

The increase in corporate expenses was primarily a result of increases in compensation and benefits and professional fees, offset by a decrease in rent expense related to the subleases entered in 2010.

Operating Income

The increase in operating income was mainly due to the increase in net revenue and decreases in impairment charges and restructuring costs and operating expenses.

Interest Expense, Net

The decrease in interest expense was mainly due to the decreases of our Senior Credit Facility’s LIBOR interest rate and its outstanding balance.

Income Taxes

The decrease in income tax expense was primarily a result of the decrease in our FCC broadcasting licenses tax amortization.

Net Income

The increase in net income was primarily due to the increase in operating income and decreases in interest expense and income tax expense.

Comparison Analysis of the Operating Results for the Nine-Months Ended September 30, 2011 and 2010

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

		Nine-Months Ended
		September 30,
		2011				2010
		(In thousands)
Net revenue:
Radio			89,633				89,371
Television			13,181				11,865
Consolidated			102,814				101,236
Engineering and programming expenses:
Radio			17,010				17,269
Television			11,498				12,565
Consolidated			28,508				29,834
Selling, general and administrative expenses:
Radio			30,264				30,583
Television			6,434				5,540
Consolidated			36,698				36,123
Corporate expenses:			5,590				5,806
Depreciation and amortization:
Radio			1,710				2,008
Television			1,889				1,695
Corporate			411				691
Consolidated			4,010				4,394
(Gain) loss on the disposal of assets, net:
Radio			(9	)			23
Television			—				8
Corporate			(8	)			—
Consolidated			(17	)			31
Impairment charges and restructuring costs:
Radio			—				—
Television			—				43
Corporate			207				2,054
Consolidated			207				2,097
Operating income (loss):
Radio			40,658				39,488
Television			(6,640	)			(7,986	)
Corporate			(6,200	)			(8,551	)
Consolidated			27,818				22,951