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	UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549
	Form 10-K

Commission file number 000-27823

Spanish Broadcasting System, Inc.

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

     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).

     As of June 28, 2002, the last business day of the Company’s most recently completed second fiscal quarter, the Company had 37,065,755 shares of Class A common stock, par value $.0001 per share, and 27,606,650 shares of Class B common stock, par value $.0001 per share, outstanding. As of June 28, 2002, the aggregate market value of the Class A common stock held by non-affiliates of the Company was approximately $369.7 million. The aggregate market value of the Class B common stock held by non-affiliates of the Company was approximately $0.4 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 28, 2002 of $10.00 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 24, 2003, 37,076,655 shares of Class A common stock, par value $.0001 per share, and 27,605,150 shares of Class B common stock, par value $.0001 per share, were outstanding.

Documents Incorporated by Reference: None

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PART I

Item 1.     Business

      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, refer to 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.

      SBS, founded in 1983 and incorporated in the State of Delaware in 1994, is the largest Hispanic-controlled radio broadcasting company in the United States. We currently own and/or operate 27 radio stations in seven of the top-ten Hispanic markets in the United States, including Los Angeles, New York, Puerto Rico, Miami, Chicago, San Francisco and San Antonio. Our radio stations are located in markets that reach approximately 49% of the U.S. Hispanic population. Our WSKQ-FM station in New York and WLEY-FM station in Chicago are each ranked as the number one station in their respective target demographic group (Hispanics ages 18-49 and Hispanics ages 18-34, respectively) in the Fall 2002 Arbitron® ratings.

      Our strategy is to maximize the revenue and profitability of our radio station portfolio while expanding in our existing markets or into additional markets that have a significant Hispanic population. We believe that the continued growth of the U.S. Hispanic population and the rapid increase in advertisers targeting Hispanics combine to provide us with significant opportunities for growth. We also believe that we have competitive advantages in the radio industry due to our concentration on formats targeting U.S. Hispanic audiences and our skill in programming and marketing to these audiences.

      SBS is led by Mr. Raúl Alarcón, Jr., who became our Chairman of the Board of Directors when we completed our initial public offering on November 2, 1999 and has been Chief Executive Officer since June 1994, and 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 Spanish-language media and 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 new markets that have a significant Hispanic population. We also focus on long-term growth by investing in advertising, programming research and on-air talent.

Operating Strategy

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

      Providing 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 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 intimately familiar with the musical tastes and preferences of each of the various Hispanic ethnic groups, and we customize our programming accordingly.

      Retaining Strong Local Management Teams. We employ local management teams in each of our markets who are responsible for the day-to-day operations of our radio stations. The teams generally consist of

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      Utilizing Aggressive Sales Efforts. Our sales force focuses on converting audience share into advertising revenue. In order to encourage an aggressive and focused sales force, we have developed compensation structures based upon collected advertising revenue. We seek to maximize our sales to national advertisers because they generally place large advertising orders throughout the year. We have attracted key sales executives from general market radio who have applied their expertise and relationships with the advertising community to increase our share of advertising from leading general market advertisers. We believe that our focused sales efforts are working to increase media spending targeted at the U.S. Hispanic consumer market and will enable us to continue to achieve significant revenue growth, and to narrow the gap between the level of advertising currently targeted at U.S. Hispanics and the potential buying power of the U.S. Hispanic population.

      Controlling Operating Costs. By employing a disciplined approach to operating our radio stations, we have been able to achieve operating margins which are in line with the radio broadcast industry’s average operating margins. We emphasize 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-range and strategic planning, establishing policies and procedures, maximizing cost savings where centralized activity is appropriate, allocating resources and maintaining overall control of the stations.

      Making Effective Use of Promotions and Special Events. One of our goals is to 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 have organized special promotional appearances, such as station van appearances at client events, concerts and tie-ins to major 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 means of reaching the Hispanic consumer. In some instances, these events are co-sponsored by local television stations, newspapers, and local promoters, allowing our mutual advertisers to reach a larger combined audience.

      Maintaining Strong Community Involvement. We have historically 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, 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.

Acquisition Strategy

      Our acquisition strategy is to acquire radio stations in the largest U.S. Hispanic markets. We consider acquisitions of stations in our existing markets, as well as acquisitions of stations in other markets with a large Hispanic population, where we can maximize our revenue through aggressive sales to 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.

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      In analyzing potential radio station acquisitions, we consider many factors including:

	•	the size of the Hispanic market;
	•	anticipated growth, demographics, and other similar characteristics of the market;
	•	the nature and number of competitive stations in the market;
	•	the nature of other media competition in the station’s market;
	•	the probability of achieving operating synergies through multiple station ownership within the target market;
	•	the existing or potential quality of the broadcast signal and transmission facility;
	•	the station’s ratings, revenue and operating cash flow; and
	•	the price and terms of the purchase.

      We cannot, however, assure you that our acquisition strategy will be successful. Our acquisition strategy is subject to a number of risks, including, but not limited to: stations acquired by us may not increase our broadcast cash flow or yield other anticipated benefits; required regulatory approvals may result in unanticipated delays in completing acquisitions; we may have difficulty in managing our rapid growth; and we may be required to raise additional funds in order to finance such acquisitions while our ability to do so may be limited by the terms of our debt instruments.

Internet Strategy

      Our Internet strategy is designed to complement our operating strategy and enables us to capitalize on our Hispanic market expertise. The core of our Internet strategy is our Web site LaMusica.com and local radio stations’ Web sites which are on-line communities focused on the Hispanic market. These Web sites provide our advertisers with a complementary method of reaching their target audience.

Top 10 Hispanic Radio Markets in the United States

      The table below lists the top 10 Hispanic radio markets in the United States, including Puerto Rico. We currently own radio stations in Los Angeles, New York, Puerto Rico, Miami, Chicago, San Francisco and San Antonio. Population estimates are for 2002 and are based upon statistics provided by the Strategy Research Corporation — 2002 U.S. Hispanic Market Report, the U.S. Census Bureau Population Estimates for Puerto Rico — 2002 and the U.S. Census Bureau, Census 2000.

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Programming

      We format the programming of each of our stations to capture a substantial share of the U.S. Hispanic audience. 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 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.

	•	Spanish Tropical. The Spanish Tropical format primarily consists of salsa, merengue and cumbia music. Salsa is dance music combining Latin Caribbean rhythms with jazz originating from Puerto Rico, Cuba and the Dominican Republic, which is popular with the Hispanics whom we target in New York and Miami. Merengue music is up-tempo dance music originating from the Dominican Republic. Cumbia is a festive, folkloric music which originated in Colombia.
	•	Regional Mexican. The Regional Mexican format consists of various types of music played in different regions of Mexico such as ranchera, norteña, banda and cumbia. Ranchera music originating from Jalisco, Mexico, is a traditional folkloric sound commonly referred to as mariachi music. Mariachi music features acoustical instruments and is considered the music indigenous to Mexicans who live in country towns. Norteña means northern, and is representative of Northern Mexico. Featuring an accordion, norteña has a polka sound with a distinct Mexican flavor. Banda is a regional format from the state of Sinalóa, Mexico and is popular in California. Banda resembles up-tempo marching band music with synthesizers.
	•	Spanish Adult Contemporary. The Spanish Adult Contemporary format includes soft romantic ballads and Spanish pop music.
	•	American Contemporary Hits. The American Contemporary Hits format consists of popular music released within the last year. This format also tends to include a variety of music styles such as Rock, Pop, R&B, Rap and Dance which are mostly rhythmic in nature.
	•	American Adult Contemporary 80’s & 90’s Hits. The American Adult Contemporary format consists of the top American chart hits from the 1980’s and 1990’s.
	•	American Top 40. The American Top 40 format consists of the most popular current chart hits.
	•	Spanish Oldies. The Spanish Oldies format includes a variety of Latin music mainly from the 1950’s, 1960’s, 1970’s and 1980’s.
	•	Spanish Hot Adult Contemporary. The Spanish Hot Adult Contemporary format consists of Rock ballads as well as alternative dance and pop music.
	•	Mexican Adult Contemporary. The Mexican Adult Contemporary format includes pop and ballads with an emphasis on Mexican artists.
	•	Dance Contemporary Hit Radio. The Dance Contemporary Hit Radio format includes current and past English language dance hits.
	•	Central American Tropical. The Central American Tropical format includes cumbia, soca and punta, with traditional salsa and merengue for variety.

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      The following table lists the programming formats of our radio stations and the target demographic of each station. We own each of the following stations except for KXOL-FM, WDEK-FM, WKIE-FM, and WKIF-FM, which we program pursuant to time brokerage agreements. During fiscal year 2002, we changed the call letters of some of our radio stations as follows: WODA-FM, formerly programmed under the call letters WCOM-FM; WNOD-FM, formerly programmed under the call letters WOYE-FM; WZET-FM, formerly programmed under the call letters WSMA-FM; KPTI-FM, formerly programmed under the call letters KXJO-FM; KZAB-FM, formerly programmed under the call letters KFSG-FM; and KZBA-FM, formerly programmed under the call letters KFSB-FM.

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Radio Station Portfolio

      The following is a general description of each of our markets. The market revenue information is based on data provided by BIA Research, Inc.’s Investing in Radio, 2002 Market Report, Strategy Research Corporation — 2002 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 is projected to be approximately $901.9 million in 2002. In 2002, the Los Angeles market had the largest U.S. Hispanic population with approximately 7.0 million Hispanics, which is approximately 41.4% of the Los Angeles market’s total population. The Los Angeles market experienced annual radio revenue growth of 9.6% between 1996 and 2001. Radio revenue in the Los Angeles market is expected to grow at an annual rate of 5.4% between 2001 and 2006.

New York

      The New York market is the second largest radio market in terms of advertising revenue which is projected to be approximately $751.2 million in 2002. In 2002, the New York market had the second largest U.S. Hispanic population, with approximately 4.0 million Hispanics, which is approximately 19.2% 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 three FM Spanish-language radio stations in the New York market, WSKQ-FM and WPAT-FM. These radio stations have audience shares of 5.0 for the 18-49 demographic and 3.4 for the 25-54 demographic, respectively, in the Fall 2002 Arbitron® ratings. The New York market experienced annual radio revenue growth of 7.2% between 1996 and 2001. Radio revenue in the New York market is expected to grow at an annual rate of 6.4% between 2001 and 2006.

Puerto Rico

      The Puerto Rico market is the thirty-third largest radio market in terms of advertising revenue which is projected to be approximately $89.1 million in 2002. In 2002, the Puerto Rico market had the third largest U.S. Hispanic population, with approximately 3.8 million Hispanics, which we believe is approximately 98.8% of the Puerto Rico market’s total population. The Puerto Rico market experienced annual radio revenue growth of 4.0% between 1996 and 2001. Radio revenue in the Puerto Rico market is expected to grow at an annual rate of 6.1% between 2001 and 2006.

Miami

      The Miami market is the eleventh largest radio market in terms of advertising revenue which is projected to be approximately $272.4 million in 2002. In 2002, the Miami market had the fourth largest U.S. Hispanic population, with approximately 1.7 million Hispanics, which is approximately 41.1% of the Miami market’s total population. The Miami market experienced annual radio revenue growth of 7.5% between 1996 and 2001. Radio revenue in the Miami market is expected to grow at an annual rate of 6.2% between 2001 and 2006.

Chicago

      The Chicago market is the third largest radio market in terms of advertising revenue which is projected to be approximately $560.8 million in 2002. In 2002, the Chicago market had the fifth largest U.S. Hispanic population, with approximately 1.6 million Hispanics, which is approximately 17.1% of the Chicago market’s total population. We believe that we own the strongest franchise in our target demographic group in the Chicago market, with WLEY-FM, the number one ranked FM Spanish-language radio station. This radio station has an audience share of 6.7 for the 18-34 demographic in the Fall 2002 Arbitron® ratings. The Chicago market experienced annual radio revenue growth of 8.8% between 1996 and 2001. Radio revenue in the Chicago market is expected to grow at an annual rate of 5.6% between 2001 and 2006.

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San Francisco

      The San Francisco market is the fourth largest radio market in terms of advertising revenue which is projected to be approximately $409.6 million in 2002. In 2002, the San Francisco market had the seventh largest U.S. Hispanic population, with approximately 1.4 million Hispanics, which is approximately 19.6% of the San Francisco market’s total population. The San Francisco market experienced annual radio revenue growth of 10.5% between 1996 and 2001. Radio revenue in the San Francisco market is expected to grow at an annual rate of 5.5% between 2001 and 2006.

San Antonio

      The San Antonio market is the twenty-eighth largest radio market in terms of advertising revenue which is projected to be approximately $100.7 million in 2002. In 2002, San Antonio had the ninth largest U.S. Hispanic population, with approximately 1.2 million Hispanics, which is approximately 55.4% of the San Antonio market’s total population. The San Antonio market experienced annual radio revenue growth of 8.0% between 1996 and 2001. Radio revenue in the San Antonio market is expected to grow at an annual rate of 6.3% between 2001 and 2006.

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

      LaMusica.com is a bilingual Spanish-English Internet Web site and on-line community that focuses on the Hispanic market. LaMusica.com is a provider of original information and interactive content related to Latin music, entertainment, news and culture. 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, CD 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 consumer through an additional, dynamic and growing medium.

      LaMusica.com has links to the Web sites of some of our radio stations. This network of Web sites permits our target audiences to interact easily with their favorite on-air personalities and find out about events, contests and programming at our stations. In addition to our network of station Web sites and our production of original interactive content relating to Latin music and entertainment, we offer enhanced community features on LaMusica.com such as bulletin boards and chat rooms. We also provide regular weekly newsletters focusing on our latest content offerings, special events and contests.

      LaMusica.com and our network of station Web sites generate revenue primarily from advertising and sponsorship. We use our stations’ on-air marketing power to attract visitors to LaMusica.com. We conduct a nationwide advertising campaign on our radio stations in order to increase audience awareness of LaMusica.com. We utilize our strong relationships with advertisers and the music industry to develop banner advertising and sponsorships.

Management and Personnel

      As of March 24, 2003, we had 555 full-time employees, 10 of whom are primarily involved in corporate management and/or station management, 230 in programming, 197 in sales, 99 in general administration and 19 in technical.

      To facilitate efficient management from our corporate headquarters, we utilize computerized accounting systems, including Oracle accounting software, to provide timely information to management on station operations and assist in cost control as well as the preparation of monthly financial statements. Corporate executives regularly visit stations to monitor their operations and ensure that our policies are being followed.

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

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Seasonality

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

Patents, Trademarks, Licenses and Franchises

      In the course of our business, we use various trademarks, trade names and service marks, including logos, in our advertising and promotions. We believe the strength of our trademarks, trade names and service marks are important to our business and we intend to continue to protect and promote these marks as appropriate. 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 (“FCC”).

Industry Segments

      We consider radio broadcasting to be our only operating segment.

Advertising

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

      We believe that 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. Rates vary depending upon a program’s popularity among the listeners an advertiser is seeking to attract, the number of advertisers vying for available airtime and the availability of alternative media in the market. Radio advertising rates generally are highest during the morning and afternoon drive-time hours which are the peak hours for radio audience listening. We believe that a radio broadcaster who has multiple stations in a market is appealing to national advertisers because these advertisers can reach more listeners, thus enabling the broadcaster to attract a greater share of the advertising revenue in a given market. We believe that we will be able to continue increasing our rates as new and existing advertisers recognize the increasing desirability of targeting the growing Hispanic population in the United States.

      Each station broadcasts a predetermined number of advertisements each hour with the actual number depending upon the format of a particular station. We determine the number of advertisements broadcast hourly that can maximize the station’s revenue without jeopardizing 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 relationships 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 people to obtain local advertising revenue. We believe that our local sales force is crucial to maintaining relationships with key local advertisers and agencies and identifying new advertisers. We generally pay sales commissions to our local sales staff upon receipt of payment for their respective billings which assists us in our collection efforts. We offer assistance to local advertisers by providing them with studio facilities to produce commercials free of charge.

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Competition

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

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

      The radio industry is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by terrestrial delivery of digital audio broadcasting (known as “DAB”). DAB may deliver to nationwide and regional audiences multi-channel and multi-format digital radio services with sound quality equivalent to that of compact discs. The FCC has licensed companies for the use of a new technology, satellite digital audio 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. The FCC has begun allowing AM (daytime operations only) and FM radio stations to use digital technology on an interim limited basis on existing frequencies. 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 delivery of information through the presently unregulated Internet also could create a new form of competition. The radio broadcasting industry historically has grown despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact discs. A growing population and the greater availability of radios, particularly car and portable radios, have contributed to this growth. We cannot assure you, however, that the development or introduction in the future 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

      An important part of our growth strategy is the acquisition of additional radio stations. 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

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Federal Regulation of Radio Broadcasting

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

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

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

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

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

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

	•	changes to the license authorization and renewal process;
	•	proposals to impose spectrum use or other fees on FCC licensees;
	•	auctions of new broadcast licenses;

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

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

FCC Licenses

      The Communications Act provides that a broadcast station license may be granted to any applicant if the public interest, convenience and necessity will be served thereby, 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.

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      The FCC licenses of our radio stations are held by wholly-owned subsidiaries of SBS. The following table sets forth the license expiration dates of each of our stations.

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

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

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

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

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

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

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

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

      Applications to the FCC for assignments and transfers are subject to petitions in favor of denying the assignment or transfer by interested parties.

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

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

      The FCC generally applies its other broadcast ownership limits to “attributable” interests held by an individual, corporation, partnership or other association or entity, including limited liability companies. In the

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

      Debt instruments, non-voting stock options or other non-voting interests with rights of conversion to voting interests that have not yet been exercised and insulated limited partnership interests where the limited partner is not materially involved in the media-related activities of the partnership generally do not subject their holders to attribution. However, the holder of an equity or debt instrument or interest in a broadcast licensee, cable television system, daily newspaper or other media outlet shall have that interest attributed if the equity (including all stock holdings whether voting or non-voting, common or preferred) and debt interest or interests in the aggregate exceed 33 percent 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 percent of the total weekly broadcast programming hours of the station in which the interest is held.

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

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

These rules include specific signal contour overlap standards to determine compliance, and the FCC defined market will not necessarily be the same market used by Arbitron® or other surveys, or for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Under these “cross-ownership” rules, we, absent waivers, 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, may not hold an attributable interest in a daily newspaper or television broadcast station in those same markets. The FCC is reviewing its ban on the common ownership of a radio station and daily newspaper in the same market.

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

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

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	•	In a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate or control up to seven commercial radio stations, not more than four of which are in the same service (AM or FM).
	•	In a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate or control up to six commercial radio stations, not more than four of which are in the same service (AM or FM).
	•	In a radio market with 14 or fewer commercial radio stations, a party may own, operate or control up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not own, operate, or control more than 50 percent of the radio stations in such market.

The FCC is currently reviewing its rules and policies concerning local radio ownership which could result in the modification of the numerical limits on local radio ownership or the adoption of an entirely new local radio ownership rule. The FCC’s review includes the treatment and competitive effect of local marketing agreements and joint sales agreements.

      Because of these multiple and cross-ownership rules, if a stockholder, officer or director of SBS holds an attributable interest in SBS, such stockholder, officer or director may violate the FCC’s rules if such person or entity also holds or acquires an attributable interest in other television stations, radio stations or daily newspapers, depending on their number and location. If an attributable stockholder, officer or director of SBS violates any of these ownership rules, we may be unable to obtain from the FCC one or more authorizations needed to conduct our radio station business and may be unable to obtain FCC consents for future acquisitions.

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

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

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

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

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

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      RF Radiation. In 1985, the FCC adopted rules based on a 1982 American National Standards Institute (ANSI) standard regarding human exposure to levels of radio frequency (“RF”) radiation. These rules require applicants for renewal of broadcast licenses or modification of existing licenses to inform the FCC at the time of filing such applications whether an existing broadcast facility would expose people to RF radiation in excess of certain limits. In 1992, ANSI adopted a new standard for RF exposure that, in some respects, was more restrictive in the amount of environmental RF exposure permitted. The FCC has since adopted more restrictive radiation limits which became effective October 15, 1997, and which are based in part on the revised ANSI standard.

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

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

      Equal Employment Opportunity Rules. On March 10, 2003, new equal employment opportunity (EEO) rules and policies for broadcasters went into effect. The rules prohibit discrimination by broadcasters and multichannel video programming distributors. They also require broadcasters to provide notice of job vacancies and to undertake additional outreach measures, such as job fairs and scholarship programs. The rules mandate a “three prong” outreach program; i.e., Prong 1: widely disseminate information concerning each full-time (30 hours or more) job vacancy, except for vacancies filled in exigent circumstances; Prong 2: provide notice of each full-time job vacancy to recruitment organizations that have requested such notice; and Prong 3: complete two (for broadcast employment units with five to ten full-time employees or that are located in smaller markets) or four (for employment units with more than ten full-time employees located in larger markets) longer-term recruitment initiatives within a two-year period. These include, for example, job fairs, scholarship and internship programs, and other community events designed to inform the public as to employment opportunities in broadcasting. The rules mandate extensive record keeping and reporting requirements. The EEO rules will be enforced through review at renewal time, at mid-term for larger broadcasters, and through random audits and targeted investigations resulting from information received as to possible violations. The FCC has not yet decided on whether and how to apply the EEO rule to part-time positions.

      Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short” (less than the full eight-year) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.

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

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Environmental Matters

      As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.

      In connection with our sale of WXLX-AM in 1997, we assigned the lease of the transmitter for WXLX-AM in Lyndhurst, New Jersey, to the purchaser of the station. The transmitter is located on a former landfill which ceased operations in the late 1960’s. Although WXLX-AM has been sold, we retain potential exposure to possible environmental liabilities relating to the transmitter site (the “Transmitter Property”). On September 12, 2002, the landlords of the property, Frank F. Viola, Thomas C. Viola Trust and Louis Viola Company (collectively, the “Landlord”), received a notice from the New Jersey Meadowlands Commission (the “Meadowlands Commission”) indicating that it was planning to redevelop the site which includes the Transmitter Property and offering compensation to the Landlord for the purchase of the Transmitter Property. The Meadowlands Commission also indicated that it would not seek reimbursement from the Landlord for the costs of landfill closure or for the remediation of environmental conditions that resulted from the operation of the landfill. The Landlord did not accept the offer of the Meadowlands Commission. On December 4, 2002, the Meadowlands Commission filed a condemnation proceeding in the Superior Court of New Jersey, Bergen County, against the Landlord, and named SBS as an additional defendant. We believe that we have meritorious defenses against any claim arising from this matter, however, it is impossible to assess the ultimate outcome of this matter at this time. No amounts have been accrued in the consolidated financial statements for any contingent liability relating to the Transmitter Property.

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

Recent Developments

      Purchase of Additional Chicago Stations. On December 31, 2002, we entered into an asset purchase agreement (the “Chicago Asset Purchase Agreement”) with Big City Radio, Inc. and Big City Radio-Chi, LLC to acquire the assets of radio stations WDEK-FM, WKIE-FM and WKIF-FM, serving the Chicago, Illinois market, at a purchase price of $22.0 million. The Chicago Asset Purchase Agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions. We intend to fund the acquisition of these radio stations from cash on hand. Although we intend to complete this transaction in the second quarter of fiscal year 2003, there can be no assurance that the acquisition of these radio stations will be completed.

      On December 31, 2002, we also entered into a time brokerage agreement (the “Chicago Time Brokerage Agreement”) with Big City Radio-Chi, LLC pursuant to which we have been broadcasting our programming

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      Purchase of Additional Los Angeles Station. On November 2, 2000, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with the International Church of the FourSquare Gospel (“ICFG”) to acquire the assets of radio station KXOL-FM, serving Los Angeles, California, at a purchase price of $250.0 million and made a non-refundable deposit of $5.0 million to be credited towards the purchase price at closing. The Asset Purchase Agreement contains customary representations and warranties, and the closing of our acquisition is subject to the satisfaction of certain customary conditions, including receipt of regulatory approval from the Federal Communications Commission and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. On March 13, 2001, we entered into an Addendum to the Asset Purchase Agreement and two Time Brokerage Agreements with ICFG pursuant to which we are permitted to broadcast our programming over radio station KXOL-FM (the “TBA”) and ICFG was permitted to broadcast its programming over radio stations KFSG-FM (currently KZAB-FM) and KFSB-FM (currently KZBA-FM) (the “93.5 TBA”). In connection with the Addendum to the Asset Purchase Agreement and the TBA, we made an additional non-refundable deposit of $20.0 million, which will be credited towards the purchase price at closing. On April 30, 2001, we commenced broadcasting our programming under the TBA and ICFG commenced broadcasting its programming under the 93.5 TBA.

      On February 8, 2002, we entered into an additional amendment to the Asset Purchase Agreement and an amendment to the TBA and the 93.5 TBA (collectively, the “Second Amendment”). The Second Amendment extends the deadline for closing under the amended Asset Purchase Agreement (the “KXOL Closing”) to December 31, 2003. The KXOL Closing is subject to acceleration if we sell all of five specified stations (including KTCY-FM which was sold on August 23, 2002), during the term of the TBA. Pursuant to the Second Amendment, we made additional non-refundable deposits of $15.0 million, $5.0 million and $15.0 million on March 12, 2002, September 27, 2002 and March 12, 2003, respectively. All payments are non-refundable (except in the case of breach by ICFG) and will be credited towards the purchase price at the KXOL Closing. In accordance with the Second Amendment, the term of the TBA will continue until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement.

      Pursuant to the Second Amendment, on February 8, 2002, we granted ICFG a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant is exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. We assigned the warrant a fair market value of approximately $8.9 million based on the Black-Scholes option pricing model in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” The fair market value of this warrant was recorded as an increase to intangible assets and additional paid-in capital on the date of grant. Under the Second Amendment, we must also grant to ICFG additional warrants if ICFG ceases to broadcast its programming under the 93.5 TBA. On February 28, 2003, ICFG ceased to broadcast its programming under the 93.5 TBA. Therefore, on March 31, 2003, and on the last day of each calendar month thereafter, we will issue to ICFG warrants exercisable for 100,000 shares of our Class A common stock at an exercise price equal to the closing price of our shares on the last trading day of such respective month, until the earlier to occur of (i) the KXOL Closing or (ii) the termination of the amended Asset Purchase Agreement. These warrants will also be exercisable for a period of thirty-six months after the date of issuance after which they will expire if not exercised. The fair market value of these warrants, as calculated under the Black-Scholes option pricing model, will be recorded as a programming expense.

      We intend to fund the acquisition of radio station KXOL-FM from a combination of cash on hand, internally generated cash flow, potential equity and debt financing and/or asset sales. Although we intend to complete this transaction, there can be no assurance that the acquisition of radio station KXOL-FM will be completed.

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      Sale of Station. On June 4, 2002, SBS and one of its subsidiaries, KTCY Licensing, Inc., entered into an asset purchase agreement (the “Entravision Agreement”) with Entravision-Texas Limited Partnership, a Texas limited partnership (“Entravision”) for the sale of certain assets and the FCC license of KTCY-FM serving Dallas, Texas for a purchase price of $35.0 million. Additionally, KTCY Licensing, Inc. entered into a time brokerage agreement with Entravision Communications Corporation, a Delaware corporation (“Entravision Communications”), whereby Entravision Communications was permitted to broadcast its programming over radio station KTCY-FM until the closing of the asset sale. The FCC granted approval for the transfer of the FCC license of KTCY-FM and on August 23, 2002, we sold KTCY-FM’s assets held for sale consisting of $31.4 million of intangible assets and $1.3 million of property and equipment. We recognized a gain of approximately $1.8 million, net of closing costs and taxes. We determined that the sale of certain assets and the FCC license of KTCY-FM met the criteria in accordance with SFAS No. 144 to classify KTCY-FM’s assets as held for sale and its operations as discontinued operations. The results of operations in the current year and prior year periods of KTCY-FM have been classified as discontinued operations in the consolidated statements of operations.

      Resignation of Director from Audit Committee. Castor Fernandez has resigned his position as a member of our Audit Committee. We intend to fill Mr. Fernandez’s position as a member of the Audit Committee by nominating a new independent board member for election at our upcoming annual meeting.

      Termination of Time Brokerage Agreement and Stock Purchase Agreement. On May 8, 2000, we entered into a stock purchase agreement with New World Broadcasters Corp. (“New World”) and 910 Broadcasting Corp. (“910 Broadcasting”) to acquire all the outstanding capital stock of 910 Broadcasting, the owner and operator of radio station KXEB-AM serving the Dallas, Texas market. We programmed KXEB-AM under a time brokerage agreement from May 8, 2000 to July 31, 2001. On July 3, 2001, we received a notice from New World and 910 Broadcasting that purported to terminate the stock purchase agreement. On August 1, 2001 we filed a complaint in the United States District Court for the Southern District of New York against New World and 910 Broadcasting for breach of the stock purchase agreement and time brokerage agreement. On that same day, we also filed a motion for a preliminary injunction preventing New World and 910 Broadcasting from selling KXEB-AM pending the resolution of the action. On August 27, 2001, New World and 910 Broadcasting filed their answer and counterclaim, asserting claims for breach of contract, conversion and tortuous interference with pre-contractual relations, seeking damages in excess of approximately $10.0 million. On May 14, 2002 the parties signed a Stipulation and Order of Settlement, which was entered by the Court on June 10, 2002, dismissing with prejudice all claims and counterclaims in the action. Pursuant to this Stipulation and Order of Settlement, on June 10, 2002 the Court awarded New World and 910 Broadcasting approximately $0.7 million, which was recorded in other expense, net in the consolidated statement of operations for the fiscal year ended December 29, 2002.

      Exchange Offer. In connection with the issuance and sale of $100.0 million of our 9 5/8% senior subordinated notes due 2009 (the “2001 Notes”) through a Rule 144A debt offering on June 8, 2001, we entered into a registration rights agreement with the initial purchaser in the offering pursuant to which we agreed to file a registration statement to permit holders of the 2001 Notes to exchange such notes for notes newly registered under the Securities Act of 1933 (the “Exchange Notes”). In addition, this exchange offer allowed for the exchange of the full outstanding amount of the $235.0 million of our 9 5/8% senior subordinated notes due 2009 that we issued under a registration statement in November 1999 (the “1999 Notes”). The exchange offer was consummated on December 5, 2001, with an aggregate amount of $334,995,000 of the 2001 Notes and the 1999 Notes being exchanged into Exchange Notes and $5,000 of the 1999 Notes remaining outstanding.

      Change of Fiscal Year End. On November 6, 2001, the Board of Directors approved a resolution to change our fiscal year end from the last Sunday in September of each calendar year to the last Sunday in December of each calendar year. We filed a transition report on Form 10-Q covering the transition period from October 1, 2001 through December 30, 2001. Audited financial statement results for the transition period are reported in this annual report on Form 10-K.

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      On December 30, 2002, our Board of Directors approved a resolution to change our fiscal year end from the last Sunday in December of each calendar year to December 31 of each calendar year.

      Shelf Registration. Pursuant to a registration rights agreement dated as of November 9, 2000, which we entered into in conjunction with our purchase of all the outstanding capital stock of Rodriguez Communications, Inc. (“RCI”) and the purchase of radio station KTCY-FM from New World Broadcasters Corp. (“New World”), on June 25, 2001 we filed a registration statement on Form S-3 through which certain selling stockholders are offering for sale from time to time up to an aggregate of 4,441,545 shares of our Class A common stock. The shares were originally issued to the selling stockholders as partial payment for the purchase of all of the outstanding capital stock of RCI and the purchase of radio station KTCY-FM from New World. The selling stockholders may sell the shares of Class A common stock from time to time on the over-the-counter market in regular brokerage transactions. We will not receive any portion of the proceeds from the sale of these shares by the selling stockholders.

Risk Factors

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

Pending Acquisitions — we have incurred and we may continue to incur costs in connection with our time brokerage agreements for our pending acquisitions. In addition, our ability to finance these acquisitions may be limited.

      On April 30, 2001, we commenced broadcasting our programming on radio station KXOL-FM in Los Angeles, California under a time brokerage agreement with the International Church of the FourSquare Gospel (“ICFG”). We have incurred start-up costs and continue to incur promotional costs in connection with our time brokerage agreement. Unless terminated earlier, the time brokerage agreement expires on December 31, 2003, by which date we are required to complete our acquisition of KXOL-FM. To date, we have made a total of $60.0 million in non-refundable payments to be credited towards the purchase price at the closing of this acquisition; the balance of the purchase price of $190.0 million must be paid at closing. Our ability to finance the acquisition of KXOL-FM through additional debt offerings will be limited by the terms of our indentures. We may have to raise the funds to consummate the KXOL-FM transaction through asset sales, equity or debt offerings, additional debt and internally generated cash. Although we intend to complete this transaction, there can be no assurance that we will be able to raise sufficient funds to consummate the acquisition of KXOL-FM. If we are unable to finance the balance of the purchase price for KXOL-FM, we will lose the business opportunity and the deposits paid under the time brokerage agreement.

      On December 31, 2002, we entered into a time brokerage agreement with Big City Radio-Chi, LLC pursuant to which we have been broadcasting our programming over radio stations WDEK-FM, WKIE-FM and WKIF-FM, serving the Chicago, Illinois market, since January 6, 2003. We have incurred and may continue to incur costs in connection with this time brokerage agreement. The time brokerage agreement will terminate upon the earlier to occur of (i) the termination of the asset purchase agreement for the purchase of the assets of these radio stations or (ii) the closing of the purchase of the assets of these radio stations. We intend to fund the acquisition of these radio stations from cash on hand. Although we intend to complete this transaction, there can be no assurance that the acquisition of these radio stations will be completed.

Recession and war — our broadcasting revenue and operating results could be adversely affected by the current recession, or by another national or regional recession, or by the current war in Iraq.

      Our broadcasting revenue could be adversely affected by the current recession and/or downturn in the United States economy since advertising expenditures generally decrease as the economy slows down. In

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      In addition, the current war in Iraq may both adversely affect prevailing economic conditions and lead to reduced advertising expenditures and the withdrawal of previously placed orders for advertising time on our stations. Current and future economic downturns and the war in Iraq might have a material adverse effect on our ability to generate advertising revenue and might materially and adversely affect our financial condition and operating results.

Substantial debt — our substantial level of debt could limit our ability to grow and compete.

      Our consolidated debt is substantial. As of December 29, 2002 we had outstanding long term debt (including current portions) of approximately $328.3 million and stockholders’ equity of $227.4 million. Our debt to last twelve months cash flow ratio exceeds 7.0 to 1.0. As a result, we will be unable to incur additional debt under the indentures for our 9 5/8% senior subordinated notes due 2009 other than for specifically identified occurrences, including senior debt not to exceed $175 million.

      Our substantial level of debt could have several important consequences to the holders of our securities, including the following:

	•	a significant portion of our cash flow from operations will be dedicated to servicing our debt obligations and will not be available for operations, future business opportunities or other purposes;
	•	our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited;
	•	our substantial debt could make us more vulnerable to economic downturns, limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and
	•	our substantial debt could place us at a disadvantage compared to our competitors who have less debt.

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

Additional borrowings available despite current indebtedness levels — we and our subsidiaries may still be able to incur substantially more debt. This could further intensify the risks described above.

      We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the indentures relating to our 9 5/8% senior subordinated notes due 2009 restrict our ability to incur additional debt if our debt to last twelve months cash flow ratio exceeds 7.0 to 1.0, which is currently the case, the terms of the indentures do not fully prohibit us or our subsidiaries from incurring certain additional indebtedness. We may under the more restrictive terms of the indentures incur up to $175 million of additional indebtedness. If we or our subsidiaries incur additional debt, the related risks that we and our subsidiaries face could intensify.

Indebtedness may be accelerated — if any lender to us or our subsidiaries accelerates any debt, we and our subsidiaries may not have the resources to repay that debt. An event of default under any material debt instruments would harm our business and financial condition.

      If there were an event of default under our or our subsidiaries’ indebtedness, the holders of the affected indebtedness could elect to declare all of that indebtedness to be due and payable immediately, which in turn,

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Restrictions imposed by our debt — the terms of our debt restrict us from engaging in many activities, require us to satisfy various financial tests and may adversely affect our business by limiting our flexibility.

      The indentures governing our 9 5/8% senior subordinated notes due 2009 contain covenants that restrict, among other things, our ability to:

	•	incur additional debt;
	•	create liens;
	•	pay dividends, distributions or make other specified restricted payments;
	•	sell assets;
	•	enter into transactions with affiliates;
	•	sell capital stock of our subsidiaries; and
	•	merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets.

      If an event of default occurs under the indentures, the noteholders could elect to declare all amounts outstanding under the indentures, together with accrued interest, to be immediately due and payable. In addition, there is a change of control provision in the indentures which would require us to make an offer to repurchase all of our notes in the event that we experience a change of control.

History of net losses — we have experienced net losses in the past and to the extent that we experience net losses in the future, the market price of our common stock may be adversely affected which in turn may adversely affect our ability to raise capital.

      We cannot assure you that we will achieve profitability. Failure to achieve profitability may adversely affect the market price of our common stock, which in turn may adversely affect our ability to raise additional equity capital and to incur additional debt. Our inability to obtain financing in adequate amounts and on acceptable terms necessary to operate our business, repay our debt obligations or finance our proposed acquisitions could negatively impact our financial position and results of operations.

      We experienced a net loss in the fiscal year ended December 29, 2002, in the three-month transitional period ended December 30, 2001, and in the fiscal years ended September 30, 2001 and September 24, 2000. The primary reason for the net loss in the fiscal year ended December 29, 2002 was the adoption of SFAS No. 142, effective December 31, 2001, which eliminated the amortization of goodwill and intangible assets with indefinite useful lives, and changed the method of determining whether there is a goodwill or intangible assets impairment from an undiscounted cash flow method to an estimated fair market value method. As a result of the adoption of this standard, we incurred a non-cash transitional charge of $45.3 million, net of income tax benefit and an overall increase of $49.7 million as a non-cash charge to income tax expense to establish a valuation allowance against our deferred tax assets. The primary reasons for the net loss in the three-month transitional period ended December 30, 2001 were the overall weak advertising sector, the economic recession and the tragic events of September 11, 2001. The primary reasons for the net loss in the fiscal year ended September 30, 2001 were an extraordinary loss on the early extinguishment of our senior credit facility, net of income taxes, and a decline in same station operating results due generally to lower advertising demand. The

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      If we complete our pending acquisitions of KXOL-FM, WDEK-FM, WKIE-FM and WKIF-FM and/or acquire additional radio stations in the future, depending on the financing used to fund these acquisitions, interest expense may increase as well.

Importance of the New York and Miami markets — a large portion of our net broadcast revenue and broadcast cash flow currently comes from these markets.

      Our New York and Miami markets account for more than half of our revenue for the fiscal years ended September 24, 2000, September 30, 2001 and December 29, 2002. A significant decline in net broadcast revenue or broadcast cash flow from our stations in either of these markets could have a material adverse effect on our financial position and results of operations.

Dependence on key personnel — loss of key personnel could adversely affect our business.

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

Competition — we compete for advertising revenue with other radio groups as well as television and other media, many operators of which have greater resources than we do.

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

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

Risks of acquisition strategy — our growth depends on successfully executing our acquisition strategy.

      We have grown and intend to continue to grow by acquiring radio stations primarily in the largest U.S. Hispanic markets. We cannot assure you that our acquisition strategy will be successful. Our acquisition strategy is subject to a number of risks, including, but not limited to:

	•	acquired stations may not increase our broadcast cash flow or yield other anticipated benefits;
	•	required regulatory approvals may result in unanticipated delays in completing acquisitions;
	•	we may have difficulty managing our rapid growth;
	•	we may have difficulty programming newly acquired stations to attract listenership;
	•	we may be required to raise additional financing and our ability to do so is limited by the terms of our debt instruments and market conditions; and

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	•	we may finance acquisitions with the issuance of, or through sales of, our common stock in the public market which could adversely affect our stock price, due to dilution, and our ability to raise funds necessary to grow our business through additional stock offerings.

Controlling stockholder — Raúl Alarcón, Jr., Chairman of the Board of Directors, Chief Executive Officer and President, has majority voting control and this control may discourage or influence certain types of transactions, including an actual or potential change of control of SBS such as a merger or sale of SBS.

      Raúl Alarcón, Jr., our Chairman of the Board of Directors, Chief Executive Officer and President, owns shares of Class B common stock having approximately 83% of the combined voting power of our outstanding shares of common stock, as of the date of this annual report on Form 10-K. Accordingly, Mr. Alarcón, Jr. has the ability to elect all of our directors and can effectively control our policies and affairs. This control may discourage certain types of transactions involving an actual or potential change of control of SBS such as a merger or sale of SBS.

Technology changes, new services and evolving standards — we must be able to respond to rapidly changing technology, services and standards which characterize our industry in order to remain competitive.

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

	•	cable television operators offer a service commonly referred to as “cable radio” which provides cable television subscribers with several high-quality channels of music, news and other information;
	•	the Internet offers new and diverse forms of program distribution;
	•	direct satellite broadcast television companies are supplying subscribers with several high quality music channels;
	•	the introduction of satellite digital audio radio technology has resulted in new satellite radio services with sound quality equivalent to that of compact discs; and
	•	the introduction of in-band on-channel digital radio could provide multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services.

Government regulation — our business depends on maintaining our FCC licenses. We cannot assure you that we will be able to maintain these licenses.

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

      Our success depends in part on acquiring and maintaining broadcast licenses issued by the FCC, which are typically issued for a maximum term of eight years and are subject to renewal. While we believe that the FCC will approve applications for renewal of our existing broadcasting licenses when made, we cannot guarantee that pending or future renewal applications submitted by us will be approved, or that renewals will not include conditions or qualifications that could adversely affect our operations. Although we may apply to renew our FCC licenses, interested third parties may challenge our renewal applications. In addition, if we or any of our significant stockholders, officers, or directors violate the FCC’s rules and regulations or the Communications Act, or are convicted of a felony, the FCC may commence a proceeding to impose sanctions upon us. Examples of possible sanctions include the imposition of fines; the revocation of our broadcasting

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      The radio broadcasting industry is subject to extensive and changing federal regulation. Among other things, the Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments. The filing of petitions or complaints against us or any FCC licensee from which we acquire a station could result in the FCC delaying the grant of, or refusing to grant or imposing conditions on its consent to the assignment or transfer of licenses. The Communications Act and FCC rules also impose limitations on non-U.S. ownership and voting of our capital stock.

      Moreover, governmental regulations and policies may change over time and we cannot assure you that those changes would not have a material impact upon our business, financial position or results of operations.

Antitrust matters — we may face regulatory review for additional acquisitions in our existing markets and, potentially, new markets.

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

Market fluctuation — the market price of our shares of Class A common stock may fluctuate significantly.

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

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

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

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Shares of common stock eligible for current or future sale — current or future sales by existing stockholders could depress the market price of our Class A common stock.

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

      On February 8, 2002, pursuant to our amended asset purchase agreement for the purchase of the assets of radio station KXOL-FM, we granted to the International Church of the Foursquare Gospel (“ICFG”) a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. This warrant is exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. In addition, on March 31, 2003, and on the last day of each calendar month thereafter, we will issue to ICFG warrants exercisable for 100,000 shares of our Class A common stock at an exercise price equal to the closing price of our shares on the last trading day of such respective month, until the earlier to occur of (i) the closing under the amended asset purchase agreement or (ii) the termination of such agreement. These warrants will also be exercisable for a period of thirty-six months from the date of issuance after which they will expire if not exercised.

Independent directors — we have only two independent directors serving on our Audit Committee.

      We currently have only two independent directors serving on our Audit Committee due to the resignation of a director from the Audit Committee. Under current Nasdaq Stock Market rules, we are required to have three independent directors serving on the Audit Committee. If we are unable to appoint an additional independent director to serve on our Audit Committee, we may be at risk of having our securities delisted from the Nasdaq Stock Market’s National Market. We plan to nominate another independent director for election at our next annual meeting. However, there can be no assurance as to when we will be able to appoint a suitable independent director to our Board of Directors and Audit Committee.

Special Note Regarding Forward-Looking Statements

      This annual report on Form 10-K contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. 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.

Available Information

      You can find more information about us at our Internet website located at www.spanishbroadcasting.com. Our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.

      The types of properties required to support each of our radio stations include offices, broadcasting studios and transmission facilities where broadcasting transmitters and antenna equipment are located. We relocated our corporate headquarters to Coconut Grove, Florida on December 1, 2000, to a building indirectly owned by Raúl Alarcón, Jr., for which we have entered into a ten-year lease. The studios and offices of our Miami

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      We have backup transmitter facilities for our New York station WSKQ-FM in midtown Manhattan on the Four Times Square Building. We also have backup transmitter sites for KLAX-FM in Los Angeles, WLEY-FM in Chicago, and in San Juan, Puerto Rico for the five stations covering the San Juan metropolitan area. All of these sites are leased with the exception of the site in Puerto Rico.

      These backup transmitter facilities are a large part of our disaster recovery plan to continue broadcasting to the public and to maintain our stations’ revenue streams in the event of a significant emergency. We are also implementing plans for backup studio locations and alternate program origination points to maintain operations in the event of a studio-site outage or emergency.

      The studio and transmitter sites of our stations are important to our overall operations. Management believes that our properties are in good condition and are suitable for our operations; however, we continually analyze the need to upgrade our properties. We own substantially all of the equipment used in our business.

See “Item 1. Business — Environmental Matters” and “Item 13. Certain Relationships and Related Transactions.”

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

      On November 28, 2001, a complaint was filed against SBS in the United States District Court for the Southern District of New York and was amended on April 19, 2002. The amended complaint alleges that the named plaintiff, Mitchell Wolf, purchased shares of our Class A common stock pursuant to the October 27, 1999 prospectus and registration statement relating to our initial public offering which closed on November 2, 1999 (the “IPO”). The complaint was brought on behalf of Mr. Wolf and an alleged class of similarly situated purchasers, against SBS, eight underwriters and/or their successors-in-interest who led or otherwise participated in the IPO (collectively, the “Underwriters”), two members of our senior management team, one of whom is our Chairman of the Board of Directors, and an additional director (collectively, the “Individuals”). To date, the complaint, while served upon SBS, has not been served upon the Individuals, and no counsel has appeared for them.

      This case is one of more than 300 similar cases brought by similar counsel against more than 300 issuers, 40 underwriters and 1,000 individual defendants alleging, in general, violations of federal securities laws in connection with initial public offerings, in particular, failing to disclose that the underwriter defendants allegedly solicited and received additional, excessive and undisclosed commissions from certain investors in exchange for which they allocated to those investors material portions of the restricted shares issued in connection with each offering. All of these cases, including the one involving SBS, have been assigned for consolidated pretrial purposes to one judge of the United States District Court for the Southern District of New York. The issuer defendants in the consolidated case (“Issuer Defendants”) filed motions to dismiss the consolidated case. These motions to dismiss covered issues common among all Issuer Defendants in the consolidated cases. As a result of these motions, the Individuals were dismissed from one of the claims against them, specifically the Section 10b-5 claim.

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      The Issuer Defendants are in the process of making multiple motions as a follow-up to the initial motion to dismiss. They drafted a motion for reconsideration to the Court, listing the reasons why various categories of Issuer Defendants should have been dismissed from certain claims. If the motion succeeds, SBS will be dismissed from one count in the complaint, specifically, the Section 10b-5 claim, and the Individuals will be dismissed from another count in the complaint, a Section 20(a) claim. The Issuer Defendants plan to file the motion for reconsideration in the near future. In addition to the motion for reconsideration, the Issuer Defendants will file individual second round motions concerning procedural defects that warrant dismissing certain defendants from the case. SBS believes that the grounds applicable to it will be set forth in the general motion to reconsider. With respect to discovery, at this point plaintiffs have chosen to focus on the underwriter defendants, and have not made any formal requests for the production of documents from the Issuer Defendants. We believe that we would have a valid claim against the Underwriters for indemnification in the event that the plaintiffs were to be awarded damages as a result of this lawsuit.

      On June 14, 2001, an action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, by Julio Rumbaut against SBS, alleging that he was entitled to compensation for work performed for SBS and a commission for the pending purchase of a radio station by SBS. Mr. Rumbaut subsequently amended his theory of damages and claimed approximately $8.0 million in damages, plus attorneys’ fees and pre-judgment interest. On July 29, 2002, a final judgment was entered in favor of Mr. Rumbaut for a total of $1.5 million, but on August 29, 2002, the final judgment was amended to reflect an award of $1.2 million, consisting of compensation for executive services of $0.2 million and $1.0 million for the plaintiff’s contribution towards the pending purchase of a radio station. On October 11, 2002, we made a payment of $1.4 million into an escrow account for the final judgment and postjudgment interest, pending appeal. On October 23, 2002, the Court awarded Mr. Rumbaut prejudgment interest in the amount of $0.2 million. On January 10, 2003, the Court awarded Mr. Rumbaut $0.1 million in litigation costs and on January 21, 2003, awarded him $1.7 million for attorneys’ fees. On February 19, 2003, we made a payment of $2.0 million into an escrow account for the attorneys’ fees awarded and postjudgment interest. We have filed a notice of appeal and are considering additional legal options. After consulting with legal counsel, we believe that it is probable that the attorneys’ fees awarded will be reduced upon appeal and we estimate that we will pay $0.7 million of the $2.0 million in escrow. We have accrued for this judgment in the consolidated financial statements for the fiscal year ended December 29, 2002.

      On June 12, 2002, SBS filed a lawsuit in the United States District Court for the Southern District of Florida against Clear Channel Communications (“Clear Channel”) and Hispanic Broadcasting Corporation (“HBC”), and filed an amended complaint on July 31, 2002. The lawsuit asserts federal and state antitrust law violations and other state law claims and alleges that Clear Channel and HBC have adversely affected SBS’s ability to raise capital, depressed SBS’s share price, impugned SBS’s reputation, made station acquisitions more difficult, and interfered with SBS’s business opportunities and contractual arrangements. In the amended complaint, SBS sought actual damages in excess of $500.0 million, which are to be trebled under anti-trust law.

      Both defendants moved to dismiss the amended complaint, and on January 31, 2003, the Court granted defendants’ motions for failure to adequately allege antitrust injury and dismissed our federal court claims with prejudice and dismissed our state court claims for lack of federal court jurisdiction in light of the dismissal of the federal court claims. SBS has filed a motion for reconsideration of that opinion and has asked for leave to file a proposed second amended complaint, which contains additional economic analysis and factual detail based on the depositions of Clear Channel’s CEO and CFO and HBC’s CFO and document production in the action, and which seeks damages in an amount to be determined at trial. That motion has been fully briefed and is awaiting decision by the trial court.

See “Item 1. Business — Environmental Matters.”

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 29, 2002.

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PART II

      Our shares of Class A common stock were not registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, until October 27, 1999. Our Class A common stock is traded on the Nasdaq Stock Market’s National Market under the symbol “SBSA.” Our shares of Class A common stock began trading on the Nasdaq National Market on October 28, 1999. The tables below show, for the quarters indicated, the reported high and low bid quotes for our Class A common stock on the Nasdaq Stock Market’s National Market.

      As of March 17, 2003, there were approximately 63 beneficial holders of our Class A common stock, par value $.0001 per share. There is no established trading market for our Class B common stock, par value $.0001 per share. As of March 17, 2003, there were 7 record holders of our Class B common stock; this figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.

Dividend Policy

      We have not declared or paid any cash or stock dividends on shares of our common stock since 1998. We intend to retain future earnings for use in our business and do not anticipate declaring or paying any cash or stock dividends on shares of our common stock in the foreseeable future. In addition, any determination to declare and pay dividends will be made by our Board of Directors in light of our earnings, financial position, capital requirements and other factors that our Board of Directors deems relevant. Furthermore, the indentures governing our 9 5/8% senior subordinated notes due 2009 contain restrictions on our ability to pay dividends.

Recent Sales of Unregistered Securities

      On February 8, 2002, we issued to the International Church of the FourSquare Gospel (“ICFG”) a warrant exercisable for an aggregate of 2,000,000 shares of our Class A common stock at an exercise price of $10.50 per share. We made this issuance as part of the consideration for the extension of the deadline for closing our purchase of radio station KXOL-FM under our asset purchase agreement with ICFG. This warrant will be exercisable for a period of thirty-six months from the date of issuance after which it will expire if not exercised. To date, this warrant has not been exercised. We assigned the warrant a fair market value of approximately $8.9 million based on the Black-Scholes option pricing model in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” The fair market value of this warrant was recorded as an increase to intangible assets and additional paid-in capital on the date of grant. We relied on Section 4(2)

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      On November 10, 2000, we issued an aggregate of 4,441,545 shares of our Class A common stock to New World Broadcasters Corp., the shareholders of Rodriguez Communications, Inc. (“RCI”), and to certain individuals as part of the purchase price for radio station KTCY–FM and all the outstanding capital stock of RCI (which owned and operated radio stations KXJO-FM (currently KPTI-FM), KFOX-FM (currently KZAB-FM), KREA-FM (currently KZBA-FM) and KSAH-AM). We relied on Section 4(2) of the Securities Act of 1933, as amended, to claim exemption from registration for this issuance, as a transaction not involving any public offering.

Equity Compensation Plan Information

      See “Item 12. Security Ownership of Certain Beneficial Owners and Management — Equity Compensation Plan Information.”

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Item 6.     Selected Financial Data

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

      The following table sets forth the historical financial information of our business. The selected historical consolidated financial information presented below under the caption “Statement of Operations Data” and “Balance Sheet Data,” as of and for each of the fiscal years in the four-year period ended September 30, 2001, the three-month transitional period ended December 30, 2001 and the fiscal year ended December 29, 2002 are derived from our historical consolidated financial statements, which have been audited by KPMG LLP, independent certified public accountants. Our selected historical consolidated financial data should be read in conjunction with our historical consolidated financial statements as of December 30, 2001 and December 29, 2002, and for each of the fiscal years in the two-year period ended September 30, 2001, the three-month transitional period ended December 30, 2001, and for the fiscal year ended December 29, 2002, the related notes and the independent auditors’ report included elsewhere in this report. For additional information see the financials section of this report and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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